Economic understanding or knowledge is crucial information necessary for our everyday lives. Would you like to assess your understanding of economics?
The purpose of this test is to assess a comprehensive understanding of basic economic concepts. A solid grasp of these principles is fundamental for analyzing and navigating complex economic environments.

Economic understanding forms the backbone of decision-making processes in various sectors, and a deep knowledge of its theories and applications is essential for both professional and personal financial success.
1. Question: What is GDP and why is it important?
- a) Gross Domestic Product; it measures a country’s total economic output.
- b) General Debt Position; it shows the level of national debt.
- c) Government Development Program; it indicates planned government projects.
- d) Global Development Potential; it predicts future economic growth.
2. Question: What is inflation and how does it affect the economy?
- a) An increase in the general price level of goods and services; it decreases purchasing power.
- b) A decrease in the general price level of goods and services; it increases purchasing power.
- c) The total value of goods produced in a country; it boosts economic growth.
- d) A tax imposed on imported goods; it protects domestic industries.
3. Question: What is the primary purpose of a central bank?
- a) To print money for public use.
- b) To regulate the nation’s monetary policy and stabilize the currency.
- c) To collect taxes and fund government projects.
- d) To lend money to individuals and businesses.
4. Question: What is a recession?
- a) A period of temporary economic decline characterized by a fall in GDP for two consecutive quarters.
- b) A period of sustained economic growth characterized by a rise in GDP for two consecutive quarters.
- c) A period of high inflation and rapid price increases.
- d) A period of deflation and falling prices.
5. Question: What does ‘supply and demand’ refer to in economics?
- a) The amount of goods available and the desire for those goods.
- b) The amount of money available and the desire for loans.
- c) The production capacity of a country and its population size.
- d) The stock market index and its volatility.
6. Question: What is fiscal policy?
- a) The use of government spending and tax policies to influence the economy.
- b) The regulation of interest rates and money supply by the central bank.
- c) The total value of goods and services produced in a country.
- d) The policies regarding trade between countries.
7. Question: What is the difference between a budget deficit and a budget surplus?
- a) A budget deficit occurs when expenditures exceed revenues, while a budget surplus occurs when revenues exceed expenditures.
- b) A budget deficit occurs when revenues exceed expenditures, while a budget surplus occurs when expenditures exceed revenues.
- c) A budget deficit refers to government savings, while a budget surplus refers to government borrowing.
- d) A budget deficit and a budget surplus both refer to balanced budgets.
8. Question: What is the role of international trade in an economy?
- a) It restricts the flow of goods and services between countries.
- b) It allows countries to specialize in the production of goods and services they are efficient at producing and trade for others.
- c) It reduces competition and increases prices.
- d) It eliminates the need for domestic production.
9. Question: What is monetary policy?
- a) The process by which the central bank manages the nation’s money supply and interest rates.
- b) The process by which the government decides on tax rates and spending levels.
- c) The policies regarding international trade agreements.
- d) The strategies for managing a company’s finances.
10. Question: What is an economic indicator and can you name two examples?
- a) A statistic about economic activities; examples include GDP and unemployment rate.
- b) A policy tool used by the central bank; examples include interest rates and inflation rates.
- c) A measure of environmental impact; examples include carbon footprint and water usage.
- d) A type of financial instrument; examples include stocks and bonds.
Verification and Assesment
Please verify the answers below and assess your level of economic understanding.
Question 1: a) Gross Domestic Product; it measures a country’s total economic output.
Question 2: a) An increase in the general price level of goods and services; it decreases purchasing power.
Question 3: b) To regulate the nation’s monetary policy and stabilize the currency.
Question 4: a) A period of temporary economic decline characterized by a fall in GDP for two consecutive quarters.
Question 5: a) The amount of goods available and the desire for those goods.
Question 6: a) The use of government spending and tax policies to influence the economy.
Question 7: a) A budget deficit occurs when expenditures exceed revenues, while a budget surplus occurs when revenues exceed expenditures.
Question 8: b) It allows countries to specialize in the production of goods and services they are efficient at producing and trade for others.
Question 9: a) The process by which the central bank manages the nation’s money supply and interest rates.
Question 10: a) A statistic about economic activities; examples include GDP and unemployment rate.
Closing
Are the above problems too easy or too difficult for you? The economic terms mentioned above are basic terms that we must understand to comprehend economic news in broadcasts or newspapers. I have included links to the relevant Wikipedia pages for the important terms, so those who want to study further can refer to them.
Next time, we will study more specialized terms.