Economics concepts worksheet with answers

Monopolistic competition is a market with:

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

A budget deficit occurs when:

1. ATotal government debt falls
2. BThe value of imports exceeds the value of exports in a year
3. CGovernment spending exceeds government revenue in a year
4. DA firm's costs exceed its revenue

Deflation is:

1. AA sustained fall in the general price level
2. BA slowdown in the rate of inflation, with prices still rising
3. CA fall in the value of the currency
4. DA reduction in government spending

The income elasticity of demand for a good is -0.4. The good is:

1. AA complement
2. BA normal necessity
3. CA luxury good
4. DAn inferior good

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

1. A24%
2. B10%
3. C2%
4. D1.5%

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

1. AReduces bank reserves and so shrinks the money supply
2. BRaises tax revenue for the government
3. CIncreases bank reserves and the money supply
4. DHas no effect on the money supply

The "paradox of thrift" suggests that if all households try to save more during a recession:

1. AInvestment and growth will rise immediately
2. BInflation will increase
3. CTotal income may fall, so total saving does not rise
4. DInterest rates will rise sharply

In the Bertrand model, two firms sell identical products with the same constant marginal cost and compete on price. The equilibrium price is:

1. AThe monopoly price
2. BHalfway between monopoly price and marginal cost
3. CZero
4. DEqual to marginal cost