MTTC MTTC Economics 4

Question 1

Which Federal Reserve tool is considered the most frequently used instrument of monetary policy?

Accepted Answer

Conducting open market operations

Answer

Open market operations — buying and selling U.S. government securities — are the Fed's primary and most frequently used tool for controlling the money supply and interest rates.

Question 2

A negative externality exists when:

Accepted Answer

A firm's production generates costs borne by third parties not involved in the transaction

Answer

Negative externalities occur when production or consumption imposes costs on uninvolved third parties, causing the social cost to exceed the private cost and leading to market overproduction.

Question 3

In a perfectly competitive market, a firm's demand curve is:

Accepted Answer

Perfectly elastic (horizontal) at the market price

Answer

A perfectly competitive firm is a price taker, so it faces a perfectly elastic horizontal demand curve at the prevailing market price — it can sell any quantity at that price.

Question 4

Which economic concept refers to the additional satisfaction gained from consuming one more unit of a good?

Accepted Answer

Marginal utility

Answer

Marginal utility is the additional satisfaction (utility) a consumer receives from consuming one additional unit of a good or service.

Question 5

Stagflation, which plagued the U.S. economy in the 1970s, is best described as a period of:

Accepted Answer

High inflation combined with high unemployment and slow growth

Answer

Stagflation combines stagnant economic growth, high unemployment, and high inflation simultaneously — a combination that challenged traditional Keynesian policy prescriptions.

MTTC Test Practice Test

MTTC Test Practice Test

MTTC MTTC Economics 4