D089 Principles of Economics - Set 1 - Part 1

Correct Answer: Trade-offs

Scarcity forces individuals to make trade-offs between limited resources and unlimited wants, leading to decisions on how best to allocate resources.

Correct Answer: The next best alternative forgone

Opportunity cost refers to the value of the next best alternative that is given up when a decision is made.

Correct Answer: The total market value of final goods and services produced

GDP represents the total monetary value of all final goods and services produced within a country during a specific period.

Correct Answer: Structural unemployment

Structural unemployment occurs when workers' skills are no longer in demand due to technological changes or outsourcing.

Correct Answer: Total revenue increases

When demand is elastic, a decrease in price leads to a proportionally larger increase in the quantity demanded, which increases total revenue.

Correct Answer: The relationship between inflation and unemployment

The Phillips curve shows an inverse relationship between the rate of inflation and the rate of unemployment in an economy.

Correct Answer: It reduces the value of the money repaid

Inflation erodes the purchasing power of money, meaning the money repaid to lenders has less value than when it was lent out.

Correct Answer: M1 and certificates of deposit

M2 includes all of M1 (cash, checkable deposits) plus savings deposits, money market funds, and time deposits like certificates of deposit.

Correct Answer: A rise in input costs

A rise in input costs, such as labor or raw materials, reduces firms' ability to produce, shifting the SRAS curve to the left.

Correct Answer: Excess supply

When a price floor is set above the equilibrium price, it leads to a surplus as suppliers produce more than consumers are willing to buy.

Correct Answer: Raises the price of imported goods

Tariffs are taxes imposed on imports, making them more expensive and thus protecting domestic industries from foreign competition.

Correct Answer: Increases aggregate demand

Expansionary fiscal policy involves increasing government spending or decreasing taxes to stimulate economic activity and increase aggregate demand.

Correct Answer: To decrease inflation

Contractionary monetary policy reduces the money supply and raises interest rates to lower inflation by decreasing spending.

Correct Answer: Quantity supplied increases

The law of supply states that as the price of a good rises, suppliers are willing to produce and sell more of it, leading to an increase in quantity supplied.

Correct Answer: Firms sell differentiated products

In monopolistic competition, firms sell similar but not identical products, and they compete based on product differentiation, branding, or quality.

Correct Answer: Changes in the business cycle

Cyclical unemployment occurs when there is a downturn in economic activity, leading to a reduction in demand for goods and services.

Correct Answer: Direct

When aggregate demand increases, inflation tends to rise as higher demand pushes prices up, creating a direct relationship between the two.

Correct Answer: Limits the quantity of goods that can be imported

Quotas restrict the amount of a specific good that can be imported, protecting domestic industries by reducing foreign competition.

Correct Answer: To control monetary policy and ensure financial stability

The Federal Reserve is the central bank of the United States, and its primary role is to manage monetary policy, stabilize prices, and ensure financial stability.

Correct Answer: A fixed amount of goods allowed to be imported

Absolute quotas set a specific limit on the quantity of a good that can be imported into a country, regardless of price.