... Flashcards
(125 cards)
1
Q
All other things being equal, a large rise in interest rates is most likely to lead to an increase in A economic growth. B investment. C unemployment. D aggregate supply
A
C
2
Q
The following table shows figures for population and index numbers for inflation (CPI) and money national income (GDP at current prices) in the years 2012 and 2013 in an economy.
Year Population (millions) 20 21
Consumer Prices Index (CPI) 100 110
GDP at current prices 100 105
In 2013, compared to 2012, which one of the following statements can be inferred from the data?
A Real national income rose
B Money national income rose by 10%
C Population grew at a faster percentage rate than prices
D Real national income per head fell
A
D
3
Q
Which one of the following is most likely to be regarded as a supply-side cause of higher economic growth?
A Cheaper consumer credit
B Higher welfare benefits for the unemployed
C Increased exports of goods and services
D Lower tax rates on income
A
D
4
Q
The diagram below shows the aggregate demand (AD) and short-run aggregate supply (SRAS) curves for an economy. The economy is in equilibrium at point E.
O Real National Output
Normal ad/sras diagram
Which one of the following would be likely to lead to a new equilibrium position, with a fall in the price level? A A fall in exports B An increase in government spending C A fall in productivity D An increase in wage rates
A
A
5
Q
Foreign companies build new factories in a country to take advantage of cheap labour and cheap land. All other things being equal, the result of this investment for that country’s economy would be
A a movement along both its aggregate demand curve and long-run aggregate supply curve.
B a movement along its aggregate demand curve and a shift in its long-run aggregate supply curve.
C a shift in its aggregate demand curve and a movement along its long-run aggregate supply curve.
D a shift in both its aggregate demand curve and long-run aggregate supply curve
A
C
6
Q
The diagram below shows a shift in aggregate demand (AD) in an economy. O Real National Output Price level AD1 AD2 left Which one of the following combinations, A, B, C or D, is most likely to have caused the shift from AD1 to AD2? Rate of interest Exchange rate A Fall Fall B Fall Rise C Rise Rise D Rise Fall
A
C
7
Q
The table below shows the expenditure components of Gross Domestic Product (GDP) in Year 1 and Year 2 (£ billion).
Year Government and private consumption expenditure
Government and private investment expenditure
Exports Imports
1 100 20 30 40
2 110 25 35 50
Between Year 1 and Year 2, aggregate demand increased by
A £10 billion.
B £15 billion.
C £20 billion.
D £30 billion.
A
A
8
Q
The relationship between the growth of national income and the resulting increase in investment is known as the A accelerator. B output gap. C economic cycle. D multiplier
A
A
9
Q
Which one of the following is most likely to be deflationary? A reduction in A income tax B interest rates C bank lending D spending on imports
A
C
10
Q
All other things being equal, which one of the following combinations, A, B, C or D, is most likely to lead to a deterioration in the UK balance of payments on current account?
UK inflation rate Exchange rate of the £ UK unemployment A Increase Decrease Decrease B Decrease Increase Increase C Increase Increase Decrease D Decrease Decrease Increas
A
C
11
Q
Which one of the following is an instrument of monetary policy? A Taxation B The exchange rate C The inflation rate D Government spending
A
B
12
Q
In the diagrams below, AD1 and SRAS1 represent the initial aggregate demand and short-run aggregate supply curves for an economy. Which one of the following diagrams, A, B, C or D, illustrates the most likely effects of a simultaneous increase in oil prices and an increase in savings?
A ad left
B sras left
C ad left and sras left
D ad right and lras left
A
C
13
Q
An economy is experiencing inflation and a balance of payments deficit on current account. All other things being equal, which policy is most likely to reduce both inflation and the balance of payments deficit? A A reduction in the exchange rate B A cut in interest rates C A decrease in the rate of income tax D A fall in government spending
A
D
14
Q
The table below shows the value of a country’s currency against other currencies, in index number form.
Year Exchange rate index, 2010 = 100
2009 97
2010 100
2011 104
2012 107
All other things being equal, the most likely consequence of the changes in the exchange rate index for the period shown in the table is that
A inflationary pressures eased.
