Economics concepts worksheet with answers

Monopolistic competition is a market with:

1. AOne firm and high barriers to entry
2. BA few firms selling identical products
3. CMany firms selling differentiated products, with free entry
4. DMany firms selling identical products with no branding or advertising

In economics, the short run is a period in which:

1. AAll factors of production can be varied
2. BThe firm must make a loss
3. CPrices cannot change
4. DAt least one factor of production is fixed

Which body sets monetary policy for the euro area?

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

Rising consumer confidence would most likely:

1. AShift aggregate demand to the left
2. BShift aggregate demand to the right
3. CShift aggregate supply to the left
4. DHave no effect on the economy

The marginal propensity to consume is:

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

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

1. ARaises tax revenue for the government
2. BIncreases bank reserves and the money supply
3. CReduces bank reserves and so shrinks the money supply
4. DHas no effect on the money supply

The principal–agent problem arises when:

1. AAn agent acting for a principal has different goals and the principal cannot fully monitor them
2. BTwo firms agree to fix prices
3. CA buyer and seller have identical information
4. DThe government owns a firm

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. BAbolishing central banks entirely
3. CFixing the money supply at zero growth
4. DIndependent central banks with a credible commitment to low inflation