Economics Exam Review Questions with Correct
Answers & Explanations
Economics - Answer -The branch of knowledge concerned with the production, consumption, and
transfer of wealth
Factors of Production - Answer -Any commodities or services used to produce goods and services
Opportunity Cost - Answer -The loss of potential gain from other alternatives when one alternative is
chosen
Real Cost - Answer -The complete cost of a product with all factors included
Production Possibility Curve - Answer -A graph that shows the different rates of production of two goods
and/or services that an economy can produce efficiently during a specified period of time
Economic Systems - Answer -The system of production and distribution and consumption
Market Systems - Answer -The individual rather than the collective whole (society) determines what to
produce, how much to produce, and what the cost will be
Gross Domestic Product - Answer -The total value of goods produced and services provided in a country
during one year
Absolute Advantage - Answer -The ability of an individual or group to carry out a particular economic
activity more efficiently than another individual or group
Comparative Advantage - Answer -The ability of an individual or group to carry out a particular economic
activity (such as making a specific product) more efficiently than another activity
Aggregate Demand - Answer -The total demand for final goods and services in the economy (Y) at a
given time and price level
, Aggregate Supply - Answer -The total supply of goods and services that firms in a national economy plan
on selling during a specific time period
Circular Flow - Answer -The fact that income earned in production is spent on goods that were
produced, providing the funds to pay that income
Inflation - Answer - The general increase in prices and fall in the purchasing value of money
Phillips Curve - Answer -A supposed inverse relationship between the level of unemployment and the
rate of inflation
Laffer Curve - Answer -A supposed relationship between economic activity and the rate of taxation that
suggests the existence of an optimum tax rate that maximizes tax revenue
Monetary Policy - Answer -The process by which the monetary authority of a country controls the supply
of money, often targeting a rate of interest to attain a set of objectives oriented towards the growth and
stability of the economy
Fiscal Policy - Answer -A government policy for dealing with the budget (especially with taxation and
borrowing)
Cyclical Unemployment - Answer -Unemployment precipitated by a downturn in the economy
Structural Unemployment - Answer -Unemployment resulting from industrial reorganization, typically
due to technological change, rather than fluctuations in supply or demand
Technological Unemployment - Answer -Unemployment caused by the replacement of workers by
machines or artificial intelligence technology
Economic Expansion - Answer -The upward phase of the business cycle, in which GDP is rising and
unemployment may be falling over time
Answers & Explanations
Economics - Answer -The branch of knowledge concerned with the production, consumption, and
transfer of wealth
Factors of Production - Answer -Any commodities or services used to produce goods and services
Opportunity Cost - Answer -The loss of potential gain from other alternatives when one alternative is
chosen
Real Cost - Answer -The complete cost of a product with all factors included
Production Possibility Curve - Answer -A graph that shows the different rates of production of two goods
and/or services that an economy can produce efficiently during a specified period of time
Economic Systems - Answer -The system of production and distribution and consumption
Market Systems - Answer -The individual rather than the collective whole (society) determines what to
produce, how much to produce, and what the cost will be
Gross Domestic Product - Answer -The total value of goods produced and services provided in a country
during one year
Absolute Advantage - Answer -The ability of an individual or group to carry out a particular economic
activity more efficiently than another individual or group
Comparative Advantage - Answer -The ability of an individual or group to carry out a particular economic
activity (such as making a specific product) more efficiently than another activity
Aggregate Demand - Answer -The total demand for final goods and services in the economy (Y) at a
given time and price level
, Aggregate Supply - Answer -The total supply of goods and services that firms in a national economy plan
on selling during a specific time period
Circular Flow - Answer -The fact that income earned in production is spent on goods that were
produced, providing the funds to pay that income
Inflation - Answer - The general increase in prices and fall in the purchasing value of money
Phillips Curve - Answer -A supposed inverse relationship between the level of unemployment and the
rate of inflation
Laffer Curve - Answer -A supposed relationship between economic activity and the rate of taxation that
suggests the existence of an optimum tax rate that maximizes tax revenue
Monetary Policy - Answer -The process by which the monetary authority of a country controls the supply
of money, often targeting a rate of interest to attain a set of objectives oriented towards the growth and
stability of the economy
Fiscal Policy - Answer -A government policy for dealing with the budget (especially with taxation and
borrowing)
Cyclical Unemployment - Answer -Unemployment precipitated by a downturn in the economy
Structural Unemployment - Answer -Unemployment resulting from industrial reorganization, typically
due to technological change, rather than fluctuations in supply or demand
Technological Unemployment - Answer -Unemployment caused by the replacement of workers by
machines or artificial intelligence technology
Economic Expansion - Answer -The upward phase of the business cycle, in which GDP is rising and
unemployment may be falling over time
