Micro & Macro Economics Essentials - Beginner Level

Question 1
Which of the following best describes the law of demand in a market economy?

(A) An increase in price leads to a slight increase in demand due to a perceived higher quality (misleading but close)

(B) Higher prices lead to an increase in demand as consumers assume the product is superior.

(C) A rise in price causes a decrease in supply because producers are less willing to sell.

(D) When prices increase, demand decreases as consumers seek alternatives.

Question 2
In a perfectly competitive market, firms are described as 'price takers' because:

(A) They must accept the market price as they have no power to affect it.

(B) They adjust prices entirely based on government-imposed pricing guidelines.

(C) They collaborate with each other to set a uniform market price.

(D) They might influence prices slightly by adjusting production, even though market conditions fix the price (misleading but close)

Question 3
Inflation is best described as:

(A) A general rise in the overall price levels which decreases purchasing power.

(B) A temporary increase in prices for select goods only (incorrect)

(C) A decline in the value of currency that occurs specifically due to changes in interest rates (misleading but close)

(D) A situation where prices remain fixed for an extended period, leading to stagnation (incorrect)

Question 4
GDP (Gross Domestic Product) measures:

(A) The aggregate income derived solely from government spending (incorrect)

(B) The total output of goods and services produced by a country, regardless of whether the income accrues to domestic residents (misleading but close)

(C) The total market value of all final goods and services produced within a country in a given period.

(D) Only the profits generated by large corporations operating within the country (incorrect)

Question 5
Which of the following best distinguishes monetary policy from fiscal policy?

(A) Fiscal policy always adjusts the money supply through bond buying, whereas monetary policy sets tax rates (misleading but close)

(B) Monetary policy involves central bank decisions about interest rates and money supply, while fiscal policy relies on government spending and taxation.

(C) Monetary policy involves government spending decisions aimed at stimulating the economy (incorrect)

(D) Fiscal policy is focused solely on controlling the money supply, whereas monetary policy only deals with taxation (incorrect)

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