Contemporary Economic Issues
Exam Practice Tests
Course Introduction
This course examines major economic issues and challenges facing modern societies, focusing on both national and global contexts. Students analyze a wide range of contemporary topics, such as income inequality, unemployment, globalization, technological change, environmental sustainability, and the impact of economic policies. Emphasis is placed on critical evaluation of current events, application of economic theory, and understanding how different economic agents governments, businesses, and individuals respond to and shape these issues. The course encourages discussion, debate, and the development of informed perspectives on pressing economic questions of our time.
Recommended Textbook Economics for Today 5th Edition by Allan Layton
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Page 2
Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) Inflation is a concern of:
A) macroeconomics.
B) microeconomics.
C) both political science and philosophy.
D) neither macroeconomics or microeconomics.
Answer: A
Q2) Which of the following is not a resource?
A) Land.
B) Labour.
C) Money.
D) Capital.
Answer: C
Q3) Normative economics deals with _____ and positive economics deals with _____.
A) opinions, facts
B) fiction, fact
C) microeconomics, macroeconomics
D) negative aspects, positive aspects
Answer: A
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Chapter 2: Applying Graphs to Economics
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Sample Questions
Q1) What is the slope of the line shown in Exhibit A1.6?
A) 1/20.
B) 1/10.
C) 1/5.
D) 1/2.
Answer: A
Q2) Basic economic analysis typically concerns:
A) the relationship between two variables, one of which has negative values.
B) the relationship between two variables, both of which have negative values.
C) the relationship between two variables, both of which have positive values.
D) the relationship between two variables, one variable always increases and the other variable always decreases.
Answer: C
Q3) A horizontal line indicates an independent relationship between two variables.
A)True
B)False
Answer: True
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Chapter 3: Production Possibilities and Opportunity Cost
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Sample Questions
Q1) The economy experiences economic growth if:
A) the resource base decreases.
B) the production possibilities frontier shifts inwards.
C) the number of workers decreases.
D) the production possibilities frontier shifts outwards.
Answer: D
Q2) The theory of comparative advantage:
A) helps to analyse the absolute advantages of countries involved.
B) suggests that a country that does not have an absolute advantage should import everything.
C) analyses the basis of trade where an individual nation can gain from such trade.
D) suggests that a country specialise in producing goods or services for which it has a higher opportunity cost.
Answer: C
Q3) The most efficient point on the production possibilities curve is the midpoint on the curve.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Market Demand and Supply
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Sample Questions
Q1) A demand curve:
A) has a positive slope.
B) has a negative slope.
C) is constant regardless of price.
D) is based on the assumption of a stable supply curve.
Q2) The fact that price and quantity demanded are related negatively illustrates the:
A) law of supply.
B) law of quantity supplied.
C) law of demand.
D) law of quantity demanded.
Q3) Which of the following will increase the supply of a good?
A) An increase in the price of another good that producers could produce.
B) A lower price paid for resources used in the production of the good.
C) A decrease in the number of sellers.
D) An increase in taxes paid to the government by producers.
Q4) Suppose A and B are complementary goods. Other things being equal, the demand curve for A will shift to the right when the price of B goes up.
A)True
B)False
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Chapter 5: Markets in Action
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Sample Questions
Q1) Which of the following statements is not true of a market?
A) An increase in demand, with no change in supply, will increase the equilibrium price and quantity.
B) An increase in supply, with no change in demand, will decrease the equilibrium price and the equilibrium quantity.
C) A decrease in supply, with no change in demand, will increase the equilibrium price and decrease the equilibrium quantity.
D) A decrease in demand, with no change in supply, will decrease the equilibrium price and quantity.
Q2) Which of the following is an example of a positive externality?
A) Planting flowers in your front yard.
B) Talking loudly when others are trying to study economics.
C) Accidentally pushing someone as you try to cross the street.
D) Littering on the street.
Q3) An economic justification for government providing public goods and services is that many people can benefit regardless of whether they pay or not.
A)True
B)False
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Chapter 6: Elasticity of Demand and Supply
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Sample Questions
Q1) If the short-run price elasticity of demand for hospital care is 0.27, then the long-run price elasticity is expected to be:
A) greater than 0.27.
B) greater than 1.
C) less than 0.27.
D) equal to 0.27.
Q2) As one moves down a straight-line, down-sloping demand curve, price elasticity (measured by point elasticity method) will:
A) change from elastic to unit elastic, then to inelastic.
B) remain the same between any two points.
C) change from inelastic to elastic, then to unit elastic.
D) change from unit elastic to elastic, then to inelastic.
Q3) Suppose the price of a bus ticket rises from $2.75 to $3 and the number of tickets sold falls from 10 000 to 8500, the price elasticity of demand is:
A) elastic.
B) unitary elastic.
C) perfectly elastic.
D) inelastic.
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8
Chapter 7: Production Costs
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Sample Questions
Q1) Which of the following statements is true?
A) The law of diminishing returns states that beyond some point the marginal product of a variable resource continues to rise.