B the price of imports increased.
C the balance of payments on current account improved.
D there was growth in employment in manufacturing
A
A
15
Q
‘Unemployment has begun to rise in the UK. What should policy makers do? Already the Bank of England has cut interest rates. Also, the government has begun to spend more without covering all of the increase by a rise in taxes.’
It can be inferred from the data that in response to rising unemployment
A both monetary policy and fiscal policy are expansionary.
B monetary policy is expansionary whilst fiscal policy is contractionary.
C monetary policy is contractionary whilst fiscal policy is expansionary.
D both monetary policy and fiscal policy are contractionary
A
A
16
Q
A government attempts to reduce the rate of inflation by reducing aggregate demand (AD). All other things being equal, in the short run, which one of the following combinations, A, B, C or D, is most likely to result from the reduction in AD? Level of unemployment Economic growth Balance of payments on current account A Increases Decreases Worsens B Decreases Increases Improves C Decreases Increases Worsens D Increases Decreases Improves
A
D
17
Q
All other things being equal, which one of the following is most likely to reduce cyclical unemployment in the short run? A A reduction in the budget deficit B A reduction in the budget surplus C An increase in the exchange rate D An increase in interest rates
A
B
18
Q
In which one of the following combinations of events, A, B, C or D, is the Bank of England most likely to increase interest rates to try to reduce inflation?
Money wages Exchange rate Consumer spending
A Rising Rising Rising
B Falling Falling Falling
C Rising Falling Rising
D Falling Rising Rising
A
C
19
Q
The diagram below shows three aggregate demand (AD) and three long-run aggregate supply (LRAS) curves for an economy, with the initial equilibrium at X.
What would be the most likely new long-run equilibrium position, A, B, C or D, following government policy to lower the exchange rate and to improve the quality of the labour force through retraining programmes?
A lras right ad up
B lras right ad down
C lras left ad down
D lras left ad up
A
A
20
Q
Which one of the following is most likely to result in a demand-side shock to the UK economy?
A large rise in
A world commodity prices
B UK wage rates
C UK interest rates
D the price of imported manufactured goods
A
C
21
Q
The Consumer Prices Index (CPI) is a measure of changes in the A pattern of consumer expenditure. B average standard of living. C effective demand for consumer goods. D average cost of living.
A
D
22
Q
Which one of the following is most likely to reduce the level of investment in a particular economy? A fall in
A the value of a country’s currency on the foreign exchange market.
B aggregate demand in the economy.
C the level of unemployment.
D the spare capacity of the economy.
A
B
23
Q
In the diagram below, a decline in consumer confidence in an economy is represented by a leftward shift in its aggregate demand curve from AD1 to AD2.
AD shifts left with Y
In the short run, output falls from Y1 to Y2 and unemployment rises. The type of unemployment that results is best described as A structural unemployment. B cyclical unemployment. C seasonal unemployment. D frictional unemployment.
A
B
24
Q
An economy, operating at full capacity, exports and imports final goods and services. It also imports a large proportion of the raw materials and components used for its domestic manufacturing production.
All other things being equal, a depreciation of the exchange rate is likely to
A increase both demand-pull and cost-push inflationary pressures.
B increase demand-pull inflationary pressures but reduce cost-push inflationary pressures.
C reduce demand-pull inflationary pressures but increase cost-push inflationary pressures.
D reduce both demand-pull and cost-push inflationary pressures
A
A
25
Choosing between faster economic growth and a satisfactory balance of payments best illustrates
A a choice between different macroeconomic policy instruments.
B that the short-run aggregate supply curve is vertical.
C a possible conflict between competing policy objectives.
D a government sacrificing future consumption in favour of current consumption
C
26
```
Which one of the following is most likely to shift the short-run aggregate supply curve to the left? A rise in
A money wages.
B government spending.
C the exchange rate.
D labour productivity.
```
A
27
```
In the short run, a fall in a budget deficit is most likely to increase
A imports.
B unemployment.
C interest rates.
