EST II ECONOMICS HARD PRACTICE MOCK EXAM 60 Questions | 60 Minutes

 

EST II ECONOMICS

HARD PRACTICE MOCK EXAM
60 Questions   |   60 Minutes

Directions:

Choose the best answer for each question. Each question has five answer choices: A, B, C, D, and E. Some questions require calculation, interpretation of economic data, application of economic principles, or analysis of a scenario.

Recommended practice: Try to complete all 60 questions within 60 minutes before checking the answers.

ECONOMICS AND CHOICE

1. A country can produce either 120 units of wheat or 60 units of machinery using all of its available resources. If the production possibilities frontier is linear, what is the opportunity cost of producing 30 additional units of machinery?

A) 15 units of wheat

B) 30 units of wheat

C) 60 units of wheat

D) 90 units of wheat

E) 120 units of wheat

Answer: C) 60 units of wheat

2. A student has three hours available for either studying economics or working at a job paying $12 per hour. The student chooses to study. Ignoring other benefits of studying, what is the opportunity cost of the decision?

A) $12

B) $24

C) $36

D) $48

E) $60

Answer: C) $36

3. Which situation best demonstrates the economic problem of scarcity?

A) A company earns a profit after reducing its costs.

B) A consumer compares prices before making a purchase.

C) A government must choose between funding a hospital and a highway because available resources are limited.

D) A producer increases output after its selling price rises.

E) A bank increases the interest rate charged on loans.

Answer: C) A government must choose between funding a hospital and a highway because available resources are limited.

4. An economy is producing at a point strictly inside its production possibilities frontier. Which conclusion is most appropriate?

A) The economy is operating at productive efficiency.

B) All available resources are being used efficiently.

C) The economy could increase production of at least one good without reducing production of the other.

D) The economy has reached its maximum possible output.

E) The economy faces no opportunity cost.

Answer: C) The economy could increase production of at least one good without reducing production of the other.

5. Which statement correctly distinguishes microeconomics from macroeconomics?

A) Microeconomics studies inflation while macroeconomics studies individual firms.

B) Microeconomics focuses on individual markets and decision-makers, while macroeconomics examines economy-wide outcomes.

C) Microeconomics studies international trade exclusively.

D) Microeconomics is concerned only with government decisions.

E) Macroeconomics does not use economic models.

Answer: B) Microeconomics focuses on individual markets and decision-makers, while macroeconomics examines economy-wide outcomes.

6. An economy shifts resources from consumer goods toward capital goods. If this decision increases future productive capacity, which concept is most directly illustrated?

A) Diminishing marginal utility

B) Economic growth through investment

C) Inflation caused by excess demand

D) Comparative disadvantage

E) Monetary contraction

Answer: B) Economic growth through investment

MARKET ECONOMIES AT WORK

7. The price of a product rises from $20 to $24, while quantity demanded falls from 500 units to 450 units. Using the midpoint method, the absolute value of the price elasticity of demand is closest to:

A) 0.45

B) 0.55

C) 0.91

D) 1.10

E) 2.00

Answer: C) 0.91

8. If demand for a product is price elastic, a 10% increase in price will most likely:

A) Increase total revenue.

B) Decrease total revenue.

C) Leave total revenue unchanged.

D) Increase quantity demanded.

E) Make demand perfectly inelastic.

Answer: B) Decrease total revenue.

9. Which event causes a movement along the demand curve for coffee rather than a shift of the demand curve?

A) A rise in the price of tea

B) An increase in consumer income

C) A change in consumer preferences

D) A change in the price of coffee itself

E) An increase in the number of coffee consumers

Answer: D) A change in the price of coffee itself

10. A binding price ceiling is imposed below the equilibrium price. What is the most likely result?

A) A surplus

B) A shortage

C) A higher equilibrium price

D) An increase in quantity supplied

E) Elimination of non-price competition

Answer: B) A shortage

11. A binding minimum wage is set above the equilibrium wage in a competitive labor market. What is most likely to occur?

