Download ECONOMICS Review questions edited

ECONOMICS – FNSINC601A : Review Questions.
Semester 2, 2012. (S.I)
1. A country’s living standards is best measured by
a. Gross Domestic Product per capita
b. Unemployment
c. Human Development Index
d. Real GDP
2. Keynesian economics argues that
a. Prices should be left to the ‘invisible hand’ of market supply and demand forces
b. Governments should act to assist an economy out of recession via government spending
c. Unemployment is due to high inflation
d. There is an inverse relationship between unemployment and inflation
3. Ceteris paribus is a term which means
a. All other things being equal
b. Let it be
c. Prices did not change when the economy changed
d. Government intervention
4. Systematic risk refers to
a. Risk which is affects the whole market
b. Risk which affects just one industry, sector or company
c. Ability to convert an asset to cash
d. Diversifiable risk
5. If Country A is able to produce a good at a lower opportunity cost than country B, country A is said to
have a(n)
a. Absolute advantage over country b
b. Higher rate of exports than country b
c. Comparative advantage over country b
d. Lower rate of exports than country b
6. If an economy’s output is falling, prices are falling, and unemployment rising, it is reasonable to
assume that the economy is in which phase of the business cycle
a. contraction
b. expansion
c. peak
d. fiscal deficit
7. During periods where GDP may be lower or possibly negative, unemployment levels increasing and
retail sales figures falling, fiscal policy implemented could reasonably include the following:
a. Interest rate increase
b. Interest rate decrease
c. Lower taxes or increase government spending
d. Increase taxes or decrease government spending
8. Budget deficits increase and budget surpluses diminish as a result of
a. Expansionary monetary policy
b. Contractionary monetary policy
c. Expansionary fiscal policy
d. Contractionary fiscal policy
9. If the RBA wants to increase money supply and lower the cash rate it participates in open market
operations by
a. Selling government securities
b. Buying government securities
c. Printing money
d. Lending more money to commercial banks
10. Stagflation refers to:
a. Situations where general price levels continue fall for significant periods of time
b. Unemployment rises, output falls but prices rise
c. Money supply increases due to printing of money and prices rise with money devaluation
d. Demand increases and prices rise
11. As aggregate demand increases in reaction to expansionary macroeconomic policy, ceteris paribus
a. The aggregate demand curve moves to the left
b. The aggregate demand curve moves to the right
c. The aggregate supply curve moves to the left
d. The aggregate supply curve moves to the right
12. If a country A’s interest rates are relatively higher than other developed countries of a similar credit
rating, the exchange rate of country A can reasonably be expected to be
a. Higher than that of the other developed countries due to offshore investment flowing into
country A
b. Lower than that of the other developed countries due to offshore investment flowing into
country A
c. Higher than that of the other developed countries due to offshore investment flowing out of
country A
d. Lower than that of the other developed countries due to offshore investment flowing out of
country A
13. If Bank A has a reserve ratio of 25%, and $100 is initially deposited
a. The credit multiplier is 4 and the total amount of money created is $400
b. The credit multiplier is 25 and the total amount of money created is $2500
c. The credit multiplier is 0.25 and the total amount of money created is $25
d. The credit multiplier is 0.4 and the total amount of money created is $4000
14. Banks in Australia are supervised by
a. ACCC
b. APRA
c. Basel
d. ADIs
15. The requirement for banks to hold a certain amount of capital, expressed as a ratio, to guard against
credit and market risk as stipulated by Basel Committee of Banking Supervision is known as the
a. Reserve ratio
b. Fractional banking
c. Capital adequacy ratio
d. Loan to valuation ratio
16. The greater the value of the asset in relation to the proportion of the borrowings over that asset, the
a. Lower the leverage ratio
b. Greater the leverage ratio
c. Higher the reserve ratio
d. Higher the loan to valuation ratio
17. The banking industry in Australia is deemed to have which of the following market structures
a. Monopoly
b. Oligopoly
c. Perfect competition
d. Monopolistic competition
18. In a perfect competition market structure, price is always equal to marginal revenue and to marginal
cost. However the other market structures can charge a price higher than marginal revenue and
