The National Economy – Grade 12

 

1.   In the United States, which of the following forms of taxation currently

represents the largest source of tax revenue for the federal government?

A.     Property tax

B.     Sales tax

C.     Corporate income tax

D.     Personal income tax

 

Key

 D

2.   Which of the following is a policy tool of the Federal Reserve?

A.     Raising or lowering income taxes

B.     Increasing or decreasing unemployment benefits

C.     Buying or selling government securities

D.     Increasing or decreasing government spending

 

Key

 C

3.   How will an increase in real interest rates affect the amount of money that people

will borrow? Explain why this will occur.

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Scoring Guide

 

Score & Description

Correct

Student (A) states that people will borrow less and (B) provides a correct explanation for why (a rise in real interest rates makes it more expensive for people to borrow).

Partially Correct

Student states that either (A) people will borrow less OR (B) a rise in real interest rates makes it more expensive for people to borrow. NOTE: If response has incorrect effect, it will NOT receive credit for the explanation.

Incorrect

Response is wholly incorrect.

 

4.   An increase in the rate of inflation will result in a  decrease in which of the following?

A.     Federal and state income taxes

B.     The purchasing power of money

C.     The level of prices

D.     Interest rates

 

Key

 B

5.   Describe two economic factors that help explain why one country may produce

more goods and services per capita than another country does.

1)

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2)

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Scoring Guide

 

Score & Description

Correct

The student’s response includes reference to two of the factors listed below.

Partially Correct

The student’s response includes reference to only one of the factors listed below.

Incorrect

No appropriate response.

 

Acceptable factors

A. Natural resources (land, oil, raw materials, other specific examples)

B. Higher-quality natural resources

C. Capital resources (more factories, tools

D. Higher-quality capital resources

E. Human capital (more-skilled workforce, better-educated workforce, better-trained workforce, healthier workforce, better workforce)

F. Higher employment rate (percentage of population in the workforce increases) less unemployment

G. Better technology (more-productive factories, better tools, industrial development, more research and development.)

H. Entrepreneurs: One country may have more entrepreneurs than the other.

 

 

 

6.   Which of the following best describes the primary role of an economic system?

A.     To respond to market failure

B.     To address equity concerns to improve fairness

C.     To determine the allocation of limited resources

D.     To protect domestic producers from foreign competition

 

Key

 C

7.   What is most likely to happen when consumers increase their purchases of goods

and services?

A.     Businesses will increase production, and workers will receive more income.

B.     Businesses will increase production, and workers will receive less income.

C.     Businesses will decrease production, and workers will receive more income.

D.     Businesses will decrease production, and workers will receive less income.

 

Key

 A

8.   An entrepreneur is considering spending money on research to develop a more

efficient way to produce a product. What is the most important factor in the

decision on whether or not to spend this money?

A.     The size of the plant needed to produce the product

B.     The number of competitors producing a similar product

C.     The increase in profit expected from producing the product

D.     The degree to which consumers consider the product a necessity

 

Key

 C

 

 

9.   Given the conditions presented in the headline above, what is likely to happen to

spending in the economy? Explain your answer.

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What is the relationship between spending and output in this situation?

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What is likely to happen to real gross domestic product as a result of the

relationship between spending and output?

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Scoring Guide

 

Score & Description

Superior

The response states the following information: (A) Spending would decrease because income is falling; (B) Because spending is decreasing businesses will cut output; and (C) This relationship will lead to a reduction in real gross domestic product.

Satisfactory

Response answers two of three parts.

Minimal

Response answers one of three parts.

Incorrect

Response is incorrect.

 

10.    Which of the following fiscal policy combinations would a government most likely

follow to stimulate economic activity when the economy is in a severe recession?

A.     Increasing both taxes and spending

B.     Increasing taxes and decreasing spending

C.     Decreasing taxes and increasing spending

D.     Decreasing both taxes and spending

 

Key

 C

11.    Jennifer receives a 2 percent increase in wages this year. The inflation rate

is 4 percent. Which of the following is most likely to happen to Jennifer’s

financial situation?

