ECONOMICS – FNSINC601A : Review Questions.
Semester 1, 2013. (S.I.)
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. Systematic risk refers to -
a. Risk which 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
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. When setting monetary policy, the RBA must decide between higher levels of economic growth or:
a. Higher levels of unemployment
b. Higher levels of government debt
c. Higher levels of inflation
d. Lower levels of inflation
5. Assuming Australia’s national defence services were privately owned:-
a. Australia would be protected more effectively than in the current government funded scenario
b. The national defence would be under-funded due to the free-rider problem
c. The national defence would just protect those who paid for the service
d. The Government would have to deregulate the national defence market to encourage more competition
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. If the RBA wants to increase money supply and lower the cash rate it participates in open market operations by -
a. Printing money
b. Lending more money to commercial banks
c. Selling government securities
d. Buying government securities
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. During periods where GDP may be lower or possibly negative, unemployment levels increasing and retail sales 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
10. If 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 expected to be:
a. Higher than that of the other developed countries due to offshore investment flows into Country A
b. Lower than that of the other developed countries due to offshore investment flows into Country A
c. Higher than that of the other developed countries due to offshore investment flows out of Country A
d. Lower than that of the other developed countries due to offshore investment flows out of Country A
11. 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
12. The main cause for rising unemployment is-
a. Rising aggregate demand
b. An expansionary budget
c. The current account deficit
d. Decreasing aggregate demand
13. 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
14. 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.
15. Stagflation refers to -
a. Demand increases and price rises
b. Money supply increases due to printing of money and prices rise with money devaluation
c. Situations where general price levels continue to fall for significant periods of time
d. Unemployment rises, output falls, but prices rise.
16. The greater the value of the assets in relation to the proportion of the borrowings over those assets, the:-
a. Lower the leverage ratio
b. Greater the leverage ratio
c. Higher the reserve ratio
d. Higher the loan to valuation ratio
The following information relates to a country’s balance of payments:-
$millionsBalance of Trade/Goods / - 6
Net Services / - 6
Net income flows / - 12
Net capital flow / + 24
17. Given the above information, the current account balance is
a. - $12m
b. - $24m
c. + $24m
d. + 12m
18. Banks in Australia are supervised by
a. ACCC
b. Basel
c. APRA
d. ADIs
19. Deflation
a. Will decrease unemployment
b. Leads to efficiency because prices are falling
c. May cause consumers to put off purchases which will lower economic growth
d. Typically coincides with high economic growth
20. 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
Micro-economics :
21. Microeconomic reform aims to:
a. Make small reforms to market outcomes
b. Increase productivity and efficiency within markets
c. Increase aggregate demand
d. Increase inflation
22. With the introduction of technology, a firm is able to produce more goods for a lower price, therefore this has the effect of –
a. The supply curve moving to the right and market equilibrium moving down
b. The supply curve moving to the left and market equilibrium moving down
c. The demand curve moving to the right and market equilibrium moving down
d. The demand curve moving to the left and market equilibrium moving down
23. 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
24. A firm in perfect competition:
a. Is a price taker
b. Is a price maker
c. Is faced with inelastic demand curves
d. Is unable to move across industries
25. If vegetable oil and peanut oil are substitute products, an increase in the price of vegetable 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
26. 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 right in the supply curve for wheat
c. Shift to the left in the demand curve for wheat
d. Shift to the right in the demand curve for wheat
27. A characteristic of monopolistic competition is:-
a. That there are substantial barriers to entry
b. That they produce a differentiated product
c. That there are few firms in the industry
d. That they face a perfectly elastic demand curve
28. The monopolistically competitive firm maximises short-run profit by following which of the following rules:-
a. Marginal cost = demand
b. Marginal cost = production
c. Marginal cost = marginal revenue
d. Marginal cost > marginal revenue
Quantity / Price / Total revenue / Average revenue / Marginal revenue1 / 35 / 35
2 / 64 / 32 / 29
3 / 29
4 / 17
5 / 23 / 11
6 / 120
7 / 17 / -1
8 / -7
9 / 99 / 11 / -13
10 / 8 / 80
29. Refer to the table above. If the monopolist sells eight units of its product, how much revenue will it receive from the sale?:-
a. -56
b. 40
c. 112
d. Not enough information is given to answer this question
30. Refer to table above. What is the average revenue from selling 4 units of the monopolist’s product ?:-
a. 17
b. 23
c. 26
d. 29
Semester 2, 2012. (S.I)
31. A country’s living standards is best measured by
a. Gross Domestic Product per capita
b. Unemployment
c. Human Development Index
d. Real GDP
32. 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
33. 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
34. 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
35. 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
36. 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
37. 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
38. 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
39. 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
40. 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
41. 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
42. 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
43. 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
44. Banks in Australia are supervised by
a. ACCC
b. APRA
c. Basel
d. ADIs
45. 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
46. 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
47. 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
48. 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
49. 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
50. The demand curve of a perfectly competitive market is
a. perfectly elastic
b. perfectly inelastic
c. downward sloping
d. upward sloping
51. 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