economics

1. why does a production possibility curve exist for every economy?
a_ resources are unlimited.
b_ resources have alternative uses.
c_ some resources can be imported.
d some resources may be unemployed.

2 which statement is a normative statement?
a aggregate demand will increase following a decrease in interest rates.
b_ arise in unemployment will decrease inflationary pressures.
c_ the incentive to work will rise if benefit payments are reduced.
d_ unsustainable economic growth is more harmful to the economy than hyperinflation.

3 which combination best describes the basic economic problem?
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a limited limited
b limited unlimited
cc unlimited limited
d unlimited unlimited

4 what is the main reason an economy is unlikely to rely completely on market forces to allocate
resources?
a_ demerit goods will be over supplied.
b_ merit goods will be under supplied.
c_ private goods will not be supplied.
d_ public goods will not be supplied.

5 what is the opportunity cost to a person of spending $20 on a new pair of sports shoes?
a all the other things the person could have bought
b_ the cost of getting to the sports shop
c_ the current value of the person’s old pair of shoes
d_ the next best thing that could have been bought with the $20

6 whatis the definition of effective demand?
a demand that is speculative
b_ demand that is supported by the ability to pay
c the relationship between price and quantity demanded
d_ the total amount demanded by consumers

7 the price elasticity of demand for good x is —2.4, its income elasticity of demand is —0.4 and the
cross elasticity of demand for good x with respect to good y is +0.8.
what is the correct description of good x?
a _ inferior good, price-elastic demand and substitute for good y
b _ inferior good, price-inelastic demand and complement to good y
c normal good, price-elastic demand and complement to good y
d_ normal good, price-inelastic demand and substitute for good y

8 the diagram shows two straight line demand curves, x and y.
price
¥
ie) quantity
what is correct about curves x and y?
a both x and y are unit price elastic over their whole length.
b_ both x and y have the same elasticity at every price.
c xhas a higher price elasticity than y at every price.
dy is more likely to have substitutes than x.

9 the price elasticity of the supply of yoghurt is estimated to be +1.5.
if the demand for yoghurt rises and price rises by 20%, how much more will be supplied to the
market?
a 0.3% b 3.0% c 13.3% d 30%

10 butter is a normal good. it is in joint demand with bread and in joint supply with buttermilk. the
demand for butter increases because of a rise in consumer incomes.
what are the effects of this increase on the prices of bread and buttermilk?
‘ price of
| price of bread buttermilk
a decreases decreases
b decreases increases
cc increases decreases
d increases increases

11 the diagram shows a competitive market in equilibrium with price p and quantity q sold.
.. s
price
p <w
|
|
z:
|
|
|
u d
(6)
quantity
which area represents the producer surplus?
a pwu b pvw cc ouwq d opwq

12 a policy that aims to reduce the degree of inequality of income will also reduce the level of
employment in a country.
what is most likely to be such a policy?
a the effective minimum wage is increased by 25%.
b_ the rate of income tax paid by the lowest band of earners is reduced.
c_ the government increases the level of subsidies given to producers of some merit goods.
d_ the government provides more goods that are regarded as essential.

13 what explains the underconsumption of merit goods?
a their value is not fully understood by consumers.
b_ they are unproductive goods and services.
c_ they can only be provided by the government.
d_ they are only provided by private sector businesses.

14 a country uses an income tax under which the first $10000 of income is tax-free, the next

$20 000 is taxed at 20% and any income over $3000 is taxed at a top rate of 40%. it also levies
a sales tax of 10% on most products.
which combination of tax changes is most likely to create a more equal distribution of income in
the country?
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a a higher tax-free allowance a higher rate of tax

b a higher top rate of tax a lower rate of tax

cc a lower tax-free allowance a higher number of exempt goods

d a lower top rate of tax a lower number of exempt goods

15 the table shows real gdp expressed as an index number in each quarter of 2021.
index of gdp
2021 in real terms
(2020 = 100)
q1 99.4
q2 99.3
q3 100.1
q4 100.4
what can be concluded from the table?
a inflation reduced the real value of gdp in the first six months of 2021.
b- real gdp was lower at the end of 2021 than 2020.
c_ the economy was in recession at the end of the first six months of 2021.
d_ the standard of living was higher at the end of 2021 than in 2020.

