7-11 sample test questions

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1 Name: Class: _ Date: _ ID: A 7-11 sample test questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Why does a perfectly competitive market require many participants as both buyers and sellers? a. because merchandise must be uniform b. so no individual can control the price c. so buyers and sellers have the same information d. to maintain quality over the goods 2. Why are there relatively few markets in which there is perfect competition? a. Lack of demand keeps buyers away. b. High prices keep companies in the market too long. c. Barriers keep companies from entering. d. Buyers will not pay more for perfect competition. 3. Why does a perfectly competitive market require many buyers and sellers? a. because products must be uniform b. so no individual can control the price c. so buyers and sellers are both informed d. to maintain quality over the goods 4. Milk is considered a commodity because it is which of the following? a. bought in many different ways b. an inexpensive product c. the same no matter who sells it d. an agricultural product 5. Why is perfect competition among businesses rare? a. Most businesses are small. b. Most businesses produce commodities. c. Most businesses face barriers to entry. d. Most businesses require government control. 6. Which of the following is true of sole proprietorships? a. They have only one employee. b. They are owned and managed by an individual. c. They must have a business license. d. They don t pay fringe benefits to employees. 7. What major advantage does a partnership have over a sole proprietorship? a. The responsibility for the business is shared. b. The business is easy to start up. c. The partners are not responsible for the business debts. d. The business is easy to sell. 1

2 Name: ID: A 8. A major advantage of a franchise is that a. the parent company has strict operating standards. b. the franchisee can launch new product lines. c. the parent company provides guidance on running the business. d. the franchisee can choose their own suppliers. 9. What does the limited liability of the owners of stock in a corporation mean? a. The corporation is not responsible for the private debts of the owners of stock. b. The managers hired by the corporation are not responsible for its debts. c. The stockholders of a corporation can lose only the money they have invested in it. d. The corporation can raise money by selling more shares of stock. 10. Which of the following statements is true about mergers? a. In a horizontal merger, the firms are involved in different stages of producing the same good or service. b. In a vertical merger, the firms are involved in different stages of producing the same good or service. c. In a horizontal merger, the firms compete in different markets with the same good or service. d. In a vertical merger, the firms compete in the same market, but with a different good or service. 11. What is the largest sector of today s labor force? a. agricultural b. manufacturing/construction c. service d. healthcare 12. What is the main reason some jobs pay higher wages than other jobs? a. Union members earn more than nonunion members. b. Some people are willing to work for less money. c. Some companies choose to pay better wages. d. The supply and demand is different for different jobs. 13. Which type of money has no value of its own but is valuable because it can be exchanged for something else of value? a. fiat b. representative c. commodity d. specie 14. What is one reason the First Bank of the United States was established? a. The government needed a way to pay its Civil War debts. b. The money system was confusing because every state had its own currency. c. Alexander Hamilton believed that the state banks were too large and powerful. d. The national government wanted to own all the states gold and silver. 2

3 Name: ID: A 15. What is a credit union? a. a bank that takes deposits but does not make loans b. a bank that specializes in retirement savings accounts c. a type of savings and loan that makes housing loans d. a cooperative lending institution for a particular group 16. What is fractional reserve banking? a. Only some deposits must be paid on demand. b. Banks lend only some of their money as mortgages. c. People transfer money and pay bills electronically. d. Banks keep some money on hand and lend out the rest. 17. The main purpose of the FDIC is to make sure that a. commercial and investment banks do not fail. b. customers do not lose money if a bank fails. c. banks charge a fair amount of interest on loans. d. the government has enough gold to cover its expenses. 18. Why is a certificate of deposit considered such a safe investment? a. It is issued by a savings bank. b. It is guaranteed by the federal government. c. It pays a relatively high rate of interest. d. It offers a high degree of liquidity. 19. How does the risk of a money market mutual fund compare with that of a savings account? a. A money market mutual fund has less risk than a savings account. b. A money market mutual fund has slightly greater risk than a savings account. c. A money market mutual fund has much greater risk than a savings account. d. The risk of both is about the same. 20. What does the New York Stock Exchange do? a. arranges stock and bond trading on the Internet only b. arranges stock but not bond trading c. arranges stock and bond trading of top U.S. and world companies d. arranges blue chip stocks trading only 21. What kind of assets are traded using futures contracts? a. stocks b. bonds c. commodities d. real estate Main Ideas Directions: Write the letter of the correct answer. 22. Savers and borrowers are linked through financial institutions when a. both savers and borrowers invest in the same markets. b. savers deposit money that is used to loan money to borrowers. c. the financial institutions offer the same rate of exchange to each. d. borrowers take money from financial institutions to invest with savers. 3

