Excellent Economics Real Vs Nominal Gdp Test - 88+ MCQs: Economics Quiz: Assess Your Knowledge with Real vs. Nominal GDP Questions and Answers

1. In the context of fiscal policy, what is the difference between regressive and progressive taxation?

They are synonymous terms

Regressive taxation imposes higher tax rates on higher incomes, while progressive taxation imposes higher rates on lower incomes

Progressive taxation imposes higher tax rates on higher incomes, while regressive taxation imposes higher rates on lower incomes

Regressive taxation is a form of indirect taxation, while progressive taxation is direct

2. What is the primary drawback of using GDP as an economic indicator?

It ignores the distribution of income

It does not consider inflation

It focuses too much on the services sector

It excludes government spending

3. What role does the 'federal funds rate' play in the implementation of monetary policy?

It sets guidelines for fiscal policy

It determines the optimal level of taxation

It provides a framework for monetary policy, suggesting how central banks should set interest rates based on economic conditions

It regulates international trade

4. What is the concept of 'crowding out' in the context of fiscal policy?

It refers to increased government spending leading to higher private investment

It indicates decreased government spending due to pressure from private investment

It suggests government borrowing leading to reduced private sector borrowing

It signifies increased government regulation to encourage private investment

5. How does a decrease in the exchange rate impact a country's economy?

Boosts exports and economic growth

Leads to higher unemployment

Decreases inflation

Has no impact on the economy

6. How does the substitution effect impact the calculation of the Consumer Price Index (CPI)?

It overestimates inflation

It underestimates inflation

It has no impact on the CPI

It only affects the GDP deflator

7. In the context of trade policies, what is 'dumping,' and how does it affect international trade?

Dumping refers to the fair and legal trade practices between countries

It has no impact on international trade

Dumping occurs when a country exports goods at a price lower than their production cost, potentially harming domestic industries

It is a term related to currency exchange rates

8. In the context of GDP, what is the difference between a transfer payment and government spending?

Transfer payments directly contribute to GDP, while government spending does not

Government spending directly contributes to GDP, while transfer payments do not

Both transfer payments and government spending directly contribute to GDP

Neither transfer payments nor government spending directly contribute to GDP

9. How does a decrease in consumer confidence impact the economy?

Increases GDP

Decreases inflation

Decreases unemployment

Decreases consumer spending and economic activity

10. Explain the concept of 'inflation targeting' in monetary policy and its impact on economic stability.

Inflation targeting involves fixing exchange rates to control inflation

It refers to setting specific inflation rate targets for central banks to achieve

Inflation targeting focuses on reducing interest rates to stimulate economic growth

It advocates for a high-inflation environment to spur consumer spending

Economics Quiz - Real vs. Nominal GDP 5