Contemporary Economic Issues
Exam Answer Key
Course Introduction
This course explores current economic challenges and debates shaping national and global landscapes. Students will examine topics such as globalization, unemployment, inflation, technological change, income inequality, and environmental sustainability. Emphasis will be placed on understanding the causes and consequences of these issues, analyzing policy responses, and evaluating their effectiveness using real-world examples. Through critical discussions and applied case studies, learners will develop the skills to interpret economic data and assess the impact of ongoing economic trends on societies and businesses.
Recommended Textbook
Economics for Today 4th Asia Pacific Edition by Allan Layton
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Page 2
Chapter 1: Thinking like an economist
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89 Flashcards
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Sample Questions
Q1) Which of the following is capital?
A)Fresh air.
B)Money.
C)Photocopier.
D)Pastoral land.
E)Lake.
Answer: C
Q2) A model (or theory):
A)is a statement about the causal relationship between variables, based on intuition.
B)helps explain but cannot predict the relationship between variables.
C)when expressed as an upward sloping graph, implies an inverse relationship between the variables.
D)is a simplified description of reality.
Answer: D
Q3) Abstracting from reality is an important element of all economic models.
A)True
B)False
Answer: True
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Chapter 2: Production possibilities and opportunity cost
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Sample Questions
Q1) The production possibility curve is bowed outward from the origin because of:
A)the law of decreasing opportunity costs.
B)the finite nature of the resource base.
C)inefficiency.
D)the changes in the opportunity cost due to different efficiencies of the same resource in different use.
E)unemployment.
Answer: D
Q2) As shown in Exhibit 2-6,a total output of zero units of capital goods and 10 units of consumer goods is:
A)the maximum rate of output for this economy.
B)an inefficient way of using the economy's scarce resources.
C)the result of maximum use of the economy's labour force.
D)unobtainable in this economy.
Answer: C
Q3) The production possibility curve illustrates the important economic concept of opportunity cost.
A)True
B)False
Answer: True
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Chapter 3: Market demand and supply
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Sample Questions
Q1) When the price of a good in a market is above equilibrium:
A)the quantity supplied exceeds the quantity demanded.
B)a surplus is observed.
C)the price will fall in the near future.
D)all of these factors apply.
Answer: D
Q2) Other things being equal,a fall in the price of Coca-Cola will increase the quantity of Coca-Cola produced.
A)True
B)False
Answer: False
Q3) If an individual's income increases,then the demand for a normal good will:
A)decrease.
B)increase.
C)remain constant.
D)rotate.
E)fall to zero.
Answer: B
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5
Chapter 4: Markets in action
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Sample Questions
Q1) A public good may be defined as any good or service that:
A)must be provided only to certain groups.
B)must be distributed to all citizens in equal shares.
C)excludes free riders.
D)is not exclusive.
Q2) Which of the following is the best example of a public good?
A)Potatoes.
B)Government building.
C)Lighthouse.
D)Commercial TV.
Q3) Suppose that the equilibrium price is $20 and the government sets the price floor at $30.The result of this price floor is:
A)negligible.
B)equilibrium.
C)surplus.
D)shortage.
Q4) Assume a price floor is set above the equilibrium price.The result is a surplus.
A)True
B)False
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Chapter 5: Elasticity of demand and supply
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Sample Questions
Q1) Along a straight-line demand curve,the elasticity of demand:
A)is unitary elastic.
B)is more elastic as the price falls.
C)different at every point along the curve.
D)is perfectly elastic.
E)is perfectly inelastic.
Q2) A health club sells 100 memberships when the monthly price is $70 and 120 memberships when the monthly price is $60.The price elasticity of demand for memberships at this health club is (using the midpoint formula):
A)0.25.
B)0.65.
C)1.18.
D)1.
E)0.83
Q3) The price elasticity of demand for a vertical demand curve is:
A)perfectly elastic.
B)perfectly inelastic.
C)unitary elastic.
D)elastic.
E)inelastic.
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Chapter 6: Production costs
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Sample Questions
Q1) Which of the following are implicit costs for a typical firm?
A)Insurance costs.
B)Electricity costs.
C)Opportunity costs of capital owned and used by the firm.
D)Cost of labour hired by the firm.
E)The cost of raw materials.
Q2) If ATC = $10,AVC = $6,AFC = $3 and MC = $5,then if output increased by one unit:
A)MC will increase.
B)MC will decrease.
C)ATC will increase.
D)MC may be increasing or decreasing.
E)AFC will increase.
Q3) The long-run average cost curve traces the lowest points of the AVC and ATC for all firms.
A)True
B)False
Q4) Total cost is equal to total fixed costs plus total variable cost.
A)True
B)False
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Chapter 7: Perfect competition
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Sample Questions
Q1) Assume that the market price is $10 and the minimum AVC is $15.The firm should:
A)increase production.
B)continue to operate at the same level.
C)decrease production.
D)shut down.
