Economics concepts worksheet with answers

According to the law of demand, when the price of a normal good rises (other things equal):

1. AThe quantity demanded rises
2. BThe quantity demanded falls
3. CSupply falls
4. DDemand shifts to the right

A tariff is:

1. AA limit on the quantity of imports
2. BA ban on all foreign trade
3. CA subsidy for exporters
4. DA tax on imported goods

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

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

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. CRaises tax revenue for the government
4. DIncreases bank reserves and the money supply

In country A, 1 car costs 2 tonnes of wheat to produce; in country B, 1 car costs 4 tonnes of wheat. Which statement is correct?

1. ANeither country gains from trade
2. BA has a comparative advantage in cars and B in wheat
3. CB has a comparative advantage in cars and A in wheat
4. DA has a comparative advantage in both goods

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

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

In the Solow growth model, sustained long-run growth in output per worker comes from:

1. AGovernment budget deficits
2. BA higher saving rate alone
3. CPopulation growth
4. DTechnological progress

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

1. AThere is no equilibrium
2. BBoth players cooperate
3. CBoth players defect, even though both cooperating would be better
4. DOne player cooperates and the other defects, so only one of them gains