Economics concepts worksheet with answers

Macroeconomics studies:

1. AOnly the stock market
2. BThe decisions of individual households and firms in particular markets
3. CThe economy as a whole, such as inflation, unemployment and growth
4. DThe accounts of a single company

Which list gives the four traditional factors of production?

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

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

1. AThe division of labour
2. BPrice controls
3. CFree trade between countries
4. DGovernment regulation

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

1. AHas no effect on the money supply
2. BReduces bank reserves and so shrinks the money supply
3. CIncreases bank reserves and the money supply
4. DRaises tax revenue for the government

A firm has spent €1 million on research for a product that now looks unprofitable. When deciding whether to continue, the €1 million should be:

1. ATreated as the opportunity cost of stopping
2. BAdded to the expected future costs
3. CRecovered by raising prices
4. DIgnored, because it is a sunk cost

Unexpectedly high inflation tends to benefit:

1. APensioners on fixed nominal incomes
2. BLenders who receive fixed interest payments
3. CBorrowers with fixed-rate loans
4. DSavers holding cash

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

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

The Lerner index (P − MC)/P for a profit-maximising monopolist equals 1/|PED|. If |PED| = 4, the price is:

1. A25% above marginal cost, as a share of price
2. BEqual to marginal cost
3. C4 times marginal cost
4. D75% above marginal cost, as a share of price