marginal cost. Identify the order that this can occur from smallest to largest price difference over
marginal revenue:
a. Oligopoly, monopolistic competition, monopoly
b. Monopoly, monopolistic competition, oligopoly
c. Monopolistic competition, oligopoly, monopoly
d. Monopoly, oligopoly, monopolistic competition
19. The profit maximising output for any firm will be where
a. Marginal revenue exceeds marginal cost
b. Marginal cost is less than total cost
c. Marginal revenue is equal to marginal cost
d. Marginal cost is less than price
20. The demand curve of a perfectly competitive market is
a. perfectly elastic
b. perfectly inelastic
c. downward sloping
d. upward sloping
21. The more inelastic a demand curve is
a. The steeper the curve is reflecting that consumers are less likely to pay the higher prices
b. The flatter the curve is reflecting that consumers are less likely to pay the higher prices
c. The steeper the curve is reflecting that consumers are less likely to pay the lower prices
d. The flatter the curve is reflecting that consumers are less likely to pay the lower prices
22. With the introduction of technology, a firm is able to produce more goods for a lower price, ceteris
paribus, this has the effect of
a. The supply curve moving to the right and market equilibrium moving down
b. The demand curve moving to the right and market equilibrium moving down
c. The supply curve moving to the left and market equilibrium moving down
d. The demand curve moving to the left and market equilibrium moving down
Graph 1
23. Refer to Graph 1 above. Calculate the elasticity of demand from point B to point C using the point
method. Elasticity is
a. 33.33
b. 1.33
c. 0.75
d. 10.2
24. Refer to Graph 1 above. Based on your answer in question 23, demand between point B and point C is
a. Elastic
b. Perfectly elastic
c. Inelastic
d. Unitary elastic
Graph 2
25. Refer to Graph 2 above. Total revenue at P2 is represented by the area
a. B+D
b. A+C
c. A+B+C+D
d. A+B
Graph 3
26. Refer to Graph 3 above. When the price is P1 the consumer surplus is
a. D+E
b. A+B+C
c. A+B+D
d. A
Graph 4
27. Refer to Graph 4 above. On the production possibilities frontier shown, at which point or points is it
possible for this economy to produce?
a. A, B, C, D
b. A, B, C, E, F
c. E, F
d. D
Table 1
Consider the data in Table 1 above, of a firm which makes high-performance racing bicycles. All costs are
given in dollars. Output is shown on a monthly basis. The firm’s fixed costs include a rent of $800 and a lease
cost of $400 per month (=$1200). Calculate the blank fields in the table to complete the questions below.
28. Refer to Table 1 above. The marginal cost of producing the 10th bicycle is
a. $300
b. $304
c. $321
d. $340
29. Refer to Table 1 above. The average variable cost for the month if 6 bicycles are produced is
a. $200
b. $265
c. $465
d. $1590
30. Refer to Table 1 above. The average fixed cost for the month if 10 bicycles are produced is
a. $120
b. $284.40
c. $404.40
d. $1200
NSI – Semester 1 , 2013.
1. Every economy is faced with –
a. Limited wants and unlimited resources
b. Increasing labour resources
c. Unlimited wants, limited resources
d. Limited wants and resources
2. Which of the following is an example of economic investment;
a. The purchase of shares on the stock market
b. The purchase of a new computer equipment by a business
c. Depositing funds in a fixed term deposit
d. The takeover of an existing business
3. Movements along the demand curve can be brought about by:
a. An increase in population
b. A decrease in price
c. Changes in manufacturing technology
d. An increase in the equilibrium quantity demanded
4. If vegetable oil and peanut oil are substitute products, an increase in the price of
vegetables oil would cause:
a. The demand curve for vegetable oil to shift to the left
b. The demand curve for peanut oil to shift to the right
c. An extension of quantity demanded for peanut oil
d. An extension of quantity demanded for vegetable oil
5. A drought in Australian wheat producing region would result in:a. Shift to the left in the supply curve for wheat
b. Shift to the tight in the supply curve for wheat
c. Decrease in the equilibrium price of wheat
d. Shift to the left in the demand curve for wheat
e. Shift to the right in the demand curve for wheat
6. Price elasticity of demand shows:
a. How producers respond to changing consumer tastes
b. How consumers respond to changing levels of output
c. How producers will increase output response to greater consumer income
d. How consumers will react to changes in product price
7. Unit elasticity:
a. Is shown by a shift to the right of the demand curve
b. Means total revenue will increase more than costs of production
c. Is a proportionate increase in quantity and decrease in supply
d. Leaves total revenue unchanged.
