Proctor Book with Answer Key

END OF COURSE ASSESSMENT
Idaho Department of Education
PROCTOR BOOK
Economics

Published by the Idaho Department of Education
Fall 2002
Dr. Marilyn Howard
State Superintendent of Public Instruction

Instructions for the Proctor
Introduction
The purpose of this test is to assess the knowledge and understanding of students who
have completed the 12 th grade course of study in economics. This test is designed to measure the
following standards from the Idaho State Achievement Standards for Social Studies -
Economics: 489.01, 510.01, 511.01, 512.01, 513.01, 514.01. The results of this test will be used
to assess the student’s mastery of the achievement standards and determine the student’s
readiness for further study. The complete assessment package for this course of study is made
up of multiple components:
♦ Written Test. This written test includes multiple-choice test items and restrictedresponse
essays. The correct answers are shown in red. An answer key for essay
questions is at the end of this guide.
Preparation
During the Test
1. Read the following. After all materials have been distributed to each examinee, read
the following instructions before the test is allowed to begin:
The purpose of this test is to assess your knowledge and understanding of the
terms and concepts of Economics. You must finish the exam by the end of the exam
period. Except for emergencies, you will not be allowed to leave the testing area with
the intent of returning to complete the exam.
Read all directions for each set of items as you complete this exam. Your grade
will be computed using the number of items answered correctly. Therefore, you
should record an answer for every item. You must do your own work. Cheating will
result in a score of 0 being recorded for this exam.
When you have finished your exam, please turn all test materials in to me before
you leave the testing area.
2. Clarify directions as needed. Allow the examinees to begin as soon as practical.
Allow as much time as possible for each examinee to complete the test.
3. Keep interruptions to a minimum.
4. Avoid giving hints. An examinee may ask to have specific test items clarified.
Avoid the tendency to provide a hint to the answer. To maintain uniformity of test
administration, any assistance provided to one examinee should be repeated for all.
These interruptions should be kept brief and infrequent.
i

Percentage / Cut Scores
The test developers have recommended the following percentages to determine student
proficiency in scoring correct answers for Economics:
• 87% - 100% = Advanced Proficient
• 70% - 86.9% = Proficient
• 60% - 69.9% = Basic
• Below 59.9% = Below Basic
Questions regarding the administration of this end-of-course exam can be directed to:
Dr. Carolyn Mauer, Bureau of Curriculum and Accountability or
Dr. Dan Prinzing, Social Studies Coordinator
Idaho Department of Education
ii

End of Course Exam
Economics
Introduction: The purpose of this examination is to assess your knowledge and understanding
of the terms and concepts of economics. You must finish this exam by the end of the
exam period. Except for emergencies, you will not be allowed to leave the testing area
with the intent of returning to complete the exam.
Read all directions for each set of items as you complete this exam. Your grade will be
computed using the number of items answered correctly. Therefore, you should record
an answer for every item. You must do your own work. Cheating will result in a score
of 0 being recorded for this exam.
Directions: For items 1—69, select the best answer from the alternatives provided.
1. A financial arrangement allowing purchase and use now and payment later
a. Budget
b. Credit
c. Rebate
d. Garnishment
2. Someone who combines land, labor, and capital resources in a creative way, assuming
risk in return for a chance to profit, is a/an
a. employee.
b. worker.
c. consumer.
d. entrepreneur.
3. The various quantities of a good which producers are willing and able to offer for sale at
a given time at different possible prices is
a. a shift in supply.
b. supply.
c. elasticity of supply.
d. a change in quantity supplied.
4. This states that at higher prices consumers generally buy small quantities, and at lower
prices consumers tend to buy larger quantities.
a. Law of demand
b. Law of supply
c. Law of increasing costs
d. Law of diminishing returns
1

