FSOT Economic Principles 5

Question 1

The term 'liquidity trap' describes a situation in which:

Accepted Answer

Monetary policy becomes ineffective because interest rates near zero cannot be lowered further

Answer

A liquidity trap occurs when interest rates are so low that monetary easing has no additional stimulative effect on the economy.

Question 2

Comparative advantage suggests that countries should specialize in producing goods where they have:

Accepted Answer

The lowest opportunity cost relative to trading partners

Answer

Comparative advantage is determined by opportunity cost; countries gain from specializing where their relative sacrifice of other goods is smallest.

Question 3

Which indicator is most commonly used to measure inflation in the United States?

Accepted Answer

Consumer Price Index (CPI)

Answer

The CPI measures the average change in prices paid by urban consumers for a basket of goods and services and is the most widely cited inflation measure.

Question 4

A monopsony is a market in which there is:

Accepted Answer

A single buyer with market power over sellers

Answer

A monopsony is characterized by a single buyer who can influence the price it pays, often seen in labor markets with dominant employers.

Question 5

In economic terms, a 'price floor' set above the equilibrium price will result in:

Accepted Answer

A surplus of the good

Answer

A price floor above equilibrium keeps prices artificially high, causing quantity supplied to exceed quantity demanded, creating a surplus.

FSOT Test Practice Test

FSOT Test Practice Test

FSOT Economic Principles 5