WGU D089 Principles of Economics Exam Questions - Verified & Rationalized Answers - Fiscal & Monetary Policy & Money
Banking - A+ Graded
WGU D089 Principles of Economics | 300+ Questions | Verified and Rationalized Answers | Different Title 3
TABLE OF CONTENTS
1. I. Foundations - Scarcity Choice Opportunity Cost Next Best Alternative Explicit Implicit Costs PPF
2. II. Demand and Supply - Law Demand Inverse Price Quantity, Law Supply Direct, Shifts vs Movement Along, Equilibrium Surplus Shortage
3. III. Elasticity - Price Elasticity Demand Midpoint Formula Percent Delta Q / Percent Delta P Elastic greater than 1 Inelastic less than 1
Unitary 1, Income Elasticity Normal Inferior, Cross Price Substitutes Complements, Supply Elasticity Time Horizon
4. IV. Consumer Behavior - Law Diminishing Marginal Utility, Consumer Surplus Willingness to Pay Minus Price
5. V. Production and Costs - Short Run vs Long Run, Fixed Variable Costs, MC MR AC, Economies Scale
6. VI. Market Structures - Perfect Competition P=MC, Monopoly MR=MC Price from Demand, Monopolistic Competition, Oligopoly
7. VII. GDP Measurement - Final Goods Services Within Country, Nominal Current Prices vs Real Constant Prices GDP Deflator
Nominal/Real*100, Excludes Intermediate Used Financial Non-Market
8. VIII. Inflation and Unemployment - CPI Basket vs GDP Deflator All Goods, Natural Rate Frictional Structural Cyclical Zero Full Employment,
Types Inflation Demand Pull Cost Push
9. IX. AD-AS Model - AD C+I+G+NX, SRAS LRAS Vertical Full Employment, Supply Shock Oil Stagflation Inflation Up Output Down
10. X. Fiscal Policy - Expansionary Increase G Decrease T Close Recessionary Gap Increase AD, Contractionary Decrease G Increase T
Close Inflationary Gap, Crowding Out Interest Rate Reduces Private Investment
11. XI. Money and Banking - Functions Medium Exchange Unit Account Store Value Deferred Payment, Federal Reserve Tools Fed Funds
Rate Reserve Requirement Open Market Buy Sell Bonds
12. XII. Monetary Policy - Expansionary Decrease Fed Funds Rate Decrease Reserve Buy Bonds Increase Money Supply Decrease Interest
Rate, Contractionary Increase Rate Increase Reserve Sell Bonds
13. XIII. Phillips Curve - Short Run Inverse Inflation Unemployment, Long Run Vertical Natural Rate NAIRU Expectations-Augmented
14. XIV. International Trade - Comparative Advantage Lower Opportunity Cost Basis Specialization, Absolute Advantage More Output, Trade
Barriers Tariffs Quotas
15. XV. Practice Questions - Each Asked Like Real WGU D089 Exam
16. XVI. Answer Key with Verified and Rationalized Answers A+ Graded
,WGU D089 PRINCIPLES OF ECONOMICS - PRACTICE QUESTIONS - EACH QUESTION ASKED LIKE REAL EXAM
Based on WGU D089 Principles of Economics Competency - Microeconomics Macroeconomics Policy. High Yield.
1. Supply shock example?
A. Oil price increase shifts SRAS left - stagflation inflation up output down
B. Demand increase
C. No shock
D. Technology improvement
Answer: A
Rationale: Supply shock oil price increase SRAS left stagflation.
2. What causes shift in demand vs movement along demand?
A. Same
B. Movement along caused by price change, shift caused by income tastes expectations number buyers price related goods - demand shifter
C. Only price shifts
D. No shift
Answer: B
Rationale: Movement along price change, shift income tastes expectations buyers related goods.
3. What causes shift in demand vs movement along demand?
A. Movement along caused by price change, shift caused by income tastes expectations number buyers price related goods - demand shifter
B. No shift
C. Same
D. Only price shifts
Answer: A
Rationale: Movement along price change, shift income tastes expectations buyers related goods.
4. What is law of diminishing marginal utility?
A. As consumption of good increases, additional satisfaction from each extra unit decreases
B. Utility constant
C. No diminishing
D. Utility always increases
Answer: A
Rationale: Diminishing marginal utility extra unit less satisfaction.
