Deck 1: Economic Issues

Question 1

Aggregate demand is defined by the equation:

A) AD = C + I + G + X
B) AD = C + I + G
C) AD = C + I + G + X + M
D) AD = C + I + G + X - M

Answer 1

D

Question 2

In a barter economy:

A) services are exchanged for other services, but goods are exchanged for money
B) labour is unrewarded
C) goods are exchanged for other goods, but services are exchanged for money
D) goods and services are exchanged for other goods and services

Answer 2

D

Question 3

Which of the following is an element of a centrally planned economy?

A) production decisions are centralised.
B) The market decides what will be consumed.
C) The market decides the distribution of income.
D) The market decides what will be produced.

Answer 3

A

Question 4

Studying how the management of Telstra decides what price to charge customers for its G3 mobile network is a _ _ issue.

A) positive economics
B) macroeconomics
C) normative economics
D) microeconomics

Question 5

Aggregate supply is the total amount of:

A) goods and services produced by a particular industry
B) goods and services produced in an economy
C) goods and services produced by the government
D) labour supplied by all households

Question 6

The study of economics:

A) is concerned with proving that capitalism is better than socialism
B) focuses on what products businesses should produce and in what quantities
C) is narrowly focused on only parts of the economy
D) is a way of analysing decision- making processes caused by scarcity

Question 7

If the opportunity costs of producing a good increase as more of that good is produced, the economy's production possibility curve will be:

A) a negatively sloped straight line
B) a positively sloped straight line
C) negatively sloped and 'bowed inward' toward the origin
D) negatively sloped and 'bowed outward' from the origin

Question 8

A retired individual decides to spend the day golfing. The opportunity cost of this decision:

A) is equal to the cost of the golf outing
B) is best measured by using the wage rate this individual earned prior to retirement
C) is zero, since the individual is retired and is not forgoing any income to spend his time golfing
D) equals the cost of the golf outing plus the value of the individual's alternative use of time

Question 9

In the real world, economic systems of most nations are distinguished by:

A) the degree of government intervention in the economy
B) fluctuations between complete central planning and a complete free- market
C) whether or not there is a completely free- market economy
D) whether or not there is central planning

Question 10

A production possibility curve shows the:

A) production changes that would be possible if the economy invested in new technology
B) various possible output combinations of two goods
C) percentage of resources that are used inefficiently
D) substitution possibilities between labour and capital

Question 11

Opportunity cost is best defined as the:

A) next best alternative that is not chosen
B) cost to producers resulting from a failed investment opportunity
C) leisure time that is lost due to increased hours at work
D) price paid for a good or service

Question 12

In economics, the term 'capital' refers to:

A) things that have been produced and are used to produce other things
B) the current value of the firm's shares on the stock exchange
C) the process by which inputs are transformed into outputs
D) the value of a firm to its shareholders

Question 13

A point inside a production possibility curve is:

A) not achievable and inefficient
B) achievable and efficient
C) not achievable with the current level of resources and technology
D) achievable but inefficient

Question 14

The reason that opportunity costs arise is that:

A) an economy relies on money to facilitate exchange of goods and services
B) there are no alternative decisions that could be made
C) people have unlimited wants
D) resources are scarce

Question 15

The problem of scarcity occurs:

A) only in recent times as the rate of resource use has increased
B) only in poor countries
C) only in wealthy countries due to high levels of consumer demand
D) in all countries

Question 16

A cut in company tax rates intended to encourage more investment by firms would be called:

A) a microeconomic policy
B) a demand- side policy
C) a supply- side policy
D) an incomes policy

Question 17

During times of war, many of a country's resources are often destroyed. This would be shown on a production possibility curve (PPC) by:

A) a movement down along the PPC
B) a shift of the PPC back and to the left
C) a movement up along the PPC
D) a movement of prediction levels from a point on the PPC to some point inside the PPC

Question 18

If a full- time student decides to spend a day at the beach, the opportunity cost of this decision:

A) is best measured by the wage rate that the student could have earned had she/he decided to work full- time instead of studying
B) is equal to the cost of food and drinks purchased at the beach
C) equals the cost of the beach outing plus the value of the student's alternative use of the time, such as studying
D) is zero, since the student would have stayed in bed had she/he not decided to go to the beach

Question 19

Consider two countries, Germany and Sweden. Germany devotes a larger portion of its production to investment. Which of the following statements is most likely true?

