ECO 007 – Full Coverage CFE Reviewer 7.

Which of the following is a characteristic of

monopolistic competition?
Instructions: Choose the best answer. Shade the letter A. Single seller
of your answer on the provided sheet. B. Price taker
C. Product differentiation
D. No competition
1. Which of the following best describes the role of
mathematical economics in managerial decision- 8. Which situation best illustrates market failure?
making?
A. Competitive pricing
A. It deals with moral implications of profit B. Full employment
B. It explains historical business trends C. Negative externalities like pollution
C. It models economic relationships using algebra and D. Increased consumer spending
calculus
D. It focuses solely on labor relations 9. Which of the following scenarios reflects unit elastic
demand?
2. According to the law of demand, what happens
when the price of a good increases, all other factors A. A price increase causes no change in quantity
constant? demanded
B. A price increase causes a proportionate decrease in
A. Quantity demanded increases quantity demanded
B. Quantity demanded decreases C. A price increase causes an increase in total revenue
C. Demand curve shifts left D. Demand remains unchanged regardless of price
D. Demand remains unchanged
10. What defines consumer equilibrium in utility
3. If price increases by 10% and quantity demanded theory?
decreases by 20%, what is the demand elasticity?
A. Income equals expenses
A. 0.5 B. Total utility is minimized
B. 1.0 C. Marginal utility per peso is equal across all goods
C. 2.0 D. Utility remains constant
D. 0.1
11. Which of the following best describes
4. Which of the following is considered an implicit cost microeconomics?
in economic analysis? A. The study of national economic trends
B. The analysis of inflation and unemployment
A. Rent paid
C. The study of individual and firm-level decision
B. Employee salaries
making
C. Owner’s forgone salary
D. The study of government fiscal policy
D. Utility bills
12. Which field would analyze how a rise in gas prices
5. Economic profit is calculated by subtracting which
affects household spending?
of the following from total revenue?
A. Macroeconomics
A. Only explicit costs B. International economics
B. Accounting costs C. Microeconomics
C. Opportunity costs D. Development economics
D. Government taxes
13. Which of the following is a macroeconomic issue?
6. In which market structure do many firms sell A. Consumer choice
identical products with no control over price? B. Pricing of an individual product
C. National unemployment rate
A. Monopoly D. Supply decision of a single firm
B. Oligopoly
C. Monopolistic Competition 14. In the circular flow model, what do households
D. Perfect Competition provide to firms?
A. Goods and services B. Transfer payments
B. Wages and interest C. Purchase of new equipment by a firm
C. Factors of production D. Household chores
D. Tax revenues
23. GNP equals GDP plus:
15. The circular flow model shows interactions A. Indirect taxes
between: B. Imports
A. Foreign and domestic governments C. Net property income from abroad
B. Households, firms, and government D. Depreciation
C. Only producers and government
D. Banks and international trade 24. Which of the following is counted in GNP but not in
GDP?
16. Which of the following flows from firms to A. Income earned by a foreign firm operating
households in the product market? domestically
A. Labor B. Income of local businesses
B. Capital C. Income earned by nationals working abroad
C. Goods and services D. Sales tax revenue
D. Taxes
25. Aggregate expenditure is composed of:
17. GDP measures: A. Consumption, saving, and taxes
A. The total value of all goods and services produced B. Wages, profits, and rents
within a country C. C + I + G + (X – M)
B. The income earned by citizens abroad D. Net exports, consumption, and fiscal policy
C. The rate of inflation
D. The level of education 26. What happens when aggregate expenditure
exceeds GDP?
18. Which of the following is NOT a good indicator of A. Inventories fall
economic development? B. GDP falls
A. Literacy rate C. Unemployment increases
B. Life expectancy D. Inflation decreases
C. National income
D. Population size 27. A decrease in aggregate expenditure will likely
cause:
19. Economic growth focuses on ______, while A. Increased national income
economic development focuses on ______. B. Decreased output
A. Quality of life; income C. Higher investment
B. GDP; quality of life D. Higher exports
C. Income distribution; GDP
D. Health; employment 28. The marginal propensity to consume (MPC) is:
A. Total consumption divided by income
20. Nominal GDP differs from real GDP because: B. Change in income divided by change in
A. It includes inflation consumption
B. It excludes net exports C. Change in consumption divided by change in income
C. It counts only intermediate goods D. Total savings divided by total consumption
D. It is based on quantity, not price
29. If the MPC is 0.8, the multiplier is:
21. One limitation of GDP as a measure of A. 5
development is: B. 8
A. It adjusts for inflation C. 1.25
B. It excludes foreign production D. 0.8
C. It does not account for income distribution
D. It includes underground economy 30. A decrease in savings causes:
A. An increase in investment
22. Which of the following is included in GDP? B. A decrease in future capital
A. Sale of used goods
C. Higher interest rates 39. Frictional unemployment occurs when:
D. More exports A. Workers are replaced by machines
B. A worker is in between jobs
31. What does the investment multiplier reflect? C. Economic recession reduces jobs
A. How much total spending increases for every peso D. Skills are outdated
invested
B. The tax rate change per unit of income 40. Structural unemployment is best described as:
C. The inflation-adjusted investment ratio A. Seasonal job loss
D. The marginal utility of money B. Retirement
C. Mismatch of skills with available jobs
32. What happens when investment spending D. Short-term unemployment
increases?
A. Income falls 41. Cyclical unemployment happens during:
B. Output decreases A. Economic expansion
C. GDP rises B. Technological boom
D. Multiplier falls C. Economic downturn
D. Peak employment
33. Which of the following will increase national
income? 42. Invisible underemployment refers to:
A. Higher MPS A. Not being paid wages
B. Higher MPC B. Overqualified workers in low-skill jobs
C. Lower consumption C. Unregistered workers
D. More imports D. People working abroad

