BEC Economics and Business Cycles 2 — Questions and Answers
Question 1: Which market structure is characterized by a single seller with no close substitutes for its product?
- Monopoly (Correct answer)
- Oligopoly
- Monopolistic competition
- Perfect competition
Correct answer: Monopoly
A monopoly consists of a single seller that controls the entire market for a product with no close substitutes, giving it significant pricing power.
Question 2: The law of diminishing marginal returns states that:
- Adding more of one input while holding others fixed eventually yields smaller incremental output (Correct answer)
- Total output always decreases when more workers are added
- Long-run average costs always increase with output
- Fixed costs decline as production increases
Correct answer: Adding more of one input while holding others fixed eventually yields smaller incremental output
The law of diminishing marginal returns holds that beyond some point, adding more of a variable input to fixed inputs will yield progressively smaller additions to output.
Question 3: A trade deficit occurs when a country's:
- Imports exceed its exports (Correct answer)
- Exports exceed its imports
- Government spending exceeds tax revenues
- National debt exceeds its GDP
Correct answer: Imports exceed its exports
A trade deficit (negative balance of trade) occurs when a country imports more goods and services than it exports during a given period.
Question 4: Which of the following best describes stagflation?
- High inflation combined with high unemployment and slow economic growth (Correct answer)
- Rapid economic growth with low unemployment
- Deflation combined with high economic output
- Low inflation with high GDP growth
Correct answer: High inflation combined with high unemployment and slow economic growth
Stagflation is the unusual combination of stagnant economic growth, high unemployment, and high inflation occurring simultaneously, challenging standard policy responses.
Question 5: The multiplier effect in economics refers to:
- The magnified impact on total income from an initial change in spending (Correct answer)
- The compounding interest earned on savings deposits
- The increased tax revenue from higher economic output
- The effect of money supply changes on interest rates
Correct answer: The magnified impact on total income from an initial change in spending
The multiplier effect describes how an initial change in spending (e.g., government expenditure) ripples through the economy to produce a larger total change in national income.
Question 6: Which phase of the business cycle immediately follows a peak?
- Contraction (recession) (Correct answer)
- Trough
- Expansion
- Recovery
Correct answer: Contraction (recession)
Following a peak — the highest point of economic activity — the economy enters a contraction phase characterized by declining output, employment, and spending.
BEC Economics and Business Cycles 2
Which market structure is characterized by a single seller with no close substitutes for its product?