4 7-11 sample test questions Answer Section MULTIPLE CHOICE 1. ANS: B Perfect competition requires prices to be efficiently set by supply and demand. Without enough participants, a buyer or seller can manipulate supply or demand to increase profits. PTS: 3 DIF: L3 REF: A.159 OBJ: Describe the four conditions that are in place in a perfectly competitive market. TOP: Market Structures Conditions for Perfect Competition 2. ANS: C Most markets have significant barriers to entry. PTS: 3 DIF: L3 REF: A.160 OBJ: List two common barriers that prevent firms from entering a market. TOP: Market Structures Barriers to Entry 3. ANS: B Perfect competition requires prices to be set by supply and demand. Without enough participants, a buyer or seller can control supply or demand to increase profits. PTS: 3 DIF: L2 REF: B.147 OBJ: Describe the four conditions that are in place in a perfectly competitive market. TOP: Market Structures Conditions for Perfect Competition 4. ANS: C Milk is a commodity because it is the same no matter who sells it. PTS: 3 DIF: L2 REF: B.147 OBJ: Describe the four conditions that are in place in a perfectly competitive market. TOP: Market Structures Commodity 5. ANS: C Most markets have significant barriers to entry. PTS: 3 DIF: L2 REF: B.147 OBJ: List two common barriers that prevent firms from entering a market. TOP: Market Structures Barriers to Entry 6. ANS: B Sole proprietorships are owned and managed by a single individual. PTS: 3 DIF: L3 REF: A.191 OBJ: Explain the characteristics of sole proprietorships. TOP: Business Organizations Sole Proprietorship 1

5 7. ANS: A In partnerships, partners share responsibility for the business. PTS: 3 DIF: L3 REF: A.197 A.199 OBJ: Analyze the advantages of partnerships. TOP: Business Organizations Partnerships 8. ANS: C The guidance that the franchiser provides can help the franchisee succeed at the business. PTS: 3 DIF: L3 REF: A.201 OBJ: Explain how a business franchise operates. TOP: Business Organizations Franchise 9. ANS: C Owners of company stock can lose the amount of their investment but no more. PTS: 3 DIF: L3 REF: A.205 OBJ: Analyze the advantages of incorporation. NAT: 10.2 TOP: Business Organizations Limited Liability of Corporate Owners 10. ANS: B Vertical mergers involve companies producing different stages of the same good or service. PTS: 3 DIF: L3 REF: A.207 OBJ: Compare and contrast corporate combinations. TOP: Business Organizations Horizontal and Vertical Mergers 11. ANS: C The largest labor sector today is the service sector. This sector includes people who work in restaurants, stores, and hotels. It also includes everyone who works in the entertainment, education, healthcare, and financial services industries. PTS: 3 DIF: L2 REF: B.202 OBJ: Analyze past and present occupational trends. TOP: Labor Sectors 12. ANS: D Some jobs pay more than other jobs because the demand for certain kinds of workers is higher than the supply of those workers. A job that requires a highly valued skill or talent will pay more than a job that anyone can do. PTS: 3 DIF: L2 REF: B.211 OBJ: Analyze how supply and demand in the labor market affects wage levels. NAT: 13.2 STA: TOP: Labor Wages 13. ANS: B Representative money can be exchanged for something else of value, such as gold or silver. PTS: 3 DIF: L2 REF: B.236 OBJ: Analyze the sources of moneyæs value. TOP: Money Representative Money 2

6 14. ANS: B The First Bank of the United States was established to bring order to the nation s confusing banking system. For example, every state had a different form of currency. PTS: 3 DIF: L2 REF: B.239 OBJ: Describe the shifts between centralized and decentralized banking before the Civil War. TOP: Money and Banking First Bank of the United States 15. ANS: D A credit union is a cooperative that provides banking services to a specific group. PTS: 3 DIF: L3 REF: A.270 OBJ: Identify different types of financial institutions. TOP: Money and Banking Credit Union 16. ANS: D In fractional reserve banking, banks keep a fraction of their funds on hand and lend out the rest to their customers. PTS: 3 DIF: L2 REF: B.246 OBJ: Describe the functions of financial institutions. TOP: Money and Banking Fractional Reserve Banking 17. ANS: B The Federal Deposit Insurance Corporation (FDIC) offers insurance on bank accounts up to $250,000 to make sure customers do not lose too much money if their bank fails. PTS: 3 DIF: L3 REF: A.261 OBJ: Describe developments in banking in the early 1900s. TOP: Money and Banking FDIC 18. ANS: B Like savings accounts, certificates of deposit are insured by the FDIC. PTS: 3 DIF: L3 REF: A.283 OBJ: Identify the trade-offs among liquidity, return, and risk. STA: TOP: Financial Markets Liquidity and Risk Certificates of Deposit 19. ANS: B Money market mutual funds are not covered by FDIC insurance, and are therefore slightly riskier than savingns accounts, which are covered. PTS: 3 DIF: L3 REF: A.289 OBJ: Describe the characteristics of other types of financial assets. TOP: Financial Markets Risk of CDs and Money Market Mutual Funds 20. ANS: C The NYSE handles stock and bond transactions for many of the top companies in the United States and the world. PTS: 3 DIF: L2 REF: B.272 OBJ: Describe how stocks are traded. TOP: Financial Markets New York Stock Exchange 3

7 21. ANS: C Futures contracts are used to trade commodities. PTS: 3 DIF: L2 REF: B.272 OBJ: Describe how stocks are traded. TOP: Financial Markets Futures 22. ANS: B Savers deposit money into financial institutions such as banks, life insurance companies, mutual funds, pension funds, and finance companies. These financial institutions use that money to make loans to borrowers. PTS: 3 DIF: L3 REF: A.279 OBJ: Explain how the financial system brings together savers and borrowers. NAT: 4.1 TOP: Financial Markets Financial Intermediaries 4

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