CEA Economic Theory & Principles 5

Question 1

The 'paradox of thrift' in Keynesian economics suggests that:

Accepted Answer

An increase in individual saving can reduce aggregate demand and total savings economy-wide

Answer

When everyone saves more simultaneously, aggregate demand falls, reducing income and potentially total savings in the economy.

Question 2

Which theory argues that workers and firms form rational expectations about future inflation when negotiating wages, affecting the short-run Phillips Curve?

Accepted Answer

Rational expectations theory

Answer

Rational expectations theory holds that economic agents use all available information efficiently, making systematic policy surprises impossible.

Question 3

A tariff imposed on imported goods primarily benefits:

Accepted Answer

Domestic producers of the good

Answer

Tariffs raise the price of imports, giving domestic producers a competitive advantage and allowing them to expand output and profits.

Question 4

The 'marginal propensity to consume' (MPC) is defined as:

Accepted Answer

The change in consumption resulting from a one-unit change in income

Answer

MPC measures how much of each additional dollar of income is spent on consumption rather than saved.

Question 5

Which of the following best describes a 'public good'?

Accepted Answer

A good that is non-excludable and non-rivalrous in consumption

Answer

Public goods are non-excludable (can't prevent use) and non-rivalrous (one person's use doesn't reduce availability to others).

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA Economic Theory & Principles 5