B) The marginal product is the change in total output by adding one additional unit of a fixed input.
C) Fixed costs are costs which vary with the output level.
D) When marginal productivity of a variable input is falling, then marginal costs of production must be rising.
Q2) The vertical distance between the TC and TVC is:
A) AVC.
B) MC.
C) TFC.
D) ATC.
E) TMC.
Q3) The long-run average cost curve traces the lowest points of the AVC and ATC for all firms.
A)True
B)False
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Chapter 8: Perfect Competition
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Sample Questions
Q1) If a perfectly competitive firm sells 50 units of output at a market price of $10 per unit, its marginal revenue is:
A) more than $10.
B) less than $10.
C) $10.
D) $5300.
Q2) A firm in a perfectly competitive market faces:
A) its own upward-sloping demand curve.
B) its own downward-sloping demand curve.
C) a market demand curve.
D) a perfectly elastic demand curve.
Q3) If ATC = $20, AVC = $12, MR = $15 and MC = $15, then the result for the perfectly competitive firm would be:
A) making a short-run loss.
B) making a short-run profit.
C) breaking even.
D) shutting down.
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Chapter 9: Monopoly
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Sample Questions
Q1) When is a monopolist able to charge a lower price than a competitive firm?
A) Never.
B) If the monopolist is a natural monopolist.
C) If the monopolist is able to price discriminate.
D) If the monopolist has enough profit.
Q2) Suppose a monopolist charges a price corresponding to the intersection of the marginal cost and marginal revenue curves. If the price is between its average variable cost and average total cost curves, the firm will:
A) earn an economic profit.
B) stay in operation in the short run, but shut down in the long run if demand remains the same.
C) shut down.
D) charge a higher price.
Q3) At a price of $5, 24 units of a good would be sold. At a price of $10, 25 units of output would be sold. The marginal revenue of the 25th unit of output is:
A) $14.
B) $55.
C) $100.
D) $130.
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Page 11
Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) What does 'a few sellers' in oligopoly market structure mean?
A) It means that one to two firms are in the market.
B) It means that less than 10 firms are in the market.
C) It means that two to three firms are in the market.
D) It means that the concentration ratio is high.
Q2) Oligopoly is a market structure characterised by:
A) barriers to enter and mutual interdependence.
B) barriers to exit and independent pricing decisions.
C) lack of control over prices.
D) a differentiated product and independent decisions.
Q3) Which of the following market structures describes an industry in which a group of firms formally agree to control prices and output of a product?
A) Perfect competition.
B) Monopoly.
C) Oligopoly.
D) Cartel.
Q4) The strategic analysis firms undertake is often seen in perfect competition.
A)True
B)False
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Chapter 11: Policy Issues: Housing Affordability and Climate Change
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Sample Questions
Q1) The climate change issue involves:
A) no externalities.
B) neutral externalities.
C) negative externalities.
D) positive externalities.
Q2) In Exhibit 10.2, which of the following is likely to be true? Assume that the private supply is 'Supply 1' and the supply including carbon tax is 'Supply 2'.
A) Global warming is not a local problem and firms should not be taxed.
B) Since the discharge of the carbon dioxide in the atmosphere increased health care costs, the policy measures should be adopted to shift the supply curve 'Supply 1' to the left ('Supply 2').
C) The carbon tax will increase the price from $30 to $60 per unit.
D) The demand is negatively related to the supply.
Q3) The absence of the external costs of carbon emissions in the price of electricity means that:
A) firms produce electricity accounting for the global warming.
B) firms produce electricity equal to what is socially desirable.
C) firms produce more electricity than is socially desirable.
D) firms produce less electricity than is socially desirable.
Page 13
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Chapter 12: Measuring the Size of the Economy
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Sample Questions
Q1) Australian gross domestic product is the market value of all final goods and services:
A) produced in Australia by Australian citizens during a year.
B) produced in Australia during a year.
C) produced outside of Australia during a year.
D) produced outside Australia by Australian citizens during a year.
Q2) Economic values that are measured in units per period of time are referred to as: A) stocks.
B) insignificant.
C) unit values.
D) flows.
Q3) Gross domestic product (GDP) is a correct measure of both economic 'goods' and 'bads'.
A)True
B)False
Q4) Intermediate goods are included in calculating gross domestic product but final goods are not.
A)True
B)False
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Page 14
Chapter 13: Business Cycles and Economic Growth
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Sample Questions
Q1) The endogenous growth model suggests that technological progress in an economy:
A) may lead to further improvements in technology.
B) occurs randomly.
C) is not as important as suggested in the Solow growth model.
D) depends crucially on the level of consumption.
Q2) The GDP gap is the difference between:
A) full-employment real GDP and nominal GDP.
B) the full employment rate and real GDP chain price index.
C) full-employment real GDP and actual real GDP.
D) seasonal unemployment and nominal GDP.
Q3) Which of the following is not a variable in the index of leading indicators?
A) Average working week.
B) Duration of unemployment.
C) Unemployment claims.
D) New businesses.
