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web.groovymark@gmail.com
- December 7, 2024
Question 21
What happens to the value of money during inflation?
a) It increases
b) It remains constant
c) It decreases
d) It becomes more valuable over time
Answer: c) It decreases
Explanation: Inflation reduces the purchasing power of money, meaning the same amount of money buys fewer goods and services over time.
Question 22
What is the function of a bond?
a) To represent ownership in a company
b) To provide a fixed income for the bondholder in exchange for lending money
c) To offer variable returns based on market performance
d) To serve as a form of equity investment
Answer: b) To provide a fixed income for the bondholder in exchange for lending money
Explanation: Bonds are debt instruments where investors lend money to entities (governments or corporations) in exchange for periodic interest payments and repayment of principal at maturity.
Question 23
What does fiscal policy primarily involve?
a) Managing the money supply
b) Adjusting interest rates
c) Government spending and taxation decisions
d) Regulating private enterprises
Answer: c) Government spending and taxation decisions
Explanation: Fiscal policy uses government spending and taxation to influence the economy, aiming to control inflation, stimulate growth, or reduce unemployment.
Question 24
What does the law of supply state?
a) As price increases, quantity supplied decreases
b) As price decreases, quantity supplied increases
c) As price increases, quantity supplied increases
d) Price has no impact on the quantity supplied
Answer: c) As price increases, quantity supplied increases
Explanation: The law of supply shows a direct relationship between price and quantity supplied—firms are willing to supply more at higher prices and less at lower prices.
Question 25
What is the purpose of a price index like the Consumer Price Index (CPI)?
a) To track changes in income levels over time
b) To track changes in the price level of a basket of goods and services over time
c) To measure the total GDP of a country
d) To calculate changes in government spending
Answer: b) To track changes in the price level of a basket of goods and services over time
Explanation: The CPI measures inflation by tracking how the prices of a selected basket of consumer goods and services change over time.
Question 26
What is the substitution effect?
a) When consumers switch to cheaper alternatives as prices rise
b) When producers substitute cheaper inputs to reduce costs
c) When consumers buy more as their income rises
d) When prices drop and consumers buy more of the same product
Answer: a) When consumers switch to cheaper alternatives as prices rise
Explanation: The substitution effect occurs when consumers opt for less expensive alternatives as the price of a preferred product increases, thus impacting demand.
Question 27
What is a progressive tax system?
a) A tax system where all individuals pay the same tax rate
b) A tax system where lower-income earners pay a higher percentage
c) A tax system where higher-income earners pay a higher percentage of their income
d) A tax system that taxes only businesses
Answer: c) A tax system where higher-income earners pay a higher percentage of their income
Explanation: In a progressive tax system, the tax rate increases as the taxpayer's income increases, placing a higher burden on wealthier individuals.
Question 28
What is the meaning of a price elasticity of demand greater than 1?
a) Demand is inelastic
b) Demand is perfectly elastic
c) Demand is elastic
d) Demand is unitary
Answer: c) Demand is elastic
Explanation: When the price elasticity of demand is greater than 1, it means that demand is elastic, meaning consumers are highly responsive to changes in price.
Question 29
What is an example of a normal good?
a) A good for which demand decreases as income increases
b) A good that has no relation to income changes
c) A good for which demand increases as income increases
d) A good that is consumed at the same level regardless of income
Answer: c) A good for which demand increases as income increases
Explanation: Normal goods are products for which demand rises as consumers' income rises, such as luxury items or higher-quality foods.
Question 30
What does a production possibilities frontier (PPF) illustrate?
a) The total quantity of money in circulation
b) The opportunity costs and trade-offs between producing two different goods
c) The relationship between inflation and unemployment
d) The impact of taxes on supply and demand
Answer: b) The opportunity costs and trade-offs between producing two different goods
Explanation: The PPF shows the maximum feasible output combinations of two goods an economy can produce, illustrating trade-offs and opportunity costs.
Question 31
What does a tariff do?
a) It reduces production costs
b) It imposes a tax on imported goods
c) It regulates the supply of domestic goods
d) It eliminates trade barriers
Answer: b) It imposes a tax on imported goods
Explanation: A tariff is a tax on imports that makes foreign goods more expensive and encourages consumers to buy domestically produced goods.
Question 32
What happens to total revenue when demand is elastic and price increases?
a) Total revenue increases
b) Total revenue decreases
c) Total revenue remains the same
d) Total revenue fluctuates unpredictably
Answer: b) Total revenue decreases
Explanation: When demand is elastic, consumers are highly responsive to price changes, so an increase in price leads to a significant drop in quantity demanded, reducing total revenue.
Question 33
What are public goods?
a) Goods that are only consumed by a specific group of people
b) Goods that are both non-excludable and non-rivalrous
c) Goods that require a direct payment for use
d) Goods that can only be produced by private firms
Answer: b) Goods that are both non-excludable and non-rivalrous
Explanation: Public goods, such as street lighting or national defense, are available to all without reducing their availability to others, and no one can be excluded from using them.
Question 34
What is the role of the Federal Reserve in the U.S. economy?
a) To set national income levels
b) To control inflation and manage the money supply
c) To regulate international trade
d) To monitor government spending
Answer: b) To control inflation and manage the money supply
Explanation: The Federal Reserve is responsible for controlling inflation, managing the money supply, and setting interest rates to ensure economic stability.
Question 35
What is the main objective of expansionary fiscal policy?
a) To reduce inflation
b) To reduce government spending
c) To stimulate economic growth
d) To increase interest rates
Answer: c) To stimulate economic growth
Explanation: Expansionary fiscal policy, such as increasing government spending or cutting taxes, aims to boost economic activity, especially during recessions.
Question 36
What is a budget deficit?
a) When the government spends more than it receives in taxes
b) When the government receives more in taxes than it spends
c) When the economy grows faster than expected
d) When the central bank reduces the money supply
Answer: a) When the government spends more than it receives in taxes
Explanation: A budget deficit occurs when the government's expenditures exceed its revenues in a given fiscal period.
Question 37
What is the invisible hand, according to Adam Smith?
a) Government intervention in the economy
b) The self-regulating nature of a free market
c) The role of central banks in setting interest rates
d) The impact of trade tariffs on economic growth
Answer: b) The self-regulating nature of a free market
Explanation: Adam Smith’s "invisible hand" refers to the idea that individuals' pursuit of self-interest in free markets leads to the efficient allocation of resources, benefiting society as a whole.
Question 38
What is cyclical unemployment?
a) Unemployment that occurs due to technological advancements
b) Unemployment caused by the fluctuation of the business cycle
c) Unemployment caused by workers changing jobs
d) Unemployment caused by insufficient job training
Answer: b) Unemployment caused by the fluctuation of the business cycle
Explanation: Cyclical unemployment occurs when there is a downturn in the economy, reducing demand for labor.
Question 39
What is the main purpose of contractionary monetary policy?
a) To increase inflation
b) To decrease the money supply and control inflation
c) To stimulate economic growth
d) To increase consumer spending
Answer: b) To decrease the money supply and control inflation
Explanation: Contractionary monetary policy reduces the money supply, raises interest rates, and helps control inflation by slowing down economic activity.
Question 40
What happens to interest rates when the Federal Reserve buys government securities?
a) Interest rates increase
b) Interest rates remain unchanged
c) Interest rates decrease
d) Interest rates fluctuate unpredictably
Answer: c) Interest rates decrease
Explanation: When the Federal Reserve buys government securities, it injects money into the economy, increasing the money supply and lowering interest rates to encourage borrowing and investment.
