Economics concepts worksheet with answers

Demand is called "price elastic" when the absolute value of its price elasticity is:

1. AGreater than 1
2. BLess than 1
3. CExactly 1
4. DExactly 0

A tariff is:

1. AA tax on imported goods
2. BA subsidy for exporters
3. CA ban on all foreign trade
4. DA limit on the quantity of imports

A progressive tax is one where:

1. AThe proportion of income paid falls as income rises
2. BEveryone pays the same amount of tax
3. CThe proportion of income paid in tax rises as income rises
4. DEveryone pays the same percentage of income

A per-unit tax is placed on a good with very inelastic demand and elastic supply. Who bears most of the tax burden?

1. AThe government
2. BIt is always split equally
3. CProducers
4. DConsumers

In a simple closed economy without taxes, the MPC is 0.8. The Keynesian spending multiplier is:

1. A5
2. B0.8
3. C8
4. D1.25

When a central bank buys government bonds from banks in open market operations, it usually:

1. AReduces bank reserves and so shrinks the money supply
2. BHas no effect on the money supply
3. CIncreases bank reserves and the money supply
4. DRaises tax revenue for the government

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

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

A lump-sum tax (a fixed amount, independent of output) is imposed on a profit-maximising monopolist. In the short run, its output will:

1. AFall to zero
2. BRise to make up for the tax
3. CStay the same, because MR and MC do not change
4. DFall, because the tax raises the firm's average cost