B.11 Economic concepts

Question 1

Which of the following is NOT one of the four factors of production?

A. Labor
B. Capital
C. Wages
D. Entrepreneurship

Answer 1

C. Wages

The four factors of production are labor, capital, land, and entrepreneurship.

B.11 Economic concepts

Question 2

Which of the following best describes the law of supply?

A. As the price of a good or service decreases, the quantity demanded increases
B. As the price of a good or service increases, the quantity demanded increases
C. As the price of a good or service decreases, the quantity supplied decreases
D. As the price of a good or service increases, the quantity supplied increases

Answer 2

D. As the price of a good or service increases, the quantity supplied increases

The law of supply states that as the price of a good or service increases, the quantity supplied increases. This is because producers are incentivized to produce more of the good or service when they can sell it for a higher price.

B.11 Economic concepts

Question 3

Which of the following is a characteristic of a perfectly competitive market?

A. There are many buyers and sellers
B. There are significant barriers to entry and exit
C. The products sold by different firms are differentiated
D. Firms can influence the price of the product

Answer 3

A. There are many buyers and sellers

A perfectly competitive market is characterized by many buyers and sellers, homogeneous products, ease of entry and exit, and perfect information. The other options are characteristics of imperfectly competitive markets.

B.11 Economic concepts

Question 4

Which of the following is a measure of a firm’s profitability?

A. Gross profit margin
B. Net income
C. Return on investment (ROI)
D. All of the above

Answer 4

D. All of the above

Gross profit margin, net income, and ROI are all measures of a firm’s profitability. Gross profit margin is the ratio of gross profit to revenue, net income is the profit after all expenses have been deducted, and ROI is the ratio of net income to investment.

B.11 Economic concepts

Question 5

Which of the following is an example of a positive externality?

A. Pollution from a factory that affects the health of nearby residents
B. A homeowner installing solar panels that reduce carbon emissions
C. A company paying its employees a living wage
D. A farmer using pesticides that harm nearby wildlife

Answer 5

B. A homeowner installing solar panels that reduce carbon emissions

A positive externality is a benefit that is experienced by a third party as a result of an economic transaction. Installing solar panels that reduce carbon emissions is an example of a positive externality because it benefits the environment and the community as a whole.

B.11 Economic concepts

Question 6

Which of the following is an example of a regressive tax?

A. Income tax
B. Sales tax
C. Property tax
D. Corporate tax

Answer 6

B. Sales tax

A regressive tax is a tax that takes a larger percentage of income from low-income earners than from high-income earners. Sales tax is an example of a regressive tax because low-income earners spend a larger percentage of their income on taxable goods and services than high-income earners.

B.11 Economic concepts

Question 7

A company produces widgets at a total cost of $100,000 and sells them for $150,000. What is the company’s profit?

A. $50,000
B. $100,000
C. $150,000
D. $200,000

Answer 7

A. $50,000

Profit is calculated by subtracting total costs from total revenue. In this case, the company’s revenue is $150,000 and its total cost is $100,000, so its profit is $50,000.

B.11 Economic concepts

Question 8

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

A. Private healthcare
B. A toll road
C. National defense
D. Cable television

Answer 8

C. National defense

A public good is a good or service that is non-excludable and non-rivalrous. National defense is an example of a public good because it is provided by the government and is available to all citizens regardless of their ability to pay for it.

B.11 Economic concepts

Question 9

Which of the following is an example of a command economy?

A. The United States economy
B. The Chinese economy
C. The Japanese economy
D. The German economy

Answer 9

B. The Chinese economy

A command economy is an economic system in which the government makes all the economic decisions. The Chinese economy is an example of a command economy because the government has a significant role in directing the country’s economic development.

B.11 Economic concepts

Question 10

Which of the following is an example of a progressive tax?

A. Sales tax
B. Property tax
C. Corporate tax
D. Income tax

Answer 10

D. Income tax

A progressive tax is a tax that takes a larger percentage of income from high-income earners than from low-income earners. Income tax is an example of a progressive tax because the tax rate increases as income increases.

B.11 Economic concepts

Question 11

Which of the following is an example of a fiscal policy tool?

A. Monetary policy
B. Interest rates
C. Government spending
D. Inflation targeting

Answer 11

C. Government spending

Fiscal policy is the use of government spending and taxation to influence the economy. Government spending is an example of a fiscal policy tool because it can be used to stimulate economic growth or slow down inflation.

B.11 Economic concepts

Question 12

Which of the following is an example of a trade barrier?

A. Tariffs
B. Free trade agreements
C. Open borders
D. Foreign aid

Answer 12

A. Tariffs

A trade barrier is a government-imposed restriction on international trade. Tariffs are an example of a trade barrier because they are taxes imposed on imported goods, making them more expensive and less competitive in the domestic market.

B.11 Economic concepts

Question 13

Which of the following is an example of a monopoly?

A. The electric company in a small town
B. The fast food industry
C. The airline industry
D. The smartphone market

Answer 13

A. The electric company in a small town

A monopoly is a market structure in which there is only one supplier of a particular product or service. The electric company in a small town is an example of a monopoly because it is the only provider of electricity in the area.