A) A shortage of workers

B) A surplus of labor

C) A fall in the legal wage

D) An increase in labor demanded

E) Elimination of unemployment

Answer: B) A surplus of labor

12. A firm's marginal cost is $18, average total cost is $25, and the market price is $22. In the short run, the firm should most likely:

A) Shut down because price is below average total cost.

B) Continue producing because price exceeds marginal cost and the firm may cover its variable costs.

C) Produce only if price is below average variable cost.

D) Exit the industry immediately.

E) Produce only where price equals average total cost.

Answer: B) Continue producing because price exceeds marginal cost and the firm may cover its variable costs.

13. A competitive firm's price is $30. At its profit-maximizing output, marginal cost is $30 and average total cost is $24. Which statement is correct?

A) The firm earns zero economic profit.

B) The firm earns positive economic profit of $6 per unit.

C) The firm loses $6 per unit.

D) The firm must shut down.

E) Marginal revenue is below marginal cost.

Answer: B) The firm earns positive economic profit of $6 per unit.

14. A government imposes a $5 per-unit tax on sellers of a product. Which statement is most accurate?

A) Buyers necessarily bear the entire tax.

B) Sellers necessarily bear the entire tax.

C) The tax creates a wedge between the price paid by buyers and the price received by sellers.

D) Equilibrium quantity must increase.

E) The tax cannot affect market efficiency.

Answer: C) The tax creates a wedge between the price paid by buyers and the price received by sellers.

15. A market has the following equations:

Qd = 120 − 2P
Qs = 20 + 3P

What is the equilibrium price?

A) $10

B) $15

C) $20

D) $25

E) $30

Answer: C) $20

16. Using the equations in Question 15, what is the equilibrium quantity?

A) 60

B) 70

C) 80

D) 90

E) 100

Answer: C) 80

17. If the price of a substitute for product X increases substantially, all other factors remaining constant, what will most likely happen to demand for X?

A) Demand shifts left.

B) Demand shifts right.

C) Supply shifts left.

D) Supply shifts right.

E) Quantity demanded falls along the existing demand curve.

Answer: B) Demand shifts right.

18. A firm experiences economies of scale when:

A) Long-run average total cost increases as output increases.

B) Marginal cost is always greater than price.

C) Long-run average total cost decreases as output increases.

D) Fixed costs become zero.

E) Demand becomes perfectly elastic.

Answer: C) Long-run average total cost decreases as output increases.

19. Which market structure is characterized by many firms, differentiated products, and relatively easy entry?

A) Monopoly

B) Perfect competition

C) Monopolistic competition

D) Monopsony

E) Natural monopoly

Answer: C) Monopolistic competition

20. A monopolist can sell 100 units at $50 each or 110 units at $45 each. What is the marginal revenue from increasing output from 100 to 110 units?

A) $5

B) $50

C) $400

D) $450

E) $500

Answer: D) $450

LABOR, INCOME, AND HUMAN CAPITAL

21. If the equilibrium wage rises in a competitive labor market, what combination is most likely?

A) Labor supplied falls and labor demanded rises.

B) Labor supplied rises and labor demanded falls.

C) Both labor supplied and labor demanded rise.

D) Both labor supplied and labor demanded fall.

E) Neither changes.

Answer: B) Labor supplied rises and labor demanded falls.

22. A worker's wage rises from $20 to $24 per hour, but weekly hours fall from 40 to 35. How does weekly labor income change?

A) It falls by $40.

B) It rises by $20.

C) It rises by $40.

D) It rises by $80.

E) It rises by $120.

Answer: C) It rises by $40.

23. Human capital is best described as:

A) Physical machinery owned by workers

B) The skills, knowledge, education, and training possessed by workers

C) Money held by households

D) Government tax revenue

E) Natural resources

Answer: B) The skills, knowledge, education, and training possessed by workers

24. A government substantially improves access to education and vocational training. What is the most likely long-run effect?

