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Question 1
What serves as a starting point from which changes in prices are measured?
Correct Answer:
Base Year
Explanation:
The correct answer is the base year, which serves as a foundational reference point for measuring changes in prices over time. When analyzing inflation or assessing economic performance, economists often select a specific year as the base year. This year is used as a benchmark against which the prices of goods and services are compared in subsequent years. Using a base year allows for the calculation of various economic indices, such as the Consumer Price Index (CPI) or the GDP deflator, which help to quantify inflation rates and assess how the cost of living changes over time. By keeping one year constant, it becomes easier to observe and discuss price changes and the real value of money in relation to that year, enhancing the accuracy of economic analysis and decision-making. Understanding the concept of a base year is essential for interpreting economic data properly. It provides clarity on how much prices have risen or fallen since that reference point, making it a crucial element in economic studies and discussions.
Question 2
What does it mean when an economic transaction results in a negative externality?
Correct Answer:
A third party incurs costs that were not anticipated
Explanation:
When an economic transaction results in a negative externality, it signifies that a third party incurs costs that were not anticipated or considered by the parties directly involved in the transaction. This often occurs in situations where the actions of one party impose unintended consequences—usually harmful—on others who did not agree to or benefit from those actions. For instance, if a factory produces goods but simultaneously pollutes a nearby river, the surrounding community may experience health problems or diminished quality of life without any compensation or acknowledgment from the factory. These unaccounted costs can result in social inefficiency and indicate a market failure because the price of the goods doesn't reflect all the costs associated with production. This concept highlights the importance of considering the broader impact of economic activities, as those who do not participate directly in the transaction may suffer negative consequences.
Question 3
How does government borrowing impact private sector investment?
Correct Answer:
It diverts funds from the private sector as interest rates may rise
Explanation:
Government borrowing impacts private sector investment significantly by influencing interest rates and the availability of capital. When a government borrows, it typically issues bonds to finance its activities. This increased demand for funds can lead to higher interest rates because the supply of available capital for private borrowers decreases. As interest rates rise, borrowing costs for businesses and consumers become more expensive. Consequently, private investment may decline as companies may find it less attractive to finance new projects or expansion due to these higher costs. Additionally, higher interest rates can discourage consumer spending on big-ticket items, further impacting businesses' investment plans. This phenomenon can be understood through the concept of "crowding out," where government borrowing competes with the private sector for financing. As the government borrows more, it tends to absorb a larger portion of the available financial resources, leaving less for private investment. This diverting of available funds can hinder economic growth if private sector investment is stifled due to higher costs associated with government borrowing. Thus, this choice accurately captures the dynamics at play in how government borrowing can adversely affect private investment by potentially raising interest rates.
Question 4
Which of the following best describes a central bank?
Correct Answer:
It regulates the supply of money and issues currency
Explanation:
A central bank is fundamentally characterized by its role in regulating the supply of money and issuing currency. This institution is tasked with managing a nation’s monetary policy, which includes controlling interest rates, overseeing inflation, and stabilizing the currency. By adjusting the money supply, a central bank can influence economic activity, aiming to promote sustainable growth and reduce economic volatility. The issuance of currency is another critical function; it ensures that there is a stable medium of exchange within the economy. Central banks typically operate independently from the government to preserve the integrity of monetary policy. This independence allows them to make decisions based on economic indicators rather than political pressures, which is vital for the health of the economy. In contrast, other options do not capture the primary functions of a central bank. For example, while private institutions may offer loans, a central bank focuses on broader economic stability rather than individual lending. Similarly, the responsibility for tax collection falls under the purview of government agencies, not central banks. Lastly, central banks do not act as retail banks for the general public; rather, they serve as banks for commercial banks and government entities, facilitating financial system stability rather than engaging in consumer banking services.
Question 5
What impacts the average costs of production in the long run?
Correct Answer:
The size and structure of the firm
Explanation:
The average costs of production in the long run are significantly influenced by the size and structure of the firm. In the long run, firms can adjust all factors of production, which allows them to achieve economies of scale or face diseconomies of scale depending on how efficiently they manage their resources as they expand. As a firm grows and increases its production, it may benefit from reduced average costs per unit due to factors such as bulk purchasing of inputs, improved operational efficiencies, or better utilization of resources. The organizational structure of the firm also plays a crucial role, as it determines how effectively management can coordinate production, streamline processes, and implement cost-saving technologies or practices. While variable costs, raw material prices, and the number of competitors can influence costs in a period of production, these factors have less impact on average costs over the long term compared to the more systemic elements brought about by the firm’s size and structure. A larger firm may also diversify its production and spread fixed costs over a larger output, further impacting average costs positively when scaling up. Therefore, understanding how firm size and organizational structure influence costs is essential for analyzing average costs in the long run.
Question 1
Exam overview

