alevel economics test 1

Question

Option1

Why must societies make choices about resource allocation?

Resources are abundant and wants are limited

If the UK government spends more on healthcare, the opportunity cost is:

Increased taxes for businesses

Which of the following is a normative statement?

Increasing interest rates reduces borrowing

A point inside the PPF represents:

Efficient use of resources

If the price of petrol rises, demand is likely to:

Increase

Firms are willing to supply more at higher prices because:

Consumers demand less

What happens if market price is above equilibrium?

Shortage

A good with many close substitutes is likely to have:

Inelastic demand

Luxury goods have a YED:

< 0

If the price of butter rises and demand for margarine rises, XED is:

Negative

Pollution is an example of:

Positive externality

Which characteristic defines a public good?

Non-rival and non-excludable

A subsidy is used to:

Reduce consumption

Rent control can lead to:

Surplus housing

Which is NOT a function of money?

Medium of exchange

GDP includes:

Value of all imports

Aggregate expenditure formula:

AD = C + I + G + (X – M)

Real GDP adjusts for:

Population growth

Index number formula:

New ÷ Base × 100

PPP adjusts GDP to account for:

Interest rates

Unemployment rate formula:

Unemployed ÷ Total population

Why does AD slope downward?

Wealth, interest rate, and trade effects

LRAS is vertical because:

Firms respond to prices

Negative output gap means:

Economy overheating

Inflation is:

Falling prices

Demand-pull inflation is caused by:

Rising production costs

Cost-push inflation is caused by:

Excess demand

Imported inflation occurs when:

Exports increase

Which is a negative effect of high inflation?

Increased purchasing power

Which is a monetary policy tool to reduce inflation?

Cutting government spending