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This test consists of 15 multiple choice questions and 5 short answer questions.

Multiple Choice Questions

1. Government interferes with the price system by:
(a) restraints on international trade
(b) action fixing
(c) ignoring it
(d) tariffs

2. A change in prices affects all but the following:
(a) nothing
(b) procedures income
(c) wages
(d) incentrive to act on information

3. Which bank failure precipitated the banking crisis of 1930?
(a) The Bank of the United States
(b) Knickerbocker Trust
(c) Chase
(d) Bank of England

4. The national security argument for protection states that:
(a) protection is not in the best national interest
(b) protection promotes national welfare
(c) all industries should be protected
(d) industries vital to national defense should be given protection

5. Prices function to transmit information to all but:
(a) sellers
(b) no one in particular
(c) manufacturerr
(d) buyers

6. A deposit represents:
(a) a loan to the individual
(b) a claim against the bank
(c) a liability of the individual
(d) money stuffed in a mattress

7. What functions as the central bank for the United States?
(a) the Bank of England
(b) the Bank of the United States
(c) Chase Bank
(d) the Federal Reserve System

8. A coordinated restriction of payments by banks is used:
(a) intensify a run on banks
(b) meet the public's demands for currency
(c) to stop a run on banks
(d) faster a monetary expansion

9. The command elements of every economy include things like:
(a) forbidding the purchase and sales of heroin
(b) court orders
(c) prices
(d) military conscription

10. Regarding the depression, Roosevelt's adviser's believed in:
(a) no intervention in the economy
(b) aggressive intervention by government
(c) a balanced budget
(d) waiting for the economy to heal itself

11. The infant industry argument for protection says a:
(a) no industries should receive protection
(b) only certain industries should receive protection
(c) all new industries should be given protection
(d) new industry should be given protection until it matures and can compete on its own

12. What is the cause of the failure of many welfare programs?
(a) design and implementation flaws
(b) lack of interest by the government
(c) lack of recipients
(d) lack of interest by the public

13. What action did the Fed take after England abandoned the gold standard?
(a) raised the discount rate
(b) began hoarding gold
(c) lowered the discount rate
(d) suspended open market operations

14. Governments intervene in foreign currency markets:
(a) by buying and selling domenstic and foreign currency
(b) by increasing imports
(c) by refusing to release currency to the market
(d) by increasing exports

15. The Principle of Comparative Advantage states that a nation should specialize in:
(a) all goods
(b) can get the highest price for
(c) has the most of
(d) the production of goods in which it is relatively more efficient than the other nation

Short Answer Questions

1. Which New Deal programs were declared unconstitutional?

2. Which of the following is not a function of the price system:

3. The price system functions in such a way that each individual acting in his own best interests, makes everyone better off. This concept is known as the:

4. The higher price of pencils results in all but the following:

5. Equality before God means:

(see the answer keys)

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