Economics concepts worksheet with answers

Real GDP differs from nominal GDP because real GDP:

1. AIncludes only goods, not services
2. BIs measured in a foreign currency
3. CExcludes government spending
4. DIs adjusted for changes in the price level

What is opportunity cost?

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

A point inside a country's production possibility frontier shows:

1. AUnemployed or inefficiently used resources
2. BAn output level that cannot be reached
3. CEconomic growth over time
4. DThe maximum output the economy can produce

The law of diminishing marginal returns states that:

1. AAdding more of a variable input to a fixed input eventually lowers the extra output per unit added
2. BTotal output always falls as more workers are hired
3. CConsumers get less satisfaction as prices rise
4. DLong-run average costs always fall as output rises

The marginal cost curve cuts the average total cost curve:

1. AWhere average total cost equals zero
2. BNever, as the two curves are parallel
3. CAt the maximum point of average total cost
4. DAt the minimum point of average total cost

If demand for a product is price inelastic, a price increase will:

1. AReduce quantity demanded to zero
2. BIncrease total revenue
3. CDecrease total revenue
4. DLeave total revenue unchanged

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

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

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

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