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web.groovymark@gmail.com
- December 7, 2024
Question 01
What is the result of an increase in the money supply?
a) Decrease in aggregate demand
b) Increase in aggregate demand
c) Increase in taxes
d) Decrease in investment
Answer: b) Increase in aggregate demand
Explanation: An increase in the money supply typically lowers interest rates, encouraging borrowing and spending, which in turn increases aggregate demand.
Question 02
What is a protective tariff?
a) A tax on goods to protect domestic industries
b) A subsidy for exporting goods
c) A tax on imports to reduce government revenue
d) A tax on luxury goods
Answer: a) A tax on goods to protect domestic industries
Explanation: Protective tariffs are designed to make imported goods more expensive, thus encouraging consumers to buy domestically produced goods.
Question 03
How does a reduction in interest rates affect borrowing?
a) It decreases borrowing
b) It increases borrowing
c) It stabilizes borrowing
d) It has no effect on borrowing
Answer: b) It increases borrowing
Explanation: Lower interest rates reduce the cost of borrowing, making loans more attractive for businesses and consumers, leading to an increase in borrowing.
Question 04
What is the primary function of the Federal Reserve?
a) Regulate international trade
b) Control inflation and stabilize the currency
c) Set tax policy
d) Manage government budgets
Answer: b) Control inflation and stabilize the currency
Explanation: The Federal Reserve's main role is to manage the money supply and implement policies to control inflation, stabilize prices, and maintain a healthy economy.
Question 05
What does a decrease in aggregate supply lead to?
a) Increased output
b) Higher prices and lower output
c) Lower prices and higher output
d) No change in output
Answer: b) Higher prices and lower output
Explanation: A decrease in aggregate supply leads to cost-push inflation, where rising production costs result in higher prices and reduced output.
Question 06
What is the definition of nominal GDP?
a) GDP adjusted for inflation
b) GDP measured in current prices
c) GDP calculated by subtracting imports from exports
d) GDP measured at constant prices
Answer: b) GDP measured in current prices
Explanation: Nominal GDP measures the value of all goods and services produced in an economy using current prices, without adjusting for inflation.
Question 07
What is the opportunity cost of a decision?
a) The financial gain from the decision
b) The benefit of the next best alternative that is forgone
c) The cost of producing an additional unit
d) The total expenditure on a project
Answer: b) The benefit of the next best alternative that is forgone
Explanation: Opportunity cost refers to the value of the next best alternative that is given up when making a choice.
Question 08
What does a decrease in taxes generally lead to?
a) A decrease in aggregate demand
b) An increase in aggregate demand
c) An increase in the unemployment rate
d) A decrease in government spending
Answer: b) An increase in aggregate demand
Explanation: Lower taxes increase disposable income, which encourages more spending, leading to higher aggregate demand.
Question 09
What is the role of an entrepreneur in a market economy?
a) To minimize government interference in the market
b) To take risks and create new products or services
c) To control monetary policy
d) To set wage levels for workers
Answer: b) To take risks and create new products or services
Explanation: Entrepreneurs are individuals who take risks to start businesses and innovate, contributing to economic growth by creating new products and services.
Question 10
How do monopolies affect market prices?
a) They stabilize prices at equilibrium
b) They raise prices above competitive levels
c) They lower prices to attract more consumers
d) They have no effect on prices
Answer: b) They raise prices above competitive levels
Explanation: Monopolies have market power, allowing them to restrict output and raise prices above what would occur in a competitive market.
Question 11
What is a specific tariff?
a) A tax based on the value of imported goods
b) A tax that applies to only luxury items
c) A tax imposed as a fixed amount per unit of imported goods
d) A tax on services
Answer: c) A tax imposed as a fixed amount per unit of imported goods
Explanation: A specific tariff is a fixed fee that is charged on each unit of an imported good, regardless of its value.
Question 12
What does a price floor result in when set above the equilibrium price?
a) A shortage
b) A surplus
c) An increase in demand
d) A decrease in supply
Answer: b) A surplus
Explanation: When a price floor is set above the equilibrium price, it leads to a surplus because the quantity supplied exceeds the quantity demanded at the higher price.
Question 13
What is fiscal policy?
a) Government policy regarding the money supply
b) Government decisions on taxes and spending to influence the economy
c) Policies that regulate international trade
d) The regulation of stock markets
Answer: b) Government decisions on taxes and spending to influence the economy
Explanation: Fiscal policy refers to government actions involving taxation and spending to influence the economy's overall level of demand and activity.
Question 14
What is the natural rate of unemployment?
a) The rate of unemployment at the peak of the business cycle
b) The lowest possible unemployment rate
c) The unemployment rate when the economy is at full employment
d) The unemployment rate during a recession
Answer: c) The unemployment rate when the economy is at full employment
Explanation: The natural rate of unemployment is the level of unemployment that exists when the economy is producing at its potential output, including frictional and structural unemployment.
Question 15
What happens when there is excess demand in a market?
a) Prices decrease
b) Prices increase
c) Prices remain constant
d) Supply decreases
Answer: b) Prices increase
Explanation: When there is excess demand, consumers compete for the limited quantity of goods, driving prices upward.
Question 16
How does a subsidy affect the supply curve?
a) It shifts the supply curve to the left
b) It shifts the supply curve to the right
c) It causes movement along the supply curve
d) It has no effect on the supply curve
Answer: b) It shifts the supply curve to the right
Explanation: A subsidy reduces production costs, enabling producers to supply more goods at each price level, shifting the supply curve to the right.
Question 17
What is the law of diminishing returns?
a) Output increases at a constant rate as more inputs are added
b) Output increases at a decreasing rate as more inputs are added
c) Output decreases as more inputs are added
d) Output remains unchanged as inputs are added
Answer: b) Output increases at a decreasing rate as more inputs are added
Explanation: The law of diminishing returns states that after a certain point, adding more inputs (like labor or capital) results in progressively smaller increases in output.
Question 18
What is the primary goal of contractionary fiscal policy?
a) To increase government spending
b) To reduce inflation
c) To reduce unemployment
d) To increase consumer spending
Answer: b) To reduce inflation
Explanation: Contractionary fiscal policy, such as decreasing government spending or increasing taxes, aims to reduce aggregate demand and curb inflation.
Question 19
What is the difference between microeconomics and macroeconomics?
a) Microeconomics focuses on individual markets; macroeconomics focuses on the economy as a whole
b) Microeconomics focuses on international trade; macroeconomics focuses on domestic policy
c) Microeconomics studies inflation; macroeconomics studies interest rates
d) Microeconomics studies governments; macroeconomics studies businesses
Answer: a) Microeconomics focuses on individual markets; macroeconomics focuses on the economy as a whole
Explanation: Microeconomics examines the behavior of individuals and firms in specific markets, while macroeconomics looks at broader economic factors such as GDP, unemployment, and inflation.
Question 20
What is the effect of an increase in consumer confidence on aggregate demand?
a) Decreases aggregate demand
b) Increases aggregate demand
c) Stabilizes aggregate demand
d) No effect on aggregate demand
Answer: b) Increases aggregate demand
Explanation: Higher consumer confidence leads to increased spending, which raises aggregate demand as consumers are more willing to purchase goods and services.