A) Lower worker productivity

B) Lower human capital

C) Higher productivity and potentially higher economic growth

D) Guaranteed lower real wages

E) Lower capital formation

Answer: C) Higher productivity and potentially higher economic growth

25. Which situation is most likely to increase income inequality, holding other factors constant?

A) Employment increases among low-income workers.

B) A progressive tax increase is introduced.

C) Returns to highly specialized skills increase substantially while low-skilled wages remain unchanged.

D) Access to public education increases.

E) The earned-income tax credit becomes more generous.

Answer: C) Returns to highly specialized skills increase substantially while low-skilled wages remain unchanged.

26. Which policy is most directly designed to reduce structural unemployment?

A) Temporary stimulus spending during a recession

B) Retraining workers whose industries have permanently declined

C) Lowering interest rates during a recession

D) Increasing government purchases for one year

E) Increasing the money supply during a recession

Answer: B) Retraining workers whose industries have permanently declined

MONEY, BANKING, AND FINANCE

27. A restaurant lists a meal as costing $15. Which function of money is being demonstrated?

A) Medium of exchange

B) Store of value

C) Unit of account

D) Credit creation

E) Capital formation

Answer: C) Unit of account

28. If the required reserve ratio is 20%, what is the simple deposit multiplier?

A) 2

B) 4

C) 5

D) 10

E) 20

Answer: C) 5

29. Using a simple deposit multiplier of 5, an initial $10,000 increase in reserves could theoretically support what maximum total increase in deposits?

A) $20,000

B) $30,000

C) $40,000

D) $50,000

E) $100,000

Answer: D) $50,000

30. A central bank purchases government securities from commercial banks. Assuming other factors remain constant, what is the immediate effect?

A) Bank reserves decrease.

B) Bank reserves increase.

C) The money supply decreases.

D) The reserve requirement increases.

E) Bank lending capacity decreases.

Answer: B) Bank reserves increase.

31. Which sequence best represents contractionary monetary policy?

A) Interest rates fall → borrowing rises → aggregate demand rises.

B) Interest rates rise → borrowing falls → aggregate demand falls.

C) Interest rates rise → money demand becomes zero.

D) Interest rates fall → investment falls → aggregate demand falls.

E) Interest rates rise → exports automatically double.

Answer: B) Interest rates rise → borrowing falls → aggregate demand falls.

32. A bond pays a fixed annual coupon of $60. Its market price falls from $1,000 to $750. What is the bond's current yield?

A) 4%

B) 6%

C) 8%

D) 10%

E) 12%

Answer: C) 8%

33. Under fractional-reserve banking, why can bank lending increase the money supply?

A) Every loan requires newly printed physical currency.

B) Banks can lend excess reserves while creating new deposit balances.

C) Banks create money only when taxes rise.

D) Lending destroys all deposits.

E) Banks cannot expand the money supply.

Answer: B) Banks can lend excess reserves while creating new deposit balances.

34. Unexpectedly high inflation occurs while a borrower has a fixed-rate loan. Who is most likely to benefit?

A) The lender

B) The borrower

C) Both equally

D) Neither

E) The central bank automatically

Answer: B) The borrower

35. The nominal interest rate is 9% and expected inflation is 4%. The approximate expected real interest rate is:

A) 3%

B) 4%

C) 5%

D) 9%

E) 13%

Answer: C) 5%

MEASURING AND MONITORING ECONOMIC PERFORMANCE

36. An economy produces 100 units of food at $5 each, 50 units of clothing at $20 each, and 10 computers at $500 each. What is nominal GDP?

