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web.groovymark@gmail.com
- December 7, 2024
Question 21
What is the result of a price ceiling being set above the equilibrium price?
a) It creates a surplus
b) It creates a shortage
c) It has no effect
d) It increases demand
Answer: c) It has no effect
Explanation: A price ceiling set above the equilibrium price has no impact because the market price is already below the ceiling, so the market functions as usual.
Question 22
What is a recession?
a) A period of high inflation
b) A period of declining GDP and rising unemployment
c) A period of increased economic growth
d) A period of deflation
Answer: b) A period of declining GDP and rising unemployment
Explanation: A recession is characterized by a significant decline in economic activity, marked by falling GDP and rising unemployment over a sustained period.
Question 23
What happens when aggregate demand increases faster than aggregate supply?
a) Prices remain stable
b) Inflation occurs
c) Unemployment rises
d) Government spending decreases
Answer: b) Inflation occurs
Explanation: When aggregate demand outpaces aggregate supply, it puts upward pressure on prices, leading to inflation as consumers compete for limited goods and services.
Question 24
How do supply and demand determine equilibrium price?
a) By government intervention in markets
b) Through the interaction of buyers and sellers
c) By businesses setting prices
d) By consumer preferences alone
Answer: b) Through the interaction of buyers and sellers
Explanation: The equilibrium price is determined by the point where the quantity of a good demanded by consumers equals the quantity supplied by producers.
Question 25
What is the definition of economic growth?
a) A decrease in the inflation rate
b) A sustained increase in real GDP
c) An increase in the unemployment rate
d) A reduction in consumer spending
Answer: b) A sustained increase in real GDP
Explanation: Economic growth refers to a long-term rise in real GDP, indicating an increase in the economy's overall production of goods and services.
Question 26
What is a market economy?
a) An economy where the government makes all production decisions
b) An economy where production and prices are determined by the interaction of supply and demand
c) An economy that relies solely on barter
d) An economy that limits trade to local markets only
Answer: b) An economy where production and prices are determined by the interaction of supply and demand
Explanation: In a market economy, production and pricing decisions are made through the free interaction of supply and demand, with minimal government interference.
Question 27
What causes a movement along the demand curve?
a) A change in consumer preferences
b) A change in price
c) A change in population
d) A change in income
Answer: b) A change in price
Explanation: A movement along the demand curve occurs when the price of a good or service changes, while all other factors affecting demand remain constant.
Question 28
What happens to the supply of a product if the cost of production decreases?
a) The supply curve shifts to the right
b) The supply curve shifts to the left
c) The supply curve remains unchanged
d) The quantity supplied decreases
Answer: a) The supply curve shifts to the right
Explanation: If production costs decrease, firms can produce more at every price level, leading to an increase in supply and a rightward shift of the supply curve.
Question 29
What is the crowding out effect?
a) When private investment increases due to government borrowing
b) When government borrowing leads to higher interest rates, reducing private investment
c) When government subsidies reduce tax revenue
d) When inflation crowds out consumer purchasing power
Answer: b) When government borrowing leads to higher interest rates, reducing private investment
Explanation: The crowding out effect occurs when government borrowing increases interest rates, which can discourage private investment.
Question 30
What is real GDP?
a) The value of all goods and services produced, adjusted for inflation
b) The total amount of money in an economy
c) The GDP of a country measured in foreign currency
d) The total value of imports and exports
Answer: a) The value of all goods and services produced, adjusted for inflation
Explanation: Real GDP adjusts for inflation to measure the value of goods and services produced in constant prices, providing a more accurate picture of economic growth.
Question 31
What is a business cycle?
a) The total value of imports and exports over a period of time
b) The fluctuation of economic activity over time, including expansions and contractions
c) The process of firms entering and exiting a market
d) The relationship between price and quantity supplied
Answer: b) The fluctuation of economic activity over time, including expansions and contractions
Explanation: The business cycle refers to the ups and downs in economic activity, marked by periods of expansion (growth) and contraction (recession).
Question 32
What are open market operations?
a) Government subsidies for foreign trade
b) The buying and selling of government bonds by the Federal Reserve
c) The establishment of free trade agreements
d) Tax policies set by the government
Answer: b) The buying and selling of government bonds by the Federal Reserve
Explanation: Open market operations are one of the Federal Reserve's key tools for managing the money supply, where they buy or sell government bonds to influence interest rates and liquidity.
Question 33
What is inflation?
a) A decrease in the general price level of goods and services
b) An increase in the general price level of goods and services
c) An increase in the supply of goods and services
d) A decrease in consumer confidence
Answer: b) An increase in the general price level of goods and services
Explanation: Inflation refers to the general rise in prices across the economy, which reduces the purchasing power of money.
Question 34
What is cyclical unemployment?
a) Unemployment that results from technological changes
b) Unemployment caused by changes in consumer preferences
c) Unemployment due to economic downturns or recessions
d) Unemployment that occurs as people move between jobs
Answer: c) Unemployment due to economic downturns or recessions
Explanation: Cyclical unemployment occurs when there is insufficient demand for goods and services in the economy, often resulting from a recession.
Question 35
What is the primary purpose of a price ceiling?
a) To ensure that producers can charge higher prices
b) To prevent prices from rising above a certain level
c) To reduce consumer demand for a product
d) To increase the supply of goods
Answer: b) To prevent prices from rising above a certain level
Explanation: A price ceiling is a government-imposed limit on how high a price can be charged for a product, usually to protect consumers from excessively high prices.
Question 36
What does the term “comparative advantage” refer to in international trade?
a) The ability of a country to produce goods more efficiently than any other country
b) The ability of a country to produce a good at a lower opportunity cost than another country
c) The ability of a country to control the market price for a good
d) The ability of a country to restrict imports and exports
Answer: b) The ability of a country to produce a good at a lower opportunity cost than another country
Explanation: Comparative advantage allows countries to specialize in the production of goods where they have a lower opportunity cost, leading to gains from trade.
Question 37
What happens when the government increases the discount rate?
a) Banks borrow more from the Federal Reserve
b) Banks borrow less from the Federal Reserve
c) Inflation increases
d) Aggregate demand increases
Answer: b) Banks borrow less from the Federal Reserve
Explanation: A higher discount rate makes borrowing more expensive for banks, which discourages them from taking loans from the Federal Reserve.
Question 38
What are transfer payments?
a) Payments made to foreign governments
b) Payments made to individuals or firms in return for goods or services
c) Payments made by the government to individuals, without goods or services being exchanged
d) Payments made by companies to shareholders
Answer: c) Payments made by the government to individuals, without goods or services being exchanged
Explanation: Transfer payments, such as welfare benefits and Social Security, are payments made by the government to individuals without requiring any goods or services in return.
Question 39
What does the Phillips curve illustrate?
a) The relationship between inflation and unemployment
b) The relationship between price and quantity supplied
c) The relationship between GDP and government spending
d) The relationship between interest rates and investment
Answer: a) The relationship between inflation and unemployment
Explanation: The Phillips curve shows the inverse relationship between inflation and unemployment, indicating that as one rises, the other tends to fall.
Question 40
What is the main goal of expansionary fiscal policy?
a) To decrease government spending
b) To reduce inflation
c) To increase aggregate demand and stimulate economic growth
d) To lower interest rates
Answer: c) To increase aggregate demand and stimulate economic growth
Explanation: Expansionary fiscal policy, such as increasing government spending or cutting taxes, aims to boost aggregate demand and promote economic growth.
