FSOT Economic Principles 3

Question 1

Price elasticity of demand measures:

Accepted Answer

The responsiveness of quantity demanded to a price change

Answer

Price elasticity of demand quantifies how much the quantity demanded changes in percentage terms when price changes by a percent.

Question 2

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

Accepted Answer

A good that is non-rival and non-excludable

Answer

Public goods are non-rival (one person's use doesn't reduce availability) and non-excludable (no one can be prevented from using them).

Question 3

Stagflation is characterized by:

Accepted Answer

High inflation and low economic growth

Answer

Stagflation is the simultaneous occurrence of high inflation and stagnant economic growth, often with high unemployment.

Question 4

In the context of the balance of payments, the current account includes:

Accepted Answer

Trade in goods and services, income, and transfers

Answer

The current account records trade in goods and services, factor income (wages, profits), and current transfers like remittances.

Question 5

The multiplier effect in Keynesian economics suggests that:

Accepted Answer

An initial change in spending leads to a larger total change in GDP

Answer

The multiplier effect means that an initial injection of spending ripples through the economy, generating a magnified increase in total output.

FSOT Test Practice Test