✅ Checkpoint: Economics and Institutions

By Better Wise

Quiz

  1. A city council fixes potholes on residential streets, even though no private firm finds it profitable to do so. Which concept best explains why government steps in here?
    • The free rider problem: everyone benefits from a smooth road whether they pay or not, so markets undersupply it.
    • Households are not supplying enough labour to the road-building firms.
    • Courts have ruled that potholes are a contract violation.
    • The central bank's policy rate is too low, so firms cannot borrow to fix roads.
  2. Which statement correctly separates the roles of the central bank and the government (treasury)?
    • The central bank sets the policy interest rate (monetary policy); the government sets taxes and spending (fiscal policy).
    • The central bank runs most businesses, and the government supervises the banks.
    • Both the central bank and the government set the policy rate together each month.
    • The central bank decides the government budget, and the government sets the policy rate.
  3. Your wage rises 3% this year while prices rise 5%. What happened to your real wage?
    • It fell by about 2%, because prices outran your pay.
    • It stayed the same, because both numbers are percentages.
    • It rose by about 8%, because you add the two numbers.
    • It rose by about 3%, because your wage went up.
  4. A savings account pays 3% interest while inflation is 4%. What is the real return, and what does it mean?
    • About +3%, because the quoted rate is what you earn.
    • About -7%, because you subtract the rate from inflation and then double it.
    • About +7%, because you add the rate and inflation.
    • About -1%, so the balance loses purchasing power over the year.
  5. A pay slip shows gross pay of $4,000, income tax of $700 and social insurance of $320. Which line is the net pay, and what does the slip hide?
    • Net pay is $1,020; the slip hides the social insurance contributions.
    • Net pay is $2,980; the slip hides consumption taxes such as VAT, paid on spending.
    • Net pay is $3,300; the slip hides only the corporate income tax.
    • Net pay is $4,000; the slip hides nothing because all taxes are shown.
  6. A government budget spends 35% on pensions and transfers, 20% on health and 15% on education. If the average household pays about $1,300 a year in all taxes, roughly how much of that goes to health?
    • About $195, which is 15% of $1,300.
    • About $455, which is 35% of $1,300.
    • About $260, which is 20% of $1,300.
    • About $1,300, because the whole budget is spent on health.
  7. Courts, property registries and standards bodies are examples of ____: durable rules and organisations that make other people's behaviour predictable enough to trade with them.
  8. The central bank's everyday lever is the ____, the rate it sets to influence the other interest rates in the economy.
  9. A tax under which higher slices of income face higher rates is called a ____ tax.
  10. Take a real headline about a price change (for example, a rent cap or a fuel price rise). Trace it through the map of the economy: name which player acted (household, firm, government, central bank), which lever they used, and whether the effect on a household budget is nominal or real. Then state one piece of evidence that would change your reading.

Sign in to submit answers.