Economics concepts worksheet with answers

Which body sets monetary policy for the euro area?

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

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

1. AThe maximum output the economy can produce
2. BEconomic growth over time
3. CUnemployed or inefficiently used resources
4. DAn output level that cannot be reached

Consumer surplus is:

1. AThe amount of goods left unsold at the end of the day
2. BThe total amount consumers spend on a good
3. CThe profit that firms make from selling to consumers at prices above their production costs
4. DThe difference between what consumers are willing to pay and what they actually pay

Comparative advantage means a country should specialise in goods it can produce:

1. AAt a lower opportunity cost than other countries
2. BWith the most workers
3. CMore cheaply in absolute terms than every other country
4. DOnly for its own consumption

In the short run, a firm in perfect competition should shut down if the market price is below:

1. AAverage fixed cost
2. BAverage total cost
3. CAverage variable cost
4. DMarginal revenue

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

1. A1.5%
2. B2%
3. C10%
4. D24%

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

1. AHalfway between monopoly price and marginal cost
2. BZero
3. CEqual to marginal cost
4. DThe monopoly price

Why is the real-world government spending multiplier usually smaller than the simple 1/(1 − MPC)?

1. AConsumers never spend extra income
2. BTaxes, imports and crowding out leak part of each round of spending
3. CThe MPC is always above 1
4. DGovernments cannot borrow money