Economics concepts worksheet with answers

Which body sets monetary policy for the euro area?

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

Consumer surplus is:

1. AThe total amount consumers spend on a good
2. BThe profit that firms make from selling to consumers at prices above their production costs
3. CThe difference between what consumers are willing to pay and what they actually pay
4. DThe amount of goods left unsold at the end of the day

A market with only one seller is called:

1. APerfect competition
2. BAn oligopoly
3. CA monopoly
4. DA monopsony

In the long run in monopolistic competition, firms typically:

1. ACharge a price equal to marginal cost
2. BEarn large economic profits protected by entry barriers
3. CProduce at the minimum of average total cost
4. DEarn zero economic profit and have excess capacity

Comparative advantage means a country should specialise in goods it can produce:

1. AOnly for its own consumption
2. BAt a lower opportunity cost than other countries
3. CWith the most workers
4. DMore cheaply in absolute terms than every other country

If demand for a product is price inelastic, a price increase will:

1. AIncrease total revenue
2. BDecrease total revenue
3. CLeave total revenue unchanged
4. DReduce quantity demanded to zero

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

Why is the real-world government spending multiplier usually smaller than the simple 1/(1 − MPC)?

1. AConsumers never spend extra income
2. BTaxes, imports and crowding out leak part of each round of spending
3. CGovernments cannot borrow money
4. DThe MPC is always above 1