Economics concepts worksheet with answers

Two goods are complements if:

1. ADemand for both rises when the price of either one of them rises
2. BOne can easily replace the other
3. CA rise in the price of one reduces demand for the other
4. DThey have the same price

Structural unemployment is caused by:

1. ASeasonal changes in demand for labour
2. BA mismatch between workers' skills or location and the jobs available
3. CA temporary fall in aggregate demand
4. DThe normal time that workers take to search for and move between jobs

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

1. AA normal good
2. BAn inferior good
3. CA Giffen good
4. DA public good

A savings account pays a nominal interest rate of 6% and inflation is 4%. The approximate real interest rate is:

1. A10%
2. B2%
3. C24%
4. D1.5%

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. ARecovered by raising prices
2. BIgnored, because it is a sunk cost
3. CAdded to the expected future costs
4. DTreated as the opportunity cost of stopping

Using the expenditure approach, GDP equals:

1. AC + I + G + X + M
2. BWages + profits − taxes
3. CC − I + G − (X + M)
4. DC + I + G + (X − M)

Why does the deadweight loss of a tax grow when the good's demand and supply are more elastic?

1. AQuantity traded falls more, so more mutually beneficial trades are lost
2. BThe government collects more tax revenue
3. CElastic markets have no consumer surplus
4. DPrices do not change, so consumers bear the whole burden of the tax instead

Purchasing power parity (PPP) suggests that, in the long run, exchange rates adjust so that:

1. AEvery currency ends up having the same nominal value as the US dollar
2. BTrade balances are always zero
3. CThe same basket of goods costs the same in different countries
4. DInterest rates are equal in all countries