Business Economics
Exam Questions
Course Introduction
Business Economics explores the application of economic theory and methodologies to solve real-world business problems. This course provides an in-depth understanding of microeconomic and macroeconomic principles, including demand and supply, production and cost analysis, market structures, pricing strategies, and the influence of government policies. Emphasis is placed on decision-making processes within firms, analyzing competitive strategies, and evaluating the economic environments impact on business operations. Students develop analytical skills needed to assess business opportunities and challenges using economic reasoning, enhancing their ability to make effective managerial and strategic decisions.
Recommended Textbook
Macroeconomics 4th Australian Edition by Glenn Hubbard Available
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) A restaurant sells a large lemonade at a fixed price of $2.59. A term used by economists to describe the money received from the sale of an additional lemonade is:
A)gross earnings.
B)marginal revenue.
C)pure profit.
D)net benefit.
Answer: B
Q2) What is the difference between 'positive' economic analysis and 'normative' economic analysis? Give one example each of a positive and normative economic issue or question or statement.
Answer: Positive economic analysis is concerned with what is. Positive economic analysis reaches conclusions based on verifiable statements. Normative economic analysis, on the other hand, is concerned with what ought to be. Normative analysis reaches conclusions based on opinions. (Students will give many different examples.)
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Page 3
Chapter 2: Choices and Trade Offs in the Market
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Sample Questions
Q1) If Tanisha can audit more tax returns in one hour than Libby, then Tanisha has an absolute advantage in auditing tax returns.
A)True
B)False
Answer: True
Q2) Which of the following statements is true?
A)Individuals who have never been the best at doing anything cannot have a comparative advantage in producing any product.
B)Individuals who have never been the best at doing anything can still have a comparative advantage in producing some product.
C)Individuals who have never been the best at doing anything perform all tasks at a higher opportunity cost than others.
D)Individuals who have never been the best at doing anything must have an absolute advantage in at least one task.
Answer: B
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?
A)The demand for digital music players is greater than the supply of digital music players.
B)Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price.
C)The price of digital music players will rise in response to the shortage; as the price rises, the quantity demanded will increase and the quantity supplied will decrease.
D)The shortage will cause an increase in the equilibrium price of digital music players. Answer: B
Q2) If the demand for a product decreases and the supply of the same product decreases, the equilibrium price will decrease.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Gdp: Measuring Total Production, Income and Economic Growth
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Sample Questions
Q1) Which of the following is included in the gross domestic product for an economy in a given year?
A)The value of intermediate goods produced in that year.
B)The value of used goods sold in that year.
C)The value of final goods produced in that year.
D)All of the above would be included in the gross domestic product for an economy in a given year.
Q2) When the Australian Bureau of Statistics (ABS)calculates real GDP using the average of prices in the current year and the year preceding it, and this average changes from year-to-year, this is called calculating GDP using:
A)chain volume measures.
B)fixed volume prices.
C)current year prices.
D)fixed base year prices.
Q3) The circular-flow model demonstrates that the value of total production is equal to the value of total income in an economy.
A)True
B)False
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Chapter 5: Economic Growth, the Financial System and Business Cycles
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Sample Questions
Q1) Suppose you are a highly regarded international economic advisor. You have been asked to assess the possibilities of growth in an African country. It is a country abundant in labour and some natural resources. The capital to labour ratio is low. It has a free market economy. You have found that this country does not have a very strong and healthy banking system; however, the political system is stable and the government does a good job protecting property rights. Assess this country's prospects for growth. Recommend two things that would enhance the country's growth.
Q2) When the capital stock per hour worked:
A)increases, labour productivity in increases.
B)increases, labour productivity falls, as workers are being replaced with capital and machinery.
C)decreases, labour productivity increases.
D)increases, capital productivity increases.
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7
Chapter 6: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) When a country doesn't enforce property rights, it will:
A)cause the market system to work efficiently.
B)not change the level of investment.
C)raise the level of investment.
D)lower the level of investment.
Q2) Labour productivity can be explained by:
A)technological change and the quantity of capital per hour.
B)diminishing returns and the quantity of labour per hour.
C)diminishing returns and the quantity of capital per hour.
D)technological change and the quantity of labour per hour.
Q3) The purchase of shares and bonds issued in another country is known as 'foreign direct investment'.
A)True
B)False
Q4) As predicted by the economic growth model, countries that start with lower levels of GDP per capita always grow faster than countries that start with higher levels of GDP per capita.
A)True
B)False
8
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Chapter 7: Unemployment
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Sample Questions
Q1) Unemployment benefits paid to the unemployed:
A)increases the amount of time the unemployed spend searching for a job.
B)increases the level of frictional unemployment.
C)helps the unemployed maintain their income and spending.
D)All of these options are correct.
Q2) The 'unemployment rate' is the percentage of the:
A)labour force receiving unemployment benefits.
B)population that is unemployed.
C)working-age population that is unemployed.
D)labour force that is unemployed.
Q3) Over the past 30 years, the labour force participation rates of women have fallen as they leave the labour force to have children, while the labour force participation rates of men have risen.
