IVY SOFTWARE MBA PREPWORKS
– FUNDAMENTALS OF ECONOMICS EXAM
QUESTIONS WITH
CORRECT ANSWERS 2026/2027 LATEST
UPDATE
Suppose that the economy is in a deflationary gap. Which of the
following public policies would help the economy get back to
potential real GDP?
A) decrease the required reserve deposit ratio
B) have the Federal Reserve buy back government bonds
C) have the President and Congress cut marginal tax rates
D) all of the above are correct - ✔✔✔ANSWER-D. all of the above are
correct
One explanation for a positively sloped short run aggregate supply
curve is that businesses sometimes mistake changes in the price level
Page | 1
,for a change in the value that consumers have for their product. (T/F) -
✔✔✔ANSWER-True
When there is a decrease in the price level, consumers feel wealthier
because each nominal dollar can purchase more goods and services
relative to before the price level decrease. This is called the wealth
effect of a price level change. (T/F) -
✔ ✔✔ANSWER-True
A business always maximizes profits when it produces where total
revenue equals total cost (t/f) - ✔✔✔ANSWER-False. the profit
maximizing rule states that a business maximizes profits when it
produces a quantity where the MR from selling another unit equals the
MC of producing an additional unit.
A business should shut down if production at the profit maximizing
quantity generates total revenues that are less than total fixed costs.
(t/f) - ✔✔✔ANSWER-false. a business should shut down when the losses
from operating are greater than the total fixed costs.
Federal Reserve notes are printed by the Federal Reserve Bank.
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,(True or False) - ✔✔✔ANSWER-False. All Federal Reserve notes are
printed at the Bureau of Engraving and Printing at the Department of
Treasury, but they are issued by the regional Reserve banks.
Assume that the economy is currently at potential real GDP. Which of the
following would put the economy in an inflationary gap?
A) Temporary increase in wages
B) greater stock market wealth
C) higher business taxes
D) decrease in income abroad - ✔✔✔ANSWER-greater stock market
wealth
If an economy is producing below its potential real GDP, then it is in a(n)
- ✔✔✔ANSWER-deflationary gap
Which curve reflects the real GDP demanded by all groups in the
economy at any given price level? - ✔✔✔ANSWER-Aggregate
demand curve
Page | 3
, Suppose the economy is in an inflationary gap. Which of the
following public policies could help the economy get back to
potential real GDP?
A) increase unemployment insurance benefits
B) decrease the required reserve deposit ratio
C) Increase the discount rate
D) have the Federal Reserve buy back government bonds -
✔✔✔ANSWER-C. increase the discount rate
A permanent decrease in productivity in the economy causes:
A) the long run aggregate supply curve to shift to the left
B) the aggregate demand curve to shift to the south-west
C) the aggregate demand curve to shift to the north-east
D) the long-run aggregate supply curve to shift to the right -
✔✔✔ANSWER-A. the long run aggregate supply curve to shift to the left
If an economy is producing below its potential real GDP then:
A) it is in an inflationary gap
B) it is in a deflationary gap
C) there is no unemployment
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– FUNDAMENTALS OF ECONOMICS EXAM
QUESTIONS WITH
CORRECT ANSWERS 2026/2027 LATEST
UPDATE
Suppose that the economy is in a deflationary gap. Which of the
following public policies would help the economy get back to
potential real GDP?
A) decrease the required reserve deposit ratio
B) have the Federal Reserve buy back government bonds
C) have the President and Congress cut marginal tax rates
D) all of the above are correct - ✔✔✔ANSWER-D. all of the above are
correct
One explanation for a positively sloped short run aggregate supply
curve is that businesses sometimes mistake changes in the price level
Page | 1
,for a change in the value that consumers have for their product. (T/F) -
✔✔✔ANSWER-True
When there is a decrease in the price level, consumers feel wealthier
because each nominal dollar can purchase more goods and services
relative to before the price level decrease. This is called the wealth
effect of a price level change. (T/F) -
✔ ✔✔ANSWER-True
A business always maximizes profits when it produces where total
revenue equals total cost (t/f) - ✔✔✔ANSWER-False. the profit
maximizing rule states that a business maximizes profits when it
produces a quantity where the MR from selling another unit equals the
MC of producing an additional unit.
A business should shut down if production at the profit maximizing
quantity generates total revenues that are less than total fixed costs.
(t/f) - ✔✔✔ANSWER-false. a business should shut down when the losses
from operating are greater than the total fixed costs.
Federal Reserve notes are printed by the Federal Reserve Bank.
Page 2 of 74
,(True or False) - ✔✔✔ANSWER-False. All Federal Reserve notes are
printed at the Bureau of Engraving and Printing at the Department of
Treasury, but they are issued by the regional Reserve banks.
Assume that the economy is currently at potential real GDP. Which of the
following would put the economy in an inflationary gap?
A) Temporary increase in wages
B) greater stock market wealth
C) higher business taxes
D) decrease in income abroad - ✔✔✔ANSWER-greater stock market
wealth
If an economy is producing below its potential real GDP, then it is in a(n)
- ✔✔✔ANSWER-deflationary gap
Which curve reflects the real GDP demanded by all groups in the
economy at any given price level? - ✔✔✔ANSWER-Aggregate
demand curve
Page | 3
, Suppose the economy is in an inflationary gap. Which of the
following public policies could help the economy get back to
potential real GDP?
A) increase unemployment insurance benefits
B) decrease the required reserve deposit ratio
C) Increase the discount rate
D) have the Federal Reserve buy back government bonds -
✔✔✔ANSWER-C. increase the discount rate
A permanent decrease in productivity in the economy causes:
A) the long run aggregate supply curve to shift to the left
B) the aggregate demand curve to shift to the south-west
C) the aggregate demand curve to shift to the north-east
D) the long-run aggregate supply curve to shift to the right -
✔✔✔ANSWER-A. the long run aggregate supply curve to shift to the left
If an economy is producing below its potential real GDP then:
A) it is in an inflationary gap
B) it is in a deflationary gap
C) there is no unemployment
Page 4 of 74