5. The degree to which a price change of a good alters the quantity purchased of that good is
a. diminishing marginal utility.
b. a change in demand.
c. the price elasticity of supply.
d. the price elasticity of demand.
6. An increase or decrease in quantities producers offer for sale at each and every price as a
result of a change in an input cost is a
a. diminishing marginal utility.
b. change in quantity demanded.
c. shift or change in supply.
d. shift or change in demand.
7. The condition occurring in a market when the price is above the equilibrium or marketclearing
price is
a. voluntary exchange.
b. a shortage.
c. scarcity.
d. a surplus.
8. A type of economic system in which the questions of what to produce, how much to
produce, how to produce, and who will get the products, is answered by individuals
consumers and producers is a
a. market economy.
b. traditional economy.
c. command economy.
d. mixed economy.
9. In the world of trade this is enjoyed by the producers who are able to produce an item at a
lower opportunity cost than their competitors is
a. dumping.
b. a trade barrier.
c. a comparative advantage.
d. trade imbalance.
2

10. A form of business organization which furnishes limited liability for owners, unlimited
life for the firm, and the ability to raise large amounts of money capital is a
a. sole proprietorship.
b. corporation.
c. partnership.
d. limited-liability company.
11. A type of investment which confers ownership to the investors, and a chance to profit via
dividends and capital gains is a/an
a. U.S. treasury security.
b. certificate of deposit.
c. corporate bond.
d. common stock.
12. The monetary policy tool of the Fed which involves buying or selling U.S. treasury
securities is
a. the discount rate.
b. the reserve requirement.
c. open-market operations.
d. automatic stabilizers .
13. What does the law of demand predict about the relationship between prices and the
number of purchases?
a. At higher prices, sellers will offer more items for sale than at lower prices.
b. At higher prices, buyers will purchase more items than at lower prices
c. At lower prices buyers will purchase more items than at higher prices.
d. At lower prices sellers will offer more items than at higher prices.
14. A change in quantity demanded is caused by and represented graphically as a
a. change in price of item of interest; shift of curve to right.
b. change in price of item of interest; movement along the curve.
c. change in price of item of interest; shift of curve the left.
d. no change in price of item of interest; movement along the curve.
15. The likely result of a price floor (i.e. minimum wage) is which of the following?
a. A shortage of workers
b. No change in the equilibrium quantity of workers
c. The quantity demanded would be equal to the quantity supplied of workers
d. A surplus of workers
3

16. Which of the following is the basic reason for countries to engage in international trade?
a. Benefit to one trading country
b. Mutual benefit from exchange
c. Benefit to neither trading country
d. Government regulation
17. Engaging in international trade results in which of the following?
a. More efficient use of scarce global resources
b. Less efficient use of scarce global resources
c. No change in efficiency of global resource use
d. Total satisfaction of all parties involved
18. The economic system of the United States is best described as
a. Mixed
b. Traditional
c. Market
d. Command
19. Which of the following is an important advantage of a sole proprietorship?
a. Lack of money capital
b. Psychological (being own boss)
c. Unlimited liability
d. Limited life
20. Which of the following is an important disadvantage of a corporation?
a. Unlimited life
b. Limited life
c. Ability to raise money capital
d. High cost of start-up
21. The stock market in general may be defined as which of the following?
a. An organized means of linking savers and business investors.
b. A convenient way to lose money
c. A government owned enterprise
d. The cause of the great depression
4

22. How does the stock market in general assist the global economy?
a. Sets interest rates
b. Widens the gap between developed and undeveloped countries
c. Allows money capital to travel where it is most needed
d. Discourages diplomatic relationships among countries
23. Basic monetary policy deals with which of the following?
a. Changing tax laws
b. Changing the amount of money circulating in the economy
c. Changing government spending
d. Placing tariffs on imports
24. If the Federal Reserve (Fed) wishes to increase the supply of money circulating in our
economy, it would do which of the following?
a. Sell U.S. government securities
b. Increase the discount rate
c. Increase the reserve requirements
d. Buy U.S. government securities.
25. An amount of money offered by a credit user to reduce the initial amount borrowed on a
loan is called a/an
a. line of credit.
b. finance charge.
c. down payment.
d. APR.
26. A credit card is a form of
a. revolving credit.
b. single payment credit.
c. installment credit.
d. debit card.
27. The figure required by law to appear on all loan forms is the
a. credit record.
b. compound interest.
c. annual percentage rate.
d. credit history.
5

