Pre-IB Economics Practice Exam

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• Which item is included in the capital/financial account of the balance of payments?
• What does the Lorenz curve illustrate?
• What term describes the value of money: the quantity of goods and services one unit of currency can buy?
• Why do long-run profits tend to zero in monopolistic competition?
• Which description best captures economic development?
• Differentiate between a movement along the demand curve and a shift in the demand curve.
• On a Lorenz curve, which axis shows the cumulative share of population?
• Name a common policy to address negative externalities and briefly state its effect.
• Normal good is defined as: As income rises, demand for the good rises.
• If nominal return is 8% and inflation is 3%, what is the approximate real return?
• The Human Development Index (HDI) is a composite index that combines which three dimensions into a score from 0 to 1?
• Market equilibrium occurs at the price where
• Which statement about substitutes and demand is most accurate when substitutes become more expensive?
• A policy designed to reduce negative externalities by raising the cost of the good is called what?
• What is the short-run Phillips curve relationship?
• Which statement describes a normal good?
• What does ceteris paribus mean in economic analysis of the law of demand?
• In monopolistic competition, which statement best describes the market compared with perfect competition?
• What is the difference between real economic growth and nominal growth, and how do policy goals relate to both?
• On a Lorenz curve, what does the line of perfect equality represent?
• What is a deadweight loss in the context of tariffs or quotas?
• Which are common monetary policy tools used by central banks?
• What are the components of aggregate demand (AD)?
• Which is NOT typically considered a factor influencing long-run economic growth?
• Which describes a movement along the PPF?
• Which statement about the balance of payments accounts is true?
• What is a common short-run effect of expansionary monetary policy when unemployment is high?
• What is a positive externality and how does it affect social welfare?
• Which policy action is a typical government intervention aimed at merit goods?
• Which description best defines demand-pull inflation?
• What is the name of the measure equal to (Labour force ÷ Working-age population) × 100, expressing the share of working-age people who are in the labor force?
• Why are public goods underprovided by markets?
• When demand increases while supply remains constant in a competitive market, what happens to the equilibrium price and quantity?
• What is income elasticity of demand and what does a value greater than 1 indicate?
• If technology improves and resources become more productive, the PPF will
• If the price of imported oil rises, which price index is most likely to rise?
• What is a potential mixed effect of currency devaluation on a country’s terms of trade?
• If a country experiences high GDP growth but increasing inequality, which concept applies?
• Under what conditions does a tax create deadweight loss?
• Which HDI sub-index measures how long people live on average (health outcomes)?
• GDP adjusted for inflation using a price deflator and a base year is called what?
• What does the long-run aggregate supply (LRAS) curve represent?
• Which of the following is NOT a sign of economic development?
• In a fixed exchange-rate regime, what is a key risk if reserves run low?
• What does a positive cross-price elasticity of demand indicate about two goods?
• What is a negative externality and how does it affect social welfare?
• GDP per capita is a rough proxy for what?
• Why does the AD curve slope downward?
• Which statement best describes comparative advantage?
• How does a floating exchange rate system determine currency values? What are the main factors driving exchange rate movements?
• Which type of unemployment grows during downturns and falls during expansions, linked to the business cycle and changes in aggregate demand?
• How does the short-run aggregate supply (SRAS) curve typically respond to higher price levels?
• External costs of production typically cause a market to produce too much relative to the social optimum. This is known as?
• Which statement about the circular flow model is correct?
• A price floor in the labour market set above the equilibrium wage is best described by which term?
• In an oligopoly, which statement best describes the market structure and its typical analytical approach?
• Deadweight loss arises when the market quantity is not at the socially optimal level due to externalities. Which statement best captures this?
• What does a Gini coefficient of 0 signify?
• What is the short-run shutdown condition for a firm?
• Price ceiling is defined as
• Which statement describes non-price determinants of demand as they relate to the demand curve?
• Which policy creates a surplus of labour and unemployment when set above the equilibrium wage?
• Which unemployment is caused by a mismatch between workers' skills and job requirements?
• Why can low unemployment and low inflation be difficult to achieve simultaneously?
• Describe three transmission channels through which monetary policy affects the economy.
• Amartya Sen's framework development is defined as the expansion of people's real freedoms and capabilities rather than merely income growth. What is this approach called?
• GDP alone can misrepresent welfare because it excludes non-market activities and income distribution.
• In the HDI context, what does PPP in GNI per capita (PPP) stand for?
• Define price elasticity of demand and interpret an elasticity of -1.5 for a good.
• What does the Law of Demand state?
• The description 'Market transactions for goods and services produced within a country in the current period' refers to which GDP concept?
• Which statement about sustainability is true?
• In an oligopoly, why might firms engage in collusion?
• Which of the following can cause the short-run aggregate supply (SRAS) curve to shift?
• The Human Development Index (HDI) is most closely associated with which concept?
• Why is the profit-maximizing condition for a firm in perfect competition where marginal revenue equals marginal cost (MR = MC)?
• Which statement correctly distinguishes GDP growth from development?
• Which of the following is not typically considered a main driver of exchange rate movements in a floating regime?