16 what is least likely to cause a simultaneous increase in demand-pull and cost-push inflation?
a_ depreciation of currency
b increased import tariffs
c_ decreased spending on infrastructure
d_ increased wages

17 according to the circular flow of income, what would be the immediate result of an increase in the
value of a country’s exports?
a_ imports would increase
b national income would increase
c savings would increase
d_ taxes would increase

18 tocalculate the unemployment rate, the number unemployed is related to
a the total adult population aged 18-65.
b_ the number of unemployed who are seeking work.
c the total number in full-time employment.
d _ the total population in the labour force.

19 aggregate demand in an economy may decrease as a result of an increase in
a consumption expenditure.
b government expenditure.
c_ import expenditure.
d_ investment expenditure.

20 a government has a balanced budget. it decides to increase its spending by 10%.
which increase in government revenue would produce a budget surplus?
a  -10% b 0% c +10% d +20%

21 an economy has an unemployment rate of 8%, an increase of 2% from the previous year. at the
same time, the current account deficit rose from 3% of gdp to 4% of gdp.
what would be most likely to reduce both unemployment and the current account deficit?
a_ decrease government spending
b_ depreciation of the currency
c increase indirect taxation
d increase interest rates

22 the diagram shows aggregate demand (ad) curves for an economy.
price
level
ad,
ad,
o real output
which combination is most likely to have caused the shift from ad, to ad?
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a decrease decrease
b decrease increase
cc increase decrease
d increase increase

23 what can be considered an expansionary supply-side policy?
a _anincrease in government expenditure on training
b_anincrease in sales tax
c_anincrease in the rate of interest
d_anincrease of the exchange rate

24 the table indicates the factor inputs required to produce wheat and cars in countries x and y.
inputs to produce inputs to produce
one tonne of wheat one car
country x 4 2
country y 8 6
what makes it possible for both countries to benefit from trade?
a country x has an absolute advantage in wheat and car production.
b_- country y has an absolute advantage in wheat and car production.
c country y has a comparative advantage in wheat production.
d opportunity cost of wheat and car production is the same between countries.

25 a government decides to allow the country’s currency to depreciate to remove the deficit on its
current account of the balance of payments.
what is the most likely reason why this would not work?
a_ the country gains a competitive advantage from the depreciation.
b_ the country has a surplus on its capital and financial accounts.
c_ the price elasticities of demand for the country’s exports and imports are greater than one.
d_ there are high trade barriers with the country’s main trading partners.

26 when must the terms of trade of a country change?
a when the volume of exports falls and the volume of imports rises
b_ when the total value of exports falls and the total value of imports rises
c_ when the balance of trade in goods moves from deficit to surplus
d_ when the average price of exports rises and the average price of imports falls

27 the table shows an extract from a country’s balance of payments.
exports imports
$ billion $ billion

trade in goods 150 200
trade in services 70 50
primary (investment) income 120 100
secondary (transfer) income 15 20
what is the current account balance?
a -$10bn b  -$15bn c -$30bn d -$50bn

28 the table shows the goods balance and services balance for a country in selected years.
goods balance services balance

2015 +120 -30
2016 +110 -30
2017 +50 -10
2018 +130 60
2019 +140 -50

between which years did the overall goods and services balance change the most?

a 2015-2016 b 2016-2017 c 2017-2018 d 2018-2019

29 the diagram shows the market for both domestic and imported computers for an economy. the
world price is p1.
price
sori
s,
sgom +imp
pa yessssseo eye
py [reshoang honma ema ay
- d
a ae quantity
which government policy would lead to a price of p2?
a anembargo on imports
banexchange rate appreciation
c_ asubsidy to domestic producers
d a tariff on imports

30 what is not a likely cause of a deficit in the current account of the balance of payments?
a consumer spending is low.
b_ primary incomes in the form of investment income are low.
c_ the rate of exchange is high.
d_ wage costs of production are high.

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