BPP Economics 2 — Questions and Answers
Question 1: What is the role of a central bank in the United States?
- Manufacture currency
- Regulate state governments
- Manage monetary policy and banking system (Correct answer)
- Collect income taxes
Correct answer: Manage monetary policy and banking system
The Federal Reserve (U.S. central bank) manages monetary policy, regulates banks, maintains financial stability, and controls money supply and interest rates.
Question 2: What is an example of a variable cost in a business?
- Rent on a building
- Annual insurance premium
- Raw materials used in production (Correct answer)
- Manager's annual salary
Correct answer: Raw materials used in production
Variable costs change with the level of production; raw materials are a clear example because more production requires more materials.
Question 3: What does 'trade deficit' mean?
- A country exports more than it imports
- A country imports more than it exports (Correct answer)
- A country has balanced trade
- A country bans international trade
Correct answer: A country imports more than it exports
A trade deficit occurs when the value of a country's imports exceeds the value of its exports, meaning it buys more from other countries than it sells.
Question 4: What is opportunity cost?
- The cost of raw materials
- The value of the next best alternative forgone (Correct answer)
- The total cost of production
- The tax on business profits
Correct answer: The value of the next best alternative forgone
Opportunity cost is the value of the best alternative you give up when making a choice, representing the hidden cost of every decision.
Question 5: Which market structure has only one seller controlling the entire market?
- Oligopoly
- Perfect competition
- Monopoly (Correct answer)
- Duopoly
Correct answer: Monopoly
A monopoly exists when a single seller dominates an entire market with no close substitutes, giving that seller significant control over price.
Question 6: What is the purpose of taxation in an economy?
- To discourage all business activity
- To fund government services and redistribute income (Correct answer)
- To increase inflation deliberately
- To eliminate international trade
Correct answer: To fund government services and redistribute income
Taxation raises revenue for governments to fund public services like defense, education, and infrastructure, and can also redistribute income and correct market failures.
BPP Economics 2
What is the role of a central bank in the United States?