Free GED Social Studies Economics Practice Test Flashcards

What is the law of supply?

Answer: As price increases, the quantity supplied increases

The law of supply states that as the price of a good increases (all else equal), producers are willing to supply a greater quantity because higher prices mean higher profits.

What is the law of demand?

Answer: As price increases, quantity demanded decreases

The law of demand states that as the price of a good increases (all else equal), consumers will demand a smaller quantity — an inverse relationship between price and quantity demanded.

Which term describes the total value of all goods and services produced within a country in one year?

Answer: GDP (Gross Domestic Product)

GDP (Gross Domestic Product) measures the total market value of all goods and services produced within a country's borders in a given year.

What is inflation?

Answer: A general increase in prices over time, reducing purchasing power

Inflation is the rate at which the general level of prices for goods and services rises over time, thereby reducing the purchasing power of money.

In a market economy, prices are primarily determined by:

Answer: Supply and demand

In a market (capitalist) economy, prices are determined by the interaction of supply (from producers) and demand (from consumers).

What is a tariff?

Answer: A tax on imported goods

A tariff is a tax imposed by a government on imported goods. It raises the price of foreign goods to make domestically produced goods more competitive.

What is the difference between monetary policy and fiscal policy?

Answer: Monetary policy involves controlling the money supply and interest rates; fiscal policy involves government spending and taxation

Monetary policy is implemented by the central bank (Federal Reserve) through interest rates and money supply. Fiscal policy is government spending and taxation decisions made by Congress.

An economic recession is best described as:

Answer: Two or more consecutive quarters of declining GDP

A recession is technically defined as two consecutive quarters (6 months) of negative GDP growth, typically accompanied by rising unemployment and reduced consumer spending.

What does the term 'opportunity cost' mean?

Answer: The value of the next best alternative given up when making a choice

Opportunity cost is the value of the best alternative foregone when a choice is made. If you choose to go to college, the opportunity cost might be the wages you would have earned working instead.

What happens to the price of a good when demand increases and supply stays the same?

Answer: The price increases

When demand increases (demand curve shifts right) with supply unchanged, the equilibrium price rises. More buyers competing for the same quantity drives up the price.

What is the Federal Reserve's main tool for fighting inflation?

Answer: Raising interest rates

The Federal Reserve (the Fed) raises interest rates to fight inflation. Higher interest rates make borrowing more expensive, reducing consumer spending and slowing price increases.

Which type of economic system does the United States primarily have?

Answer: Mixed market economy

The U.S. has a mixed market economy — primarily private enterprise and free markets, but with significant government regulation, public services, and welfare programs.

What is 'scarcity' in economics?

Answer: The condition where wants exceed available resources

Scarcity is the fundamental economic problem — human wants and needs are unlimited, but the resources available to satisfy them are limited, forcing choices.

What is a trade deficit?

Answer: When a country imports more than it exports

A trade deficit (or trade gap) occurs when a country's imports exceed its exports. The United States regularly runs a trade deficit.

Which of the following is an example of a public good?

Answer: A lighthouse

A public good is non-excludable (you can't prevent people from using it) and non-rivalrous (one person's use doesn't reduce availability for others). A lighthouse serves all ships without being depleted.

What is the unemployment rate?

Answer: The percentage of the labor force actively looking for work but without jobs

The unemployment rate is the percentage of the labor force (people working or actively seeking work) who are without jobs.

What is 'comparative advantage' in international trade?

Answer: Producing a good at a lower opportunity cost than trading partners

Comparative advantage is the ability to produce a good at a lower opportunity cost than other producers. Countries benefit by specializing in and exporting goods where they have comparative advantage.

Which of the following is an example of fiscal stimulus?

Answer: The government cutting taxes and increasing spending during a recession

Fiscal stimulus involves government actions — like cutting taxes (leaving more money for consumers) and increasing spending — to boost economic activity during a downturn.

What is the Consumer Price Index (CPI)?

Answer: A measurement that tracks changes in the average price of a basket of goods and services

The CPI measures the average change in prices paid by consumers for a representative basket of goods and services. It is the most commonly used measure of inflation.

What is a budget deficit?

Answer: When a government spends more than it collects in revenue

A budget deficit occurs when a government's expenditures exceed its revenues (tax income). The government must borrow money to cover the difference.