Economic and Business Environment Pre-Test

Which of the following is the role of the financial sector in the circular flow of income?

• To act as an intermediary between savers and borrowers in an economy

• To collect taxes from individuals and businesses

• To produce goods and services for consumers

• To export goods and services overseas

Answer explanation

The financial sector refers to financial institutions such as banks that act as intermediaries between the savers and borrowers in an economy.

Which of the following statements is FALSE in relation to the business cycle?

• During a recession, wages rates will generally fall

• During a boom period, production levels increase

• During a boom period, the level of unemployment rises

• During a recession, there is a decrease in consumer spending

Answer explanation

During a boom period, more people will be employed and thus there will be fewer people that are unemployed.

Which of the following would occur if there was an increase in supply?

• There would be an increase in price and an increase in quantity

• There would be an increase in price and a decrease in quantity

• There would be a decrease in price and an increase in quantity

• There would be a decrease in price and decrease in quantity

Answer explanation

If there was an increase in supply, this would mean that there would be an increase in the quantity of the good or service and this may lead to a decrease in price.

What type of business is Uber an example of?

• Small-scale business

• On-demand business

• Government business

• Not-for-profit business

Answer explanation

Uber is an example of an on-demand business as it uses digital technology to fulfil consumer demand via immediate access to goods and/or services.

A business employs 15 people who all work in one office in the city. What would this business be classified as?

• Global

• Large

• Medium

• Small

Answer explanation

A small business is classified as one with under 20 employees. This example cannot be a global business, as they only operate from one office.

Which market allows consumers to buy goods and services?

• Financial market

• Labour market

• Retail market

• Stock market

Answer explanation

Retail markets are those markets that allow us to buy most of our goods and services.