Economics concepts worksheet with answers

Which body sets monetary policy for the euro area?

1. AThe European Central Bank
2. BThe national finance ministries
3. CThe European Parliament
4. DThe European Commission

Macroeconomics studies:

1. AOnly the stock market
2. BThe decisions of individual households and firms in particular markets
3. CThe accounts of a single company
4. DThe economy as a whole, such as inflation, unemployment and growth

A tariff is:

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

Unexpectedly high inflation tends to benefit:

1. ALenders who receive fixed interest payments
2. BPensioners on fixed nominal incomes
3. CBorrowers with fixed-rate loans
4. DSavers holding cash

Unemployment benefits and progressive income taxes are called automatic stabilisers because they:

1. APrevent all recessions from happening
2. BFix the exchange rate automatically
3. CReduce fluctuations in demand without new government decisions
4. DKeep the government budget balanced in every year of the business cycle

A currency depreciation tends to:

1. AReduce the price of all domestic goods and make imports cheaper
2. BMake exports cheaper abroad and imports more expensive
3. CMake imports cheaper
4. DHave no effect on trade

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

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

The "Taylor principle" says that, to stabilise inflation, a central bank should respond to a 1 percentage point rise in inflation by:

1. AKeeping the nominal rate unchanged
2. BRaising the nominal interest rate, but by less than 1 percentage point
3. CRaising the nominal interest rate by more than 1 percentage point
4. DCutting the nominal rate