Question 1

Which of the following industries spend the greatest proportion of their costs on Research & Development (R&D) activities?

Accepted Answer

The pharmaceutical industry spends the greatest proportion of their costs on Research & Development activities.
Key Takeaway: R&D is an important investment for companies that develop and improve their products continually. Pharmaceutical companies spend the greatest proportion of their costs on R&D activities (up to a third for some companies) in the development and testing of drugs. Other industries that spend a high proportion of their costs on R&D are technology, telecommunications, and other health industries.

Question 2

The aggregate demand curve slopes downward for the following reasons EXCEPT:

Accepted Answer

The aggregate demand curves slopes downward due to wealth, interest rate, and exchange rate.
Key Takeaway: The aggregate demand curve slopes downward due to the effects of wealth, interest rates and exchange rates. For example, income levels and disposable rates are important in consumption demands.

Question 3

Developing countries such as Ghana lose nearly a third of their graduating medical doctors to more developed countries such as England and Australia. This loss of human capital is also referred to as:

Accepted Answer

This loss of human capital is also referred to as 'brain drain'.
Key Takeaway: Brain drain is the phenomenon whereby trained and skilled workers leave one country for another in search of employment opportunities. This type of human capital flight is especially detrimental to developing countries that are often short of educated and trained workers.

Question 4

Human capital as an investment is seminal to the economic growth of a country. The following are characteristics of human capital EXCEPT:

Accepted Answer

Human capital is not inversely proportional to education.
Key Takeaway: Human capital, as an investment in people, is important in the economic growth of a country. Among its characteristics is that it is productive, increasing the efficiency of labor and is produced through education and training. When properly supported and invested in, human capital provides a return. Human capital is also subject to depreciation over time such as the loss of skill and outdated knowledge and training.

Question 5

To illustrate an economic model such as the one predicting real GDPs, the following are used EXCEPT:

Accepted Answer

Case studies are not used to illustrate an economic model.
Key Takeaway: Economic models are often constructed to explain current economic activities such as production and manufacturing outputs. They are also constructed to predict future economic functioning such as predicted economic growth or a rate of decline using current and past data. A number of tools are used to illustrate these models such as graphs, tables of values and mathematical equations.

Question 6

In a competitive market, the prices of goods and services are determined by _______ from consumers and _______ from producers.

Accepted Answer

Prices are determined by consumer demand and producer supply.
Key Takeaway: In a competitive market, the prices of goods and services are determined by demand from consumers and supply from producers. This economic equilibrium that is based on the quantity of goods and services available will ultimately determine their prices.

Question 7

A country's national economy has shown an 8% growth over the past 4 years. Before that, the economy moved from recession to stagnation over a period of 10 years. What is this economic fluctuation referred to?

Accepted Answer

This economic fluctuation is referred to as a business cycle.
Key Takeaway: A business cycle charts the overall fluctuation in economic and production activities in a society. These activities experience growth and recession with periods of stagnation and are usually measured using a number of indices such as the real gross domestic product (GDP).

Question 8

In a legislative meeting designed to investigate new standard of living changes, a number of politicians are contemplating whether there should be an increase in minimum wages or a provision of small business tax cuts. This is an example of:

Accepted Answer

This is an example of normative economics.
Key Takeaway: Normative economics studies the way the economic realities of a society should be and not how it is. For example, those wishing to raise the standard of living for the lowest paid members of a society can propose to raise minimum wage figures. Alternatively, the provision of tax cuts to small businesses can lead to more hiring and an increase in standards of living.

Question 9

In 2007, the nominal Gross Domestic Product (GDP) of a small Asian country was 5% and the real GDP growth was 2%. What was the rate of inflation for this country?

Accepted Answer

The rate of inflation for this country is 3%.
Key Takeaway: The nominal GDP of a country measures the value of all the goods and services produced expressed in current prices. Real GDP measures the value of all the goods and services produced expressed in the prices of some base year. Nominal GDP growth = real GDP growth + inflation. Therefore, inflation = 5% -2% = 3%.

Question 10

What are the two types of return effects of human capital?

Accepted Answer

Private and external returns are two types of effects of human capital.
Key Takeaway: When governments and organizations invest in human capital, there are two types of returns that occur as effects. Private returns refer to workers becoming more productive and being rewarded by the market place. External returns refer to the ideas generated by other workers that ultimately became beneficial.

