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Quizzes > Business & Finance > Finance & Economics

Economics Practice Test: Challenge Your Knowledge Now

Dive into economics questions and ace your econ test!

Difficulty: Moderate
2-5mins
Learning OutcomesCheat Sheet
Paper art illustration for economics knowledge quiz on a teal background

Ready to put your economic savvy to the ultimate test? Our free economics test invites you to tackle 30+ thought-provoking scenarios - from supply and demand puzzles to fiscal policy dilemmas - so you can measure your grasp of core principles and real-world applications. Perfect for students, self-learners, and curious minds alike, this introduction to economics online practice blends clear, concise explanations with challenging economics questions - think tough econ questions that cover micro and macro topics. Plus, after testing your skills, enjoy some economy trivia to see if you've got the edge. Ready to challenge yourself? Take this econ test now and elevate your economics game!

What does Gross Domestic Product (GDP) measure?
The total income earned by a country's citizens abroad
The total money supply circulating in the economy
The total market value of all final goods and services produced within a country in a given period
The total market value of all intermediate goods produced within a country
GDP measures the total market value of all final goods and services produced within a country's borders over a specific time period, excluding intermediate goods to avoid double counting. It captures output regardless of who owns the productive assets. This metric is central to assessing economic performance and comparing growth across countries. Learn more
According to the law of demand, when the price of a good increases, ceteris paribus, the quantity demanded usually:
Increases
Cannot be determined without more information
Remains unchanged
Decreases
The law of demand states that, all else equal, as the price of a good rises, the quantity demanded falls because consumers substitute toward relatively cheaper alternatives. This inverse relationship is fundamental to demand curve analysis. The law holds when no external factors change. Learn more
What is opportunity cost?
The monetary cost paid for a good or service
The value of the next best alternative foregone when making a choice
The accounting profit of a firm after expenses
A cost that has already been incurred and cannot be recovered
Opportunity cost represents the value of the next best option that is sacrificed when a decision is made. It highlights the trade-offs inherent in resource allocation. Recognizing opportunity cost is essential for efficient decision-making. Learn more
In economics, scarcity refers to:
Insufficient human desires for available goods
Government-imposed restrictions on production
Limited resources relative to unlimited human wants
Technological constraints on manufacturing
Scarcity arises because resources like land, labor, and capital are limited while human wants are virtually unlimited. This fundamental concept drives the need for choices and prioritization. Scarcity forces societies to consider allocation and opportunity cost. Learn more
If the supply of a product increases while demand remains unchanged, the equilibrium price:
Rises
Remains the same
Falls
Cannot be determined
When supply increases with constant demand, there is a surplus at the original price which pressures the price downward until a new equilibrium is reached. This shifts the supply curve rightward. Consumers benefit from lower prices in this scenario. Learn more
Inflation is best described as:
A continuous decline in the unemployment rate
An increase in the total quantity of goods produced
An accumulation of government debt
A general increase in the average price level of goods and services
Inflation reflects the overall rise in prices across the economy, reducing purchasing power over time. It is measured by indexes such as the CPI or GDP deflator. Moderate inflation can signal healthy demand, but high inflation erodes real incomes. Learn more
A price elasticity of demand greater than one indicates that:
Demand is unit elastic
Demand is perfectly inelastic
Demand is elastic
Demand is inelastic
When price elasticity of demand exceeds one, the percentage change in quantity demanded is larger than the percentage change in price, indicating high responsiveness. This is characteristic of non-essential or luxury goods. Understanding elasticity helps firms set pricing strategies. Learn more
Nominal GDP differs from real GDP in that nominal GDP:
Includes only consumer spending
Uses current prices and is not adjusted for inflation
Is adjusted for inflation to reflect true purchasing power
Excludes government spending
Nominal GDP calculates output using current market prices without adjusting for inflation. Real GDP, on the other hand, strips out price-level changes to reflect the true volume of production. Comparing the two shows the impact of inflation on economic growth. Learn more
Comparative advantage arises when a country can produce a good:
Using more resources than another country
At a lower opportunity cost than another country
With higher absolute productivity
At a higher price in international markets
Comparative advantage occurs when a nation can produce a good at lower opportunity cost even if it lacks absolute productivity advantages. Specialization based on comparative advantage benefits all trading partners. This principle underpins international trade theory. Learn more
Which measure includes the prices of imported goods in its calculation?
Core CPI
Consumer Price Index (CPI)
Producer Price Index (PPI)
GDP Deflator
The CPI tracks the cost of a fixed basket of consumer goods, including imported products, to measure inflation faced by households. The GDP deflator covers only domestically produced goods and services. PPI focuses on wholesale prices. Learn more
Which of the following is a tool of monetary policy?
Government infrastructure spending
Open market operations
Imposition of tariffs
Changes in income tax rates
Open market operations involve central bank buying or selling government securities to influence money supply and interest rates. This is a primary tool of monetary policy. Tax rates and government spending fall under fiscal policy. Learn more
Fiscal policy refers to changes in:
Interest rates