34. If the MPS is 0.4, then the multiplier is: 43. Cost-push inflation is caused by:
A. 2.5 A. Excess demand
B. 1.5 B. Rising production costs
C. 3 C. Technological change
D. 5 D. Increased savings

35. The sum of MPC and MPS must always equal: 44. Demand-pull inflation occurs when:
A. 0 A. Production falls
B. 0.5 B. Demand outpaces supply
C. 1 C. Costs decrease
D. GDP D. Prices are fixed

36. A person who is actively seeking work but can’t 45. The CPI measures:
find any is considered: A. The average change in prices of consumer goods
A. Employed B. GDP growth
B. Frictionally unemployed C. National investment
C. Underemployed D. Employment level
D. Unemployed
46. Inflation rate is calculated based on:
37. Underemployment refers to: A. Imports and exports
A. Working multiple jobs B. Changes in national debt
B. Having no work C. Changes in CPI over time
C. Working less than desired or below skill level D. Value of currency abroad
D. Retired workers
47. Core inflation excludes which of the following?
38. Which of the following is a cause of A. Food and energy prices
unemployment? B. Housing costs
A. Increased exports C. Education costs
B. Job mismatch D. Transportation
C. Lower inflation
D. Balanced budget
48. Headline inflation includes: 57. If nominal interest is 10% and inflation is 7%, the
A. Only durable goods real rate is:
B. All categories including volatile food and fuel A. 3%
C. Services only B. 17%
D. Investment goods C. 7%
D. 10%
49. Hyperinflation refers to inflation exceeding:
A. 2% annually 58. A revaluation means:
B. 50% monthly A. Currency loses value
C. 10% annually B. Exports become cheaper
D. 5% monthly C. Currency gains value
D. Imports decrease
50. Which of the following is an effect of
hyperinflation? 59. Which of the following is an effect of devaluation?
A. Stable currency A. Exports become more expensive
B. Rising real wages B. Imports become cheaper
C. Collapse of monetary system C. Trade balance worsens
D. Increase in exports D. Export competitiveness increases

51. A major cause of hyperinflation is: 60. A closed economy is one that:
A. Technological change A. Allows free trade
B. Rapid wage growth B. Is connected with the world economy
C. Excessive money printing C. Does not engage in international trade
D. Low interest rates D. Accepts foreign aid