Question 11

A Production Possibilities Curve is concave to the origin due to:

Accepted Answer

A Production Possibilities Curve (PPC) is concave to the origin due to increased opportunity costs.
Key Takeaway: A PPC is concave to the origin to reflect increasing opportunity costs associated with increasing output of manufactured goods. A PPC can also be linear or convex depending on a number of factors such as transformation rate and technological capability.

Question 12

A software company manager assigns new roles within an Enterprise Resource Planning project according to recent training and acquired skills. This type of task assignment is referred to as:

Accepted Answer

This type of task assignment is referred to as specialization.
Key Takeaway: In economics, specialization is designed to assign tasks and roles within an organization in order to increase productivity, especially given the increasing complexity of the industrialization era. Specialization matches the skills and capabilities of individuals with given roles and divides labor among employees.

Question 13

Governments invest in the development of new research and technologies in order to gain scientific, economic, and military advantages globally. The following are investments in research and development EXCEPT:

Accepted Answer

Import quotas are not investments in research and development.
Key Takeaway: Scientific and technological advancements are important for a country to gain economic and military advantages globally. Among the investments made by governments to advance research and developments are subsidies to institutions and companies that engage in these activities. Governments also support research and development through public venues such as tax-funded universities and colleges as well as research centers. Governments also support research and development through a well-enforced patent system that protects intellectual property and investment.

Question 14

Welfare economics is the field of study that examines how:

Accepted Answer

Welfare economics is the field of study that examines how the allocation of resources impacts economic well-being.
Key Takeaway: Welfare economics makes certain that buyers and sellers both benefit from participation in the market. The equilibrium in the market makes sure that they derive maximum benefit which safeguards their economic well-being.

Question 15

The following are components of Porter's Five Forces model EXCEPT:

Accepted Answer

Bargaining power of banks is not a component of Porter's Five Forces model.
Key Takeaway: The model has five components as follows: the bargaining power of suppliers, the bargaining power of buyers, the threat of potential new entrants, threat of substitutes, and competitive rivalry. Bargaining power of banks is not a component of the model.

Question 16

The City of Newark, New Jersey has instituted strict rent control since the 1960s in a number of neighborhoods. Rent control is an example of:

Accepted Answer

Rent control is an example of price ceiling.
Key Takeaway: Price ceilings are measures instituted by governments to set maximum prices on goods. Rent control is an example of a price ceiling to make rent affordable to low income and marginalized individuals.

Question 17

In Rhode Island, the minimum hourly wage that can be paid to someone above the age of 14 is $6.50. Minimum wage is an example of:

Accepted Answer

Minimum wage is an example of price floor.
Key Takeaway: Price floors are government set limits on the minimum amounts that can be paid for goods. A minimum wage paid to workers is an example of a price floor and is devised to ensure that people are given adequate wages for survival.

Question 18

One of the consequences of unanticipated inflation is:

Accepted Answer

One of the consequences of unanticipated inflation is job losses.
Key Takeaway: Unanticipated inflation occurs when inflation is not factored into business decision making. One of the consequences of this is wage settlements that are higher due to inflation which is transferred to employers. Employers, in turn, would cut jobs in order to reduce costs.

Question 19

Over the past 25 years, the manufacturing base in the United States has begun to erode due to outsourcing to countries with cheaper production. Skilled workers in automobile and textile manufacturing have found it difficult to find other work. What type of unemployment is this?

Accepted Answer

This is the structural type of unemployment.
Key Takeaway: When workers find it difficult to apply their skills in new employment following the loss of their jobs, they suffer what is termed structural unemployment. For example, when skilled factory workers in the manufacturing sector found themselves laid off due to outsourcing and erosion of the base, many found it difficult to apply their skills to other sectors.

Question 20

In this current recession, there are many cities with unemployment rates as high as 25% due to the loss of jobs across all sectors and industries. What is this type of unemployment called?

Accepted Answer

This type of unemployment is called demand deficient.
Key Takeaway: Demand deficient unemployment that is caused by a general reduction of demand across all industries and sectors. A widespread recession is one example in which a general lack of demand for workers occurs.

Quiz 3: Economics