• Where does the Gini coefficient fit in the range of 0 to 1?
• If income elasticity of demand is 1.5, how does its quantity demanded respond to an increase in income?
• Identify and explain the five determinants of demand.
• Which term describes a sustained rise in the overall price level across the economy?
• If a good has income elasticity greater than 1, what classification is it?
• Which statement defines economic growth?
• Which term describes a situation where real GDP grows but gains from growth do not reach the population?
• An index used to convert nominal GDP to real GDP by removing the effect of price changes is called what?
• What is the production possibilities frontier (PPF), and what does an outward shift signify?
• What describes a demand curve shift?
• Aggregate demand is total planned spending on domestic goods. What are its four components?
• Name a protectionist policy and a potential effect on consumers and efficiency.
• Which metric in the HDI is adjusted for price level differences to compare living standards across countries?
• Which statement correctly differentiates nominal and real GDP?
• Which statement describes absolute advantage?
• Which statement identifies comparative advantage?
• What market failure does the tragedy of the commons describe?
• In the short run under perfect competition, a firm should produce if the price is greater than the
• What is the effect of a price ceiling set below the market equilibrium?
• What causes a demand curve to shift rather than move along it?
• Explain the difference between short-run and long-run aggregate supply and what causes each to shift.
• Which problem explains the underprovision of public goods in a market system?
• Define scarcity and opportunity cost and explain how they influence economic choices.
• What is the primary focus of economic growth measures?
• What does the intersection of AD and AS determine, and what does a positive output gap indicate?
• What is a budget deficit and how can it be financed?
• An income elasticity of demand greater than 1 implies what about the nature of the good?
• What feature allows a monopoly to set price above marginal cost?
• Which term best describes increases in real GDP without achieving broad-based living standard improvements?
• Which term describes inflation that typically exceeds 50% per month?
• If the price of a substitute good rises, what happens to the demand for the given good?
• A sustained decrease in the general price level is known as what?
• How can a country improve its terms of trade?
• What is the self-reinforcing cycle where falling prices reduce spending, output falls, unemployment rises, and further price falls?
• A surplus exists in a market when
• What does a current account deficit indicate about a country's transactions with the rest of the world?
• In an oligopoly, firms' profits depend on rivals' actions; which analytical tool is commonly used to study these strategic interactions?
• How does human capital contribute to long-run growth?
• Which HDI sub-index combines mean years of schooling for adults and expected years of schooling for children?
• Which of the following is NOT a determinant of supply?
• What is the purpose of the International Monetary Fund (IMF)?
• What is cross-price elasticity of demand and what do positive vs negative values indicate?
• A country with rising GDP but stagnant HDI would be described as experiencing which phenomenon?
• In a mixed economy, what is the role of government?
• Income distribution describes how total national income is divided among the population, typically analyzed by what method?
• Compare expansionary and contractionary fiscal policies, and identify automatic stabilizers.
• How is consumer surplus represented on a demand curve?
• Which condition is extremely rapid inflation, typically exceeding 50% per month?
• Which statement best describes growth without development?
• Which item is included in the current account under current transfers?
• How do externalities relate to sustainability?
• Which statement correctly matches unemployment types?
• Nominal GDP fails to account for changes in which factor?
• The percentage change in real GDP from one period to the next is called which measure?
• If the AD curve shifts right while the economy is initially at potential output, what happens in the short run?
• Which concept describes the social welfare loss from overproduction of a good due to an external cost?
• What does the Production Possibility Frontier illustrate?
• What does a fiscal multiplier greater than 1 mean?
• What does a movement along the PPF represent?
• In a surplus, what happens to price?
• What does consumer surplus represent on a standard demand diagram?
• Total GDP divided by population is known as which indicator?
• What is opportunity cost?
• A decrease in consumer confidence affects aggregate demand in which way?
• Price floor is defined as
• Which measure tracks changes in the average price level that households pay for a basket of goods and services over time?
• What is the percentage of the labour force actively seeking work but currently without a job?
• How is inflation measured and what are two common causes of demand-pull and cost-push inflation?
• A price ceiling in the housing market set below the equilibrium rent is known as which policy?
• Which statement describes comparative advantage?
• A binding price ceiling is defined as one that is set
• Identify a supply-side factor that promotes long-run growth.
• Which combination of measures is used in calculating the HDI?
• Two goods that are substitutes would show what relation when the price of one rises?
• What is the basic idea of the quantity theory of money in relation to the MV=PY equation?
• Which factor would cause the demand curve to shift to the right (increase in demand)?
• What is the sign of the price elasticity of demand and why?
• Two goods are consumed together; when the price of one rises, demand for the other falls. These goods are called
• What does a higher Gini coefficient indicate?
• Explain the short-run trade-off between inflation and unemployment as described by the Phillips curve, and discuss its limitations.
• Which statement best describes a mixed economy?
• Which action helps maintain a fixed exchange-rate peg?
• Which statement best defines scarcity?
• What is total surplus and how is it affected by a market allocation that is not efficient?
• Which statement correctly distinguishes explicit costs, implicit costs, and sunk costs?
