Economics concepts worksheet with answers

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

1. AAn output level that cannot be reached
2. BUnemployed or inefficiently used resources
3. CThe maximum output the economy can produce
4. DEconomic growth over time

Inflation is:

1. AA rise in the price of one product
2. BAn increase in the money supply, whatever happens to prices
3. CA sustained rise in the general price level
4. DA fall in unemployment

Market failure occurs when:

1. AThe stock market falls sharply
2. BA firm goes bankrupt
3. CThe free market allocates resources inefficiently
4. DPrices rise in a market

If the ECB raises its main interest rate, the most likely short-term effect is:

1. AAn immediate rise in GDP
2. BLower borrowing and spending, reducing inflationary pressure
3. CA fall in the value of the euro
4. DHigher borrowing and spending, which adds to inflationary pressure

A negative externality occurs when:

1. AThe government taxes a product
2. BA third party bears a cost not paid by the producer or consumer
3. CA firm makes a loss
4. DConsumers pay more for a product than it costs the firm to produce

Both supply and demand for a good increase. What can we say for certain about the new equilibrium?

1. ABoth price and quantity rise
2. BPrice rises, but the change in quantity is uncertain
3. CBoth price and quantity fall
4. DQuantity rises, but the change in price is uncertain

In the Prisoner's Dilemma, the Nash equilibrium is:

1. ABoth players cooperate
2. BOne player cooperates and the other defects, so only one of them gains
3. CThere is no equilibrium
4. DBoth players defect, even though both cooperating would be better

The Phillips curve originally suggested:

1. AThat unemployment has no link to inflation
2. BThat inflation and unemployment always rise and fall together in the short run
3. CA trade-off between inflation and unemployment in the short run
4. DThat higher taxes always reduce inflation