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Practice Test Answers

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1
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The graph demonstrates that changes in investment

A
can show if the economy is growing or shrinking.
B
occur only when the economy is shrinking.
C
occur only when the economy is growing.
D
have no relation to changes to the GDP.
2
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Which statement most accurately describes the trends shown on this graph?

A
GDP and unemployment rise at times of world crises.
B
When GDP rises, unemployment rises as well.
C
When GDP falls, unemployment rises.
D
GDP and unemployment have little to do with each other.
3

This graph could help the US government

A
make an economic prediction.
B
allocate natural resources.
C
limit production nationwide.
D
address a shortage emergency.
4

How do economists use data? Choose two correct answers.

A
to explain trends in production and shipping
B
to ship goods to countries all over the world
C
to follow and predict unemployment rates
D
to apply automation to reduce production costs
E
to communicate with customers instantly
5

An economy that balances government intervention with free enterprise is known as a

A
mixed market.
B
commission.
C
monopoly.
D
regulatory agency.
6

Which describes an example of the economic system known as free enterprise?

A
People are free to shop for the best price on products because there is open competition.
B
People are free to shop around for products, but manufacturers dictate what is available.
C
Government regulations ensure that everyone has the freedom to shop for the best deals.
D
Government oversight of business gives people freedom to shop for the best deals.
7

What part does interest play in deficit spending?

A
Interest is not a factor when a government’s budget is in deficit.
B
Citizens must pay interest when their governments borrow money.
C
Governments may charge foreign countries interest when they borrow money.
D
Governments must pay interest on money they borrow when they take on debt.
8

Which best describes a regressive tax?

A
a tax that charges low-income earners a lower percentage than high-income earners
B
a tax that charges earners based on their professions
C
a tax that charges an equal percentage to all
D
a tax that charges high-income earners a lower percentage than low-income earners
9

Does a depression always follow a recession?

A
No, the economy could decline quickly and bypass recession.
B
Yes, for recovery to occur, the trough must be reached.
C
Yes, the trough is always considered a depression.
D
No, a depression is indicated when the recession is exceptionally long.
10

Read the paragraph. Government officials in Country M have determined that they need to take action to encourage the growth of their economy. To do this, they have introduced an incentive policy that offers citizens free education. This is extended to all individuals who sign a contract agreeing to work within their specific industry for the next ten years. Country M hopes to encourage economic growth by investing in

A
education to reduce unemployment and increase production.
B
new technologies to produce goods that are in great demand.
C
resources that can be traded with other nations.
D
research to develop goods that can be sold on a global scale.
11

Which is an example of how a denomination is divisible?

A
Five American dollars may be worth less next year.
B
Three American dollars may buy a small snack.
C
An American dollar is equal to four quarters.
D
An American dollar may equal one-half of one Euro.
12

Which best describes the circular flow model?

A
The model represents the changing relationships between actors.
B
The model represents the movement of money throughout the economy.
C
The model represents the flow of goods and services between sectors.
D
The model represents the interactions within sectors.
13

Which best describes a difference between the views of Milton Friedman and John Maynard Keynes on the economy?

A
Friedman said that fiscal policy should be used to influence aggregate demand, while Keynes believed the best approach was monetary policy.
B
Friedman said that monetary policy should be used to influence aggregate demand, while Keynes believed the best approach was fiscal policy.
C
Keynes believed the economy was too complicated to think of aggregates, while Friedman said higher aggregate demand could solve issues.
D
Keynes believed in little government intervention in the economy, while Friedman said government should play an active role.
14

Expansionary spending takes place when a government makes the decision to

A
raise taxes to run a budget surplus.
B
put a freeze on the number of its employees.
C
raise spending to stimulate the economy.
D
raise taxes to balance its budget.
15

How do bank loans help the nation’s economy?

A
They ensure consumer spending and confidence.
B
They allow consumers to quickly pay off debts.
C
They allow businesses to expand and improve.
D
They ensure the success of new businesses.
16

How do consumers’ feelings about the economy help contribute to growth?

A
Positive consumer attitudes inspire increased production.
B
Positive consumer attitudes influence spending habits.
C
Positive consumer attitudes increase job prospects.
D
Positive consumer attitudes can end a depression.
17

Which best describes why governments collect taxes?

A
to keep the government running
B
to fund government programs
C
to ensure surplus funds
D
to control the value of currency
19

Which best describes why investing can be such a challenge?

A
There are no guaranteed investments.
B
All investments are totally unpredictable.
C
There is never a sure way to protect investments.
D
All investments involve major risks.

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