D inflation.
```
B
28
The UK economy is in recession. The government increases its budget deficit whilst, at the same time, the exchange rate of the pound falls. These events are most likely to lead to a rise in
A the rate of growth of GDP and a fall in unemployment.
B the foreign currency price of UK exports and a rise in inflation.
C the price in pounds of UK imports and a rise in unemployment.
D labour productivity and a fall in the size of the positive output gap in the economy.
A
29
The table below shows both the unemployment rate and inflation rate for an economy between 2010 and 2012.
Unemployment rate (%)
Inflation rate (%) 2010 5.3 4.0 2011 4.9 4.5 2012 4.6 4.2
Which one of the following can be deduced from the data?
A Employment rose between 2010 and 2012.
B Prices fell between 2011 and 2012.
C T here was an inverse relationship between inflation and unemployment throughout the period.
D The value of money fell throughout the period.
D
30
Which one of the following is a correct statement?
A Fiscal policy can be used to affect both the level of economic activity and the pattern of economic activity.
B The Bank of England is responsible for fiscal policy.
C Fiscal policy is used only to affect the demand side of the economy.
D The government uses fiscal policy to control the exchange rate.
A
31
The diagram below shows the aggregate demand (AD), the short-run aggregate supply (SRAS) and the long-run aggregate supply (LRAS) curves for an economy.
Normal ad/sras with a lras to the left
```
The economy is currently operating at point X. At this point, the economy must be experiencing
A inflation caused by excess demand.
B inflation caused by increasing costs.
C unemployment of labour.
D a low rate of economic growth
```
C
32
Deflation is
A a fall in the external value of the domestic currency.
B a fall in the rate of inflation.
C a loss in value of capital stock due to physical wear and tear.
D a rise in the real value of money over time.
D
33
The UK’s balance of payments on current account is in deficit and unemployment is high. The UK Government attempts to lower unemployment by significantly increasing aggregate demand.
All other things being equal, which one of the following combinations, A, B, C or D, is now most likely to occur in the short term?
Combination Rate of inflation
Gross Domestic Product (GDP)
Deficit on the current account of the balance of payments
A Increases Increases Decreases
B Decreases Increases Increases
C Increases Decreases Decreases
D Increases Increases Increases
D
34
The multiplier can refer to the effect of a change in the level of
A aggregate demand upon imports.
B national income upon aggregate demand.
C saving upon investment.
D investment upon national income
D
35
The Bank of England raises interest rates to reduce aggregate demand. Which one of the following combinations, A, B, C or D, is most likely to reduce the effectiveness of such a policy?
Real incomes Unemployment Indirect taxation
A Falling Rising Rising
B Rising Falling Falling
C Falling Falling Falling
D Rising Rising Risin
B
36
The production possibility diagram below shows an economy operating on its frontier, producing the combination of consumption and capital goods shown at point Y.
closer to consumption goods
With no change in the position of the production possibility frontier, there is now an increase in the production of capital goods. Which one of the following, A, B, C or D, is most likely to occur because of this increase?
Short-term change in consumption goods
Long-term change in consumption goods A Increase Increase B Increase Fall C Fall Fall D Fall Increase
D
37
A government wishing to reduce the level of unemployment through the use of fiscal policy would be most likely to
A lower interest rates.
B decrease the size of the budget surplus.
C increase interest rates.
D encourage a depreciation of the exchange rate
B
38
One of the main functions of supply-side policies in the UK economy is to
A lower the long-run trend rate of growth of the economy.
B create incentives designed to improve economic performance.
C c ause the rate of growth of aggregate supply to exceed the rate of growth of aggregate demand.
D reduce the UK’s budget deficit.
B
39
The economy is growing below its underlying trend rate and unemployment is rising. Which one of the following policies would be the best course of action to remedy the situation?
An increase in
A interest rates to encourage investment
B the exchange rate to increase exports
C indirect taxes to raise consumption
D government spending to boost aggregate demand
D
40
```
Which one of the following types of unemployment is best defined as ‘unemployment for short lengths of time between jobs’?
