Economics concepts worksheet with answers

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

1. AAt least one factor of production is fixed
2. BThe firm must make a loss
3. CAll factors of production can be varied
4. DPrices cannot change

The current account of the balance of payments mainly records:

1. AThe central bank's interest rate decisions
2. BChanges in the government's debt
3. CPurchases and sales of foreign companies, shares, bonds and other assets
4. DTrade in goods and services, primary income and current transfers

Monopolistic competition is a market with:

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

The price of a good rises by 10% and quantity demanded falls by 20%. The price elasticity of demand is:

1. A-0.5, so demand is inelastic
2. B-2, so demand is elastic
3. C-0.5, so demand is elastic
4. D-2, so demand is inelastic

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

1. AA normal necessity
2. BA luxury good
3. CAn inferior good
4. DA complement

The price of petrol rises sharply. What happens to the demand curve for large cars?

1. AIt becomes vertical
2. BIt shifts to the left
3. CThere is a movement along it
4. DIt shifts to the right

The time-inconsistency problem in monetary policy (Kydland and Prescott) is a key argument for:

1. AGovernments setting interest rates directly, especially before elections
2. BAbolishing central banks entirely
3. CFixing the money supply at zero growth
4. DIndependent central banks with a credible commitment to low inflation

Ricardian equivalence suggests that a debt-financed tax cut will:

1. AHave little effect on spending, because households save to pay expected future taxes
2. BReduce interest rates sharply
3. CStrongly increase consumption, because households spend most of the tax cut through the multiplier
4. DAlways cause inflation