Q4) In the Solow model, technological change:
A) is not included in the model.
B) is assumed to be endogenous.
C) is assumed not to exist.
D) is assumed to be exogenous.
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Chapter 14: Inflation and Unemployment
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Sample Questions
Q1) A person pays cash for a house in 1990 for $200 000 and sells it in 2000 for $400 000. Over the same period the CPI has risen from its base index to 200. In terms of this asset, the purchasing power of this person:
A) has increased.
B) has decreased.
C) has remained unchanged.
D) is indeterminate.
Q2) As shown in Exhibit 13.1, the rate of inflation for Year 4 is:
A) 5 per cent.
B) 10 per cent.
C) 19 per cent.
D) 20 per cent.
Q3) Which one of the following people is not a member of the labour force?
A) Relief teacher who works 2 hours a week.
B) A person who works 30 hours a week at McDonalds and goes to school at night.
C) The man who was fired last week and is searching for a new job.
D) A full-time student who devotes all her time to her classes.
Q4) People with fixed incomes fare best in an inflationary period.
A)True
B)False
Page 16
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Chapter 15: A Simple Model of the Macro Economy
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Sample Questions
Q1) When the AS curve is vertical at the full-employment GDP, the effect/s of a change in
AD:
A) is a change in the price level.
B) are changes in the demand and the price levels.
C) is a change in the output level.
D) is a change in the quality.
Q2) The net exports effect is the _____ relationship between net exports and the price level of an economy.
A) inverse
B) independent
C) direct
D) linear
Q3) Aggregate expenditures are the sum of:
A) consumption, investment and government spending minus net exports.
B) consumption, government spending and net exports.
C) consumption, investment, government spending and net exports.
D) production, investment, government spending and net exports.
Q4) The only determinant of investment is the interest rate.
A)True
B)False
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Chapter 16: The Monetary and Financial System
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Sample Questions
Q1) Keynes called the money that people hold in order to buy bonds, stocks or other non-money financial assets the:
A) transactions demand for spending money.
B) precautionary demand for holding money.
C) speculative demand for holding money.
D) unit of account demand for holding money.
Q2) Unused lines of credit on credit cards are part of M3.
A)True
B)False
Q3) Which of the following is the best description of fiat money?
A) Coins made of gold and silver.
B) Paper money that can be redeemed for gold or silver.
C) Legal tender that has no intrinsic value.
D) Cheque accounts and debit cards.
Q4) The buying and selling of short-term securities by financial institutions occurs mainly in:
A) the stock market.
B) the Treasury.
C) the short-term money market.
D) the foreign exchange market.
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Chapter 17: Macroeconomic Policy I: Monetary Policy
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Q1) If the central bank follows a rules-based approach to monetary policy and the velocity of money turns out to be larger than expected, then inflation:
A) will be lower than expected.
B) will be higher than expected.
C) will be unaffected.
D) could be higher or lower than expected.
Q2) Modern monetary policy in Australia is implemented by the RBA seeking to maintain the overnight cash rate at a pre-announced level.
A)True
B)False
Q3) If the velocity of money is 3, nominal GDP is $300 billion, then the supply of money is:
A) $100 billion.
B) $50 billion.
C) $2500 billion.
D) $2 billion.
Q4) Monetarists argue that velocity is reasonably predictable.
A)True
B)False
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Chapter 18: Macroeconomic Policy II: Fiscal Policy
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Sample Questions
Q1) If the economy is experiencing unemployment, then the most appropriate government policy would be to shift the aggregate:
A) demand curve by using a tax increase coupled with spending cuts.
B) demand curve by using a tax increase coupled with more spending.
C) demand curve by using a tax cut coupled with spending cuts.
D) demand curve by using a tax cut coupled with more spending.
Q2) Assume Parliament enacts a $10 billion increase in spending and a $10 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a:
A) $20 billion increase in aggregate demand.
B) $10 billion increase in aggregate demand.
C) $100 billion increase in aggregate demand.
D) $10 billion decrease in aggregate demand.
Q3) If the marginal propensity to consume (MPC) is 0.8 and the parliament votes for a $100 million tax cut. What is the change in aggregate demand?
A) $250 million.
B) $200 million.
C) $100 million.
D) $80 million.
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Page 20
Chapter 19: International Trade and Finance
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Sample Questions
Q1) Suppose real interest rates in Canada rise, while those in Australia remain constant. Then:
A) Australian investors should sell an increased amount of bonds issued by borrowers in Australia.
B) Australian investors should buy an increased amount of bonds issued by borrowers in Canada.
C) Australian investors should buy less bonds issued by borrowers in Canada.
D) Canadian investors should buy an increased amount of bonds issued by borrowers in Australia.
Q2) The balance of payments _____.
A) with some nations is different than it is with others B) is always zero
C) can only be expanded when the government has foreign exchange reserves D) is negative when the nation runs a trade deficit
Q3) The current account balance on goods and services is:
A) C + I +G
B) C + I + G + M.
C) C + I + G + (X - M).
D) (X - M).
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