A.     She will have more income to spend and greater purchasing power.

B.     She will have more income to spend and less purchasing power.

C.     Her cost of living and her purchasing power will decrease.

D.     Her cost of living and her purchasing power will increase.

 

Key

 B

12.    Which of the following actions does the United States federal government

commonly take to finance a budget deficit?

A.     Printing more money

B.     Imposing import quotas

C.     Borrowing from the public

D.     Expanding public-works projects

 

Key

 C

13.    The most basic measure of the money supply in the United States consists of

which of the following?

A.     Gold certificates, silver certificates, and precious metals

B.     Treasury bills, Treasury notes, and Treasury bonds

C.     Credit card accounts, charge accounts, and savings accounts

D.     Checking account deposits, paper currency, and coins

 

Key

 D

14.    Which of the following is true of people with poor credit histories?

A.     They will earn higher rates of interest on savings accounts than people with

good credit histories.

B.     They will earn lower rates of interest on savings accounts than people with

good credit histories.

C.     They will be charged higher rates of interest on loans than people with good

credit histories.

D.     They will be charged lower rates of interest on loans than people with good

credit histories.

 

Key

 C

15.    Which of the following groups would most likely be hurt financially by

unexpected inflation?

A.     People who are borrowing money at fixed rates of interest

B.     Purchasers of land who are speculating on price increases

C.     Retirees who are living on a fixed income

D.     Workers with a cost-of-living adjustment clause in their contracts

 

Key

 C

16.    Which of the following is the best measure for comparing the material standard

of living among people in different nations?

A.     Imports and exports per capita

B.     Real gross domestic product per capita

C.     Consumer price index

D.     Real interest rates

 

Key

 B

17.    Suppose that the federal government initially has a balanced budget. Which of the

following changes in government tax revenues and expenditures over time will

definitely lead to an increase in the national debt?

 

 

 

Tax Revenue

 

 

Expenditures

 

 

 

 

 

A.     

 

Increase

 

 

No change

 

 

 

B.     

 

Increase

 

 

Decrease

 

 

 

C.     

 

Decrease

 

 

Increase

 

 

 

D.     

 

No change

 

 

Decrease

 

 

 

 

Key

 C

18.    James borrows $10,000 from the bank. By the time the loan is repaid, James has

paid the bank $10,400. What does the additional $400 represent?

A.     Inflation rate

B.     Purchasing power of money

C.     Interest

D.     Investment

 

Key

 C

19.    How do federal income taxes and transfer payments, such as unemployment

compensation, affect the distribution of personal income in the United States

after taxes and transfers?

A.     Federal income taxes make the distribution of income more equal, but

transfers make it less equal.

B.     Federal income taxes make the distribution of income less equal, but

transfers make it more equal.

C.     Both federal income taxes and transfers make the distribution of income

less equal.

D.     Both federal income taxes and transfers make the distribution of income

more equal.

 

Key

 D

INFLATION RATE DATA

         Year of                      Inflation

        Contract                        Rate

 

               1                             2.0%

              2                             4.0%

 

 

 

 

 

 

20.    Mr. Ricardo’s labor union negotiated a two-year contract that included an annual

wage increase of 3 percent. Given the inflation data in the chart above, answer

the following questions.

How did Mr. Ricardo’s real income change during the first year of the contract?

Explain your answer.

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How did Mr. Ricardo’s real income change during the second year of the contract?

Explain your answer.

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Scoring Guide

 

Score & Description

Correct

The student correctly identifies what happened to Mr. Ricardo’s real wage

in the two periods with correct explanations for both periods. The

response states that Mr. Ricardo’s real wage increased during the first year

because his wage grew more than inflation and that his real wage

decreased during the second year because his nominal wage increased less

than the rate of inflation.

Partially Correct

The student states that Mr. Ricardo’s real income increased during the first

year because the wage increase was greater than inflation.

OR

The student states that Mr. Ricardo’s real income decreased during the

second year because inflation exceeded his wage increase.

OR

The student states that real income increased during the first year

OR

decreased during the second year, with or without a correct explanation.

Incorrect

The student provides a completely incorrect answer.

 

21.    Barter requires that each of two parties want the good or service that the other

party is offering. Which of the following reduces the need for barter?

A.     Money

B.     Insurance

C.     Employment

D.     Manufacturing

 

Key

 A