Principles of Economics Review
Questions
Course Introduction
Principles of Economics provides a comprehensive introduction to the fundamental concepts and theories that underpin the study of economics. The course explores the principles of microeconomics, including supply and demand, market equilibrium, consumer behavior, and firm decision-making, as well as macroeconomic topics such as national income, inflation, unemployment, monetary and fiscal policy, and economic growth. By examining real-world examples and economic models, students develop analytical skills to understand economic issues, make informed decisions, and evaluate the impact of economic policy on individuals, businesses, and society as a whole.
Recommended Textbook
Macroeconomics 4th Australian Edition by Glenn Hubbard
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15 Chapters
2116 Verified Questions
2116 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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160 Verified Questions
160 Flashcards
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Sample Questions
Q1) Which of the following is a 'normative' economic statement?
A)The price of petrol is too high.
B)The current high price of petrol is the result of strong worldwide demand.
C)When the price of petrol rises, the quantity of petrol purchased falls.
D)When the price of petrol rises, transportation costs rise.
Answer: A
Q2) What is a 'mixed economy'?
Answer: A mixed economy is an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
Q3) The sales revenue a seller receives from the sale of an additional unit of goods is called the 'marginal benefit'.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Choices and Trade Offs in the Market
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192 Verified Questions
192 Flashcards
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Sample Questions
Q1) When you purchase a new set of spurs, you do so in the:
A)resource market.
B)product market.
C)input market.
D)factor market.
Answer: B
Q2) Refer to Table 2.7. What is Horace's opportunity cost of bathing a cat?
A)half a groomed dog
B)two groomed dogs
C)two-thirds of a groomed dog
D)one and a half groomed dogs
Answer: C
Q3) Refer to Figure 2.1. Point B is:
A)technically efficient.
B)unattainable with current resources.
C)inefficient in that not all resources are being used.
D)the equilibrium output combination.
Answer: A
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4
Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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201 Verified Questions
201 Flashcards
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Sample Questions
Q1) 'Because corn chips and salsa are complements, an increase in the price of corn chips will cause the demand for salsa to decrease. This initial shift in demand for corn chips results in a higher price for corn chips; this higher price will cause the demand curve for corn chips to shift to the right.' Which of the following correctly comments on this statement?
A)The statement will be true if consumer tastes for corn chips and salsa do not change. B)The statement is false because a change in the price of corn chips would not change the demand for corn chips.
C)The statement is false because salsa is an inferior good; corn chips are normal goods. D)The statement is false because one cannot assume that corn chips and salsa are complements for all consumers.
Answer: B
Q2) A normal good is a good for which the demand increases as income decreases, holding everything else constant.
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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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) The 'underground economy' refers to the:
A)buying and selling of goods that is concealed from the government.
B)production of goods and services used by the government for covert spy operations.
C)sector of the economy that earns profits that are higher than average.
D)formal sector of the economy in developing countries.
Q2) An example of an 'intermediate good' would be:
A)a new car.
B)a used car.
C)the tyres on a new car.
D)new tyres to replace old tyres on a used car.
Q3) What is another name used for the 'underground economy'?
A)Formal sector.
B)Informal sector.
C)Halfway economy.
D)Net domestic product economy.
Q4) 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
Page 6
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Chapter 5: Economic Growth, the Financial System and Business Cycles
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) 'Labour productivity' is the quantity of:
A)output that can be produced in one hour by several workers.
B)labour produced in one hour in an economy.
C)output produced in one hour by one worker.
D)output produced in one hour by one machine.
Q2) During an expansion, how do inflation and unemployment typically change?
A)inflation and unemployment both rise
B)inflation and unemployment both fall
C)inflation falls and unemployment rises
D)inflation rises and unemployment falls
Q3) In the model of the market for loanable funds, which of the following will not shift the demand curve for loanable funds?
A)expectations of high returns to investments
B)the effect of technological change on profitability
C)lower interest rates
D)the expectation of a recession by businesses
Q4) Long-run economic growth is measured by changes in real GDP per person over time.
A)True
B)False
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Chapter 6: Long-Run Economic Growth: Sources and Policies
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) Your friend is opposed to globalisation for environmental reasons. Outline for your friend, the positive economic aspects of globalisation.
Q2) Because 'knowledge capital' is non-excludable and non-rival, firms have an incentive to ________ the research and development of other firms.
A)make bids on
B)not use
C)ignore D)'free ride' on
Q3) The Industrial Revolution in Britain:
A)marked the beginning of significant economic growth in the world.
B)started around the year 1950.
C)produced goods exclusively using human or animal power.
D)had no impact on standards of living in the world.
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Page 8
Chapter 7: Unemployment
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Which of the following is an example of a worker experiencing 'frictional unemployment'?
A)A worker who quits his job at the post office to find more interesting work.
B)A computer programmer who loses her job because it is outsourced to India.
C)An employee who loses his job because the economy is suffering a recession.
D)An airline pilot who loses her job because of lack of demand for air travel.
Q2) In Australia in 2016, approximately how many people were in the labour force?
A)6.3 million.
B)12 million.
C)18.3 million.
D)19.6 million.
Q3) Why are jobs continually being created and destroyed in the economy?
Q4) The natural rate of unemployment consists of frictional unemployment plus cyclical unemployment.
A)True
B)False
Page 9
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Chapter 8: Inflation
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) If inflation is completely anticipated:
A)no-one loses.
B)borrowers lose.
C)lenders lose.
