Question 1 (Multiple Choice Worth 5 points)

Use this image to answer the following question. When the economy is operating at point C, the U.S. Congress is most likely to follow

expansionary fiscal policy

contractionary fiscal policy

expansionary monetary policy

contractionary monetary policy

Question 2 (Multiple Choice Worth 5 points)

[04.02 MC] Public Domain During a cold winter, there is a natural-gas shortage. The government sets a price ceiling on natural gas so that people can continue to afford heating. If the price ceiling remains in effect, what will happen?

Quantity demanded will exceed the quantity supplied.

Quantity demanded will equal the quantity supplied.

Quantity demanded and supplied will reach price equilibrium.

Quantity demanded will be lower than the quantity supplied.

Question 3 (Multiple Choice Worth 5 points)

[04.05 HC] The country of Lilliput has low unemployment and high consumer spending, and small businesses are thriving. However, prices are starting to rise throughout the economy. What should Lilliput's government do to prevent inflation from happening?

Lower the income tax, which gives citizens less money to spend, and buy services from civilian-owned businesses, which creates more jobs.

Lower the income tax, which gives citizens more money to spend, and buy more services from civilian-owned businesses, which creates more jobs.

Raise the income tax, which gives citizens less money to spend, and stop buying services from civilian-owned businesses, which eliminates jobs.

Raise the income tax, which gives citizens less money to spend, and buy more services from civilian-owned businesses, which creates more jobs.

Question 4 (Multiple Choice Worth 5 points)

[04.01 MC] The inflation rate is increasing and unemployment is decreasing. The economy is likely in

contraction

expansion

a peak

a trough

Question 5 (Multiple Choice Worth 5 points)

[04.04 MC] Buying securities in open market operations may promote economic growth because

the U.S. Congress guarantees the value of government securities

the U.S. Congress allows the securities to be used for business expansion

this action increases banks' cash, allowing for more loans and investment

this action decreases banks' cash, preventing risky investment behavior

Question 6 (Multiple Choice Worth 5 points)

[04.02 MC] Why do governments regulate natural monopolies?

To allow only certain consumers to have access to goods and services

To have access to the resources when national security is at risk

To prevent prices from rising too high and to increase efficiency

To prevent single suppliers from continuing to dominate a market

Question 7 (Multiple Choice Worth 5 points)

[04.02 HC]

© 2013 FLVS

In the 2000s, Venezuelan President Hugo Chàvez instituted economic policies that caused smuggling and hoarding of food. What did Chàvez do to create this behavior, and which zone (represented by a letter) on the graph represents the result?

Chàvez set a price floor (letter A), which resulted quantity supplied exceeding quantity demanded for food.

Chàvez set a price ceiling (letter B), which resulted in an increase in supply and demand for food.

Chàvez set a price ceiling (letter C), which resulted in quantity demanded exceeding quantity supplied for food.

Chàvez set a price floor (letter D), which resulted in a decrease in the supply and demand for food.

Question 8 (Multiple Choice Worth 5 points)

[04.02 MC]

© 2013 FLVS

In the diagram above, what will happen if the government sets the minimum wage at Point B?

There will be a shortage of workers.

There will be a surplus of workers.

The minimum wage will rise to meet equilibrium.

The minimum wage will fall to meet equilibrium.

Question 9 (Multiple Choice Worth 5 points)

[04.05 MC] Which of these could result from decreased federal spending?

Advances in the space program

Fewer social programs

Increased national debt

More government regulation

Question 10 (Multiple Choice Worth 5 points)

[04.05 MC] The government increases taxes. What might be a reason for this change in fiscal policy?

A deficit due to improving nationwide public transportation

A deficit due to more monies flowing in from investors

A surplus due to greater amounts of income from exports

A surplus due to more government spending on building roads

Question 11 (Multiple Choice Worth 5 points)

[04.05 LC] The accumulation of years of spending more money than is collected in revenues over several years creates a budget

debt

deficit

surplus

reversal

Question 12 (Multiple Choice Worth 5 points)

[04.03 MC] Credit unions and other depository institutions differ from member banks of the Federal Reserve mainly in that they

are exempt from federal oversight

are not subject to regulation

do not have stock in Federal Reserve Banks

serve a nationwide consumer base

Question 13 (Multiple Choice Worth 5 points)

[04.02 LC] Which is an example of a natural monopoly?

A company that enters the market and requires new infrastructure

A group of companies that own all the sources of production

A milk product that is produced by multiple companies

A single source for electricity in your community

Question 14 (Multiple Choice Worth 5 points)

[04.02 MC]

© 2013 FLVS

In the diagram above, what will happen if the government sets the price for potatoes at point A?

There will be a shortage of potatoes.

There will be a surplus of potatoes.

The price of potatoes will rise to meet equilibrium.

The price of potatoes will fall to meet equilibrium.

Question 15 (Multiple Choice Worth 5 points)

[04.03 LC] Which of the following is a function of the Federal Reserve System Board of Governors?

Holds stock in the Federal Reserve Bank

Communicates with government leaders

Supervises regional bank operations

Provides service to banks and the U.S. Treasury

Question 16 (Multiple Choice Worth 5 points)

[04.05 MC] How does the U.S. government slow economic growth?

By decreasing taxes and decreasing spending

By decreasing taxes and increasing spending

By increasing taxes and decreasing spending

By increasing taxes and increasing spending

Question 17 (Multiple Choice Worth 5 points)

[04.03 MC] Federal Reserve Banks directly affect the national economy by

administering consumer protection laws

increasing and decreasing the money supply

providing oversight and services for financial institutions

raising and lowering interest rates

Question 18 (Multiple Choice Worth 5 points)

[04.01 MC] Which of the following circumstances usually comes before a period of economic contraction?

Decreasing inflation

High unemployment

Low GDP

Peak production

Question 19 (Multiple Choice Worth 5 points)

[04.02 MC] Which of these is the result of a government-regulated natural monopoly?

Fewer pricing plans and options for the consumer

Greater number of service interruptions

Multiple installations of gas, water, and electric lines

Unfairly high prices due to lack of competition

Question 20 (Essay Worth 5 points)

[04.04 MC] Explain how the Federal Reserve may use the discount rate and the reserve requirement to increase the money supply. What impact should these actions have on employment and why?

yes

pur-new-sol

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