Government spending and taxation
Exchange rate regulations
The money supply
Fiscal policy involves adjustments in government expenditures and tax policies to influence economic activity. It is conducted by the legislative and executive branches. Monetary policy, by contrast, is managed by the central bank. Learn more
A binding price floor set above the equilibrium price results in:
A shift in the demand curve
A shortage of the product
A surplus of the product
No change in market outcome
When a price floor is above equilibrium, producers supply more than consumers demand, creating a surplus. This often leads to unsold inventories or government purchases. A non-binding floor below equilibrium has no effect. Learn more
Monopolistic competition is characterized by:
Government ownership of the industry
A single firm dominating the market
Many firms selling differentiated products
Many firms selling identical goods
In monopolistic competition, numerous firms sell products that are similar but not identical. Each firm has some price-setting power due to differentiation. Entry and exit are relatively easy, leading to zero economic profits in the long run. Learn more
Structural unemployment occurs when:
There is a mismatch between workers' skills and job requirements
Economic downturn reduces overall demand
Workers voluntarily leave the labor market
Workers are between jobs
Structural unemployment arises from long-term shifts in the economy that change the composition of jobs. Technological advances and globalization can render certain skills obsolete. This type of unemployment often requires retraining or relocation. Learn more
The Laffer Curve illustrates the relationship between:
Inflation and unemployment
Income and consumption
Exports and imports
Tax rates and tax revenue
The Laffer Curve shows that starting from zero, increasing tax rates initially raises revenue, but beyond a certain point, higher rates discourage work and investment, reducing revenue. It highlights a non-linear relationship. Determining the revenue-maximizing rate remains empirically challenging. Learn more
The short-run Phillips curve depicts the inverse relationship between:
Money supply and price level
Inflation and unemployment
Government spending and taxes
Interest rates and investment
In the short run, the Phillips curve suggests a trade-off between inflation and unemployment, where lower unemployment can come at the cost of higher inflation. Expectations and supply shocks can shift the curve. In the long run, the relationship may break down. Learn more
Purchasing Power Parity theory states that exchange rates adjust to equate the price of a basket of goods in two countries. If absolute PPP holds, the real exchange rate is:
Equal to 1
Independent of inflation
Fixed by the central bank
Greater than the nominal rate
Under absolute PPP, identical goods should cost the same in two countries when prices are expressed in a common currency, making the real exchange rate equal to one. Deviations occur due to transport costs, tariffs, and nontraded goods. PPP provides a long-term exchange rate benchmark. Learn more
A negative externality occurs when:
The government imposes a corrective tax
All participants benefit from the transaction
A third party bears an uncompensated cost from a transaction
Companies receive subsidies
Negative externalities arise when a transaction imposes costs on uninvolved third parties, such as pollution affecting nearby residents. Markets may fail to account for these costs, leading to overproduction. Government interventions can correct the market failure. Learn more
Public goods are non-excludable and non-rivalrous. Which of the following is an example of a public good?
National defense
A slice of pizza
A personal computer
Private tutoring
National defense is non-excludable because everyone in the country benefits regardless of payment and non-rivalrous because one person's consumption does not reduce availability to others. This makes private markets unlikely to supply it efficiently. Learn more
A Gini coefficient of zero indicates:
Perfect income equality
Perfect income inequality
Moderate income inequality
No data available
The Gini coefficient ranges from zero to one, where zero represents perfect equality (everyone has the same income) and one represents maximal inequality (one person has all the income). It is widely used to assess income distribution. Learn more
In the IS-LM model, the IS curve represents equilibrium in the:
Labor market
Money market
Foreign exchange market
Goods market
The IS curve shows combinations of interest rates and output where the goods market is in equilibrium (investment equals saving). It shifts with changes in fiscal policy or autonomous spending. The LM curve corresponds to money market equilibrium. Learn more
What is the future value of $1 invested today at an annual interest rate r for n years under compound interest?
(1 - r)^n
1 + rn
(1 + r)^n
r^n
Compounding interest means interest is earned on both principal and accumulated interest, so the future value formula is (1 + r)^n. The linear formula 1 + rn applies to simple interest only. Compound interest leads to exponential growth. Learn more
A country with a current account surplus is:
Running a capital account deficit
In balance between lending and borrowing
A net borrower from the rest of the world
A net lender to the rest of the world
A current account surplus means a country exports more goods, services, and income than it imports, generating excess foreign currency. This surplus typically finances lending to other countries. It reflects net savings over investment. Learn more
According to the Ricardian equivalence proposition, an increase in government debt financed by borrowing will:
Have no effect on aggregate demand because households anticipate future taxes and adjust saving accordingly
Increase aggregate demand due to higher government spending
Decrease aggregate demand because of crowding out
Lead to lower interest rates indefinitely
Ricardian equivalence suggests that rational households foresee future tax liabilities from government borrowing and therefore increase their savings to offset anticipated taxes. As a result, aggregate demand remains unchanged. The hypothesis relies on assumptions of perfect capital markets and infinite horizons. Learn more
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Study Outcomes

