$$\text{Unemployment Rate} = \frac{\text{Number of Unemployed}}{\text{Labor Force}} \times 100$$

Question 1

Which of the following is NOT one of the three main features of capitalism as described in the study materials?

Accepted Answer

Government ownership of all resources

Question 2

According to John Maynard Keynes, what is the primary way governments can manage aggregate demand during a recession?

Accepted Answer

By increasing government spending and/or cutting taxes

Question 3

If the government wants to reduce inflation, which combination of policies would be most effective according to the study materials?

Accepted Answer

Raising taxes and reducing government spending

Question 4

Which of the following best describes a progressive income tax?

Accepted Answer

Higher earners pay a higher percentage of their income in taxes

Question 5

Suppose the Federal Reserve wants to stimulate the economy during a recession. According to the study materials, what action should it take?

Accepted Answer

Lower interest rates

Question 6

Which of the following is a key measure of economic performance, as mentioned in the study materials?

Accepted Answer

Gross Domestic Product (GDP)

Question 7

A budget surplus occurs when:

Accepted Answer

Government revenue exceeds government spending

Question 8

Which of the following best explains why bond ratings are important for state governments like Texas?

Accepted Answer

High bond ratings allow states to borrow at lower interest rates

Question 9

If aggregate demand increases due to tax cuts and increased government spending, what is the likely short-term effect on GDP and unemployment?

Accepted Answer

GDP increases and unemployment decreases

Question 10

Which of the following equations correctly represents the calculation of the unemployment rate?

Accepted Answer

$$	ext{Unemployment Rate} = \frac{	ext{Number of Unemployed}}{	ext{Labor Force}} 	imes 100$$

Question 11

During the COVID-19 pandemic in 2020, which type of economic shock primarily affected supply?

Accepted Answer

A negative supply shock

Question 12

Which amendment to the U.S. Constitution made the federal income tax possible?

Accepted Answer

16th Amendment

Question 13

If the Federal Reserve raises interest rates, what is the most likely effect on borrowing and aggregate demand?

Accepted Answer

Borrowing decreases and aggregate demand decreases

Question 14

Which of the following best describes the payroll tax?

Accepted Answer

A tax paid on wages earned by employees and employers

Question 15

Suppose Texas wants to increase its revenue without raising income taxes. According to the study materials, which tax is it most likely to rely on?

Accepted Answer

Sales tax

Question 16

Which of the following is a likely consequence of a government running a persistent budget deficit?

Accepted Answer

An increase in the national debt

Question 17

Which of the following best describes the main purpose of regulation in the economy?

Accepted Answer

To prevent harmful outcomes

Question 18

If the Consumer Price Index (CPI) increases by 3% in a year, what does this indicate?

Accepted Answer

The average price level of consumer goods and services has increased by 3%

Question 19

Which of the following equations correctly represents the calculation of GDP using the expenditure approach?

Accepted Answer

$$GDP = C + I + G + (X - M)$$

Question 20

Which of the following best explains why high bond ratings are beneficial for state governments?

Accepted Answer

They allow states to borrow at lower interest rates, reducing the cost of financing public projects

Microeconomics Study Guide: Key Concepts in Markets, Government Policy, and Economic Indicators

Study Guide - Practice Questions