5. What is GDP deflator formula?
A. CPI*100
B. No formula
C. Real/Nominal
D. GDP deflator = Nominal GDP/Real GDP*100 measures price level all goods
Answer: D
Rationale: GDP deflator Nominal/Real*100 price level all goods vs CPI basket.
6. What is Phillips Curve?
A. Long-run inverse
B. Short-run inverse relationship inflation and unemployment, long-run vertical at natural rate NAIRU - expectations-augmented
C. No relationship
D. Positive inflation unemployment
Answer: B
Rationale: Short-run Phillips inverse inflation unemployment, long-run vertical natural rate.
7. What is crowding out?
A. Increases investment
B. No effect
C. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
D. No crowding
Answer: C
Rationale: Crowding out fiscal increase interest rate reduces private investment.
8. Monopoly profit maximization where?
A. MR greater than P
B. P=MC
C. MR=MC - monopoly MR less than P due to downward demand, produces where MR=MC then charges demand price
D. MC=0
Answer: C
Rationale: Monopoly MR=MC profit max, price from demand greater than MR.
9. Money functions?
A. No functions
,B. Only medium exchange
C. Only store value
D. Medium exchange, unit account, store value, standard deferred payment - money functions
Answer: D
Rationale: Money functions medium exchange unit account store value deferred payment.
10. What is GDP deflator formula?
A. GDP deflator = Nominal GDP/Real GDP*100 measures price level all goods
B. Real/Nominal
C. No formula
D. CPI*100
Answer: A
Rationale: GDP deflator Nominal/Real*100 price level all goods vs CPI basket.
11. What does Federal Reserve use for contractionary monetary policy?
A. Decrease interest rate
B. Decrease reserve requirement
C. Buy bonds
D. Increase federal funds rate, increase reserve requirement, sell bonds open market operations - decrease money supply increase interest rate
Answer: D
Rationale: Contractionary monetary increase fed funds rate increase reserve requirement sell bonds decrease money supply.
12. Monopoly profit maximization where?
A. MC=0
B. P=MC
C. MR greater than P
D. MR=MC - monopoly MR less than P due to downward demand, produces where MR=MC then charges demand price
Answer: D
Rationale: Monopoly MR=MC profit max, price from demand greater than MR.
13. What is GDP deflator formula?
A. Real/Nominal
B. GDP deflator = Nominal GDP/Real GDP*100 measures price level all goods
C. CPI*100
D. No formula
Answer: B
Rationale: GDP deflator Nominal/Real*100 price level all goods vs CPI basket.
14. If MPC is 0.8, what is spending multiplier?
A. 0.8
B. 0.2
C. 1.25
D. 5 - multiplier = 1/(1-MPC)=1/0.2=5 - MPS=0.2
Answer: D
Rationale: Multiplier 1/(1-MPC)=1/MPS. MPC 0.8 MPS 0.2 multiplier 5.
15. Fiscal policy to close recessionary gap?
A. Decrease G increase T
B. Decrease money supply
C. Increase government spending G decrease taxes T increase AD - expansionary fiscal
D. Increase interest rate
Answer: C
Rationale: Recessionary gap expansionary fiscal increase G decrease T increase AD.
16. What does Federal Reserve use for contractionary monetary policy?
A. Decrease reserve requirement
B. Increase federal funds rate, increase reserve requirement, sell bonds open market operations - decrease money supply increase interest rate
C. Decrease interest rate
D. Buy bonds
Answer: B
Rationale: Contractionary monetary increase fed funds rate increase reserve requirement sell bonds decrease money supply.
17. What is crowding out?
A. No crowding
B. Increases investment
C. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
D. No effect
Answer: C
Rationale: Crowding out fiscal increase interest rate reduces private investment.
, 18. GDP includes which?
A. Used goods
B. Final goods and services produced within country in given period, excludes intermediate to avoid double counting, excludes non-market
C. Financial transactions
D. Intermediate goods
Answer: B
Rationale: GDP final goods services produced within country period, excludes intermediate used financial.
