Economics concepts worksheet with answers

Which list gives the four traditional factors of production?

1. ASupply, demand, price and quantity
2. BLand, labour, capital and entrepreneurship
3. CMoney, labour, shares and land
4. DWages, rent, interest and profit

Fiscal policy uses:

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

A market with only one seller is called:

1. AA monopoly
2. BAn oligopoly
3. CA monopsony
4. DPerfect competition

In country A, 1 car costs 2 tonnes of wheat to produce; in country B, 1 car costs 4 tonnes of wheat. Which statement is correct?

1. ANeither country gains from trade
2. BA has a comparative advantage in both goods
3. CA has a comparative advantage in cars and B in wheat
4. DB has a comparative advantage in cars and A in wheat

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

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

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

1. AHas no effect on the money supply
2. BIncreases bank reserves and the money supply
3. CRaises tax revenue for the government
4. DReduces bank reserves and so shrinks the money supply

Ricardian equivalence suggests that a debt-financed tax cut will:

1. AStrongly increase consumption, because households spend most of the tax cut through the multiplier
2. BAlways cause inflation
3. CReduce interest rates sharply
4. DHave little effect on spending, because households save to pay expected future taxes

The Coase theorem states that, if property rights are clearly defined and transaction costs are low:

1. AThe polluter must always compensate the victim
2. BGovernments must always tax externalities
3. CPrivate bargaining can reach an efficient outcome regardless of who holds the rights
4. DExternalities cannot be corrected without direct government regulation or a Pigouvian tax