Training Economics Placement Test Practice — Economics
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Placement Test Practice — Economics

22 min Economics

This comprehensive practice test covers all major topics from the economics module: microeconomics (supply-demand, elasticity, market structures), macroeconomics (GDP, inflation, Okun's Law), international trade, growth theory, behavioral economics, labor markets, public economics, and monetary economics. Work through each problem, then check your answers.

Placement Test Practice — Economics

Practice Test — 25 Questions

1. $Q^d = 80 - 4P$, $Q^s = 2P - 10$. Find $P^*$ and $Q^*$.
2. At $P=\$15$, $Q=20$ on the demand curve above. Compute PED.
3. A $\$6$ per-unit tax is imposed. Using the equilibrium above, calculate DWL. ($Q$ falls to 17.)
4. $C=\$15\text{T}$, $I=\$4\text{T}$, $G=\$5\text{T}$, $X=\$3\text{T}$, $M=\$3.5\text{T}$. Find GDP.
5. Nominal GDP $=\$28\text{T}$, deflator $= 112$. Find real GDP.
6. Natural unemployment $= 4.5\%$, actual $= 8\%$. Potential GDP $= \$20\text{T}$. Estimate actual GDP (Okun's Law).
7. $\hat{M}=6\%$, $\hat{V}=0$, $\hat{Y}=2\%$. What inflation does the Quantity Theory predict?
8. US: 2 hrs/wheat, 4 hrs/cloth. Canada: 3 hrs/wheat, 3 hrs/cloth. Who has comparative advantage in wheat?
9. Relative PPP: domestic inflation $5\%$, foreign $1\%$. How should the domestic currency move?
10. $\alpha=0.4$, $s=0.25$, $n=0.01$, $\delta=0.09$. Find Solow steady-state $k^*$.
11. TFP growth: $\Delta Y/Y=5\%$, $\Delta K/K=4\%$, $\Delta L/L=1\%$, $\alpha=0.35$. Find $\Delta A/A$.
12. With loss aversion coefficient $\lambda=2.25$, would a typical prospect-theory agent accept: win $\$100$ (prob 0.5), lose $\$50$ (prob 0.5)?
13. Labor force $= 200\text{M}$, employed $= 190\text{M}$. Unemployment rate?
14. $MRP_L = 300-15L$, wage $=\$75$. Find optimal employment.
15. Mincer equation, $\beta_1=0.10$. Compare wages for workers with 12 vs 16 years of schooling (ceteris paribus).
16. Demand $P=150-Q$, $MC=30$. Find monopoly $Q$, $P$, and DWL vs perfect competition.
17. Two firms hold 60\% and 40\% market share. Compute HHI. Highly concentrated?
18. Demand $P=120-Q$, private supply $P=20+Q$, MEC$=\$20$/unit. Find Pigouvian tax and socially optimal $Q$.
19. 4-year bond, face $\$1{,}000$, coupon $\$80$/year, yield $6\%$. Find price.
20. Taylor rule: $r^*=2\%$, $\pi=5\%$, $\pi^*=2\%$, output gap $=+2\%$. Find prescribed $i$.
21. CAPM: $R_f=3\%$, market premium $=5\%$, $\beta=1.2$. Find required return.
22. Reserve requirement $=5\%$. Fed injects $\$50\text{B}$ of base money. Max M2 expansion?
23. Real rate $= 3.5\%$, expected inflation $= 2\%$. Find nominal rate.
24. Three people value a park at $\$40$, $\$70$, $\$50$. Cost $=\$150$. Efficient to provide?
25. Explain why the burden of a tax falls more on buyers when demand is inelastic relative to supply.
Show Answer Key

1. $80-4P=2P-10 \Rightarrow P^*=15$, $Q^*=20$.

2. $E_d = -4 \cdot 15/20 = -3$ (elastic).

3. $DWL = \frac{1}{2}(6)(20-17) = \$9$.

4. GDP $= 15+4+5+(3-3.5) = \$23.5\text{T}$.

5. Real GDP $= (28/112)\times 100 = \$25\text{T}$.

6. Gap $= -2(8-4.5)\%=-7\%$. Actual $\approx 20\times 0.93=\$18.6\text{T}$.

7. $\pi = 6\%-2\%=4\%$.

8. US OC of wheat $= 2/4 = 0.5$ cloth. Canada OC $= 3/3 = 1$ cloth. US has lower OC → comparative advantage in wheat.

9. Depreciate by $\approx 4\%$ (domestic currency weakens as its prices rise faster).

10. $k^* = (0.25/0.10)^{1/0.6} = 2.5^{1.667} \approx 4.28$.

11. $\Delta A/A = 5-0.35(4)-0.65(1) = 5-1.4-0.65=2.95\%$.

12. $EV=0.5(100)+0.5(-50)=\$25>0$. But PT: $v(100)\approx 63.5$ vs $v(-50)\approx -2.25\times 34.4\approx -77.4$. Prospect value $\approx 0.5(63.5)+0.5(-77.4)=-6.95<0$. Agent likely declines.

13. $u=10/200=5\%$.

14. $300-15L=75 \Rightarrow L=15$.

15. $\Delta\ln(w)=0.10\times 4=0.40$. Wages $\approx e^{0.40}-1\approx 49\%$ higher for 16-year worker.

16. $MR=150-2Q$; $150-2Q=30\Rightarrow Q^M=60$, $P^M=90$. Competitive: $Q^C=120$, $P^C=30$. $DWL=\frac{1}{2}(90-30)(120-60)=\$1{,}800$.

17. $HHI=60^2+40^2=3600+1600=5{,}200$. Yes, highly concentrated (well above 2,500).

18. Private eq: $120-Q=20+Q\Rightarrow Q_{priv}=50$. Social supply $P=40+Q$: $120-Q=40+Q\Rightarrow Q^*=40$, $P^*=80$. Pigouvian tax $=\$20$.

19. $P=80\cdot\frac{1-1.06^{-4}}{0.06}+\frac{1000}{1.06^4}=80(3.4651)+792.09=277.21+792.09\approx\$1{,}069.30$.

20. $i=2+5+0.5(3)+0.5(2)=2+5+1.5+1=9.5\%$.

21. $E[R]=3+1.2(5)=9\%$.

22. Multiplier $=1/0.05=20$. Max expansion $=\$1\text{T}$.

23. $i \approx 3.5+2=5.5\%$. Exact: $(1.035)(1.02)-1=5.57\%$.

24. $\sum MRS=40+70+50=\$160>\$150=MC$. Yes, Samuelson condition is satisfied — efficient to provide.

25. When demand is inelastic, buyers do not significantly reduce quantity in response to a price increase. Sellers can pass most of the tax onto buyers as a higher price, and buyers absorb it rather than walk away — so the quantity and price effects concentrate on the buying side.

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