28. A method of interest calculation that uses the principal plus accrued unpaid interest as the
basis for calculating interest in the current time period is known as
a. compound interest.
b. annual percentage rate.
c. simple interest.
d. security interest.
29. A financial institution which is non-profit and whose customers are members is called a
a. commercial bank.
b. credit union.
c. savings and loan association.
d. finance company.
30. Jim was involved in an automobile accident and his car was damaged. The repair bills
totaled $2,000. Jim has insurance for the car with a $250 deductible. How much of the
total repair bill will Jim have to pay?
a. $2,250
b. $2,000
c. $500
d. $250
31. An investment option which furnishes the investor diversification, professional
management and a variety of goal choices is known as a
a. certificate of deposit.
b. preferred stock.
c. mutual funds.
d. common stock.
32. A form or type of tax characterized by a lower tax rate for lower incomes and a higher tax
rate for higher incomes is called a/an
a. regressive tax.
b. revenue tax.
c. progressive tax.
d. excise tax.
33. Initially labor unions were organized to do all of the following except:
a. improve safety and working conditions.
b. increase wages and benefits.
c. decrease taxes.
d. promote job security.
6

34. Jane bought a dress for the homecoming dance. When she got home she found a flaw in
the fabric and became distressed. Jane should
a. contact her attorney.
b. find someone who can correct the problem.
c. take the dress back to the merchant.
d. write a letter of complaint to the manufacturer.
35. In order to establish a credit history a consumer must
a. attend courses in the history of credit.
b. use credit over a period of time to show payment activity.
c. apply for credit history at a local savings and loan.
d. all of the above.
36. Credit card companies make money from all of the following EXCEPT
a. interest paid by credit card holders.
b. fees paid by stores.
c. taxes paid on purchase of goods.
d. annual fees paid by credit card holders.
37. When considering a bank with which to do business,
a. consider services offered and costs involved.
b. be sure the bank is conveniently located with adequate hours.
c. check for their FDIC credentials.
d. all of the above.
38. Todd borrows $500 for one year at 15% simple interest. How much interest is paid
monthly?
a. $43.5l
b. $8.65
c. $75.00
d. $6.25
39. Sue’s disposable income is $1,100 per month before she takes out a new car loan for
$10,000, with a monthly payment of $300. What is Sue’s disposable income after she
borrows for the new car?
a. $300
b. $800
c. $1,100
d. $11,100
7

40. The cost of borrowing money is paid by consumers as
a. taxes.
b. principal.
c. product costs.
d. interest.
41. What roll has the Federal Deposit Insurance Corporation played in banking services?
a. Required federal testing for all bank employees
b. Established federal statutes for bank vault construction
c. Provided safety of principal from loss up to $l00,000 per account
d. Allowed safe deposit records to remain anonymous
42. What are the three types of withholdings taken from the typical wage earners paycheck?
a. Federal taxes, state taxes, FICA
b. Federal taxes, county taxes, FICA
c. Federal taxes, state taxes, county taxes
d. County taxes, state taxes, FICA
43. Whose purchasing power declines most in times of inflation?
a. Borrowers
b. People on fixed incomes
c. Government
d. People with part-time jobs
44. Consumers who borrow money must generally accept which of the following
consequences?
a. Lower living standard
b. Higher total cost for the item purchased
c. Inconvenience in purchasing goods
d. Greater ability to save on income tax
45. Consumers who abuse credit and end up taking out a consolidation loan may generally
end up paying
a. less interest.
b. equal interest.
c. no interest.
d. more interest.
8

46. What is the universal economic problem that forces all of us to make choices in a world
of limited resources and unlimited wants?
a. Marginal cost
b. Allocation
c. Scarcity
d. Trade-offs
47. When we give up one thing to gain another, it is called the
a. opportunity cost.
b. marginal cost.
c. marginal benefit.
d. production-possibilities frontier.
48. The additional or extra expense of producing one more item is called
a. marginal cost.
b. opportunity cost.
c. explicit costs.
d. variable cost.
49. The essential ingredients or requirements needed to produce any product or service are
referred to as
a. macroeconomics.
b. microeconomics.
c. basic economic questions.
d. factors of production.
50. An economic model or tool which shows visually the output potential given a limited
amount of resources and a given technological condition is a
a. demand curve.
b. circular flow chart.
c. budget line.
d. production possibilities frontier.
51. The branch of economics which deals with issues, policies, and wants relating to an
individual or a business firm is
a. macroeconomics.
b. microeconomics.
c. international economics.
d. supply-side economics.
9

