ECO. 102 (ONLINE QUIZ/ASSIGNMENT–Elementary principles of microeconomics and macroeconomics, national income estimation, and the circular flow of income–18-9-2025)
Multiple Choice Questions (50)
Section 1: Elementary Principles of Microeconomics and Macroeconomics (25 Questions)
- Microeconomics primarily studies:
A) The entire economy and national income
B) Individual economic units such as households and firms
C) Government fiscal policy
D) International trade flows - Macroeconomics focuses on:
A) Specific markets and individual prices
B) Aggregate economic variables like GDP, inflation, and unemployment
C) Consumer behavior only
D) Business strategies - The basic economic problem is:
A) Unlimited wants and limited resources
B) Excess supply in markets
C) Perfect information in markets
D) Zero inflation - Opportunity cost refers to:
A) The benefit forgone by choosing one alternative over another
B) The total cost of production
C) The price of goods in the market
D) The government’s expenditure - In a free market system, prices are determined by:
A) Government regulation
B) Supply and demand
C) Central planning
D) Fixed by law - The law of demand states that:
A) There is a direct relationship between price and quantity demanded
B) There is an inverse relationship between price and quantity demanded
C) Price and demand are unrelated
D) Demand always increases as price increases - A movement along the demand curve is caused by:
A) Change in the price of the good
B) Changes in consumer income
C) Changes in consumer preferences
D) Changes in the price of related goods - The law of supply indicates that:
A) Price and quantity supplied are inversely related
B) Price and quantity supplied are directly related
C) Supply is unaffected by price changes
D) Demand and supply are unrelated - Equilibrium price is:
A) The price at which quantity demanded equals quantity supplied
B) The highest price in the market
C) The lowest price in the market
D) The government-set price - A surplus occurs when:
A) Quantity demanded exceeds quantity supplied
B) Quantity supplied exceeds quantity demanded
C) Both demand and supply increase
D) Both demand and supply decrease - In macroeconomics, GDP stands for:
A) Gross Domestic Product
B) General Domestic Production
C) Gross Development Product
D) General Development Policy - The main goal of macroeconomic policy is to:
A) Achieve full employment, price stability, and economic growth
B) Maximize individual firm profits
C) Control only inflation
D) Reduce government intervention - Inflation is:
A) A sustained increase in the general price level of goods and services
B) A decrease in overall price levels
C) A situation where demand exceeds supply
D) The rate at which money depreciates - Unemployment refers to:
A) People actively seeking jobs who are unable to find work
B) People not willing to work
C) People employed in the informal sector
D) Those working part-time - Fiscal policy involves:
A) Government decisions on taxation and public spending
B) Central bank operations
C) Exchange rate management
D) Private sector investment decisions - Monetary policy is implemented by:
A) The Central Bank
B) The Ministry of Finance
C) The World Bank
D) Private banks - A recession is characterized by:
A) Negative GDP growth for two consecutive quarters
B) Rapid economic growth
C) High inflation and high unemployment simultaneously
D) Stable economic activity - The Phillips Curve illustrates the relationship between:
A) Inflation and unemployment
B) Supply and demand
C) Price and quantity supplied
D) National income and savings - The principle of comparative advantage suggests that:
A) Countries should specialize and trade to maximize efficiency
B) Countries should produce everything domestically
C) Only the largest economies benefit from trade
D) Trade always leads to trade deficits - Market failure occurs when:
A) Markets do not allocate resources efficiently on their own
B) Prices are perfectly competitive
C) Governments intervene in markets
D) All markets operate perfectly - Externalities are:
A) Costs or benefits of economic activities that affect third parties not involved in the transaction
B) Costs borne solely by producers
C) Benefits enjoyed by consumers only
D) Government taxes on goods - Public goods are characterized by:
A) Non-rivalry and non-excludability
B) Rivalry and excludability
C) Being privately produced and consumed
D) Being sold in the market for profit - The concept of elasticity measures:
A) The responsiveness of quantity demanded or supplied to changes in price
B) The total quantity demanded in the market
C) The total revenue of firms
D) The rate of inflation - The Lorenz curve is used to measure:
A) Income inequality
B) Price elasticity
C) Government expenditure
D) Trade balance - Demand-pull inflation occurs when:
A) Aggregate demand exceeds aggregate supply
B) Aggregate supply exceeds demand
C) Money supply decreases
D) Prices fall across the economy
Section 2: National Income Estimation & Circular Flow of Income (25 Questions)
- National income is:
A) The total value of all goods and services produced within a country in a specific period, usually a year
B) The total exports of a country
C) The total government revenue
D) The total money in circulation - Methods of estimating national income include:
A) Income method, expenditure method, and production (output) method
B) Price method only
C) Consumption method only
D) Investment method only - The expenditure approach to national income sums up:
A) Total spending on final goods and services
B) Total income earned by factors of production
C) Total savings in the economy
D) Total government expenditure - In the circular flow of income, households mainly:
A) Consume goods and services and supply factors of production
B) Produce goods and services
C) Save and invest only
D) Control government spending - Injections into the circular flow include:
A) Investment, government spending, and exports
B) Savings and taxes
C) Imports and taxes
D) Leakages from the economy - Withdrawals from the circular flow include:
A) Savings, taxes, and imports
B) Investment, exports, and government spending
C) Consumption and investment
D) Income and savings - The multiplier effect refers to:
A) The process where an initial change in spending leads to a larger change in national income
B) The reduction in government spending
C) The increase in taxes to control inflation
D) The process of foreign exchange stabilization - The size of the multiplier depends on:
A) The marginal propensity to consume (MPC) and marginal propensity to save (MPS)
B) The total exports
C) The level of government debt
D) The inflation rate - A high marginal propensity to consume (MPC) results in:
A) A larger multiplier effect
B) A smaller multiplier effect
C) No effect on the multiplier
D) A decrease in national income - In the circular flow, government expenditure is considered:
A) An injection into the economy
B) A leakage from the economy
C) A withdrawal from the economy
D) Neutral - If savings increase in the economy,
A) The leakage from the circular flow increases, potentially reducing national income
B) The multiplier effect increases
C) Investment automatically increases
D) Consumption rises - The marginal propensity to save (MPS) is:
A) The proportion of additional income that is saved
B) The proportion of income spent on consumption
C) The total savings in the economy
D) The total investment - An increase in government spending in the circular flow model:
A) Acts as an injection and increases national income
B) Acts as a leakage and decreases national income
C) Has no effect on the flow of income
D) Only affects exports - Trade surplus refers to:
A) Exports exceeding imports
B) Imports exceeding exports
C) Equal exports and imports
D) Government surplus - An open economy is characterized by:
A) Trade with other countries involving exports and imports
B) No trade with other countries
C) Only domestic transactions
D) No government intervention - The primary purpose of national income measurement is:
A) To assess the economic performance of a country
B) To determine the exchange rate
C) To control inflation directly
D) To set tax rates - Leakages in the circular flow include:
A) Savings, taxes, and imports
B) Investment and government spending
C) Exports only
D) Consumption only - The concept of ‘spending multiplier’ explains:
A) How initial spending can lead to a greater overall increase in income
B) How savings decrease national income
C) How taxes reduce government revenue
D) How inflation causes unemployment - When exports increase,
A) The circular flow experiences an injection, boosting national income
B) Leakages increase, reducing income
C) The economy enters recession
D) Government taxes automatically increase - The income-expenditure model assumes that:
A) Changes in autonomous spending influence total income
B) Total income is fixed and unaffected by spending
C) Savings have no impact on income
D) Imports are ignored - The difference between gross national product (GNP) and gross domestic product (GDP) is:
A) GNP includes income earned by nationals abroad, while GDP is within the country
B) GNP excludes depreciation
C) GDP includes income from abroad
D) There is no difference - The term ‘leakage’ in the circular flow refers to:
A) Savings, taxes, and imports that withdraw income from the circular flow
B) Investment and government spending
C) Exports only
D) Consumer expenditure - The ‘multiplier’ effect is most significant when:
A) Marginal propensity to consume (MPC) is high
B) Marginal propensity to save (MPS) is high
C) The economy is in recession
D) Taxes are doubled - The circular flow model demonstrates:
A) The continuous movement of income and expenditure in an economy
B) Only the flow of goods and services
C) The flow of foreign investment only
D) The flow of government funds only - An increase in taxation in the circular flow model:
A) Acts as a withdrawal, reducing national income
B) Acts as an injection, increasing income
C) Has no effect
D) Always leads to inflation
Essay Questions (20)
- Explain the basic principles of microeconomics and macroeconomics, highlighting their differences and interrelation.
- Discuss the various methods of estimating a country’s national income and their relative advantages.
- Describe the circular flow of income in a simple economy; identify the roles of households, firms, and the government.
- Explain the concept of injections and withdrawals in the circular flow model and their impact on national income.
- Analyze the multiplier effect, including its determinants and implications for economic policy.
- Discuss how consumer spending and investment influence the circular flow of income.
- Explain the significance of national income accounting in economic planning and policymaking.
- Evaluate the impact of government spending on the circular flow of income and overall economic activity.
- Describe the relationship between savings, investment, and the multiplier in macroeconomic theory.
- Discuss the effects of a rise in exports on the circular flow of income and national income.
- Explain how leakages from the circular flow can affect economic growth and stability.
- Analyze the role of the government in stabilizing the economy through fiscal policy using the circular flow framework.
- Discuss the limitations of the circular flow of income model in representing real-world economies.
- Explain how changes in consumer confidence can influence the circular flow and national income.
- Evaluate the importance of understanding the circular flow of income for economic policymakers.
- Describe the impact of technological changes on the components of the circular flow of income.
- Discuss the role of foreign trade in the circular flow of income in an open economy.
- Explain the concept of the marginal propensity to consume (MPC) and its importance in multiplier analysis.
- Describe how taxation influences the flow of income and expenditure in an economy.
- Discuss the significance of national income statistics in assessing economic development and planning.