8. The motor vehicle manufacturing industry in Australia is an example of:
a. Perfectly competitive industry
b. Oligopolistic industry
c. Monopolistic competitive industry
d. Monopolistic industry
9. Product differentiation occurs:
a. Always in monopoly and monopolistic competition
b. Always in oligopolies and perfect competition
c. Never in monopolies or perfect competition
d. Never in perfect competition but always in monopolistic competition
10. A firm in perfect competition:
a. Is a price taker
b. Must advertise to stay in business
c. Is faced with inelastic demand curves
d. Is unable to move across industries
11. The Keynesian model of the economy is based on the principle that:
a. Supply created its own demand therefore there could be no long-term disequilibrium
b. Supply and demand are in permanent equilibrium
c. Aggregate demand determines the level of production, income and employment
d. All resources are fully employed
12. In the 5 sector circular flow which are the principle leakages:
a. Wages, rent, interest and profits
b. Taxation, exports and profits
c. Investment, savings and taxation
d. Savings, taxation and imports
13. The main cause for rising unemployment isa. Low inflation
b. An expansionary budget
c. The current account deficit
d. Deficient aggregate demand
14. The largest component of the gross domestic product in Australia is:a. Government spending
b. Investment
c. Consumption
d. Exports
e. Foreign capital inflow
15. An appreciation of the $A has the immediate effect of:
a. Reducing the current account deficit
b. Lowering the $A price of imports
c. Increasing the competitiveness of Australian exports
d. Reducing foreign currency prices for overseas buyers of Australian goods
16. GDP per capita is not a satisfactory measure of living standards because:a. It cannot take account of price changes
b. It only examines the impact on consumers
c. It fails to account for distribution of health, education and income
d. It fails to allow for a country’s population size.
17. The Australian government can exercise a reasonable degree of control over:
a. The exchange rate of the $A
b. Domestic interest rates
c. Overseas interest rates
d. Investment plans of multinationals
e. The balance of payments current account deficit
18. Which of the following is not an example of micro economic reform:a. Deregulation of the financial system
b. Taxation reform
c. Interest rate policy
d. Encouraging competition
Balance of Trade/Goods
-6
Net Services
-6
Net income flows
- 12
Net capital flow
+ 24
19. Given the above information, the current account balance is :
a. - $12m
b. - $24m
c. + $24m
d. + 12m
20. Given the above information, the gross foreign debt is:a. Decreasing
b. Constant
c. Increasing
d. Equal to the balance on current account
21. Australia’s major trading partner is:
a. United Kingdom
b. United States of America
c. Korea
d. China
e. Japan
22. The annual percentage change in real GDP for a nation is regarded as the economic growth of the nation
True False .
23. GST is the main revenue source for the Australian government
True False .
24. Income tax is an example of a regressive tax.
True False .
25. Increasing aggregate demand to reduce structural and frictional unemployment will be inflationary.
True False.
26. The government’s economic stimulus package in 2008/2009 was an example of an automatic stabiliser
True or False.
27. Labour force participation rates should rise during a recession.
True or False
28. Excess demand means equilibrium price will eventually be forced down.
True or False.
29. Drugs of addiction are highly price elastic
True of False.
30. Most markets in Australia are perfectly competitive because of the large number of buyers.
True False.
31. All products in perfectly competitive markets are homogeneous.
True False .
32. A chronic current account deficit is likely to cause a depreciation of a nation’s currency.
True False.
33. An increase in overseas tourism into Australia would lift the demand for the US dollars.
True False.
34. Australia’s current account balance has been consistently in surplus in the 2000s.
True False .
35. This accumulation of current account deficits adds up every year to the size of Australia’s net foreign debt.
True False.
36. An increase in interest rates will increase investment, leading to an increase in economic activity.
True False