About this Exam

This WGU Principles of Economics (ECON2000 D089) Practice Exam, often referred to within the university as the Pre-Assessment (PA), is a vital diagnostic tool designed for students enrolled in WGU's accredited business and business-adjacent degree programs. This competency-based course forms the foundation of economic literacy, equipping future business leaders with the critical thinking skills required to analyze market behaviors, understand national policy, and make data-driven decisions. The practice exam allows students to assess their current mastery before attempting the high-stakes final assessment.

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Additional Information

What the Course Entails and Exam Details

The course and its practice exam are divided into core competencies that cover the entire landscape of fundamental economics, balancing microeconomic and macroeconomic theory. The practice exam mirrors the breadth and depth of the course curriculum. Key areas include:

  1. The Economic Way of Thinking: Mastering concepts of scarcity, opportunity cost, the production possibilities frontier (PPF), and specializing based on comparative advantage.

  2. Microeconomics Fundamentals: Understanding consumer behavior, the mechanics of supply and demand, elasticity, and the four main market structures (perfect competition, monopoly, oligopoly, and monopolistic competition).

  3. Macroeconomics Fundamentals: Analyzing aggregate supply and demand (AD-AS model), Gross Domestic Product (GDP), unemployment, and inflation. You will also learn to differentiate between fiscal and monetary policy.

  4. International Economics: Exploring the benefits of trade and the impact of trade barriers.


What to Expect in the Final Exam

It is important to understand that the practice exam is not the final barrier to completion. WGU utilizes a high-stakes final exam called the Objective Assessment (OA). While the Practice Exam (PA) mimics the format and content, the Final (OA) is the official proctored test you must pass.

The final exam is an online, multiple-choice assessment that you will schedule and take from the convenience of your own space. It requires a specific passing percentage and has a set time limit. Unlike the practice exam, the OA is securely proctored to ensure academic integrity. Successful completion of this exam demonstrates that you have met all the necessary competencies for the course and are ready to move on.


How to Study and Exam Centers

Preparation is key to conquering this comprehensive course. Use the practice exam strategically with this pro-tip method:

  1. Take the Practice Exam First: Before diving deep into the course material, take the practice exam (PA) once without any notes to establish a true baseline of your existing knowledge.

  2. Analyze Your Coaching Report: WGU provides an immediate, detailed 'Coaching Report' after every PA. This report is your personalized study map, showing you exactly which competencies you have mastered ('Proficient') and which require improvement ('Approaching Competency').

  3. Focus on Weak Areas: Dedicate your study time to the specific sections of the course materials that the Coaching Report identifies as weak. Utilize all available WGU resources, such as textbook reading, interactive cohorts, supplemental videos (especially "Brian's Videos" in course resources), and practice quizzes within the modules.

  4. Retake the Practice Exam: Once you have studied, retake the PA. Your goal is to secure a score comfortably above the required proficiency line across all competencies before you schedule your final Objective Assessment.

Exam Centers and Proctoring

WGU is an online university, and all exams, including the final Objective Assessment, are taken remotely via secure online proctoring services like Examity. You can take your exam 24/7 from any location that meets the technological requirements and provides a quiet, private, and secure environment. You will be monitored via webcam to verify your identity and ensure academic integrity.


Job Opportunities from the Course

A strong foundation in economic principles is a highly transferable skill, valued across numerous business, analytical, and public sector career paths. Successful completion of this course and the final exam prepares you for diverse roles such as:

  • Financial Analyst

  • Market Research Analyst

  • Policy Analyst

  • Data Analyst

  • Public Administrator

  • Economic Consultant

  • Supply Chain Analyst

  • Bank Loan Officer

  • Economic Researcher

  • Business Analyst

Quiz information

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