Bcom Bachelor of Commerce Bachelor of Commerce: Economics 2

Question 1

When the price of a good rises and consumers buy more of it because it signals higher quality, this is an example of:

Accepted Answer

Veblen good behavior

Answer

A Veblen good is one whose demand increases as price rises due to its status or prestige appeal.

Question 2

If nominal GDP is $500 billion and the GDP deflator is 125, what is the real GDP?

Accepted Answer

$400 billion

Answer

Real GDP = (Nominal GDP / GDP deflator) × 100 = (500 / 125) × 100 = $400 billion.

Question 3

The concept of 'crowding out' in fiscal policy refers to:

Accepted Answer

Government borrowing raising interest rates and reducing private investment

Answer

Crowding out occurs when government borrowing drives up interest rates, discouraging private sector investment.

Question 4

Which market structure is characterized by a few large firms, significant barriers to entry, and strategic interdependence?

Accepted Answer

Oligopoly

Answer

Oligopoly features a small number of dominant firms that must consider rivals' reactions when making decisions.

Question 5

In the Keynesian model, the multiplier effect means that an initial increase in government spending leads to:

Accepted Answer

A proportionally larger increase in GDP

Answer

The multiplier amplifies initial spending because each dollar spent becomes income, which is re-spent in successive rounds.

Bcom Bachelor of Commerce Practice Test