52. Expansionary monetary policy includes: 61. An open economy features:

A. Raising taxes A. Isolation from global markets
B. Selling bonds B. No exports or imports
C. Increasing money supply C. Government monopoly
D. Decreasing government spending D. Trade with other countries

53. Contractionary policy is intended to: 62. One major disadvantage of a closed economy is:
A. Stimulate demand A. Inflation
B. Combat inflation B. Over-dependence on imports
C. Lower unemployment C. Lack of access to global innovation
D. Increase exports D. Currency depreciation

54. Who implements monetary policy? 63. The Balance of Payments includes which of the
A. Congress following accounts?
B. Central bank A. Personal and business accounts
C. The President B. Current and capital accounts
D. Department of Finance C. Wages and salaries
D. Tax and expenditure accounts
55. An increase in interest rates usually leads to:
A. More investment 64. A surplus in the balance of payments means:
B. Lower savings A. More imports than exports
C. Decreased borrowing B. More money leaving than entering
D. Higher inflation C. More money entering than leaving
D. Constant trade value
56. Real interest rate is:
A. Nominal interest + inflation 65. What is recorded as a debit item in BOP?
B. Nominal interest – inflation A. Exports
C. Inflation x nominal rate B. Capital inflows
D. Same as nominal rate C. Imports
D. Foreign investments received
66. The capital account of BOP includes: B. Decreased pressure on public services
A. Import-export values C. Greater strain on natural resources
B. Financial flows like investments D. Lower urbanization
C. Personal remittances
D. Tourism income 74. Fertility rate refers to:
A. Number of births per adult woman
67. If a country imports more than it exports, it B. Life expectancy at birth
experiences: C. Number of births per country
A. Trade surplus D. Infant mortality rate
B. Current account deficit
C. Capital surplus 75. Which of the following is a demographic factor
D. Budget surplus affecting economic growth?
A. Monetary policy
68. One of the credit items in BOP is: B. Fertility rate
A. Money paid for imports C. Investment multiplier
B. Wages sent abroad D. Fiscal deficit
C. Revenue from exports
D. Investments made abroad 76. A developing country is characterized by:
A. High per capita income
69. Exchange rate equilibrium is achieved when: B. Low literacy and industrialization
A. Imports exceed exports C. Full employment
B. Demand for and supply of currency are equal D. Balanced budget
C. Inflation falls
D. Currency is pegged 77. One common characteristic of poverty is:
A. Wealth inequality
70. What causes depreciation of a currency in a B. Job mismatch
floating exchange rate system? C. High inflation
A. High demand for currency D. Inability to meet basic needs
B. Low demand for imports
C. Low demand for currency 78. Reducing inequality often involves:
D. Increased foreign investment A. Tax exemptions
B. Promoting female education and job access
71. A fixed exchange rate is maintained by: C. Lowering government spending
A. Market forces D. Removing subsidies
B. Government intervention
C. Interest rate changes 79. Education contributes to economic growth by:
D. Inflation control A. Reducing savings
B. Lowering productivity
72. Which scenario strengthens a currency? C. Enhancing workforce skills
A. High inflation D. Increasing birth rates
B. High unemployment
C. Increase in exports 80. A highly educated population is more likely to:
D. Increase in imports A. Increase poverty
B. Reduce productivity
73. High population growth may result in: C. Attract foreign investment
A. Increased per capita income D. Increase infant mortality
Answer Key
1. C
2. B
3. C
4. C
5. C
6. D
7. C
8. C
9. B
10. C

1. C 2. C 3. C 4. C 5. B 6. C 7. A 8. D 9. B 10. A

11. C 12. C 13. C 14. C 15. C 16. A 17. B 18. C 19. A 20. B

21. A 22. C 23. B 24. A 25. C 26. D 27. C 28. B 29. B 30. C

31. C 32. B 33. B 34. B 35. A 36. C 37. A 38. B 39. B 40. C

41. C 42. C 43. B 44. B 45. C 46. B 47. A 48. C 49. D 50. C

51. D 52. C 53. B 54. C 55. C 56. B 57. B 58. C 59. B 60. C

61. C 62. A 63. B 64. B 65. D 66. B 67. C 68. B 69. C 70. C