A Frictional
B Seasonal
C Cyclical
D Structural
```
A
41
If the world economy goes into recession, this is likely to increase unemployment in the UK because
A t he ability of other economies to supply UK industry with basic commodities will be reduced.
B the value of goods and services exported from the UK will fall.
C the price of oil and other raw materials is likely to rise.
D the value of the pound will fall on the foreign exchange market.
B
42
The diagrams below show aggregate demand (AD) and short-run aggregate supply (SRAS) curves for an economy. AD1 and SRAS1 represent the initial position of the curves. AD2 and SRAS2 represent shifts in the position of the curves. Which one of the following diagrams, A, B, C or D, indicates the effect on the economy of a general rise in wage costs and a rise in investment?
A sras right ad right
B sras right ad left
C sras left ad left
D sras left ad right
D
43
All other things being equal, a fall in the value of the pound against the euro would be expected to affect the UK economy because it is likely to lead to
A an increase in aggregate demand.
B a fall in raw material prices.
C a rise in the euro price of UK exports.
D a reduction in the rate of interest.
A
44
Which one of the following is a correct statement about monetary policy in the UK?
A Monetary policy is used mainly to affect the supply side of the economy.
B Whenever the government uses contractionary fiscal policy, the Bank of England will use expansionary monetary policy to offset the effects.
C Higher interest rates may reduce inflationary pressure but they may also reduce employment.
D Monetary policy may involve the expansion of the money supply to reduce aggregate demand
C
45
In recent years, the UK has experienced large deficits on its balance of payments on current account.
All other things being equal, which one of the following would be most likely to reduce such deficits? A fall in
A aggregate supply
B the exchange rate
C income tax rates
D labour productivity
B
46
The diagram below shows the aggregate demand (AD) and the short-run aggregate supply (SRAS) curves for an economy, with the initial equilibrium being at point X.
```
All other things being equal, what would be the new equilibrium position following a rise in productivity and an increase in imports into the country?
A Point S- sras left ad right
B Point T- sras right ad right
C Point U- sras right ad left
D Point V- sras left ad left
```
C
47
The long-run trend rate of growth in an economy is declining and the economy is also experiencing an increase in its rate of unemployment. Which one of the following is likely to be most effective in dealing with these problems?
A An expansionary fiscal policy and a restrictive monetary policy
B A restrictive monetary policy and a restrictive fiscal policy
C An expansionary monetary policy and additional supply-side measures
D A restrictive fiscal policy and additional supply-side measures
C
48
Which one of the following is most likely to reduce inflationary pressures in the UK economy?
A An increase in labour productivity
B A fall in the value of the pound
C The emergence of a positive output gap
D A reduction in the rate of interest paid on mortgages
A
49
A negative output gap necessarily means that the economy
A is in recession.
B is suffering from demand-pull inflation.
C is operating inside its production possibility frontier.
D has a productive potential below its current level of Gross Domestic Product (GDP).
C
50
Which one of the following is a fundamental determinant of long-run aggregate supply?
A The multiplier
B The output gap
C Real national output
D The institutional structure of the economy
D
51
```
Which one of the following is an example of fiscal policy?
A decision by the government to
A decrease the exchange rate
B raise the minimum wage
C increase its budget surplus
D reduce the rate of interest
```
C
52
‘Economists predict that the negative output gap in the economy is likely to grow over the next couple of years.’
In the short run, which one of the following policies is most likely to help to prevent this negative output gap increasing?
A The Central Bank raising interest rates
B The government taking action to increase the exchange rate of the currency
C An increase in government expenditure accompanied by a growing budget deficit
D T he implementation of supply-side policies that are designed to raise labour productivity
C
53
```
All other things being equal, which one of the following is most likely to lead to an increase in both saving and investment?
An increase in
A the exchange rate
B unemployment
C the interest rate
D incomes
```
D
54
Which one of the following combination of policies, A, B, C or D, is most likely to reduce inflation?