A) $5,500

B) $6,000

C) $6,500

D) $7,000

E) $7,500

Answer: C) $6,500

37. Nominal GDP rises by 8% while the GDP price index rises by 5%. Real GDP approximately:

A) Falls by 3%

B) Rises by approximately 3%

C) Rises by 5%

D) Rises by 8%

E) Falls by 5%

Answer: B) Rises by approximately 3%

38. A country's CPI rises from 125 to 140. What is the inflation rate?

A) 8%

B) 10%

C) 12%

D) 15%

E) 18%

Answer: C) 12%

39. The labor force contains 9 million people, of whom 8.28 million are employed. What is the unemployment rate?

A) 7%

B) 8%

C) 9%

D) 10%

E) 12%

Answer: B) 8%

40. A person stops looking for work because repeated applications have failed. Under standard unemployment statistics, this person is most likely classified as:

A) Employed

B) Unemployed

C) Not in the labor force

D) Structurally employed

E) Automatically underemployed

Answer: C) Not in the labor force

41. Which situation can cause measured GDP to rise without necessarily producing an equivalent improvement in overall well-being?

A) More unpaid household work

B) More leisure time

C) More market production accompanied by increased pollution

D) Fewer market transactions

E) Lower measured production

Answer: C) More market production accompanied by increased pollution

42. An economy has the following data:

Year	Nominal GDP	GDP Price Index
2024	$900 billion	120
2025	$1,050 billion	140

Which conclusion is correct?

A) Real GDP increased by more than 20%.

B) Real GDP remained exactly unchanged.

C) Real GDP decreased.

D) Nominal GDP decreased.

E) Inflation was negative.

Answer: B) Real GDP remained exactly unchanged.

43. Real GDP per capita rises while income inequality also rises substantially. Which statement is most defensible?

A) Every household must be better off.

B) Average output per person has increased, but the distribution of income may have become less equal.

C) Poverty must have disappeared.

D) Unemployment must have fallen.

E) Real GDP per capita cannot rise when inequality rises.

Answer: B) Average output per person has increased, but the distribution of income may have become less equal.

44. A country's GDP grows rapidly because it extracts a large amount of a nonrenewable natural resource. What limitation of GDP measurement is most relevant?

A) GDP never measures market production.

B) GDP automatically measures environmental sustainability.

C) GDP may rise while natural capital is being depleted.

D) GDP cannot be calculated for resource-producing countries.

E) GDP excludes business investment.

Answer: C) GDP may rise while natural capital is being depleted.

45. The nominal interest rate is 7% and actual inflation is 10%. What is the approximate ex-post real interest rate?

A) −3%

B) 3%

C) 7%

D) 10%

E) 17%

Answer: A) −3%

46. Which combination is most consistent with stagflation?

A) High economic growth and falling prices

B) Low unemployment and falling inflation

C) High inflation, weak economic growth, and high unemployment

D) High growth and high productivity

E) Deflation and rapid growth

Answer: C) High inflation, weak economic growth, and high unemployment

47. An economy's unemployment rate changes as follows:

Year	Unemployment Rate
2022	4.2%
2023	5.1%
2024	6.8%
2025	6.5%

Which conclusion is supported by the data?

A) Unemployment increased every year.

B) Unemployment peaked in 2024 and declined slightly afterward.

C) Employment must have fallen every year.

D) Inflation must have increased every year.

E) The labor force must have remained constant.

Answer: B) Unemployment peaked in 2024 and declined slightly afterward.

THE ROLE OF GOVERNMENT IN THE ECONOMY

48. Which policy is an example of expansionary fiscal policy?

A) Increasing taxes and reducing government purchases

B) Reducing government spending during a recession

C) Increasing government purchases or reducing taxes to raise aggregate demand

D) Increasing the reserve requirement

E) Selling government securities through open-market operations

Answer: C) Increasing government purchases or reducing taxes to raise aggregate demand

49. If the marginal propensity to consume is 0.75, what is the simple spending multiplier?

A) 1.25

B) 2

C) 3

D) 4

E) 5

Answer: D) 4

50. If the spending multiplier is 4, an increase in autonomous government spending of $20 billion could theoretically increase equilibrium real GDP by:

A) $20 billion

B) $40 billion

C) $60 billion

D) $80 billion

E) $100 billion

Answer: D) $80 billion

51. Which tax system is progressive?

A) Everyone pays exactly $2,000 regardless of income.

