Basic Economics Practice Questions
1. What is inflation?
a. An expansion of business
b. An increase in the value of money
c. A decrease in the value of money
d. A growth in unemployment
2. What is consumer confidence?
a. the optimism held by the general public regarding the economy
b. the trust that consumers have that the products they buy are safe
c. the demand for a product
d. the marketing used to make products seem valuable
3. The federal government borrows money by
a. Delaying payments to employees
b. Selling bonds
c. Cutting off funding to certain programs
d. Taxing citizens and corporations
4. The federal government regulates
a. Gubernatorial elections
b. School curricula
c. State universities
d. Interstate commerce
5. The federal government can print more money to stimulate the economy, but this leads to what?
6. Classical economics holds that over time, economic problems will be corrected by the
a. policies of the government
b. invisible hand of the market
d. raising of taxes
7. The federal government has carried significant amounts of debt since
a. The Civil War
b. The 1980s
c. The Great Depression
d. The 2010s
8. The value of all of the goods and services produced within a country is its
a. Per Capita Income
b. Gross Domestic Product
c. Net Exports
An increase in the value of money, or more precisely, a general increase in prices and fall in the purchasing value of money. Choice A is incorrect; inflation refers to currency, not business. Choice B is incorrect; this is the definition of deflation. Choice D is incorrect; unemployment is irrelevant to inflation.
Consumer confidence is an economic indicator which measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. Choices B and C are incorrect but sounds plausible.
The federal government borrows money by welling bonds. Bonds are loans to the government.
Choices A and C are incorrect; delaying payments to employees, or cutting off funding does not amount to borrowing money. Choice D is incorrect; taxing citizens and corporations is how the government gets its revenue.
The federal government regulates interstate commerce, which gives the federal government great power. Choices A, B and C are incorrect; gubernatorial elections, school curricula, and state universities are a state and local matter.
The federal government can print more money to stimulate the economy, however, increasing the money supply decreases the value of money, ergo inflation. Choice A is incorrect; deflation is an increase in the value of money. Choice B is incorrect; stagflation is a possibility, but does not normally take place. Choice D is incorrect; stagnation is a stalling of the economy, while increasing the money supply stimulates the economy.
Classical economics holds that over time, economic problems will be corrected by the the invisible hand of the market. Adam Smith’s theory of the invisible hand is an important part of classical economics. Choice A is incorrect; classical economics was a free market school of thought. Choice C is incorrect; the people’s role in classical economics is simply to be consumers. Choice D is incorrect; classical economists would virtually never recommend raising taxes.
The federal government has carried significant amounts of debt since the 1980s, when it became normal for the U.S. to borrow more and more money each year to cover deficits. Choice A is incorrect, the Civil War required borrowing, but the debts were not carried for long and paid off. Choice C is incorrect; The Great Depression created debt, but the debts were paid off by the end of the 1940s. Choice D is incorrect; 2010 was not the beginning of the practice of carrying large amounts of debt.
The value of all of the goods and services produced within a country is its Gross Domestic Product, or GDP. Choice A is incorrect; per capita income is a measure of individual income. Choice C is incorrect; net exports are only part of GDP. Choice D is incorrect; capital is money and resources used to expand a business.
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