FSOT Economic Principles Questions and Answers

Question 1

A country's central bank decides to increase the reserve requirement for commercial banks. Which of the following is the most likely intended effect of this action?

Accepted Answer

To decrease the money supply and curb inflation.

Answer

To increase the national debt.

Answer

To encourage consumer spending and stimulate economic growth.

Answer

To directly fund new government infrastructure projects.

Question 2

A developing nation has a large, unskilled labor force and a climate ideal for growing coffee. A neighboring country has a highly educated workforce and advanced technology for manufacturing electronics. According to the principle of comparative advantage, what is the most economically sound strategy for these two nations?

Accepted Answer

The first nation should specialize in coffee production and trade with the second nation, which should specialize in electronics.

Answer

Both countries should strive for self-sufficiency by developing both coffee and electronics industries.

Answer

The first nation should focus on electronics, while the second focuses on coffee to diversify their economies.

Answer

Both countries should impose high tariffs on these goods to protect their domestic markets from competition.

Question 3

The government of Country X decides to stimulate a sluggish economy by increasing its spending on public infrastructure and simultaneously cutting income taxes. This is an example of which type of economic policy?

Accepted Answer

Expansionary fiscal policy

Answer

Contractionary fiscal policy

Answer

Expansionary monetary policy

Answer

Supply-side policy

Question 4

A recent college graduate is offered a job that pays $60,000 per year. At the same time, they are accepted into a one-year graduate program that costs $25,000 in tuition. If the graduate chooses to attend the program instead of taking the job, what is their opportunity cost for that year?

Accepted Answer

$85,000

Answer

$25,000

Answer

$35,000

Answer

$60,000

Question 5

Which of the following international institutions primarily provides loans to member countries experiencing balance of payment difficulties and works to foster global financial stability?

Accepted Answer

The International Monetary Fund (IMF)

Answer

The World Trade Organization (WTO)

Answer

The World Bank

Answer

The Organisation for Economic Co-operation and Development (OECD)

Question 6

Using the expenditure approach, which of the following transactions would be included in the calculation of a country's Gross Domestic Product (GDP)?

Accepted Answer

A family purchasing a newly constructed home.

Answer

A car manufacturer purchasing tires from another company to install on new vehicles.

Answer

The government issuing social security payments to retirees.

Answer

An investor buying shares of stock in a domestic corporation.