1.True or False? Investment contributes to economic growth.

2.The bulk of aggregate demand in the United States consists of __________.

Select one:

a.consumption.

b.investment.

c.government spending.

d.net exports.

3.Comparative advantage in production of a good occurs __________.

a.when a country can produce that good using fewer resources than could other countries.

b.when a country can produce that good at a greater opportunity cost than could other countries.

c.when a country can produce that good at a lower opportunity cost than could other countries.

d.when a country has a greater supply of natural resources required to produce that good, compared to other countries.

4.Economics is a __________.

a.social science that deals with making choices among alternatives.

b.natural science that concerns itself with allocating relatively scarce resources among alternative ends.

c.science that has no theories or models based on the scientific method.

d.humanities course that mainly concerns itself with limited wants versus unlimited resources.

5.In the 1960s, despite the successful application of expansionary fiscal policy in the United States, Milton Friedman argued that __________.

a.Keynesian supply-side policies were more effective at stimulating aggregate demand than expansionary fiscal policies.

b.aggregate demand is affected by money and not by fiscal policy, and therefore only monetary policy should not be used to move the economy back to its potential output.

c.aggregate demand is affected by money and not by fiscal policy, which is why policymakers should institute a policy of steady money growth and allow the economy to reach full employment through a process of self-correction.

d.fiscal policy must be combined with monetary policy to move the economy back to its potential output, without increasing inflationary pressure.

6.Which of the following is classified as spending on investment?

I. new residential construction

II. business spending on new equipment

III. business spending on structures such as office buildings

IV. purchase of government bonds

a.II and III only

b.II, III, and IV only

c.I, II, and III only

d.I, II, III, and IV

7.An increase in the U.S. dollar exchange rate means foreigners must pay __________

a.more for dollars and more for U.S. exports.

b.less for dollars and more for U.S. imports.

c.more for dollars and less for U.S. exports.

d.less for dollars and less for U.S. exports.

8.Historical actions indicate that the Fed's primary goal of monetary policy over the past 20 years has been to __________

a.maintain high interest rates.

b.keep employment rates low.

c.limit the availability of consumer credit.

d.prevent high rates of inflation.

9.GDP measures the value of final goods and services. Consider a pizza parlor that buys flour to make pizzas. Which of the following statements is true?

Select one:

a.The value of the pizza and the flour used to make the pizza are counted as part of GDP.

b.Only the value of the pizza is counted in GDP to avoid double counting.

c.Only the value of the flour used to make the pizza is counted in GDP to avoid double counting.

d.Only the difference between the value of the pizza and the value of the flour is counted in GDP.

10.Which of the following statements istrue?

a.According to the World Bank, in 2005 about 1.4 billion people, about a quarter of the population of developing countries was poor, defined as living on less than $1.25 a day, the international poverty line.

b.According to the World Bank, between 1980 and 2005, the number of people living below the international poverty line, defined as living on less than $1.25 a day, has decreased significantly.

c.According to the World Bank, poverty reduction in sub-Saharan Africa has been phenomenal over the last 25 years.

d.According to the World Bank, the majority of the world's poor are in the Indian sub-continent and in China.