Question 1

According to Ricardo, as an economy grows, the ----------------are the only group that would benefit.
A)Workers
B)Land-owners
C)Bussiness Man
D)None of the above

Accepted Answer

According to David Ricardo's theory of rent, as an economy grows, land becomes more in demand, leading to increased rent prices. This benefits land-owners, as they can charge more for the use of their land.

Question 2

According the law of diminishing returns:
A)The marginal product of a variable factor eventually falls as more units of it are added to a fixed factor
B)Marginal utility falls as more units of a product are consumed
C)The total product falls as more units of a variable factor are added to a fixed factor
D)The marginal product eventually increases as more units of a variable factor are added to a fixed factor

Accepted Answer

The law of diminishing returns states that as more units of a variable factor are added to a fixed factor, the marginal product of the variable factor will eventually decrease. This is because, beyond a certain point, the additional output gained from adding more units of the variable factor decreases, as the fixed factor becomes increasingly overloaded.

Question 3

The quantity theory of money is expressed by the identity equation
A)MV/PY
B)MV=Y
C)M= PYV
D)MV=PY

Accepted Answer

The quantity theory of money is expressed by the identity equation MV=PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is the real output.

Question 4

Both sides of the quantity theory of money identity represent . *
A)Real GDP
B)Inflation.
C)Nominal GDP.
D)The Money Supply.

Accepted Answer

The quantity theory of money identity is MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP. The right side, PY, represents nominal GDP.

Question 5

In the quantity theory of money, P and Y represent the price and quantity of:
A)all raw materials and natural resources sold in an economy
B)all financial services sold in an economy.
C)all durable capital (tractors, manufacturing equipment) purchased in the economy
D)all finished goods and services sold in an economy

Accepted Answer

In the quantity theory of money, P represents the price level, and Y represents the real output or quantity of all finished goods and services sold in an economy, which together determine the nominal GDP.

Question 6

Nominal GDP in terms of is represented by how much money there is and how many times it is spent, while Nominal GDP in terms of------------- is represented by all goods and services and their prices.
A)buyers & sellers
B)domestic production & international production
C)profit & loss
D)imports & exports

Accepted Answer

Nominal GDP can be viewed in terms of the total money spent (buyers & sellers) or in terms of the total value of goods and services produced, which involves their prices.

Question 7

Adam Smith in his book, The Wealth of Nations, developed a theory about:
A)communism
B)capitalism
C)regulating foreign investment
D)ensuring internal order

Accepted Answer

Adam Smith is best known for developing the theory of capitalism, particularly through his seminal work, "The Wealth of Nations," where he discusses the benefits of a free market economy and the division of labor.

Quiz 1: Economic Theories and Concepts

According to Ricardo, as an economy grows, the ----------------are the only group that would benefit.

According the law of diminishing returns:

The quantity theory of money is expressed by the identity equation

Both sides of the quantity theory of money identity represent . *

In the quantity theory of money, P and Y represent the price and quantity of:

Nominal GDP in terms of is represented by how much money there is and how many times it is spent, while Nominal GDP in terms of------------- is represented by all goods and services and their prices.

Adam Smith in his book, The Wealth of Nations, developed a theory about: