Multiple Choice Questions

SECTION 1: The Nature of Economics 4. Economics is mainly concerned with the

study of
a) How to make more effective use of
resources through reducing wants
1. Economics may be described as a “social b) Determining how the government
science” since it deals with should allocate resources
c) How resources are used to satisfy the
(a) The economy wants and needs of man
(b) The environment d) How new wants and economic
(c) Human behavior resources are produced
(d) Production and consumption

2. Which of the following is LEAST likely to 5. Which of the following describes the
cause a shift in the production possibility opportunity cost to an economy of
frontier? building a new airport?
a) The extra cost of providing
(a) An increase in population equipment and managers to operate
(b) The use of unemployed resources
the airport efficiently.
(c) An advancement in technology
b) The closure of the airport it
(d) The discovery of a new natural
resource replaces.
c) The goods and services that could
have been produced instead of the
airport.
The graph below shows a production d) The increase in taxation to the
possibility curve for a country. citizens to pay for the new airport.

6. The production possibility frontier (PPF)

illustrates that
a) The quantity of a good an economy
can possibly produce if all resources
are used in its production
b) All the possible combinations of two
goods which an economy can
consume when all resources are
efficiently employed
c) All the possible combinations of two
goods which an economy can produce
when all resources are efficiently
3. Which of the following factors would employed
account for the shift from MN to M1N1?
d) All the possible combinations of two
(a) A decrease in taxes goods which an economy can produce
(b) A reduction in unemployment when all resources are inefficiently
(c) The introduction of subsidies for employed
industries
(d) Technological advances in the
industries of the country

1
 Multiple Choice Questions
7. Which of the following would lead to an
inward shift of a country’s production
10. Which letter(s) represent efficient use of
possibility frontier?
resources?
a) Immigration of skilled workers into
a) A,B and C
the nation
b) D and E
b) An increase in the average skill level
c) D only
of the population
d) E only
c) A decrease in the size of the working
age population
d) Increased production of capital goods

The diagram below refers to questions 11. According to economic theory, human
8 – 10. wants will never be satisfied completely
because
a) People are greedy
b) Resources are scarce
c) People are not capable of rationalising
d) People’s wants are manipulated by
advertising

12. The central problem of economics refers to

a) Poverty
b) Inflation
c) Scarcity
d) Unemployment

8. Which point on the PPF displays an 13. An economic good refers to a good which
inefficient use of resources? is
a) A a) Free
b) B b) Scarce
c) C c) Priced
d) D d) Produced in an economy
e) E

14. An essential feature of a capital good is

9. Which point on the PPF displays that it
unattainable? a) Must be replaced frequently
a) A b) Is used to produce other goods
b) B c) Must be purchased through a loan
c) C d) Is consumed directly by the
d) D consumer
e) E

2
 Multiple Choice Questions
SECTION 2: Production, Economic Resources and Resource Allocation

5. The curve represented by the letter ‘D’ is

1. Which one of the following is a financial
the
economy of scale?
a) Average variable cost curve
a) Lower unit and marketing costs
b) Average cost curve
b) Lower cost due to more efficient
c) Average fixed cost curve
management
d) Marginal cost curve
c) Lower average costs arising from using
more capital equipment
d) Lower costs in raising extra financial
capital to pay for an expansion
6. If, as a firm expands, its scale of
operations and its unit cost of production is
The following diagram refers to questions 2 and 3. lowered, then the firm faces
a) Diseconomies of scale
b) Diminishing returns
c) Economies of scale
d) Constant returns to scale

7. A firm finds that when its output is 4,000

units per month, its average cost is $15 and
its average variable costs are $9. What is
the firm’s fixed cost?
a) $24,000
b) $60,000
c) $20,000
2. The curve represented by the letter ‘A’ in d) $40,000
the figure is the
a) Average variable cost curve
b) Average cost curve
8. The minimum efficient scale of output
c) Average fixed cost curve
represents
d) Marginal cost curve
a) The scale that eliminates diminishing
returns
3. The curve represented by the letter ‘B’ in b) The greatest number of employees a
the figure is the firm can hire and still operate
a) Average variable cost curve efficiently
b) Average cost curve c) The output at which scale economies
c) Average fixed cost curve are exhausted
d) Marginal cost curve d) The output levels for which the long
run average cost curve is downward
sloping
4. The curve represented by the letter ‘C’ in
the figure is the
a) Average variable cost curve
b) Average cost curve
c) Average fixed cost curve
d) Marginal cost curve
3
 Multiple Choice Questions
9. Diseconomies of scale exist when
a) Average cost of production decreases 14. What are factors of production?
in the short run a) Resources used in the production of
b) Average cost of production increases goods and services
in the short run
b) The factors that must be considered
c) Average costs of production decreases before production takes place
in the long run c) The payments made to the owners of
d) Average costs of production increases resources
in the long run d) The natural resources used in
production
10. The short run marginal cost curve
intersects the average cost curve at the
point where
15. Enterprise is the factor of production
a) Marginal cost is at its minimum
which
b) Marginal cost is at its maximum
a) Is the least important
c) Average cost is at its maximum
b) Organises and manages the other three
d) Average cost is at its minimum
factors of production
c) Is also the same as labour
11. Fixed costs refer to
d) Refers to all natural resources which
a) The costs of all the resources used in
can be used in production
the production of a good
b) Those costs that do not change as
production of the good increases
16. In the construction of a house, the lumber
c) Those costs that increases as
used would fall under which factor of
production of the good increases
production?
d) Those costs that increases as
a) Land
production of the good decreases
b) Labour
c) Capital
d) Enterprise
12. Marginal cost can be defined as
a) Total cost divided by the number of
17. Land is best described as
units produced
a) Human efforts in production
b) Those costs that do not vary as
b) The location of agricultural production
production increases by one unit
only
c) The change in costs as production
c) Physical and mental abilities of people
increases by one unit
d) “naturally” occurring resource
d) None of the above
18. Enterprise refers to
a) The factor of production which hires
13. Average fixed cost is calculated as
the other three factors of production
a) Total cost divided by the quantity of
b) The factor of production which
output
rewards the other three factors of
b) Total cost divided by the amount of
production
fixed cost
c) The individual who takes the risk of
c) Total fixed cost divided by the quantity
producing goods and services which
of output
might not be sold
d) Average cost divided by the amount of
d) All of the above
fixed cost

4
 Multiple Choice Questions
19. Labour productivity can be measured by 24. What type of economic system exists in
a) Total output divided by total wages MOST CARICOM countries?
b) The number of workers divided by a) Mixed
total output b) Socialist
c) Total output divided by the number of c) Capitalist
workers d) Centrally planned
d) Total wages divided by the number of
workers
25. In a mixed economy, resources are
20. Which of the following statements about allocated by
the factors of production is correct? a) The firms only
a) Land is always freely available. b) Consumers only
b) Labour is rewarded with profit. c) The government only
c) All natural resources are known as d) The government, firms and
enterprise. consumers
d) Capital is produced by factors of
production.
26. When a country changes from a planned
21. In the production process of a firm, capital economy to a market economy, there will
can be substituted for labour. If necessarily be an increase in
government introduces a subsidy on a) Choice for consumers
capital investment, how will this affect the b) Price control of luxury items
quantities of each factor employed? c) Rationing of basic foodstuff
a) Less capital and less labour will be d) Government subsidies for industry
employed.
b) Less capital and more labour will
be employed.
c) More capital and more labour will
be employed.
d) More capital and less labour will be 27. The following extract appeared in the daily
employed. newspaper of a country:

22. Under which factor of production will you “Government has decided to increase
classify marine resources? funding to help promote trade in rural
a) Land areas by helping small independent retail
b) Labour outlets.”
c) Capital
d) Enterprise Which sector will benefit MOST as a
result of this policy?
23. Which of the following is considered a
good? a) The primary industry in the private
a) A visit to the doctor. sector
b) A commercial bank paying your b) The primary industry in the public
utility bill on your behalf. sector
c) An operator-assisted telephone call. c) The secondary industry in the
d) A soft drink purchased at the public sector
school’s cafeteria d) The tertiary industry in the private
sector

5
 Multiple Choice Questions

SECTION 3: Demand and Supply

Item 1 refers to the following graph of a 4. At what price will equilibrium in the market occur?
demand curve.
(a) $5
(b) $7
P (c) $8
(d) $9
5. The demand curve shows that:
a) As price increases, demand
decreases
b) Price changes are always in the
D1 same direction as demand changes
D c) As price increases, quantity
demanded increases
0
d) As price decreases, quantity
Q
demanded increases
1. Which of the following factors will cause the
demand curve to shift from D to D1? 6. Which of the following will not shift an
individual consumer’s demand curve for
(a) A rise in price
(b) A fall in income butter?
(c) A rise in the price of a substitute a) The price of butter
(d) A fall in the price of a substitute b) The price of margarine
2. A movement along the demand curve results from a c) The consumer’s income
change in d) The consumer’s tastes

(a) Price
7. According to economic theory, a change in
(b) Taste
(c) Supply demand of any good is not caused by:
(d) Income a) Changes in consumer’s preferences
for that good
3. A situation where quantity demanded exceeds
quantity supplied at a given price indicates b) Changes in the general income
levels of the consumers who buy
(a) Surplus that good
(b) Shortage
(c) Equilibrium
c) An increase or decrease in
(d) Excess supply population
d) Changes in the price of that good
Item 4 refers to the following demand and supply
schedule. 8. A rise in consumer’s incomes will cause:
a) A movement along the demand
Price ($) QD QS curve
5 10 2 b) An increase in quantity demanded
c) The demand curve to shift to the
6 8 4 right
7 6 6
d) The demand curve to shift to the
left
8 4 8

9 2 10

6
 Multiple Choice Questions
9. A demand curve is normally drawn with: 14. A fall in price of steel will cause the
a) Price on the vertical axis and supply curve for motor vehicles to:
population on the horizontal axis a) Become steeper
b) Price on the vertical axis and b) Intersect with the demand curve
quantity demanded on the c) Shift to the right
horizontal axis d) Shift to the left
c) Quantity demanded on the vertical
axis and income on the horizontal
axis 15. Which of the following causes a
d) Quantity demanded on the vertical contraction of supply?
axis and price on the horizontal a) A change in price
axis b) Consumer’s incomes
c) Improvements in technology
10. All of the following are conditions of d) Increase in labour productivity
demand except:
a) Productivity
b) Population 16. Which of the following could increase the
c) Income price elasticity of supply of a product?
d) Tastes and fashion a) An increase in income
b) A change in consumer preferences
11. The supply curve shows: c) An increase in the price of
a) The amount that sellers are willing complements
and able to offer d) An increase in the time period
b) The amount that sellers are willing under construction
and able to offer for sale at all
possible prices
c) A list of price and quantity
supplied combinations
d) The amount consumers will buy
from what is supplied 17. The table shows consumer behaviour with
respect to tins of sardines.
12. A decrease in supply, ceteris paribus, will:
a) Raise both the equilibrium price Price ($) Quantity of Tins
and the equilibrium quantity 2 6
b) Reduce both the equilibrium price 3 8
and the equilibrium quantity
c) Raise the equilibrium price and The price elasticity of demand for sardines
reduce the equilibrium quantity as the price increases is
d) Reduce the equilibrium price and
raise the equilibrium quantity a) -.75
b) -.66
13. Which of the following is not a c) -1.5
determinant of supply for a product? d) -1.3
a) Consumer’s incomes
b) The price of the product
c) The prices of inputs to the product
d) The state of technology

7
 Multiple Choice Questions
Item 18 refers to the following diagram which 19. A situation where quantity demanded
shows the market for soft drinks. exceeds quantity supplied at a given price
indicates
a) Surplus
b) Shortage
c) Equilibrium
d) Excess supply

20. If the price of good X rises and as a result

there is a fall in demand for Good Y, then
a) Goods X and Y are substitutes
b) The demand for Good Y is price
inelastic
c) The demand for Good Y is price
18. The supply curve shifts from S1 to S2. elastic
What can explain this change? d) Goods X and Y are complements
a) An increase in incomes
b) A fall in the price of sugar
c) An increase in the advertising of
Item 21 refers to the following table which
soft drinks
shows the output and cost for a firm.
d) A rise in the wages of workers in
the soft drink industry Total Average Total Cost
Output Cost $ $
500 200.00 1000.00
1000 150.00 1500.00
1500 125.00 1875.00

21. Based on the table, the firm is

experiencing
a) Increasing cost
b) Increasing demand
c) Economies of scale
d) Economic growth

8
 Multiple Choice Questions
SECTION 4: Market Structure and Market Failure
1. A perfectly competitive firm maximises 5. If under perfect competition firms are
profit at level of production at which earning abnormal profits in the short-run
a) AC = MC then
b) AR = AC a) New firms would enter and prices
c) AR ˂ MC would rise.
d) AR = MC b) New firms would enter and prices
would fall
c) No new firms would enter but prices
2. Which of the following is an essential
would fall
feature of perfect competition?
d) No new firms would enter but prices
a) Buyers and sellers are price-takers
would rise
b) Firm face barriers to entry and exit
c) Producers have more market
information than consumers 6. In the long-run, the equilibrium of the
d) Product differentiation firm that operates under perfect
competition occurs where
a) P=MC
3. In general, a monopoly is likely to
b) P=MR=AR
a) Earn lower profits than a perfectly
c) P=MR=AR=MC
competitive firm
d) P=MR=AR=MC=AC
b) Earn about the same profits as a
perfectly competitive firm
c) Sell less output than a perfectly 7. Which of the following features is
competitive firm common to both monopolistic competition
d) Charge a lower price than a perfectly and monopoly?
competitive firm a) The firm has a downward sloping
demand curve
b) Ease of entry into the industry
4. What are the features of monopolistic
c) Only normal profit is earned
competition?
d) Lack of close substitutes
a) Many firms, homogeneous product,
and barriers to entry
8. Which of the following features is
b) Many firms, differentiated products,
common to both monopolistic competition
and barriers to entry
and perfect competition?
c) Many firms, differentiated products,
a) The firm has a downward sloping
and no barriers to entry
demand curve
d) Few firms, differentiated products, and
b) Only normal profit is earned
no barriers to entry
c) There are barriers to entry into the
industry
d) There is product differentiation

9. The emission of carbon monoxide, which

is a form of pollution, is an example of
a) An external benefit
b) An external good
c) A welfare loss
d) An external cost

9
 Multiple Choice Questions

15. The production of merit goods is done by

10. In a market where there are external costs
the state because
associated with consumption and
a) Private producers would under-
production, the equilibrium will not
produce these goods
maximise social welfare because
b) Private producers would over-produce
a) The price will be too high
these goods
b) The firm will incur a loss
c) These good are characterised by non-
c) The cost of production will be too high
excludability and non-rivalry
d) The good would be over-produced
d) These good are distributed on the basis
of merit or need
11. If an industry produces a product that
results in significant external benefits,
16. Public goods and services are defined as
then
a) Those goods and services that are
a) The product is over-produced
produced by the public servants
b) The product is under-produced
b) Those goods and services that are not
c) The firms in this industry are not
produced by the private sector
maximising profits
c) The goods and services which are
d) At the market price, quantity
characterised by non-excludability and
demanded is less than quantity
non-rivalry
supplied
d) Those goods and services which are
characterised by significant positive
12. Which of the following is non-rivalrous externalities
and non-excludable in nature?
a) Private goods
17. The main objective of a firm is to
b) Free goods
a) Maximise profit
c) Public goods
b) Maximise total revenue
d) Merit goods
c) Minimise total cost
d) None of the above
13. Private goods are characterised by
a) Rivalry and excludability
18. When a country changes from a planned
b) Rivalry and non-excludability economy to a market economy, there will
c) Non-rivalry and non-excludability necessarily be an increase in
d) Non-rivalry and excludability
(a) Choice for consumers
(b) Price control of luxury items
(c) Rationing of basic foodstuff
(d) Government subsidies for industry
14. Education is considered to be a merit
good 19. The costs borne by third party due to
a) Because all developed countries producer and/or consumer decisions,
refers to which of the following economic
provide universal education
concepts?
b) Because education generates external
benefits (a) Scarcity
c) Because government spending on (b) Positive externality
education is insignificant (c) Imperfect information
d) Because it is also a private good (d) Negative externality
10
 Multiple Choice Questions
20. A market structure in which there are
many buyers and many sellers and where
the products are identified by their brand 22. See image below.
name is known as

(a) A monopoly
(b) A perfect competition
(c) A monopolistic competition
(d) An oligopoly

21. See image below.

11
 Multiple Choice Questions
SECTION 5: The Financial Sector
1. Which of the following groups makes 6. The Governor of the Central Bank of
loanable funds available from savers to Trinidad and Tobago is concerned with the
spenders for consumption and investment? level of inflation in the country caused by
excessive consumer spending. He
(a) The government therefore increases the rate of interest on
(b) The financial sector borrowing.
(c) The foreign trade sector
(d) The chamber of commerce This is an example of

2. Justin purchases shares in the credit union a) Deflation

with one half of his salary every month in b) Monetary policy
order to later purchase a sports car. c) Public finance
d) Fixed policy
(a) A store of value 7. What is money?
(b) A medium of exchange a) Notes and coins
(c) A standard of deferred payment b) Cheques and debit cards
(d) A standard of deferred exchange c) Anything that is acceptable as a
means of settling debts
3. Rob and Steele joined an underground d) Anything the seller pays to settle a
group that was printing counterfeit money. debt

Which quality of money is the group 8. Which is not a function of money?

eroding? a) Store of value
b) Unit of value
(a) Durability c) Standard of deferred payment
(b) Portability d) Medium of exchange
(c) Authenticity
(d) Acceptability 9. Which is not a feature of money
a) Portability
b) Uniformity
4. “Its most significant function is that of c) Divisibility
credit creation.” d) Suitability

To which of the following does this 10. What is the definition of broad money?
statement refer? a) Notes and coins, all chequing
accounts and travellers’ cheques
(a) A central bank b) Notes and coins plus saving
(b) The world bank deposits and money market
(c) A commercial bank accounts
(d) The International Monetary Fund c) M1 plus money market accounts
only
d) M1 plus savings deposits and
money market accounts
5. Which of the following must remain stable
if money is to successfully function as a
store of value?
a) Prices
b) Employment
c) The exchange rate
d) The rate of interest

12
 Multiple Choice Questions
11. What is the role of the financial sector in 16. Which is not a financial institution in the
the economy? Caribbean?
a) It attracts funds from lenders which a) Mutual fund
it loans to firms, private individuals b) Stock market
and the government. c) Building society
b) It issues notes and coins for d) Sou sou
circulation
c) It obtains foreign loans for the 17. Which of the following are equity
government securities?
d) It lends money to individuals free a) Treasury bills
of interest b) Government bone
c) Corporate bonds
12. Which of the following is part of the d) Company shares
informal sector?
a) A credit union
b) An insurance company 18. How is a corporate bond different from a
c) A building society government bond?
d) A money lender a) A corporate bond is issued by a
firm and a government bond is
13. Which of the following is a function of the issued by the government
Central Bank? b) A corporate bond is equity security
a) It accepts deposits and a government bond is debt
b) It is a banker for the government security
c) It makes loans to individuals c) A corporate bond is a short term
d) It issues foreign currency and a government bond is long
term
14. Which of the following is a function of a d) A corporate bond gives the holder a
commercial bank? claim on the company that issues it.
a) It issues notes and coins
b) It sells insurance policies
c) It manages the country’s foreign
exchange reserves
d) It makes loans to firms and
individuals

15. How is a commercial bank different from a

credit union?
a) A credit union is owned by its
members.
b) A commercial banks is owned by
its depositors 19. From this graph, it may be concluded that
c) Commercial banks charge a lower during the period 1960–2000
rate of interest a) there was an increase in money spent
d) Unlike commercial banks, credit using cash
unions do not loans. b) cheques had become inconvenient as a
means of making payment
c) fewer people were accepting cheques
d) the use of credit cards was increasing

13
 Multiple Choice Questions

SECTION 6: ECONOMIC MANAGEMENT: d) Wages rise, and employers demand

POLICIES AND GOALS less labour than is being supplied

1. Economic growth is measured by 7. A consequence of inflation:

a) The price of imports rise.
(a) Infrastructural changes b) Creditors lose out when the sum of
(b) Changes in real national income money is repaid
(c) Changes in gross domestic product c) Debtors lose out when the sum
(d) Accumulation of capital goods borrowed is paid
d) The prices of exports falls.

8. What is economic growth?

2. A fall in aggregate demand, ceteris a) An increase in real per capita gross
paribus, may lead to: domestic product.
a) An increase in the price level b) An increase in real gross domestic
b) Recovery after a recession product.
c) Unemployment c) An increase in national income
d) An increase in output d) National income increasing at a
faster rate than the rate of inflation
3. Expansionary fiscal policy is most likely
to: 9. All of the following are drivers of
a) Worsen a recession economic growth except:
b) Help an economy to recover from a a) Human capital
recession b) Land and other natural resources
c) Reduce inflation c) A large dependent population
d) Increase unemployment d) Technological advancements

4. Which of the following is expansionary 10. Economic development leads to all of the
monetary policy? following except:
a) Buying bonds on the open market a) Increased access to health care
b) Increasing interest rates b) Increase real per capita gross
c) Increasing government spending domestic product
d) Reducing the repayment period on c) Increased access to education
loans d) Increased dependence on the
agricultural sector
5. Which type of unemployment will
retraining programmes help to reduce? 11. What is not a source of
a) Search unemployment underdevelopment?
b) Real-wage unemployment a) Insufficient natural resources
c) Demand-deficient unemployment b) High birth rates
d) Structural unemployment c) Undeveloped human capital
d) Increasing GDP

6. Cyclical unemployment occurs when:

a) There is a fall in aggregate demand 12. The Human Development Index measures
in the economy. all of the following except:
b) Workers cannot find jobs at a a) The literacy rate
particular time of the year. b) The unemployment rate
c) The unemployed do not have skills c) Life expectancy
to match the jobs available d) Real income

14
 Multiple Choice Questions
13. Which statement is false?
a) There can be growth without 19. The Governor of the Central Bank of
development Trinidad and Tobago is concerned with the
b) The Human Poverty Index is a level of inflation in the country caused by
measure of economic growth excessive consumer spending. He
c) Economic growth may be positive, therefore increases the rate of interest on
zero or negative borrowing.
d) Economic development entails
freedom and social justice This is an example of

14. What is a trade union? a) Deflation

a) A group of firms who employ the b) Monetary policy
same type of workers c) Public finance
b) An association of workers who d) Fixed policy
bargain for increased wages for
some workers 20. Henry has been unemployed for three
c) A group of workers who go to months although the economy is in a
complain to the boss about an issue boom. Recently, he turned down a job
d) An association of workers who which paid a salary that is slightly above
have come together to protect and the unemployment benefits he receives.
represent the interests of all the
members This is an example of

15. What type of trade union is OWTU? a) Real unemployment

a) A general union b) Structured unemployment
b) A craft union c) Real-wage unemployment
c) A workers’ union d) Cyclical unemployment
d) An industrial union
21. Economic growth is measured by
16. All of the following are forms of trade a) Infrastructural changes
unions unrest except: b) Changes in real national income
a) Go-slows c) Changes in gross domestic product
b) Lockouts d) Accumulation of capital goods
c) Sit-downs
d) Picketing

17. Which of the following may be a cost to

the economy of trade union bargaining?
a) Collective bargaining
b) Higher wages for workers
c) Inflation
d) Employment of workers 22. There was no significant change in the
value of exports minus imports in the
18. All of the following are functions of the country over the last year.
International Labour Organisation except:
a) Promoting employment creation Which government objective was
b) Encouraging sweatshop conditions achieved?
for workers to operate in
c) Encouraging talks between a) Price stability
employers and government b) Balance of payment stability
d) Providing opportunities for training c) Full employment
for workers d) Economic growth

15
 Multiple Choice Questions
a) Alpha has an absolute advantage in
23. Which of the following is a monetary cereal production only.
measure that could be used to increase b) Beta has a comparative advantage
employment? in cereal production.
a) Reducing interest rates c) Alpha has an absolute advantage in
b) Increasing interest rates the production of shoes only.
c) Reducing government expenditure d) Beta has a comparative advantage
d) Increasing government expenditure in the production of shoes.

24. What is a disadvantage of international 28. What are the sources of gains from trade?
trade? a) Plentiful unskilled labour
a) The world is a market for your b) Rising exchange rates
product c) Varying factor endowments
b) There is a larger variety of goods between one country and another
available d) Changing tastes in the domestic
c) A country is able to earn foreign economy
exchange
d) A country may become dependent 29. What is a floating exchange rate?
on other countries for vital a) An exchange rate set by the
products. government
b) An exchange rate determined by
25. If an economy is closed, which benefits the forces of demand and supply
will it enjoy? c) An exchange rate set by the ratio of
a) The benefits of a larger variety of prices in two economies
goods d) An exchange rate determined by
b) The benefits of self-sufficiency market conditions but controlled by
c) The benefits of the world as a the government.
market
d) The benefits of improved 30. Olympus is a small country where the
international relations government injected $500 millon into the
economy to keep the exchange rate at a
26. A country’s export price fell from 120 to certain value. What kind of exchange rate
117. The import price index remained does Olympus have?
constant at 112. What is the effect on the a) A floating exchange rate
terms of trade? b) A freely floating exchange rate
c) A fixed exchange rate
a) The terms of trade deteriorated d) A managed exchange rate
b) The terms of trade improved
c) The terms of trade remained
constant
d) The terms of trade fell to 95 31. Which one of the following factors directly
affects the exchange rate?
a) Interest rates
Country Cereal Shoes b) The unemployment rate
c) Economic growth
Alpha 100 50
d) The money supply
Beta 40 30
32. What is an appreciation of the exchange
rate?
Answer questions 29 and 30 using the
a) A rise in the value of the foreign
table above.
currency
27. Which of the following statements is true?
16
 Multiple Choice Questions
b) A fall in the external value of the c) 6.75
domestic currency d) 1.5
c) A rise in the external value of the
domestic currency 34. The yen/ dollar exchange rate moves from
d) More residents demanding the $1 = 50 yen to $1 = 60 yen due to market
foreign currency forces. This is:
a) A depreciation of the dollar
33. Suppose the US dollar/ euro exchange rate b) An appreciation of the dollar
is $1.50 = 1 euro. A milk shake costs 4.5 c) A devaluation of the dollar
euros. How much is this in dollars? d) A revaluation of the dollar
a) 3
b) 1

SECTION 7: INTERNATIONAL TRADE a) Balance of trade

b) International trade
1. A monetary record of all international c) Balance of payments
transactions between one country and the d) Balance on the current account
rest of the world is known as the

17
 Multiple Choice Questions
2. Which of the following BEST defines a This is a surplus on the
country’s balance of trade? a) Capital account
a) The difference betwen the value of b) Balance of trade
goods and services imported and c) Current account
exported d) Balance of payments
b) The difference between the value
of goods imported and exported 6. What is the balance of trade?
c) The monetary transactions a a) The net of all inflows and outflows
country has with the rest of the on the balance of payments
world b) The net of all inflows and outflows
d) The difference between total arising from trade in goods
inflows and total outflows in c) The net of all inflows and outflows
foreign trade. arising from trade services
d) The net of all inflows and outflows
3. Under a freely floating exchange rate arising from trade in goods and
system, an appreciation of the Trinidad services
and Tobago (T&T) dollar is likely to be
caused by
a) A rise in Guyana’s interest rates 7. A foreign computer firm called Pascal
b) An increase in Germany’s tourist builds a subsidiary in Javaland. What is
expenditure in Tobago the impact on the balance of payments of
c) An increase in the speculative rates Javaland?
of Trinidad and Tobago’s currency a) An inflow on the current account
d) The purchase by a Trinidad and b) An outflow on the current account
Tobago company of a controlling c) An inflow on the capital account
interest in a company in Germany d) An outflow on the capital account

8. A government may choose to reduce a

Item 4 refers to the following balance of payment deficit by:
statement. a) Reducing interest rates
b) Reducing income taxes
“Expenditure-reducing measures c) Imposing higher tariffs
may be implemented to improve a d) Revaluing the domestic currency
country’s current account balance.”
9. Which of the following is an outflow on
4. Which of the following is an example of the current account?
an expenditure-reducing policy? a) Domestic residents vacationing in
a) Devaluation Hawaii
b) A credit squeeze b) Tourists spending in the domestic
c) Granting of export subsidies economy
d) Imposition of import controls c) Transfers from a national working
abroad to his family
d) Sales by a domestic firm to
5. The balance on visible items is +$200 foreigners
million.

10. Which of the following factors gives rise c) Increased investment incomes paid
to a balance of payments surplus? out to foreigners
a) An increase in foreign visitors to d) Greater investment made abroad
the country, ceteris paribus
b) Increasing demand for foreign
services, ceteris paribus

18
 Multiple Choice Questions

The question below refers to the following

diagram, which illustrates the current
balance of payments position of country Y
over a period of time

Which of the following has happened to the

country’s current balance of payments position
during the period shown?

a) It was in deficit throughout the period.

b) There was a surplus throughout the period.
c) It moved from being in surplus to a deficit.
d) It moved from being in deficit to a
surplus.

SECTION 8: CARIBBEAN ECONOMIES IN A GLOBAL ENVIRONMENT

1. Which of the following is a benefit of a) Access to new and improved

globalization to consumers? technology

19
 Multiple Choice Questions
b) Lower prices due to increased c) Protectionism
competition d) Economic integration
c) Increased competition leading to
closure of firms 7. A large American firm is encouraged to
d) Economies of scale from increased start up a business in Barbados. This is an
production example of
a) Free trade area
2. Which of the following is an economic/ b) Economic integration
trade agreement including only Caribbean c) Foreign direct investment
members? d) Caribbean Basin Initiative
a) ACP
b) CSME
c) CARIBCAN 8. Which of the following is a major
d) FTAA limitation on the ability of Caribbean
producers to take advantage of the benefits
of a larger international market through
globalization?
3. Which of the following is NOT a feature a) Economies of scale
of Caribbean economies? b) Easier access to new technology
a) High levels of unemployment c) Greater efficiency due to new
b) Negative growth rates technology
c) Mixed economies with large d) Protectionist policies in developed
private sectors countries
d) High dependency on primary
products 9. All of the following are barriers to trade
except:
4. Globalization has increased the a) Embargos
opportunity for Caribbean firms to expand b) Quotas
their operations and enjoy economies of c) Exchange controls
scale. This means that firms can now d) A tax on domestic goods
a) Produce a greater variety of goods
b) Incur lower unity costs of 10. One cost of a preferential tariff is the fact
production that:
c) Earn more foreign exchange a) Developed countries assist poorer
d) Employ more workers countries
b) Efficient suppliers of a good may
5. Although multinational corporations have have to pay higher duties
generally been welcomed in the Caribbean, c) Stronger trading ties are developed
they have been severely criticized for between participating countries
a) Increasing levels of employment d) Some countries may get to pay a
b) Introducing the latest technology lower tariff
c) Increasing levels of foreign direct
investment 11. Globalization is:
d) Repatriating a sizeable proportion a) The extension of social activities
of their profits across international boundaries
b) The extension of economic
6. Caribbean countries today are reducing activities across international
government intervention and allowing boundaries
greater use of market forces in their c) The extension of social, political
economies. This strategy is known as and economic activities across
a) Globalization regions
b) Privatization

