WGU D089 Principles of Economics Exam Questions - Verified & Rationalized Answers - Microeconomics Foundations &
Demand Supply Mastery - A+ Graded
WGU D089 Principles of Economics | 300+ Questions | Verified and Rationalized Answers | Different Title 1
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. What is crowding out?
A. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
B. Increases investment
C. No crowding
D. No effect
Answer: A
Rationale: Crowding out fiscal increase interest rate reduces private investment.
2. What is law of diminishing marginal utility?
A. No diminishing
B. As consumption of good increases, additional satisfaction from each extra unit decreases
C. Utility always increases
D. Utility constant
Answer: B
Rationale: Diminishing marginal utility extra unit less satisfaction.
3. Money functions?
A. Only medium exchange
B. Only store value
C. Medium exchange, unit account, store value, standard deferred payment - money functions
D. No functions
Answer: C
Rationale: Money functions medium exchange unit account store value deferred payment.
4. What is crowding out?
A. Increases investment
B. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
C. No crowding
D. No effect
Answer: B
Rationale: Crowding out fiscal increase interest rate reduces private investment.
5. What is consumer surplus?
A. Price paid
B. Difference between willingness to pay and actual price paid - area below demand above price
C. No surplus
D. Producer gain
Answer: B
Rationale: Consumer surplus willingness to pay minus price paid below demand above price.
6. What does the law of demand state?
A. Price and quantity same
B. No relationship
C. Price up quantity up
D. Price up quantity demanded down, price down quantity demanded up - inverse relationship ceteris paribus
Answer: D
Rationale: Law of demand inverse price-quantity demanded ceteris paribus.
7. Money functions?
A. Only medium exchange
B. Only store value
C. No functions
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.
8. Supply shock example?
A. Oil price increase shifts SRAS left - stagflation inflation up output down
B. Demand increase
C. Technology improvement
D. No shock
Answer: A
Rationale: Supply shock oil price increase SRAS left stagflation.
9. What is law of diminishing marginal utility?
A. No diminishing
,B. Utility constant
C. As consumption of good increases, additional satisfaction from each extra unit decreases
D. Utility always increases
Answer: C
Rationale: Diminishing marginal utility extra unit less satisfaction.
10. What is opportunity cost?
A. Only money cost
B. No cost
C. Value of next best alternative forgone when making a choice - includes explicit and implicit costs
D. Sunk cost
Answer: C
Rationale: Opportunity cost next best alternative forgone explicit plus implicit.
11. What does the law of demand state?
A. Price and quantity same
B. No relationship
C. Price up quantity up
D. Price up quantity demanded down, price down quantity demanded up - inverse relationship ceteris paribus
Answer: D
Rationale: Law of demand inverse price-quantity demanded ceteris paribus.
12. What is difference between nominal GDP and real GDP?
A. No difference
B. Same
C. Nominal uses current prices, real uses base year constant prices adjusted for inflation - real = nominal/GDP deflator*100
D. Real includes inflation
Answer: C
Rationale: Nominal current prices, real constant base year prices inflation-adjusted.
13. What is natural rate of unemployment includes?
A. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
B. Zero unemployment
C. Only structural
D. Only cyclical
Answer: A
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
14. What is law of diminishing marginal utility?
A. No diminishing
B. Utility constant
C. As consumption of good increases, additional satisfaction from each extra unit decreases
D. Utility always increases
Answer: C
Rationale: Diminishing marginal utility extra unit less satisfaction.
15. What does the law of demand state?
A. Price and quantity same
B. Price up quantity demanded down, price down quantity demanded up - inverse relationship ceteris paribus
C. Price up quantity up
D. No relationship
Answer: B
Rationale: Law of demand inverse price-quantity demanded ceteris paribus.
16. Elasticity of supply determinants?
A. No determinants
B. Time horizon, availability inputs, excess capacity, storability - more elastic long run
C. Only demand
D. Only price
Answer: B
Rationale: Supply elasticity time horizon inputs capacity storability.
17. What is Phillips Curve?
A. No relationship
B. Positive inflation unemployment
C. Short-run inverse relationship inflation and unemployment, long-run vertical at natural rate NAIRU - expectations-augmented
D. Long-run inverse
Answer: C
Rationale: Short-run Phillips inverse inflation unemployment, long-run vertical natural rate.
