Economics concepts worksheet with answers

The unemployment rate is calculated as:

1. AThe number of unemployed divided by the total population
2. BThe number of unemployed divided by the labour force
3. CThe number of employed divided by the labour force
4. DThe number of job vacancies divided by the population

Adam Smith's example of the pin factory illustrated the benefits of:

1. AFree trade between countries
2. BThe division of labour
3. CPrice controls
4. DGovernment regulation

Two goods are substitutes if:

1. AThey are produced by the same firm
2. BA rise in the price of one increases demand for the other
3. CThey are always consumed together
4. DA rise in income reduces demand for both goods at the same time

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

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

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

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

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

1. ACost-push inflation
2. BDisinflation
3. CDemand-pull inflation
4. DDeflation

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

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

A Giffen good is one where:

1. ADemand rises with income, like most goods
2. BQuantity demanded rises when its price rises, because a strong income effect outweighs the substitution effect
3. CThe price never changes
4. DDemand rises because the good is a status symbol