Combination Money S. Interests Gov spending Incm tax
A Falls Fall Falls Falls
B Falls Rise Rises Falls
C Rises Rise Rises Rises
D Falls Rise Falls Rises
D
55
```
When an economy is operating inside its production possibility frontier, it must have a
A low underlying trend rate of growth.
B negative output gap.
C declining labour force.
D negative rate of economic growth
```
B
56
```
All other things being equal, a rise in the exchange rate is likely to
A reduce the price of exports.
B increase import prices.
C increase domestic demand.
D reduce domestic employment.
```
D
57
Which one of the following is most likely to lead to an increase in structural unemployment in the UK?
A An increase in the size of the UK government’s budget deficit
B A decision by the Monetary Policy Committee (MPC) of the Bank of England to increase interest rates
C Improving international competitiveness of the Chinese and Indian economies
D A fall in consumer confidence which leads to a recession in the UK
C
58
The diagram below shows a shift in the long-run aggregate supply curve for an economy from LRAS1 to
The shift is most likely to have been caused by a fall in A the capital stock.
B income tax rates.
C the growth of labour productivity.
D interest rates.
A
59
In the circular flow of income model, which one of the following equations is correct?
A Income = Output = Expenditure
B Income = Output = Injections
C Output = Expenditure = Withdrawals
D Expenditure = Income = Injections = Withdrawals
A
60
Which one of the following would be considered to be a supply-side policy?
A A cut in Value Added Tax (VAT) to boost aggregate demand
B A cut in income tax rates to boost incentives to work
C An increase in government spending to reduce cyclical unemployment
D An increase in government spending on welfare benefits to reduce inequality
B
61
Which one of the following fiscal policy measures would be most likely to reduce aggregate demand?
A Reducing state retirement pensions and leaving taxation unchanged
B R educing indirect taxes and increasing direct taxes on higher income levels to maintain the same revenue
C Increasing welfare payments and leaving taxation unchanged
D Increasing government spending and reducing taxation by equal amounts
A
62
```
The table below shows money GDP (Gross Domestic Product) for an economy, expressed as index numbers.
Year GDP 2010 = 100 2008 90
2009 96
2010 100
2011 105
2012 112
Between 2008 to 2012, there must have been an increase in
A aggregate demand.
B the size of the labour force.
C the rate of inflation.
D the government’s budget deficit.
```
A
63
An economy is in recession, with falling real GDP (Gross Domestic Product). The accelerator theory predicts that
A the level of investment will fall.
B a rise in investment will bring the economy out of recession.
C interest rates will fall, leading to a rise in investment.
D a fall in the rate of investment will lead to further falls in GDP.
A
64
The diagram below shows two aggregate demand (AD) curves and the short-run aggregate supply (SRAS) curve for an economy.
AD RIGHT
```
The shift in aggregate demand from AD1 to AD2 could have been caused by an increase in
A the price of raw materials.
B the exchange rate.
C labour productivity.
D the budget deficit.
```
D
65
Which one of the following is most likely to contribute to an increase in inflation in an economy?
A A rise in the value of the country’s currency on the foreign exchange market
B A growing positive output gap
C A sustained increase in productivity
D A persistent recession in the economy
B
66
```
An expansionary monetary policy designed to increase aggregate demand is less likely to achieve this objective if, at the same time, the government
A increases spending on defence.
B cuts the basic rate of income tax.
C increases unemployment benefits.
D reduces the budget deficit
```
D
67
The diagram below shows aggregate demand (AD), short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves for an economy.
Normal ad/sras with lras to the left
```
The economy is operating with
A inflationary pressures.
B cyclical unemployment.
C under-used capacity.
D a negative output gap
```
A
68
```
An economy is most likely to be in the boom phase of the economic cycle when there is a rise in
A the demand for imports.
B the savings ratio.
C spare capacity.
D business pessimism.
```
A
69
Which one of the following statements relating to fiscal policy in the UK is correct?
Fiscal policy
A is used to achieve macroeconomic objectives but not microeconomic objectives.
B influences aggregate demand but not aggregate supply.
C affects the level of economic activity but not the pattern of economic activity.
D is controlled by the UK government but not by the Bank of England.