, 18. What does Federal Reserve use for contractionary monetary policy?
A. Decrease reserve requirement
B. Decrease interest rate
C. Increase federal funds rate, increase reserve requirement, sell bonds open market operations - decrease money supply increase interest rate
D. Buy bonds
Answer: C
Rationale: Contractionary monetary increase fed funds rate increase reserve requirement sell bonds decrease money supply.
19. GDP includes which?
A. Final goods and services produced within country in given period, excludes intermediate to avoid double counting, excludes non-market
B. Financial transactions
C. Intermediate goods
D. Used goods
Answer: A
Rationale: GDP final goods services produced within country period, excludes intermediate used financial.
20. What is Phillips Curve?
A. No relationship
B. Long-run inverse
C. Short-run inverse relationship inflation and unemployment, long-run vertical at natural rate NAIRU - expectations-augmented
D. Positive inflation unemployment
Answer: C
Rationale: Short-run Phillips inverse inflation unemployment, long-run vertical natural rate.
21. What is crowding out?
A. Increases investment
B. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
C. No crowding
D. No effect
Answer: B
Rationale: Crowding out fiscal increase interest rate reduces private investment.
22. 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. Same
C. No shift
D. Only price shifts
Answer: A
Rationale: Movement along price change, shift income tastes expectations buyers related goods.
23. What does the law of demand state?
A. No relationship
B. Price up quantity up
C. Price and quantity same
D. Price up quantity demanded down, price down quantity demanded up - inverse relationship ceteris paribus
Answer: D
Rationale: Law of demand inverse price-quantity demanded ceteris paribus.
24. Monopoly profit maximization where?
A. MR greater than P
B. P=MC
C. MC=0
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.
25. If MPC is 0.8, what is spending multiplier?
A. 0.2
B. 0.8
C. 5 - multiplier = 1/(1-MPC)=1/0.2=5 - MPS=0.2
D. 1.25
Answer: C
Rationale: Multiplier 1/(1-MPC)=1/MPS. MPC 0.8 MPS 0.2 multiplier 5.
26. If MPC is 0.8, what is spending multiplier?
A. 0.2
B. 5 - multiplier = 1/(1-MPC)=1/0.2=5 - MPS=0.2
C. 1.25
D. 0.8
Demand Supply Mastery - A+ Graded
WGU D089 Principles of Economics | 300+ Questions | Verified and Rationalized Answers | Different Title 1
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. What is crowding out?
A. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
B. Increases investment
C. No crowding
D. No effect
Answer: A
Rationale: Crowding out fiscal increase interest rate reduces private investment.
2. What is law of diminishing marginal utility?
A. No diminishing
B. As consumption of good increases, additional satisfaction from each extra unit decreases
C. Utility always increases
D. Utility constant
Answer: B
Rationale: Diminishing marginal utility extra unit less satisfaction.
3. Money functions?
A. Only medium exchange
B. Only store value
C. Medium exchange, unit account, store value, standard deferred payment - money functions
D. No functions
Answer: C
Rationale: Money functions medium exchange unit account store value deferred payment.
4. What is crowding out?
A. Increases investment
B. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
C. No crowding
D. No effect
Answer: B
Rationale: Crowding out fiscal increase interest rate reduces private investment.
5. What is consumer surplus?
A. Price paid
B. Difference between willingness to pay and actual price paid - area below demand above price
C. No surplus
D. Producer gain
Answer: B
Rationale: Consumer surplus willingness to pay minus price paid below demand above price.
6. What does the law of demand state?
A. Price and quantity same
B. No relationship
C. Price up quantity up
D. Price up quantity demanded down, price down quantity demanded up - inverse relationship ceteris paribus
Answer: D
Rationale: Law of demand inverse price-quantity demanded ceteris paribus.
7. Money functions?
A. Only medium exchange
B. Only store value
C. No functions
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.
8. Supply shock example?
A. Oil price increase shifts SRAS left - stagflation inflation up output down
B. Demand increase
C. Technology improvement
D. No shock
Answer: A
Rationale: Supply shock oil price increase SRAS left stagflation.
9. What is law of diminishing marginal utility?
A. No diminishing
,B. Utility constant
C. As consumption of good increases, additional satisfaction from each extra unit decreases
D. Utility always increases
Answer: C
Rationale: Diminishing marginal utility extra unit less satisfaction.
