Economics concepts worksheet with answers

A point inside a country's production possibility frontier shows:

1. AUnemployed or inefficiently used resources
2. BThe maximum output the economy can produce
3. CEconomic growth over time
4. DAn output level that cannot be reached

GDP measures:

1. AThe total market value of final goods and services produced in a country in a period
2. BThe government's budget
3. CThe value of all exports only
4. DThe total wealth and savings held by a country's citizens and firms at the end of a year

Fiscal policy uses:

1. AInterest rates set by the central bank
2. BExchange rate controls only
3. CTrade agreements only
4. DGovernment spending and taxation

A firm has spent €1 million on research for a product that now looks unprofitable. When deciding whether to continue, the €1 million should be:

1. AIgnored, because it is a sunk cost
2. BTreated as the opportunity cost of stopping
3. CRecovered by raising prices
4. DAdded to the expected future costs

Education generates benefits for society beyond the individual student. Without intervention, the market will likely:

1. AProvide exactly the efficient amount of education, as prices reflect all benefits
2. BUnder-provide education compared with the social optimum
3. CStop providing education altogether
4. DOver-provide education compared with the social optimum

Crowding out refers to:

1. AToo many firms entering a market
2. BHigher government borrowing raising interest rates and reducing private investment
3. CImports replacing domestic production
4. DOvercrowded public services

Purchasing power parity (PPP) suggests that, in the long run, exchange rates adjust so that:

1. AThe same basket of goods costs the same in different countries
2. BTrade balances are always zero
3. CEvery currency ends up having the same nominal value as the US dollar
4. DInterest rates are equal in all countries

The Phillips curve originally suggested:

1. AThat inflation and unemployment always rise and fall together in the short run
2. BThat unemployment has no link to inflation
3. CThat higher taxes always reduce inflation
4. DA trade-off between inflation and unemployment in the short run