19. Fiscal policy to close recessionary gap?
A. Decrease money supply
B. Decrease G increase T
C. Increase interest rate
D. Increase government spending G decrease taxes T increase AD - expansionary fiscal
Answer: D
Rationale: Recessionary gap expansionary fiscal increase G decrease T increase AD.
20. What is opportunity cost?
A. Value of next best alternative forgone when making a choice - includes explicit and implicit costs
B. No cost
C. Sunk cost
D. Only money cost
Answer: A
Rationale: Opportunity cost next best alternative forgone explicit plus implicit.
21. A coffee shop raises price from $4 to $5 and quantity demanded falls from 100 to 80 cups per day. What is price elasticity of demand and
type?
A. Perfectly inelastic
B. Perfectly elastic
C. Inelastic 0.5
D. Elastic - price elasticity = (Delta Q/Qavg)/(Delta P/Pavg) = (-20/90)/(1/4.5)= -1.0 unitary elastic
Answer: D
Rationale: Elasticity mid-point: Qavg 90, Pavg 4.5, percent Delta Q -22.2 percent, percent Delta P 22.2 percent, elasticity -1 unitary elastic.
22. What is natural rate of unemployment includes?
A. Zero unemployment
B. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
C. Only structural
D. Only cyclical
Answer: B
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
23. What is law of diminishing marginal utility?
A. Utility always increases
B. Utility constant
C. As consumption of good increases, additional satisfaction from each extra unit decreases
D. No diminishing
Answer: C
Rationale: Diminishing marginal utility extra unit less satisfaction.
24. Fiscal policy to close recessionary gap?
A. Increase interest rate
B. Increase government spending G decrease taxes T increase AD - expansionary fiscal
C. Decrease G increase T
D. Decrease money supply
Answer: B
Rationale: Recessionary gap expansionary fiscal increase G decrease T increase AD.
25. Supply shock example?
A. No shock
B. Technology improvement
C. Demand increase
D. Oil price increase shifts SRAS left - stagflation inflation up output down
Answer: D
Rationale: Supply shock oil price increase SRAS left stagflation.
26. What is opportunity cost?
A. No cost
B. Sunk cost
C. Only money cost
D. Value of next best alternative forgone when making a choice - includes explicit and implicit costs
Banking - A+ Graded
WGU D089 Principles of Economics | 300+ Questions | Verified and Rationalized Answers | Different Title 3
TABLE OF CONTENTS
1. I. Foundations - Scarcity Choice Opportunity Cost Next Best Alternative Explicit Implicit Costs PPF
2. II. Demand and Supply - Law Demand Inverse Price Quantity, Law Supply Direct, Shifts vs Movement Along, Equilibrium Surplus Shortage
3. III. Elasticity - Price Elasticity Demand Midpoint Formula Percent Delta Q / Percent Delta P Elastic greater than 1 Inelastic less than 1
Unitary 1, Income Elasticity Normal Inferior, Cross Price Substitutes Complements, Supply Elasticity Time Horizon
4. IV. Consumer Behavior - Law Diminishing Marginal Utility, Consumer Surplus Willingness to Pay Minus Price
5. V. Production and Costs - Short Run vs Long Run, Fixed Variable Costs, MC MR AC, Economies Scale
6. VI. Market Structures - Perfect Competition P=MC, Monopoly MR=MC Price from Demand, Monopolistic Competition, Oligopoly
7. VII. GDP Measurement - Final Goods Services Within Country, Nominal Current Prices vs Real Constant Prices GDP Deflator
Nominal/Real*100, Excludes Intermediate Used Financial Non-Market
8. VIII. Inflation and Unemployment - CPI Basket vs GDP Deflator All Goods, Natural Rate Frictional Structural Cyclical Zero Full Employment,
Types Inflation Demand Pull Cost Push
9. IX. AD-AS Model - AD C+I+G+NX, SRAS LRAS Vertical Full Employment, Supply Shock Oil Stagflation Inflation Up Output Down
10. X. Fiscal Policy - Expansionary Increase G Decrease T Close Recessionary Gap Increase AD, Contractionary Decrease G Increase T
Close Inflationary Gap, Crowding Out Interest Rate Reduces Private Investment
11. XI. Money and Banking - Functions Medium Exchange Unit Account Store Value Deferred Payment, Federal Reserve Tools Fed Funds
Rate Reserve Requirement Open Market Buy Sell Bonds
12. XII. Monetary Policy - Expansionary Decrease Fed Funds Rate Decrease Reserve Buy Bonds Increase Money Supply Decrease Interest
Rate, Contractionary Increase Rate Increase Reserve Sell Bonds
13. XIII. Phillips Curve - Short Run Inverse Inflation Unemployment, Long Run Vertical Natural Rate NAIRU Expectations-Augmented
14. XIV. International Trade - Comparative Advantage Lower Opportunity Cost Basis Specialization, Absolute Advantage More Output, Trade
Barriers Tariffs Quotas
15. XV. Practice Questions - Each Asked Like Real WGU D089 Exam
16. XVI. Answer Key with Verified and Rationalized Answers A+ Graded
,WGU D089 PRINCIPLES OF ECONOMICS - PRACTICE QUESTIONS - EACH QUESTION ASKED LIKE REAL EXAM
Based on WGU D089 Principles of Economics Competency - Microeconomics Macroeconomics Policy. High Yield.