B) Everyone pays exactly 10% of income.

C) The average tax rate rises as income rises.

D) The average tax rate falls as income rises.

E) Only corporations pay taxes.

Answer: C) The average tax rate rises as income rises.

52. A government budget deficit occurs when:

A) Tax revenue exceeds government spending.

B) Government spending exceeds tax revenue.

C) Exports exceed imports.

D) Private saving exceeds private investment.

E) The central bank raises interest rates.

Answer: B) Government spending exceeds tax revenue.

53. During a severe recession, the government increases infrastructure spending financed partly by borrowing. What is the primary intended short-run effect?

A) Reduce aggregate demand

B) Increase aggregate demand and employment

C) Reduce government purchases

D) Immediately reduce real GDP

E) Automatically reduce the money multiplier

Answer: B) Increase aggregate demand and employment

54. A negative externality occurs when:

A) A producer receives a subsidy.

B) A consumer receives a private benefit.

C) An economic activity imposes an uncompensated cost on third parties.

D) A firm earns economic profit.

E) The government collects tax revenue.

Answer: C) An economic activity imposes an uncompensated cost on third parties.

55. A government imposes a $30 tax per ton on pollution emitted by factories. The main economic purpose is to:

A) Increase the external cost created by pollution.

B) Make private marginal cost closer to social marginal cost.

C) Guarantee that factories produce more pollution.

D) Eliminate all factory production.

E) Reduce the price of the polluting product to consumers.

Answer: B) Make private marginal cost closer to social marginal cost.

56. A government can choose between two projects. Project A costs $500 million and produces $700 million in measurable benefits. Project B costs $400 million and produces $520 million in measurable benefits. Ignoring non-monetary factors, which project has the greater net benefit?

A) Project A, with a $100 million net benefit

B) Project A, with a $200 million net benefit

C) Project B, with a $120 million net benefit

D) Project B, with a $520 million net benefit

E) Both have equal net benefits

Answer: B) Project A, with a $200 million net benefit

THE GLOBAL ECONOMY

57. Country A can produce either 100 units of wheat or 50 units of steel. Country B can produce either 80 units of wheat or 80 units of steel. Which country has the comparative advantage in steel?

A) Country A, because it can produce more wheat.

B) Country A, because its steel output is 50 units.

C) Country B, because its opportunity cost of steel is lower.

D) Both countries have the same comparative advantage.

E) Neither country can specialize.

Answer: C) Country B, because its opportunity cost of steel is lower.

58. A tariff is imposed on imported steel. Which effect is most likely?

A) The domestic price of steel falls.

B) The quantity of imported steel increases.

C) Domestic steel producers are protected while consumers face higher costs.

D) Total economic efficiency necessarily increases.

E) Domestic steel production disappears.

Answer: C) Domestic steel producers are protected while consumers face higher costs.

59. A country's currency appreciates substantially against other currencies. Holding other factors constant, which effect is most likely?

A) Domestic exports become cheaper for foreign buyers.

B) Domestic imports become relatively cheaper for domestic consumers.

C) Exports must increase immediately.

D) Imports become more expensive.

E) Domestic purchasing power necessarily falls.

Answer: B) Domestic imports become relatively cheaper for domestic consumers.

60. Consider the following trade data:

Item	Value
Exports of goods	$420 billion
Imports of goods	$500 billion
Exports of services	$180 billion
Imports of services	$100 billion

Ignoring income flows and transfers, what is the combined goods-and-services trade balance?

A) −$180 billion

B) −$80 billion

C) $0

D) +$80 billion

E) +$180 billion

Answer: C) $0

EST II Economics Practice Resource

This is an original hard-level practice examination created for EST II Economics preparation. It is not an official EST examination and does not reproduce official EST questions.