D)firms lose because they incur menu costs.
Q2) The nominal interest rate minus the inflation rate equals the real interest rate.
A)True
B)False
Q3) If the CPI changes from 125 to 120 between 2017 and 2018, how did prices change between 2017 and 2018?
A)increased by 4%
B)decreased by 5%
C)increased by 25%
Q4) 'Demand-pull inflation' is caused by:
A)a recession.
B)high levels of aggregate demand in the short run.
C)an increase in the costs of production, which pulls prices higher.
D)wage increases that are higher than increases in productivity growth.
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Chapter 9: Aggregate Expenditure and Output in the Short Run
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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) If inflation in Australia is lower than inflation in other countries, what will be the effect on net exports for Australia, ceteris paribus?
A)Net exports will rise as Australian exports increase.
B)Net exports will rise as Australian imports decrease.
C)Net exports will decrease as Australian exports decrease.
D)Net exports will decrease as Australian imports decrease.
Q2) A decrease in the price level ________ real wealth, which causes consumption to ________.
A)lowers; increase
B)lowers; decrease
C)raises; increase
D)raises; decrease
Q3) At macroeconomic equilibrium, total ________ equals total ________.
A)spending; production
B)investment; inventories
C)consumption; production
D)taxes; transfer payments
Q4) If the multiplier is 10, the marginal propensity to consume must be 0.1.
A)True
B)False
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Chapter 10: Aggregate Demand and Aggregate Supply Analysis
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) Monetarists believe that the quantity of money should be increased at a constant rate.
A)True B)False
Q2) 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
Q3) In Figure 10.2, given the economy is at point A in year 1 and point B in year 2, what is the rate of increase in the price level (the inflation rate)between those two years?
A)1.8%
B)2.7%
C)3.0%
D)0.9%
Q4) During an economic expansion or boom, it is possible for a short-run equilibrium to occur at a point that exceeds potential GDP.
A)True
B)False
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Chapter 11: Money, Banks and the Reserve Bank of Australia
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) Gold is an example of:
A)commodity money.
B)fiat money.
C)barter money.
D)M3.
Q2) The narrowest definition of the money supply in Australia is:
A)M1.
B)M2.
C)M3.
D)M4.
Q3) During the German hyperinflation of the 1920s, the large increases in the money supply were generated by the German government:
A)significantly lowering the required reserve ratio to enable German businesses to obtain loans.
B)significantly raising the required reserve ratio to reduce business loans.
C)printing large quantities of German marks.
D)selling large quantities of government bonds to the central bank, the Reichsbank.
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Page 13
Chapter 12: Monetary Policy
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) The Reserve Bank of Australia engages in open market operations only when it wants to change interest rates.
A)True B)False
Q2) The Reserve Bank of Australia is able to use monetary policy to keep real GDP exactly at its potential level.
A)True B)False
Q3) Explain why the 'money demand curve' is downward sloping.
Q4) The Reserve Bank of Australia can use expansionary monetary policy to lower interest rates to stimulate aggregate demand.
A)True
B)False
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Page 14
Chapter 13: Fiscal Policy
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163 Verified Questions
163 Flashcards
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Sample Questions
Q1) If 'crowding out' occurs, an increase in government spending:
A)increases the interest rate and consumption and investment spending decline.
B)decreases the interest rate and consumption and investment spending decline.
C)increases the interest rate and consumption and investment spending rise.
D)decreases the interest rate and consumption and investment spending rise.
Q2) A change in tax rates:
A)has a less complicated effect on GDP than does a tax cut of a fixed amount.
B)has a larger multiplier effect the smaller the tax rate.
C)will not affect disposable income.
D)will not affect the size of the multiplier.
Q3) If the economy were in a recession, we would expect government expenditure to be:
A)high and tax revenues to be high, probably leading to a budget deficit.
B)high and tax revenues to be low, probably leading to a budget deficit.
C)low and tax revenues to be low, probably leading to a budget surplus.
D)high and tax revenues to be low, probably leading to a budget surplus.
Q4) The structural budget deficit indicates what the budget deficit is during a recession.
A)True
B)False
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Page 15
Chapter 14: Macroeconomics in an Open Economy
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) The ________ account records flows of funds into and out of a country.
A)financial
B)capital
C)current
D)net errors and omissions
Q2) A decrease in value of a country's currency relative to other currencies affects its balance of trade on goods and services by:
A)raising imports, reducing exports, and reducing the balance of trade on goods and services.
B)reducing imports, raising exports, and reducing the balance of trade on goods and services.
C)reducing imports, raising exports, and increasing the balance of trade on goods and services.
D)raising imports, reducing exports, and increasing the balance of trade on goods and services.
Q3) In an open economy, expansionary fiscal policy may lead to a currency appreciation, thereby reducing net exports.
A)True
B)False
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Page 16
Chapter 15: The International Financial System
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) When the value of a currency is fixed relative to a particular country's currency, this is referred to as a ________ exchange rate.
A)permanent
B)variable
C)floating
D)pegged
Q2) With a common currency such as the euro:
A)trade barriers between countries using the currency are increased.
B)individual countries using the currency are no longer able to run independent monetary policies.
C)the prices of goods across countries using the currency must always be the same, regardless of consumer preferences for goods across countries.
D)individual countries using the currency are no longer able to run independent fiscal policies.
Q3) The Australian dollar is partially backed by the gold held at the Reserve Bank of Australia.
A)True
B)False
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