20
 Multiple Choice Questions
d) Interdependence of the growing a) Investment in human capital
countries of the world b) Investment in the stock exchange
c) Importing more goods and services
12. Trade liberalization involves: d) Investment abroad
a) Removal of duties on imported
goods
b) Retaliating when a trading partner
places duties on a country’s exports 19. Which is not a structural adjustment
c) Placing very high-quality standards policy?
on imported goods a) Devaluation of overvalued
d) Subsiding firms in the export sector currencies
b) Budget deficits
13. Which of the following is a driver of c) Trade liberalization
globalization? d) Removal of government subsidies
a) Protectionism to local firms
b) Improvements in technology
c) Economic growth 20. What is the debt burden?
d) High interest rates a) The cost of a debt to an individual
b) The interest on a debt
14. In today’s world, local firms are being c) The cost of national debt to the
faced more and more with competition country
from foreign firms. This is an effect of: d) The interest plus the sum borrowed
a) Protectionism
b) Export subsidies 21. What is the correct order of the stages of
c) Trade liberalization economic integration?
d) Preferential tariffs a) Customs union, to economic union,
to free trade area, to common
market
15. What type of economies are Caribbean b) Customs union, to common
economies? market, to free trade area, to
a) Small closed economies economic union
b) Small open economies c) Free trade area, to common market,
c) Developed economies to customs union, to economic
d) Socialist economies union
d) Free trade area, to customs union,
to common market, to economic
16. Which of the following is not a main union
characteristic of Caribbean economies?
a) High population
b) Large informal sector
c) Little or no natural resources
d) Large primary sector
22. How is a single market different from a
17. All of the following are problems faced by customs union?
Caribbean economies except: a) A customs union has a common
a) Low per capita income external tariff with non-members
b) A large pool of unskilled labour but a single market does not
c) The ‘brain drain’ b) A single market has common
d) A diversified economy taxation policies but a customs
union does not
18. What strategy is useful for Caribbean
economies in a globalized world?

21
 Multiple Choice Questions
c) A customs union has free
movement of labour but a single 28. Which is not a benefit of e-commerce?
market does not a) Goods are cheaper, as firms do not
d) A single market has common have building costs
monetary policy but a customs b) Consumers are no longer limited
union does not by what local shops offer
c) You can shop in the comfort of
your own home
d) Traditional shops lose business
23. At what stage of economic integration is
the CARICOM Single Market and 29. E-commerce that involves business
Economy? activity targeted by businesses at other
a) A customs union business is called:
b) A free trade area a) B2C
c) A common market b) B2B
d) An economic union c) e-tailers
d) e-catalogue
24. Which of the following is not a feature of
the CARICOM Single Market and 30. all of the following can be purchased
Economy? through e-commerce except:
a) Free movement of goods and a) wedding cards
services b) books
b) Free movement of labour and c) cell phones
capital d) interior decorator services
c) Location of firms in any territory
d) Limited movement of imported 31. which of the following is a benefit of e-
goods commerce to sellers?
a) comfortable shopping
25. Which of the following is not a benefit of b) faster shopping
the CARICOM Single Market and c) samples of products have to
Economy? ordered
a) Free movement of goods and d) wider markets
services
b) Free movement of labour and
capital
c) Unemployment in some territories 32. Why might a buyer in the Caribbean be
d) Location of firms in any territory reluctant to purchase a good from North
America online?
26. All of the following are examples of a) Goods are difficult to return
economic integration except: b) The currency is difficult
a) FTAA c) The good obtained online is of a
b) CSME better quality
c) ASEAN d) He can examine a range of goods
d) IMF online within a short time.

33. Caribbean countries today are reducing

27. All of the following are associated with e- government intervention and allowing
business except: greater use of market forces in their
a) B2C retailing economies. This strategy is known as
b) dot.coms
c) ‘bricks and mortar’ companies (a) Globalization
d) ‘bricks and clicks’ companies (b) Privatization

22
 Multiple Choice Questions
(c) Protectionism
(d) Economic integration
34.

23