Q2) In Exhibit 7-9,at what price is the perfectly competitive firm in long-run equilibrium?
A)$100.
B)$200.
C)$300.
D)$400.
E)Depends on many factors.
Q3) If a firm can easily enter and exit the market it operates in which market?
A)Perfectly competitive.
B)Monopolistically competitive.
C)Monopolistic.
D)Oligopolistic.
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Chapter 8: Monopoly
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Sample Questions
Q1) Another way to say that marginal revenue is less than the price at a given level of output is that:
A)the marginal output curve lies below the demand curve.
B)the marginal revenue curve lies above the demand curve.
C)the marginal revenue curve is the same as the demand curve.
D)the marginal revenue curve lies below the demand curve.
Q2) Firms employ price discrimination because:
A)they want to give discounts whenever they can.
B)it prevents predatory pricing.
C)it increases profits.
D)they dislike arbitrage.
Q3) If a big firm is needed to produce at low cost,then natural monopoly can occur.
A)True
B)False
Q4) Legal barriers protect firms from:
A)losses.
B)high prices.
C)potential competitors.
D)taxes.
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Chapter 9: Monopolistic competition and oligopoly
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Sample Questions
Q1) Which of the following is true about advertising by a firm?
A)It is always successful in increasing demand for a firm's product.
B)It attempts to increase demand and to make demand more elastic.
C)It can attract severe penalties if firms are engaged in false or misleading advertising.
D)It allows large firms to become monopolists.
Q2) A characteristic of monopolistic competition is:
A)that there are substantial barriers to entry.
B)that they produce a differentiated product.
C)that there are few firms in the industry.
D)that they face a perfectly elastic demand curve.
Q3) In monopolistic competition,ease of entry and exit means:
A)it is easy to make a profit.
B)it is free.
C)eventually the industry resembles a perfectly competitive market.
D)there are no extraordinary barriers to entry as there are in monopoly.
Q4) In the short run,the monopolistically competitive firm will charge a price equal to marginal cost.
A)True
B)False
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Chapter 10: Policy issues: resource taxes and climate change
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Sample Questions
Q1) If the per-tonne royalty is in place,then the profit maximising firm will reduce output.
A)True
B)False
Q2) Economists prefer:
A)regulation to solve the problem of emissions.
B)emissions trading schemes to regulation.
C)the political agenda to control the level of emissions.
D)government to prescribe the technology to be used for emissions reduction.
Q3) An increase in royalty may decrease output because:
A)it provides an incentive to innovate.
B)it changes the market structure of the industry.
C)the supply of vital resources will decline.
D)it reduces the profit.
Q4) The climate change issue involves:
A)no externalities.
B)neutral externalities.
C)negative externalities.
D)positive externalities.
Page 12
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Chapter 11: Measuring the size of the economy
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Sample Questions
Q1) To construct GDP,exports:
A)and imports must be subtracted.
B)and imports must be included.
C)must be subtracted and imports must be included.
D)must be included and imports must be ignored.
E)must be included and imports must be subtracted.
Q2) A current account surplus cannot be balanced by a capital account deficit of the same size.
A)True
B)False
Q3) Assume that household consumption is $500 billion,gross private domestic investment is $300 billion,government investment is $40 billion,and net exports are -$10 billion.The GDP is:
A)$850 billion.
B)$830 billion.
C)$890 billion.
D)$800 billion.
E)indeterminate as not enough information is provided.
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Chapter 12: Business cycles and economic growth
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Sample Questions
Q1) According to the Solow model,with constant technology,an increase in capital per worker will lead to a smaller increase in GDP per capita.This is explained by:
A)constant returns to scale.
B)the law of diminishing marginal returns.
C)the law of diminishing marginal utility.
D)decreasing returns to scale.
Q2) It is desirable to reduce the rise in unemployment during recession.
A)True
B)False
Q3) Which of the following can improve labour productivity?
A)Less spending on education and training.
B)More unskilled labour.
C)More spending on managers' office supplies.
D)Better educated workforce and improved management practice.
Q4) The 1987 the Nobel Laureate,awarded for his contribution to growth theory,was:
A)John Maynard Keynes.
B)Milton Friedman.
C)Robert Solow.
D)Gregory Mankiw.
E)Adam Smith.
Page 14
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Chapter 13: Inflation and unemployment
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Sample Questions
Q1) During the 1970s,inflation in Australia:
A)reached its lowest rate (0.2 per cent) since the end of the Second World War.
B)approached hyperinflation proportions.
C)declined to 0.5 per cent as a result of the first oil price shock.
D)reached a peak of 16 per cent in 1976, then subsided during the 1980s.
Q2) The relatively high unemployment in many European countries has been attributed at least in part to:
A)a more flexible labour market.
B)higher inflation.
C)low wages.
D)a rigid labour market.
E)high economic growth.
Q3) Which of the following categories of people are in the labour force?
A)The armed forces.
B)Household workers.
C)Students.
D)Unemployed.
Q4) To be counted as unemployed,a person must be retired.