  1. Understand Key Economic Concepts -

    Identify and explain fundamental terms like supply, demand, and opportunity cost to build a solid foundation in economics.

  2. Analyze Economic Scenarios -

    Assess real”world examples using micro and macro principles to determine likely outcomes and market behaviors.

  3. Apply Economic Reasoning -

    Use economic logic to make informed decisions in everyday contexts, from budgeting to resource allocation.

  4. Interpret Economic Data -

    Read and interpret graphs, tables, and indicators to draw meaningful conclusions about market trends and performance.

  5. Evaluate Policy Impacts -

    Critically assess how fiscal and monetary policies affect markets, consumers, and overall economic stability.

  6. Reinforce Knowledge Retention -

    Gauge your understanding across diverse economics questions in this economics test and uncover areas for targeted improvement.

Cheat Sheet

  1. Supply and Demand Foundations -

    Master the law of supply and demand: as prices rise, quantity demanded falls and quantity supplied rises, creating the market equilibrium price. Visualize supply and demand curves intersecting - this equilibrium point determines the "clearing price." Remember the mnemonic "DEMAND DOWN when PRICE UP" to lock in this core economic relationship.

  2. Price Elasticity of Demand and Supply -

    Use the formula elasticity = (%ΔQuantity)/(%ΔPrice) to measure sensitivity - values over 1 indicate elastic behavior, under 1 signal inelastic. For example, a 10% price hike that cuts quantity demanded by 20% yields an elasticity of 2 (highly elastic). Practicing calculations with real-world goods (gas vs. luxury goods) will sharpen your econ test readiness.

  3. Opportunity Cost & Production Possibilities Frontier -

    The Production Possibilities Frontier (PPF) illustrates trade-offs and opportunity costs - moving along a concave PPF shows increasing costs of producing more of one good. For instance, shifting resources from guns to butter highlights what you sacrifice when changing output. Recall "PPF = Production & Pains" to remember that every choice incurs a cost.

  4. GDP & Measuring Overall Economic Activity -

    Gross Domestic Product (GDP) equals C + I + G + (X - M), summing consumption, investment, government spending, and net exports. Distinguish nominal GDP (current prices) from real GDP (inflation-adjusted using the GDP deflator = (nominal/real)×100). A quick practice: calculate real GDP to see how inflation skews raw figures.

  5. Comparative Advantage & Gains from Trade -

    David Ricardo's principle shows that even if one country is less efficient at everything, specialization based on lower opportunity costs yields mutual gains. If Country A gives up fewer units of sugar to produce coffee than Country B, A has comparative advantage in coffee. Chart sample opportunity costs to internalize why trade benefits all parties.

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