A) Germany's production possibility curve will shift outwards and to the right further and faster than Sweden's.
B) Germany will move up its production possibility curve faster than Sweden.
C) Sweden is producing inside its production possibility curve, while Germany is producing at a point on its production possibility curve.
D) Germany is a poorer country than Sweden.

Question 20

A production possibility curve will move outwards if there is:

A) a change in consumer preferences
B) an increase in the number of people wishing to work
C) a decrease in unemployment
D) an increase in the money supply

Question 21

That which we forgo, or give up, when we make a choice or decision is called the cost of that decision.

A) monetary
B) marginal
C) opportunity
D) real

Question 22

A movement from a point inside a production possibility curve to a point on the curve shows that:

A) the society has discovered new resources
B) the society begins to produce goods and services more efficiently
C) the society has learned to produce more using existing resources
D) both B and C

Question 23

Which of the following would NOT be called a resource by economists?

A) labour
B) money
C) buildings
D) land

Question 24

Which of the following is NOT true of a completely free- market economy?

A) Firms' production methods are regulated.
B) Workers choose where to work and how much to work.
C) Millions of individual economic decisions determine economic outcomes.
D) The interaction between buyers and sellers answers the basic economic questions of what gets produced, how it gets produced, and who gets it.

Question 25

The circular flow of goods and income diagram shows:

A) how households sell productive services to firms
B) how firms sell goods to households
C) how households produce services for their own use
D) both A and B

Question 26

The idea of choice would not be needed if:

A) capital were eliminated
B) scarcity did not exist
C) we were just looking at one person's lifestyle
D) no one was poor

Question 27

An improvement in education levels in Australia will cause:

A) the economy to move from a point inside its production possibility curve to a point on the curve
B) Australia's production possibility curve to shift outwards
C) Australia's production possibility curve to shift inwards
D) the economy to move down along the production possibility curve

Question 28

Two factors which can cause a nation's production possibility curve to move inwards are:

A) war and natural disasters
B) unemployment combined with a more skilled workforce
C) natural disasters and increased investment
D) war and increased investment

Question 29

Which of the following would NOT shift an economy's production possibility curve?

A) a doubling of the number of machines
B) a doubling of the money supply
C) more advanced technology
D) a doubling of the number of university graduates

Question 30

Which of the following is NOT true about an economy's production possibility curve (PPC)?

A) Consumers receive equal benefits from the consumption of either good.
B) The PPC shows the maximum amount of any two goods that can be produced from a given quantity of resources.
C) Tradeoffs between the production levels of the two goods occur along a PPC.
D) Inefficient use of resources can cause production to occur at a point inside the PPC.

Question 31

Although perfectly competitive markets are seldom found in the real world, we study this market structure:

A) to gain insight into the way free markets function
B) because perfect competition demonstrates ideal outcomes which provide a point of comparison with real world outcomes
C) because many real world markets approximate perfect competition
D) all of the above answers are correct

Question 32

In terms of Australia's production possibility curve (PPC), a rise in the level of unemployment could be shown by:

A) the PPC shifting inward
B) a movement along the PPC
C) a movement from a point on the PPC to a point inside the PPC
D) the PPC shifting outward

Question 33

The opportunity cost of being a full- time student is:

A) having to miss out on lots of parties while you are busy studying all the time
B) the loss of earnings had you chosen to work instead
C) the cost of accommodation and food during your time studying
D) the loss of earnings had you chosen to work instead plus student fees

Question 34

The factors of production include:

A) labour, land and raw materials and capital
B) labour, land and raw materials
C) land, labour, raw materials and money
D) land, raw materials and capital

Question 35

An institution through which buyers and sellers interact and engage in exchange is a:

A) central authority
B) production curve
C) market
D) circular flow model

Question 36

A society can produce two goods: bread and biscuits. The society's production possibility curve is negatively sloped and "bowed outward" from the origin. As this society moves down its production possibility frontier and produces more and more units of biscuits, the opportunity cost of producing biscuits:

A) remains constant
B) could increase or decrease depending on the technology
C) increases
D) decreases

Question 37

The devastating earthquake which hit Haiti in 2010 most probably caused:

A) the production possibility curve for Haiti to shift outwards
B) a movement along Haiti's production possibility curve
C) a movement from a point on the production possibility curve for Haiti, to a point inside the curve.
D) the production possibility curve for Haiti to shift inwards

Question 38

As more of a good, such as television sets, is produced, the opportunity cost of producing it increases. This most likely occurs because:

A) as more of a good is produced the inputs used to produce that good will increase in price
B) resources are not equally well- suited to producing all goods and as more of a good is produced it is necessary to use resources less well- suited to the production of the good
C) as more of a good is produced the quality of the technology available to produce additional units of the good declines and therefore the costs of production increase
D) consumers would be willing to pay higher prices for the good as more of the good is produced

Question 39

The study of why a person may decide to go to university instead of accepting a $40 000 a year job would be considered a/an issue.

A) microeconomics
B) industrial relations
C) macroeconomics
D) public sector economics

Question 40

Economists define inflation as:

A) a decrease in the overall price level
B) a decrease in the overall level of economic activity
C) an increase in the overall level of economic activity
D) an increase in the overall price level

Question 41

Economists say that there is unemployment when:

A) there is excess demand in the labour market
B) at the going wage rate there are people who want to work but cannot find work
C) there are less unfilled vacancies than there are people seeking work
D) there are people who are not willing to work at the going wage rate

Question 42

A change in the tax system designed to encourage single- parents to work is a/an:

A) anti- inflation policy
B) demand- side policy
C) supply- side policy
D) incomes policy

Question 43

Microeconomics is the branch of economics that examines:

A) outcomes of economic behaviour, evaluates them as good or bad, and prescribes preferred courses of action
B) ways to understand behaviour and the operation of systems without making judgements
C) the functioning of individual industries and the behaviour of individual decision- making units, that is, business firms and households
D) the economic behaviour of income, employment, and output on a national scale

Question 44

In the circular flow of goods and income diagram:

A) money flows from households to firms
B) households exchange goods and services for money
C) money flows from firms to households
D) both A and C

Question 45

Which of the following is a reason to study economics?

A) to understand global affairs
B) to understand society
C) to be an informed consumer
D) all of the above

Question 46

An example of a demand- side government policy is:

A) reducing personal income tax rates to provide a greater work incentive
B) subsidising child- care for parents to encourage them to re- enter the workforce
C) reducing the power of trade- unions
D) increasing spending on road construction to create jobs

Question 47

For an economy to produce at a point beyond its current production possibility curve, the economy must:

A) increase inputs
B) waste less
C) increase investment
D) reduce inputs

Question 48

An economic model is:

A) a simplified representation of the real world used to understand relationships between economic variables
B) an overly simplified depiction of the real world, used only in introductory economics
C) a complex diagrammatic depiction of the real world used to confuse economic students
D) a complex mathematical analysis of the real world used only by experienced economists

Question 49

Which one of the following would directly lead to an outward shift of a country's production possibility curve?

A) an increase in the general price level in the economy
B) an increase in the level of unemployment in the economy
C) an increase in the number of people in the economy who are of working age
D) none of the above

Question 50

Which of the following is NOT an opportunity cost of attending university?

A) the alternative uses of the time you spend studying
B) the income that you could have earned if you did not attend university
C) the cost of the food that you consume while you are attending university
D) the student fees that you pay

Question 51

The process by which resources are transformed into useful items is:

A) allocation
B) capitalisation
C) production
D) consumption

Question 52

Opportunity cost is defined as:

A) the value of the next best alternative that is not chosen
B) the lowest price at which a good can be purchased
C) the wages paid by a firm to its workforce
D) none of the above

Question 53

Suppose you weigh the costs and benefits of an additional hour of study against those associated with spending an hour watching Desperate Housewives, and decide on the latter. You have:

A) made a decision based on imperfect information
B) made a rational decision
C) made a lazy decision
D) made an irrational decision

Question 54

In factor markets:

A) factors of production flow from households to firms in exchange for wages and other payments
B) goods and services flow from households to firms in exchange for income
C) factors of production flow from firms to households in exchange for wages and other payments
D) goods and services are exchanged between firms and households

Question 55

Opportunity cost is:

A) a cost that cannot be avoided, regardless of what is done in the future
B) that which we forgo, or give up, when we make a choice or a decision
C) the additional cost of producing an additional unit of output
D) the additional cost of buying an additional unit of a product

Question 56

The economic problem of scarcity exists because:

A) human wants are assumed to be virtually unlimited meaning resources will always be scarce relative to wants
B) global warming is increasing the rate at which the natural resources are being depleted.
C) the world's resources are insufficient to sustain the global population
D) technological advances have increased the rate at which natural resources are being depleted

Question 57

The bowed out shape of the production possibility curve illustrates:

A) constant opportunity costs
B) decreasing opportunity costs
C) increasing opportunity costs
D) the fact that different resources are equally useful in the production of different goods

Question 58

The 'for whom' question is concerned with:

A) the combination of goods and services used in production
B) who demands what goods and services
C) the distribution of income
D) who produces what goods and services

Question 59

Growth in potential output would occur when:

A) a society acquires new resources
B) a society learns to produce more using existing resources
C) the society begins to produce the combination of goods society wants most
D) both A and B

Question 60

The opportunity cost of going on a holiday to an unemployed person is:

A) equal to the cost of the holiday only
B) zero, as the person does not have a next best alternative
C) zero, as the person is not foregoing any wages to take the holiday
D) equal to the cost of the holiday plus the alternative use of the person's time

Question 61

Why is the issue of scarcity so central to economics?

Question 62

Which of the following is the best definition of economics?

A) the study of how governments allocate tax revenue
B) the study of how individuals and societies choose to use their scarce resources
C) the study of how consumers spend their income
D) the study of how firms decide what inputs to hire and what outputs to produce

Question 63

The total demand for goods and services in an economy is known as:

A) national demand
B) economy- wide demand
C) aggregate demand
D) potential demand

Question 64

How do economists define unemployment?

Question 65

Correctly complete the following sentences from the options below.
Statement
a() A drought in Australia will cause
b() A new discovery of natural gas reserves will cause
c() A change in demand, away from canola oil to olive oil, will cause
Answer

Question 66

What is opportunity cost?

Question 67

Correctly complete the following sentences from the options below.
Statement
a() Giving up work to study full- time:
b() Working full- time and studying part time:
c() Walking slowly instead of speedily to lectures:
Answer

Question 68

Why do economists use economic models?

Question 69

What are demand- and supply- side policies?

Question 70

Explain the two main divisions into which economic ideas fall.

Question 71

If you were involved in deciding whether to allow mining at Kakadu National Park, identify the economic concept you have learned so far that you would use to help in your decision making, and give examples of what issues you would consider.

Question 72

Which of the following is NOT a characteristic of a free- market economy?

A) The government seeks to equalise the distribution of income.
B) Consumers seek the best value for money in their purchases.
C) Workers seek to maximise wages.
D) Firms seek to maximise profit.

Question 73

Which of the following is true of a completely free- market economy?

A) The government could set a minimum wage.
B) People are paid fair wages.
C) There will be full employment.
D) Production and consumption depend on demand and supply.

Question 74

What is economics all about?

Question 75

Explain how a production possibility curve illustrates the concept of opportunity cost.

Question 76

The factors of production used to produce goods and services are divided into three broad categories. Identify the three categories and explain what is included in each.

Question 77

Economists define a recession as a period:

A) when aggregate output declines for two quarters or more
B) of declining employment
C) of declining prices
D) of very rapidly declining prices

Question 78

Inflation and unemployment:

A) are the focus of macroeconomics
B) are the focus of microeconomics
C) are the focus of economic history
D) are the focus of positive economics

Question 79

The branch of economics that examines the economic behaviour of aggregates such as income and employment is:

A) positive economics
B) microeconomics
C) normative economics
D) macroeconomics

Question 80

A study of how the changes in minimum wage rates in Australia will affect the rate of unemployment rate among unskilled workers is a issue.

A) descriptive economics
B) microeconomics
C) normative economics
D) macroeconomics