52. Money serves which the following purposes or functions?
a. medium of exchange.
b. standard or measure of value.
c. store of value.
d. all of the above.
53. Relating to the human economic condition, which of the following is virtually limitless?
a. Money
b. Needs
c. Wants
d. Goods
54. That portion of the economy made up of individuals, businesses, and non-government
entities is the
a. public sector.
b. private sector.
c. Federal Reserve.
d. Internal Revenue Service.
55. The basic economic problem is
a. poverty.
b. scarcity.
c. unemployment.
d. inflation.
56. The opportunity cost of doing your homework rather than going to the basketball game is
a. watching the game.
b. unimportant since money is not involved.
c. nothing since homework is more important.
d. having your homework completed.
57. Which of the following is a characteristic of an entrepreneur?
a. Not necessary in the production process.
b. Protected from loss by producing only profitable output.
c. Anyone who is part of the production process.
d. A risk taker who combines the other factors of production.
10

58. In a market economy the questions of what, how and for whom to produce are answered
by
a. traditions and customs.
b. a central planning agency.
c. individuals primarily, producers secondarily.
d. producers only.
59. In a command economy the questions of what, how, and for whom to produce are
answered by
a. traditions and customs.
b. a central planning agency.
c. individuals.
d. producers.
60. The incentive(s) to produce in a market economy is/are
a. quotas.
b. government forecasts.
c. profit.
d. altruism.
61. The process of choosing which of our needs and wants will be satisfied and how much of
our resources will be used to satisfy them is called
a. opportunity cost.
b. capitalism.
c. scarcity.
d. allocation.
62. If prices increase by 10% during a period when wages increase by 5%, what function of
money is primarily being affected?
a. Store of value
b. Deflation
c. Medium of exchange
d. Inflation
63. When some European countries agreed to replace their money with the Euro, what
function of money was primarily being affected?
a. Store of value
b. Measurement of value
c. Medium of exchange
d. Inflation
11

64. The public sector is best suited to deal with externalities because it
a. has power to make and enforce laws.
b. creates the externalities.
c. has money to pay for damages.
d. represents all of the people.
65. One problem associated with public goods is
a. improving private sector efficiency.
b. they cost more than private goods.
c. free riders.
d. having too many public goods when taxes decline.
66. Which of the following statements represents a function of the public sector?
a. Defines and enforces property rights
b. Redistributes income
c. Promotes competition
d. All of the above
Items 67—69 refer to the following sketch: Mary wants to start a business making shirts, she
will put her own logo on them and sell them for twice what it costs her to make them.
Mary has purchased some cotton fabric and owns a sewing matching.
67. The sewing machine represents which factor of production?
a. Land
b. Labor
c. Capital
d. Entrepreneurship
68. The cotton fabric represents which factor of production?
a. Land
b. Labor
c. Capital
d. Entrepreneurship
69. When Mary hires an employee, the employee would represent which factor of
production?
a. land
b. labor
c. capital
d. entrepreneurship
12

Directions: Complete each of the following Activities. Record your answers in the appropriate
space on the written response sheet provided.
70. Given the following market scenario illustrated by the supply/demand graph below, do
the following:
a. Explain whether the market condition created is a surplus or a shortage.
b. Calculate how large (the quantity) that surplus or shortage will be.
c. Explain in a free market whether price will tend to rise or fall. Why will price adjust?
$Bushel
Wheat
$8
$7
D
S
$6
$5
Price floor (e.g. farm subsidy or
minimum wage)
$4
$3
$2
$1
1 2 3 4 5 6 7 8
(Bushels 000)
13

End of Course Exam Answer Key
Economics
Test Item
Number
70. a. Surplus
Correct Answer
70. b. 6–3=3
70. c. Price will tend to fall to rid the market of the surplus.
14