A)True
B)False
Page 15
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Chapter 14: A simple model of the macro economy
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Sample Questions
Q1) The relationship between consumer expenditures and disposable income is the:
A)savings function.
B)tax rate function.
C)disposable income function.
D)consumption function.
Q2) A share market boom is often accompanied by:
A)an increase in consumption.
B)falling real GDP.
C)falling investment.
D)rising unemployment.
E)a decrease in imports.
Q3) The horizontal axis used in the aggregate demand curve measures:
A)the amount of all final goods and services included in real GDP.
B)the value of all final goods and services included in nominal GDP.
C)the value of all intermediate goods and services.
D)the value of all final goods and services included in real GDP.
Q4) Much of the nation's capital stock is idle during a recession and therefore firms have incentives to invest in more.
A)True
B)False
16
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Chapter 15: The monetary and financial system
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Sample Questions
Q1) The Reserve Bank of Australia aims to hold an inflation rate to be:
A)between 2 and 3 per cent per decade.
B)between 2 and 3 per cent per annum over the course of the business cycle.
C)above 3 per cent per annum.
D)between 5 and 7 per cent per annum over the course of the business cycle.
Q2) The monetary policy transmission mechanism explains changes in:
A)monetary policy, money supply, interest rate, investment, aggregate demand, prices, real GDP and employment.
B)monetary policy, money demand, interest rate, investment, aggregate supply, prices, real GDP and employment.
C)monetary policy, money supply, interest rate, research and development, aggregate demand, prices, real GDP and employment.
D)monetary policy, money supply, interest rate, investment, aggregate demand, prices, nominal GDP and employment.
Q3) Barter is:
A)the indirect exchange of a service for money.
B)the direct exchange of a dollar for an orange.
C)the direct exchange of an apple for an orange.
D)the direct exchange of coins for a pizza.
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Page 17
Chapter 16: Macroeconomic policy I: monetary policy
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Sample Questions
Q1) To influence the cash rate,the RBA:
A)purchases real estate and other non-liquid assets.
B)sets the unemployment rate.
C)carries out close-market operation in the money markets.
D)carries out open-market operation in the commodity markets.
E)carries out open-market operation in the money markets.
Q2) Monetarists advocate the monetary rule,which states that the money supply should be stable year after year,in order to stabilise the business cycle.
A)True
B)False
Q3) If the RBA believes the economy is likely to fall into a recession over the next two quarters,its likely response to this will be to:
A)sell government securities to banks in order to increase interest rates.
B)sell government securities to banks in order to decrease interest rates.
C)buy government securities from banks in order to decrease interest rates.
D)buy government securities from banks in order to increase interest rates.
E)decrease the money supply.
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Chapter 17: Macroeconomic policy II: fiscal policy
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Sample Questions
Q1) National debt is defined as:
A)total public and private debt owed to foreign institutions.
B)the value of outstanding notes and coins issued by the RBA.
C)the value of outstanding government securities.
D)total private debt owed domestically and internationally.
E)total private debt owed domestically.
Q2) The introduction of the GST in Australia in 2000 was designed to:
A)broaden the tax base.
B)reduce the reliance on income tax to raise revenue.
C)reduce the ability of people to avoid taxes.
D)encourage private saving by taxing spending rather than income.
E)do all of these things.
Q3) To finance a budget deficit,the government must:
A)reduce taxes.
B)buy securities.
C)sell securities.
D)increase unemployment rate.
Q4) The national debt is always a burden on future generations.
A)True
B)False
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Chapter 18: International trade and finance
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Sample Questions
Q1) Which of the following are benefits of free trade?
A)Households pay higher prices for many goods and services.
B)It relies on an overseas market.
C)It increases input costs for many firms.
D)Resources are allocated more efficiently.
Q2) Assume that the opportunity cost of producing wheat is lower in Australia compared with Malaysia.Further assume that the opportunity cost of producing cars is higher in Australia compared with Malaysia.Which country should specialise in producing wheat?
A)Australia and Malaysia.
B)Australia.
C)Malaysia.
D)Both countries have to specialise in producing cars.
Q3) The principal objective of the WTO is to:
A)reduce the level of all tariffs.
B)establish fair prices for all goods traded internationally.
C)act as the world's police officer to prevent dumping.
D)prevent the trading of services across nations' borders.
E)encourage countries to establish quotas.
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Page 20
Chapter 19: Applying graphs to economics
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Sample Questions
Q1) As shown in Exhibit 1A-3,the intercept of straight line AB is:
A)1.
B)10.
C)20.
D)30.
E)not determinable from the information provided.
Q2) A downward-sloping line has a negative slope. A)True
B)False
Q3) If the coordinates are x1=3,y1=6 and x2=1,y2=2.The slope of the line is:
A)1.
B)2.
C)3.
D)6.
Q4) In Exhibit 1A-4,the slope for straight line CD is:
A)5.
B)1.
C)-1.
D)-5.
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