1. Supply shock example?
A. Oil price increase shifts SRAS left - stagflation inflation up output down
B. Demand increase
C. No shock
D. Technology improvement
Answer: A
Rationale: Supply shock oil price increase SRAS left stagflation.
2. What causes shift in demand vs movement along demand?
A. Same
B. Movement along caused by price change, shift caused by income tastes expectations number buyers price related goods - demand shifter
C. Only price shifts
D. No shift
Answer: B
Rationale: Movement along price change, shift income tastes expectations buyers related goods.
3. What causes shift in demand vs movement along demand?
A. Movement along caused by price change, shift caused by income tastes expectations number buyers price related goods - demand shifter
B. No shift
C. Same
D. Only price shifts
Answer: A
Rationale: Movement along price change, shift income tastes expectations buyers related goods.
4. What is law of diminishing marginal utility?
A. As consumption of good increases, additional satisfaction from each extra unit decreases
B. Utility constant
C. No diminishing
D. Utility always increases
Answer: A
Rationale: Diminishing marginal utility extra unit less satisfaction.
5. What is GDP deflator formula?
A. CPI*100
B. No formula
C. Real/Nominal
D. GDP deflator = Nominal GDP/Real GDP*100 measures price level all goods
Answer: D
Rationale: GDP deflator Nominal/Real*100 price level all goods vs CPI basket.
6. What is Phillips Curve?
A. Long-run inverse
B. Short-run inverse relationship inflation and unemployment, long-run vertical at natural rate NAIRU - expectations-augmented
C. No relationship
D. Positive inflation unemployment
Answer: B
Rationale: Short-run Phillips inverse inflation unemployment, long-run vertical natural rate.
7. What is crowding out?
A. Increases investment
B. No effect
C. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
D. No crowding
Answer: C
Rationale: Crowding out fiscal increase interest rate reduces private investment.
8. Monopoly profit maximization where?
A. MR greater than P
B. P=MC
C. MR=MC - monopoly MR less than P due to downward demand, produces where MR=MC then charges demand price
D. MC=0
Answer: C
Rationale: Monopoly MR=MC profit max, price from demand greater than MR.
9. Money functions?
A. No functions
,B. Only medium exchange
C. Only store value
D. Medium exchange, unit account, store value, standard deferred payment - money functions
Answer: D
Rationale: Money functions medium exchange unit account store value deferred payment.
10. What is GDP deflator formula?
A. GDP deflator = Nominal GDP/Real GDP*100 measures price level all goods
B. Real/Nominal
C. No formula
D. CPI*100
Answer: A
Rationale: GDP deflator Nominal/Real*100 price level all goods vs CPI basket.
11. What does Federal Reserve use for contractionary monetary policy?
A. Decrease interest rate
B. Decrease reserve requirement
C. Buy bonds
D. Increase federal funds rate, increase reserve requirement, sell bonds open market operations - decrease money supply increase interest rate
Answer: D
Rationale: Contractionary monetary increase fed funds rate increase reserve requirement sell bonds decrease money supply.
