Economics concepts worksheet with answers

Which statement is a normative statement?

1. AHigher prices reduce quantity demanded
2. BUnemployment fell to 4% in June
3. CThe government should raise the minimum wage
4. DThe minimum wage rose by 3% last year

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

1. AThe quantity demanded rises
2. BSupply falls
3. CDemand shifts to the right
4. DThe quantity demanded falls

Which body sets monetary policy for the euro area?

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

In an oligopoly, firms are typically:

1. ACompletely unregulated by competition law
2. BA single seller in the market
3. CMany and too small to affect the price
4. DFew and interdependent in their decisions

If the ECB raises its main interest rate, the most likely short-term effect is:

1. AHigher borrowing and spending, which adds to inflationary pressure
2. BAn immediate rise in GDP
3. CA fall in the value of the euro
4. DLower borrowing and spending, reducing inflationary pressure

Unemployment benefits and progressive income taxes are called automatic stabilisers because they:

1. AReduce fluctuations in demand without new government decisions
2. BPrevent all recessions from happening
3. CFix the exchange rate automatically
4. DKeep the government budget balanced in every year of the business cycle

The "Taylor principle" says that, to stabilise inflation, a central bank should respond to a 1 percentage point rise in inflation by:

1. ARaising the nominal interest rate, but by less than 1 percentage point
2. BRaising the nominal interest rate by more than 1 percentage point
3. CCutting the nominal rate
4. DKeeping the nominal rate unchanged

The J-curve effect describes why, after a depreciation, the trade balance may:

1. AWorsen at first and then improve
2. BImprove at first and then worsen
3. CImprove immediately and permanently
4. DRemain unchanged for many years