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ECO 007: P1 Quiz 1
Multiple Choice Questions (30 items)
1. What does GDP stand for?
A. Gross Domestic Product
B. Global Domestic Product
C. Gross Development Plan
D. General Domestic Productivity
2. Which of the following is a component of GDP?
A. Net exports
B. Intermediate goods
C. Transfer payments
D. Black market sales
3. The circular flow model includes which two main sectors?
A. Households and firms
B. Banks and government
C. Exporters and importers
D. Foreign and domestic
4. Microeconomics focuses on:
A. Individual and business decisions
B. National unemployment rate
C. Inflation trends
D. Overall economic growth
5. Which is an indicator of economic growth?
A. Rising GDP
B. Decreasing inflation
C. Lower unemployment
D. All of the above
6. A newly graduated economics student is interested in understanding how a local coffee shop
sets its prices, determines how many employees to hire, and decides which products to offer. To
analyze this situation effectively, which field of economics would be most appropriate to study?
A. Macroeconomics C. Microeconomics
B. Development Economics D. International Economics
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7. The Department of Finance is analyzing national data on inflation, unemployment rates, and
gross domestic product (GDP) to recommend strategies for economic recovery. This type of
analysis is associated with which branch of economics?
A. Macroeconomics C. Microeconomics
B. Development Economics D. International Economics
8. In a simplified circular flow model of the economy, which of the following best describes the
role of households in the factor market?
A. They sell goods and services to businesses.
B. They provide resources like labor and capital to firms.
C. They collect taxes from businesses.
D. They regulate prices in the economy.
9. The expenditure approach to GDP includes:
A. Wages, rent, interest, and profit
B. Consumption, investment, government spending, and net exports
C. Income, profit, and taxes
D. Exports only
10. In which phase does the economy reach its highest level before starting to decline?
A. Expansion C. Recovery
B. Peak D. Depression
11. Which phase of the business cycle is characterized by increasing employment and
production?
A. Recission C. Peak
B. Depression D. Trough
12. Which of the following best defines economics??
A. The study of individual choices in isolation
B. The study of how societies allocate unlimited resources to satisfy limited wants
C. The study of money and banking systems
D. The study of past economic events
13. The concept of scarcity in economics implies that:
A. Resources are abundant and unlimited
B. Wants and needs are limited
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C. Resources are limited, and choices must be made
D. Only money is considered a scarce resource
14. The "invisible hand" concept was introduced by:
A. John Maynard Keynes
B. Karl Marx
C. Adam Smith
D. Milton Friedman
15. In the circular flow model, households:
A. Buy goods and services and sell factors of production
B. Only buy goods and services
C. Only sell factors of production
D. Neither buy goods nor sell factors
16. In the circular flow model, what do households receive in exchange for providing
labor?
A. Goods and services
B. Dividends
C. Wages
D. Interest
17. Which of the following is a common indicator of economic growth?
A. Unemployment rate
B. Gross Domestic Product (GDP)
C. Inflation rate
D. Income tax rates
18. What does it mean when an economy experiences long-term economic growth?
A. The inflation rate falls below 0%
B. GDP decreases consistently over time
C. The productive capacity of the economy increases.
D. The population is declining.
19. Which of the following best distinguishes economic growth from economic
development?
A. Economic development focuses solely on exports.
B. Economic growth is quantitative, while development includes qualitative
improvements.
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C. Economic development measures changes in GDP only.
D. Economic growth includes education and health care improvements.
20. What does GDP measure?
A. The total exports of a country.
B. The total income of foreign companies operating abroad.
C. The total value of final goods and services produced within a country.
D. The total value of inputs used in production.
21. Which of the following is NOT a method for calculating GDP?
A. Expenditure approach.
B. Income approach.
C. Production approach.
D. Employment approach.
22. In the expenditure approach, which of the following is NOT a component?
A. Government spending
B. Consumer spending
C. Investment spending
D. Corporate profit taxes
23. Which of the following is a characteristic of an economic expansion?
A. Falling employment
B. Decreasing consumer confidence
C. Rising GDP and employment
D. Increased bankruptcies
24. What typically happens during a recession?
A. GDP increases steadily
B. Inflation rises significantly
C. Economic downturn and employment decline
D. Consumer spending booms
25. What term describes the lowest point in the business cycle?
A. Expansion
B. Trough
C. Peak
D. Contraction
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26. Which scenario best reflects the concept of the circular flow model?
A. A person saves money in a bank
B. A firm exports goods abroad
C. A household buys groceries from a local store
D. A company buys stock in another company
27. Which of the following would increase GDP using the expenditure approach?
A. An increase in imports
B. A household buying a new car
C. A person selling a used item online
D. A company laying off workers
28.Why are intermediate goods not counted in GDP?
A. They are illegal to trade
B. They are already included in the value of final goods
C. They are not produced domestically
D. They are exported only
29. What does the “X – M” term in the GDP formula represent?
A. Taxes and subsidies
B. Investment by firms
C. Net exports, or exports minus imports
D. Government intervention
30. Which economist is most associated with classical economics?
A. John Maynard Keynes
B. Milton Friedman
C. Adam Smith
D. Karl Marx
True or False (20 items)
1. GDP includes the value of intermediate goods.
2. Microeconomics studies individual markets.
3. Unemployment is a macroeconomic issue.
4. Economic growth always means development
5. Inflation refers to a general increase in prices.
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6. In the circular flow model, households are both consumers and providers of
resources.
7. Classical economists argue that wage and price flexibility allow markets to adjust
naturally.
8. A trough in the business cycle represents the beginning of an economic contraction.
9. The expenditure approach to GDP includes consumption, investment, government
spending, and net exports.
10. During the expansion phase of the business cycle, unemployment typically rises.
11. A decrease in GDP over two consecutive quarters is commonly referred to as a
recession.
12. Economic development includes improvements in education, health, and living
standards.
13. SThe income approach to GDP includes wages, rents, interest, and profits
14. Microeconomics is concerned with the overall performance of the economy, such as
GDP growth rates and inflation.
15. In the circular flow model, money flows from households to firms in exchange
for goods and services, and from firms to households in the form of wages, rent, and
profits.
16. The government plays no role in the circular flow model in an open economy.
17. Economic development refers to improvements in living standards, poverty
reduction, and equitable distribution of wealth.
18. A recession is characterized by a sustained increase in economic output
19. The peak of the business cycle marks the lowest point of economic activity.
20. A trough in the business cycle is the point at which economic activity begins to
recover after a recession.
Essay Questions (3 items)
1. Explain the difference between economic growth and economic development.
2. Describe the circular flow model and its significance in understanding the economy.
3. Discuss the importance of GDP as an economic indicator.