12. Monopoly profit maximization where?
A. MC=0
B. P=MC
C. MR greater than P
D. MR=MC - monopoly MR less than P due to downward demand, produces where MR=MC then charges demand price
Answer: D
Rationale: Monopoly MR=MC profit max, price from demand greater than MR.
13. What is GDP deflator formula?
A. Real/Nominal
B. GDP deflator = Nominal GDP/Real GDP*100 measures price level all goods
C. CPI*100
D. No formula
Answer: B
Rationale: GDP deflator Nominal/Real*100 price level all goods vs CPI basket.
14. If MPC is 0.8, what is spending multiplier?
A. 0.8
B. 0.2
C. 1.25
D. 5 - multiplier = 1/(1-MPC)=1/0.2=5 - MPS=0.2
Answer: D
Rationale: Multiplier 1/(1-MPC)=1/MPS. MPC 0.8 MPS 0.2 multiplier 5.
15. Fiscal policy to close recessionary gap?
A. Decrease G increase T
B. Decrease money supply
C. Increase government spending G decrease taxes T increase AD - expansionary fiscal
D. Increase interest rate
Answer: C
Rationale: Recessionary gap expansionary fiscal increase G decrease T increase AD.
16. What does Federal Reserve use for contractionary monetary policy?
A. Decrease reserve requirement
B. Increase federal funds rate, increase reserve requirement, sell bonds open market operations - decrease money supply increase interest rate
C. Decrease interest rate
D. Buy bonds
Answer: B
Rationale: Contractionary monetary increase fed funds rate increase reserve requirement sell bonds decrease money supply.
17. What is crowding out?
A. No crowding
B. Increases investment
C. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
D. No effect
Answer: C
Rationale: Crowding out fiscal increase interest rate reduces private investment.
, 18. GDP includes which?
A. Used goods
B. Final goods and services produced within country in given period, excludes intermediate to avoid double counting, excludes non-market
C. Financial transactions
D. Intermediate goods
Answer: B
Rationale: GDP final goods services produced within country period, excludes intermediate used financial.
19. Fiscal policy to close recessionary gap?
A. Decrease money supply
B. Decrease G increase T
C. Increase interest rate
D. Increase government spending G decrease taxes T increase AD - expansionary fiscal
Answer: D
Rationale: Recessionary gap expansionary fiscal increase G decrease T increase AD.
20. What is opportunity cost?
A. Value of next best alternative forgone when making a choice - includes explicit and implicit costs
B. No cost
C. Sunk cost
D. Only money cost
Answer: A
Rationale: Opportunity cost next best alternative forgone explicit plus implicit.
21. A coffee shop raises price from $4 to $5 and quantity demanded falls from 100 to 80 cups per day. What is price elasticity of demand and
type?
A. Perfectly inelastic
B. Perfectly elastic
C. Inelastic 0.5
D. Elastic - price elasticity = (Delta Q/Qavg)/(Delta P/Pavg) = (-20/90)/(1/4.5)= -1.0 unitary elastic
Answer: D
Rationale: Elasticity mid-point: Qavg 90, Pavg 4.5, percent Delta Q -22.2 percent, percent Delta P 22.2 percent, elasticity -1 unitary elastic.
22. What is natural rate of unemployment includes?
A. Zero unemployment
B. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
C. Only structural
D. Only cyclical
Answer: B
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
23. What is law of diminishing marginal utility?
A. Utility always increases
B. Utility constant
C. As consumption of good increases, additional satisfaction from each extra unit decreases
D. No diminishing
Answer: C
Rationale: Diminishing marginal utility extra unit less satisfaction.
24. Fiscal policy to close recessionary gap?
A. Increase interest rate
B. Increase government spending G decrease taxes T increase AD - expansionary fiscal
C. Decrease G increase T
D. Decrease money supply
Answer: B
Rationale: Recessionary gap expansionary fiscal increase G decrease T increase AD.
25. Supply shock example?
A. No shock
B. Technology improvement
C. Demand increase
D. Oil price increase shifts SRAS left - stagflation inflation up output down
Answer: D
Rationale: Supply shock oil price increase SRAS left stagflation.
26. What is opportunity cost?
A. No cost
B. Sunk cost
C. Only money cost
D. Value of next best alternative forgone when making a choice - includes explicit and implicit costs
