Economics concepts worksheet with answers

What is opportunity cost?

1. AThe value of the best alternative given up when making a choice
2. BThe total money spent on a purchase, including any taxes and fees
3. CThe cost of starting a new business
4. DThe price of a product during a sale

A common rule of thumb defines a recession as:

1. AA fall in the stock market of 10%
2. BAny month with rising unemployment
3. CTwo consecutive quarters of falling real GDP
4. DA year with inflation above 5%

A good for which demand rises when income rises is called:

1. AA public good
2. BA Giffen good
3. CAn inferior good
4. DA normal good

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

1. A8
2. B1.25
3. C5
4. D0.8

In perfect competition in the long run, firms earn:

1. AMonopoly profits
2. BLarge economic profits
3. CLosses forever
4. DZero economic profit

The marginal propensity to consume is:

1. AThe share of an extra euro of income that is spent on consumption
2. BThe average share of total income that households save over a year
3. CThe interest rate on consumer loans
4. DThe total consumption in an economy

The time-inconsistency problem in monetary policy (Kydland and Prescott) is a key argument for:

1. AGovernments setting interest rates directly, especially before elections
2. BFixing the money supply at zero growth
3. CAbolishing central banks entirely
4. DIndependent central banks with a credible commitment to low inflation

According to prospect theory (Kahneman and Tversky), people typically:

1. ATreat losses and gains of the same size as equally important
2. BFeel losses more strongly than equal-sized gains
3. CAlways maximise expected monetary value
4. DPrefer risk when facing gains of any size