Economics 1

When a firm increases all its inputs by 300%, its output increases by 400%. What does this illustrate?

• diseconomies of scale

• increasing returns to scale

• the law of diminishing returns

• the law of variable proportions

Which is an example of an external diseconomy?

• difficulties in coordinating activities in a large organisation

• difficulties in motivating workers in a large organisation

• higher transport costs as a firm’s market expands

• increased traffic congestion as industries expand

What makes it easier for a small firm to compete against large firms in the same industry?

• The nature of the industry’s product is highly standardised.

• The product specification demanded by each customer is different.

• There are significant barriers facing potential new entrants.

• Transport costs are low relative to the value of the product.

During a year, a country’s national income in money terms increased by 5%, prices increased by 4% and the total population increased by 2%. What was the approximate change in real income per head?

• a decrease of 1%

• a decrease of 2%

• an increase of 1%

• an increase of 2%

Which represents an injection into an economy’s circular flow of income?

• a balance of trade deficit

• a government budget deficit

• household saving

• the retained profits of private companies

In a closed economy with no government sector, investment is increased by $100million and real income increases by $500million. What is the marginal propensity to consume?

• 0.2

• 0.4

• 0.8

• 5.0

The income velocity of circulation is equal to 2.0. If the rate of growth of the money supply is 8% and the average price level increases by 4%, what will be the change in real output (transactions)?

• +4%

• +8%

• +12%

• +16%

What will be most likely to decrease a country’s national output in the short-run but to increase its potential for long-run growth?

• a decrease in the level of import tariffs

• a decrease in the rate of immigration

• an increase in female participation in the labour force

• an increase in the money supply

Which change would best indicate that a country has experienced economic development?

• an appreciation in the country’s currency

• an improvement in the average citizen’s quality of life

• an improvement in the country’s trade balance

• an increase in the country’s real GDP

What is the best measure of the economic cost of an increase in unemployment?

• the additional social security benefits paid plus the loss of tax revenue from newly unemployed workers

• the loss of potential exports

• the money value of the additional social security benefits paid

• the output the unemployed workers could have produced