B.11 Economic concepts

Question 14

Which of the following is an example of a factor that could shift the demand curve for a product?

A. Changes in the price of the product
B. Changes in the price of a complementary good
C. Changes in consumer income
D. All of the above

Answer 14

D. All of the above

The demand curve for a product can shift due to changes in the price of the product, changes in the price of complementary goods, changes in consumer income, changes in consumer tastes and preferences, and other factors.

B.11 Economic concepts

Question 15

Which of the following is an example of a scenario that could lead to stagflation?

A. Increased government spending and a decrease in taxes
B. A decrease in the money supply and an increase in interest rates
C. A decrease in the money supply and a decrease in taxes
D. Increased government spending and an increase in the money supply

Answer 15

B. A decrease in the money supply and an increase in interest rates

Stagflation is a condition in which the economy experiences both high inflation and high unemployment. A decrease in the money supply and an increase in interest rates could lead to stagflation by reducing the money available for borrowing and spending, which could slow down economic growth and lead to higher unemployment, while also increasing the cost of borrowing and raising prices, leading to higher inflation.

B.11 Economic concepts

Question 16

Jennifer, a financial planner, is attending a seminar on macroeconomic factors that could influence financial planning strategies. During the seminar, the presenter discusses the use of fiscal policy tools to constrain or cool down an overheating economy. Which of the following actions, if taken by the government, BEST represents an example of using fiscal policy to constrain economic activity?

A. Increasing the discount rate
B. Increasing government purchase of Treasury securities
C. Decreasing the budget of the Department of Transportation
D. Decreasing the corporate federal income tax rate

Answer 16

C. Decreasing the budget of the Department of Transportation

Fiscal policy refers to the use of government spending and tax policies to influence economic conditions.

Among the options presented:

Option A refers to monetary policy, not fiscal policy. The discount rate is a tool used by central banks to influence the supply of money in the economy.

Option B also alludes to monetary policy. The purchase of Treasury securities by the government is typically done to influence liquidity and interest rates in the economy.

Option C is an example of contractionary fiscal policy. By decreasing the budget of a government department, government spending is reduced, which can lead to a decrease in aggregate demand and help constrain economic activity.

Option D refers to a tax policy. While it is related to fiscal policy, decreasing the corporate tax rate typically stimulates economic activity rather than constraining it

B.11 Economic concepts

Question 17

Maria is a financial planner analyzing the potential impact of increasing inflation on her client’s investment portfolio. Which of the following asset classes is typically considered most vulnerable to high inflation?

A. Treasury Inflation-Protected Securities (TIPS)
B. Corporate Bonds
C. Real Estate
D. Commodities

Answer 17

B. Corporate Bonds

Corporate bonds are generally considered vulnerable to high inflation because the fixed interest payments lose purchasing power as inflation increases. Unlike TIPS, which are indexed to inflation to protect investors from the decline in the real value of their holdings, corporate bonds do not offer such adjustments.

B.11 Economic concepts

Question 18

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A financial planner assesses the impact of a recession on a client’s diversified investment portfolio. Which sector is likely to be most adversely affected during a recession?

A. Consumer Discretionary
B. Utilities
C. Healthcare
D. Technology

Answer 18

A. Consumer Discretionary

Consumer discretionary stocks generally suffer during recessions because they depend on high consumer spending, which typically decreases during economic downturns. Utilities and healthcare are considered defensive sectors and tend to be more stable during economic downturns.

B.11 Economic concepts

Question 19

John, a financial planner, is discussing with his client the implications of interest rate changes by the Federal Reserve. If the Fed decides to increase interest rates, which of the following would most likely decrease in value?

A. Money market funds
B. Existing bond portfolios
C. New bond issues
D. Stocks of technology companies

Answer 19

B. Existing bond portfolios

When interest rates rise, the prices of existing bonds tend to fall because newer bond issues likely offer higher yields, making existing bonds with lower yields less attractive.

B.11 Economic concepts

Question 20

During an economic expansion, which of the following assets would likely perform best?

A. Gold
B. Government bonds
C. Real estate
D. Corporate bonds

Answer 20

C. Real estate

Real estate typically performs well during economic expansions due to increased business activity and consumer spending, leading to higher demand for property and increasing property values. Bonds tend to perform better during economic contractions when investors seek safer assets.

B.11 Economic concepts

Question 21

A client is concerned about the impact of currency exchange rates on their international investments. If the U.S. dollar strengthens relative to other currencies, what is the likely impact on their international stock portfolio?

A. Increase in value
B. Decrease in value
C. No change in value
D. The impact can only be determined based on the type of stocks in the portfolio

Answer 21

B. Decrease in value

If the U.S. dollar strengthens, the returns on international investments when converted back to dollars will be lower because each unit of foreign currency converts into fewer dollars. This typically leads to a decrease in the dollar-denominated value of international investments.

B.11 Economic concepts