A)True
B)False
Q4) During periods of rising unemployment, the government receives less tax revenue from individuals and from businesses.
A)True
B)False
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Chapter 8: Inflation
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Sample Questions
Q1) Describe how inflation can be costly even if it is anticipated.
Q2) If a disease affected apple trees in Australia and significantly reduced the availability of apples for a year, what affect would this have on the CPI and would using the CPI to calculate the rate of inflation produce an accurate representation of the rate of inflation in that year? ____________________________________________________________
Q3) If nominal wages rise slower than the price level, then real wages have ________ and the purchasing power of income has ________.
A)fallen; fallen
B)fallen; risen
C)risen; risen
D)risen; fallen
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Page 10
Chapter 9: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) Which of the following correctly describes how a decrease in the price level affects consumption spending?
A)A decrease in the price level raises real wealth, which causes consumption to increase.
B)A decrease in the price level decreases the amount of money a household needs to buy goods and so raises the interest rate, which causes consumption to increase.
C)A decrease in the price level increases the amount of money a household needs to buy goods and so raises the interest rate, which causes consumption to increase.
D)A decrease in the price level lowers real wealth, which causes consumption to decrease.
Q2) If real GDP is less than planned aggregate expenditure, there will be an unplanned decline in inventories, ultimately leading to a movement up along the aggregate expenditure line.
A)True
B)False
Q3) If the marginal propensity to save is 0.35, the multiplier is 2.86.
A)True
B)False
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Chapter 10: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) List and explain the three reasons the aggregate demand curve slopes downward.
Q2) Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment. In the short run:
A)output will decline.
B)unemployment will decline.
C)prices will decline.
D)aggregate demand will shift to the left.
Q3) Which of the following is true of the short-run aggregate supply curve?
A)it has a negative slope
B)it has a vertical slope
C)it has a positive slope
D)it has a horizontal slope
Q4) 'Stagflation' occurs when short-run aggregate supply decreases.
A)True
B)False
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Chapter 11: Money, Banks and the Reserve Bank of Australia
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Sample Questions
Q1) Suppose that you decide that you no longer want to hold currency. You transfer all of your currency holdings to your cheque account. Carefully explain how this affects M1.
Q2) The narrowest definition of the money supply in Australia is: A)M1. B)M2. C)M3. D)M4.
Q3) Suppose that your bank's reserve ratio is 0.2 and you deposit $50 000 into the bank. What is the deposit multiplier? What is the total increase in deposits in the banking system? What is the change in the money supply?
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13
Chapter 12: Monetary Policy
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Sample Questions
Q1) Inflation targeting is when the Reserve Bank of Australia uses monetary policy with the aim of keeping the inflation rate at an annual average of between 2% and 3% in the medium term.
A)True
B)False
Q2) Open market operations occur when the Reserve Bank of Australia:
A)purchases or sells corporate shares in the market to control interest rates.
B)controls the money supply.
C)makes loans to foreign banks.
D)purchases or sells short-dated financial instruments.
Q3) Explain why the 'money demand curve' is downward sloping.
Q4) What is the argument against the independence of the Reserve Bank of Australia?
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) Suppose that the federal budget is balanced when GDP is at potential GDP. If equilibrium GDP falls below potential:
A)this will result in a budget deficit.
B)the budget will remain balanced.
C)transfer payments will decrease automatically.
D)tax revenues will increase automatically.
Q2) Is government debt bad for the economy?
Q3) Which of the following is a government 'expenditure' and not a government 'purchase'?
A)The federal government buys a new ship for the defence force.
B)The federal government pays the salary of police.
C)The federal government pays unemployment benefits.
D)The federal government pays to support medical research on AIDS.
Q4) Induced taxes and transfer payments reduce the multiplier effects. A)True
B)False
Page 15
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Chapter 14: Macroeconomics in an Open Economy
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Sample Questions
Q1) Suppose that the European Union experiences a recession and this causes a decline in income in the European Union relative to Australia. Because of this, the dollar will, ceteris paribus:
A)appreciate, and Australian net exports will fall.
B)depreciate, and Australian net exports will rise.
C)appreciate, and Australian net exports will rise.
D)depreciate, and Australian net exports will fall.
Q2) Refer to Figure 14.2. Suppose that Italians reduce their demand for Australian steel by half. Assuming all else remains constant, this would be represented as a movement from:
A)D to D .
B)D to D .
C)S to S .
D)S to S .
Q3) Net foreign investment is a measure of net capital outflows, equal to capital outflows minus capital inflows in a given period of accounting.
A)True
B)False
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Chapter 15: The International Financial System
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Sample Questions
Q1) What determined the exchange rates among currencies under the gold standard and what caused the gold standard to collapse?
Q2) When countries agree to keep the exchange rates between their countries at an unchanging rate, the exchange rate system is called a:
A)fixed exchange rate system.
B)pegged exchange rate system.
C)pre-determined exchange rate system.
D)managed float exchange rate system.
Q3) The demand by other countries for Australian dollars will increase when:
A)there is a decrease in demand by other countries for Australia's goods and services.
B)more Australians travel overseas.
C)Australians import more goods.
D)foreigners purchase more Australian goods.
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