• If the price elasticity of demand for a good is 0.5, is demand elastic, inelastic, or unit elastic, and what does it imply about total revenue when price falls?
• Surplus occurs when quantity supplied exceeds quantity demanded at a given price; what is the effect on price?
• What is open-market operations?
• List four determinants of price elasticity of demand.
• Why is real GDP preferred over nominal GDP for measuring economic growth?
• Externalities affect market outcomes by...
• Distinguish between the current account and the capital/financial account in the balance of payments.
• Aggregate demand is the total spending on what?
• The real return on an investment is defined as the nominal return minus the inflation rate. Which option best reflects this concept?
• Which of the following is an example of a public good?
• State the law of supply and two reasons why the supply curve slopes upward.
• State the difference between a movement along the demand curve and a shift in the demand curve.
• The self-reinforcing cycle in which falling prices reduce spending, leading to lower demand and output, higher unemployment, and further price falls is called what?
• If a tax is imposed on an inelastic good, who bears more of the tax burden?
• Which market structure is characterized by many buyers and sellers, homogeneous products, and free entry and exit?
• Externalities are costs or benefits not reflected in market prices. Which example illustrates a negative externality?
• A statistical measure of income inequality ranging from 0 (perfect equality) to 1 (perfect inequality) is called what?
• A movement of the entire supply curve caused by a non-price determinant is called
• Which pair best contrasts growth and development?
• Which concept excludes unpaid work, second-hand sales, illegal activity, volunteer work, and goods produced in previous periods?
• Which phrase describes a pattern where real GDP rises but HDI stagnates or falls and inequality rises?
• In perfect competition, which relationship among total revenue (TR), average revenue (AR), and marginal revenue (MR) holds?
• The nominal return on an investment is the return before adjusting for inflation. Which term describes this concept?
• If the Lorenz curve bows further away from the line of perfect equality, what happens to inequality?
• What is the primary target of monetary policy in many economies?
• What is a typical way governments address a public good market failure?
• Which of the following best captures the limitation of GDP as a measure of development?
• What determines a country's exchange rate in a floating exchange-rate system?
• Shortage occurs when quantity demanded exceeds quantity supplied at a given price; what is the effect on price?
• Which statement correctly describes increasing returns to scale and its effect on long-run average cost (LRAC)?
• In tax incidence, statuary burden is who pays the tax to the government and economic incidence is who ultimately bears the burden via price changes. Which statement is correct?
• Equilibrium quantity is defined as the quantity at which
• If cross-price elasticity is negative, what does that indicate about the two goods?
• If two goods are substitutes, what happens when the price of one rises?
• Which statement correctly identifies two defining characteristics of public goods?
• The law of supply describes the relationship between price and which of the following?
• If a 10% drop in price leads to a 20% increase in quantity demanded, what is the price elasticity of demand (PED)?
• How can minimum wage policies affect unemployment, and what does the effect depend on?
• Which measure is adjusted for inflation to reflect true economic output over time?
• In a market with upward-sloping supply, a rightward shift of the demand curve affects price and quantity how?
• Which factors can cause the Aggregate Demand curve to shift?
• Name a transmission channel through which fiscal policy affects the real economy.
• Which of the following is a non-price determinant that can shift the supply curve?
• Which policy encourages activities with positive externalities by providing financial assistance?
• Which statement about sunk costs is correct?
• What is the fiscal multiplier?
• Which statement correctly distinguishes the CPI from the GDP deflator?
• A good for which demand falls as income rises is called a
• Why is the long-run aggregate supply curve depicted as vertical?
• Which market structure has many firms and differentiated products with free entry?
• The stock of skills, knowledge, experience, and education embodied in a workforce is called what?
• For complementary goods, if the price of one falls, the demand for the other increases. These goods are called
• A sustained increase in the general price level of goods and services is called what?
• Merit goods differ from demerit goods because merit goods have positive externalities and demerit goods have negative externalities. Which policy intent matches this?
• Unemployment caused by a mismatch between workers' skills and job requirements—often due to technological change or industrial shifts—is called what?
• What happens to long-run average cost when a firm experiences increasing returns to scale?
• A Gini coefficient value above 0.4 is generally considered to indicate what?
• What is the GDP deflator and how is it used to convert nominal GDP into real GDP?
• Which item is NOT included in the current account?
• What are the two main accounts in the balance of payments?
• A graphical representation of income distribution where the horizontal axis shows the cumulative share of population and the vertical axis shows the cumulative share of income is called what?
• What is the effect of a price floor set above the market equilibrium?
• If a market allocation is not efficient, what is the name of the resulting loss in total welfare?
• Economic growth necessarily implies improvements in living standards.
• Which describes a shift of the PPF?
• What is expansionary fiscal policy?
• Which option is NOT a typical way to finance a budget deficit?
• Name three factors that influence long-run economic growth.
• Which statement best describes the Gini coefficient?
• The total market value of all goods and services produced in a country in a given year, measured at current prices and not adjusted for inflation, is called which measure?
• Public goods are characterized by non-excludability and non-rivalry. What are the two defining characteristics?
• In a perfectly competitive market, the profit-maximizing quantity is found where which condition holds?