10. What is opportunity cost?
A. Only money cost
B. No cost
C. Value of next best alternative forgone when making a choice - includes explicit and implicit costs
D. Sunk cost
Answer: C
Rationale: Opportunity cost next best alternative forgone explicit plus implicit.
11. What does the law of demand state?
A. Price and quantity same
B. No relationship
C. Price up quantity up
D. Price up quantity demanded down, price down quantity demanded up - inverse relationship ceteris paribus
Answer: D
Rationale: Law of demand inverse price-quantity demanded ceteris paribus.
12. What is difference between nominal GDP and real GDP?
A. No difference
B. Same
C. Nominal uses current prices, real uses base year constant prices adjusted for inflation - real = nominal/GDP deflator*100
D. Real includes inflation
Answer: C
Rationale: Nominal current prices, real constant base year prices inflation-adjusted.
13. What is natural rate of unemployment includes?
A. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
B. Zero unemployment
C. Only structural
D. Only cyclical
Answer: A
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
14. What is law of diminishing marginal utility?
A. No diminishing
B. Utility constant
C. As consumption of good increases, additional satisfaction from each extra unit decreases
D. Utility always increases
Answer: C
Rationale: Diminishing marginal utility extra unit less satisfaction.
15. What does the law of demand state?
A. Price and quantity same
B. Price up quantity demanded down, price down quantity demanded up - inverse relationship ceteris paribus
C. Price up quantity up
D. No relationship
Answer: B
Rationale: Law of demand inverse price-quantity demanded ceteris paribus.
16. Elasticity of supply determinants?
A. No determinants
B. Time horizon, availability inputs, excess capacity, storability - more elastic long run
C. Only demand
D. Only price
Answer: B
Rationale: Supply elasticity time horizon inputs capacity storability.
17. What is Phillips Curve?
A. No relationship
B. Positive inflation unemployment
C. Short-run inverse relationship inflation and unemployment, long-run vertical at natural rate NAIRU - expectations-augmented
D. Long-run inverse
Answer: C
Rationale: Short-run Phillips inverse inflation unemployment, long-run vertical natural rate.
, 18. What does Federal Reserve use for contractionary monetary policy?
A. Decrease reserve requirement
B. Decrease interest rate
C. Increase federal funds rate, increase reserve requirement, sell bonds open market operations - decrease money supply increase interest rate
D. Buy bonds
Answer: C
Rationale: Contractionary monetary increase fed funds rate increase reserve requirement sell bonds decrease money supply.
19. GDP includes which?
A. Final goods and services produced within country in given period, excludes intermediate to avoid double counting, excludes non-market
B. Financial transactions
C. Intermediate goods
D. Used goods
Answer: A
Rationale: GDP final goods services produced within country period, excludes intermediate used financial.
20. What is Phillips Curve?
A. No relationship
B. Long-run inverse
C. Short-run inverse relationship inflation and unemployment, long-run vertical at natural rate NAIRU - expectations-augmented
D. Positive inflation unemployment
Answer: C
Rationale: Short-run Phillips inverse inflation unemployment, long-run vertical natural rate.
21. What is crowding out?
A. Increases investment
B. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
C. No crowding
D. No effect
Answer: B
Rationale: Crowding out fiscal increase interest rate reduces private investment.
22. 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. Same
C. No shift
D. Only price shifts
Answer: A
Rationale: Movement along price change, shift income tastes expectations buyers related goods.
23. What does the law of demand state?
A. No relationship
B. Price up quantity up
C. Price and quantity same
D. Price up quantity demanded down, price down quantity demanded up - inverse relationship ceteris paribus
Answer: D
Rationale: Law of demand inverse price-quantity demanded ceteris paribus.
24. Monopoly profit maximization where?
A. MR greater than P
B. P=MC
C. MC=0
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.
25. If MPC is 0.8, what is spending multiplier?
A. 0.2
B. 0.8
C. 5 - multiplier = 1/(1-MPC)=1/0.2=5 - MPS=0.2
D. 1.25
Answer: C
Rationale: Multiplier 1/(1-MPC)=1/MPS. MPC 0.8 MPS 0.2 multiplier 5.
26. If MPC is 0.8, what is spending multiplier?
A. 0.2
B. 5 - multiplier = 1/(1-MPC)=1/0.2=5 - MPS=0.2
C. 1.25
D. 0.8
