Economics concepts worksheet with answers

The Consumer Price Index (CPI) measures:

1. AThe changing cost of a fixed basket of goods and services bought by households
2. BThe total value of goods produced in a country
3. CThe prices that firms pay for raw materials and other inputs used in their production
4. DThe interest rate charged by banks

Which body sets monetary policy for the euro area?

1. AThe European Parliament
2. BThe European Central Bank
3. CThe national finance ministries
4. DThe European Commission

According to the law of demand, when the price of a normal good rises (other things equal):

1. ADemand shifts to the right
2. BThe quantity demanded falls
3. CSupply falls
4. DThe quantity demanded rises

The marginal propensity to consume is:

1. AThe total consumption in an economy
2. BThe share of an extra euro of income that is spent on consumption
3. CThe interest rate on consumer loans
4. DThe average share of total income that households save over a year

A Nash equilibrium is a situation where:

1. AOne player has won and the others have lost
2. BThe players agree to cooperate through a binding contract that maximises their combined total payoff
3. CNo player can improve their payoff by changing strategy alone, given the others' strategies
4. DAll players achieve the highest possible total payoff

A sharp rise in world oil prices leading to higher inflation is an example of:

1. ADeflation
2. BCost-push inflation
3. CDisinflation
4. DDemand-pull inflation

Ricardian equivalence suggests that a debt-financed tax cut will:

1. AAlways cause inflation
2. BHave little effect on spending, because households save to pay expected future taxes
3. CStrongly increase consumption, because households spend most of the tax cut through the multiplier
4. DReduce interest rates sharply

A regulator forces a natural monopoly to set price equal to marginal cost. The likely problem is that:

1. AThe firm makes very large profits
2. BOutput falls below the monopoly level
3. CConsumers face a shortage, because demand exceeds supply at that price
4. DThe firm makes a loss because average cost is above marginal cost