D
70
The table below shows an economy’s volume of goods and services imported and exported between 2010 and 2012, expressed as index numbers (2010 = 100).
2010 2011 2012
Volume of goods exported 100 90 80
Volume of goods imported 100 108 115
Volume of services exported 100 95 90
Volume of services imported 100 102 105
The changes shown in the data are most likely to have been caused by
A An improvement in labour productivity in the domestic economy relative to labour productivity abroad.
B a rise in inflation in the domestic economy relative to inflation abroad.
C a fall in domestic incomes.
D a fall in the external exchange rate of the domestic currency
B
71
All other things being equal, in the short run a decrease in aggregate demand in an economy is most likely to result in a reduction in
A government spending on welfare benefits.
B the unemployment rate.
C the budget deficit.
D the balance of payments deficit on current account.
D
72
The diagram below shows the aggregate demand (AD) and short-run aggregate supply (SRAS) curves for a country, with the initial equilibrium at the intersection of AD1 and SRAS1 at point E.
```
The country experiences a significant increase in both world commodity prices and exports. As a result of these two events, the equilibrium will
A remain at point E- no change
B move to point F- sras left
C move to point G- sras left ad right
D move to point H- ad right
```
C
73
```
All other things being equal, which one of the following is most likely to lead to an increase in the size of the UK’s current account deficit on the balance of payments?
A fall in
A the exchange rate of the £
B UK consumer spending
C UK income tax rates
D the UK rate of inflation
```
C
74
Which one of the following statements relating to monetary policy is correct?
A A cut in interest rates always increases inflation.
B W hile reducing excess demand, an interest rate rise may increase cost-push inflation.
C Interest rate changes have no effect on aggregate supply.
D An increase in interest rates will raise the level of investment.
B
75
The government reduces its spending. At the same time, the Bank of England increases interest rates. All other things being equal, the most likely outcome is that
A aggregate demand will fall but inflation will rise.
B aggregate supply will fall but economic growth will rise.
C u nemployment will fall but the current account on the balance of payments will improve.
D inflation will fall but unemployment will rise.
D
76
Which one of the following is most likely to be an example of a supply-side policy?
A A reduction in the rate of interest to reduce inflation
B An increase in government expenditure on state pensions
C A reduction in company taxes to encourage greater investment
D A rise in the exchange rate to increase exports
C
77
```
All other things being equal, which one of the following would be the most likely consequence of an appreciation in the external value of a country’s currency?
An increase in
A the domestic price level
B the volume of exports
C employment in the domestic economy
D the volume of imports
```
D
78
Which one of the following is most likely to result in an increase in the long-run trend rate of economic growth?
A An increase in aggregate demand leading to inflationary pressures
B A sustained increase in the value of the pound on the foreign exchange market
C A reduction in taxes which increases risk-taking and incentives to work
D A sustained reduction in both inflation and labour productivity.
C
79
The diagram below shows an economy operating on its production possibility frontier at point Y.
All other things being equal, which one of the following is most likely to move the economy from point Y to point X within its production possibility frontier?
A A decrease in inflation
B A decrease in investment expenditure
C A reduction in productive capacity
D A reduction in the trend rate of growth
B
80
Which one of the following best illustrates the accelerator process?
A A change in one of the components of aggregate demand leading to a much greater increase in national income
B An increase in national income resulting in a proportionately larger rise in investment
C Government subsidies to firms for research and development helping to increase the rate of innovation
D An increase in government spending during a recession helping to stimulate investmen
B
81
The table below shows the index of Gross Domestic Product (GDP) measured at current prices and the associated price index for an economy.
Year Index of GDP at current prices Price index
2001 80 80
2011 130 110
The table shows that between 2001 and 2011
A real GDP rose by 50%.
B nominal GDP rose by 50%.
C real GDP rose by less than 50%.
D nominal GDP rose by less than 50%
C
82
```
Which one of the following is most likely to result in a rightward shift of the short-run aggregate supply curve?
A A decrease in wage rates
B A decrease in government spending
C An increase in taxation
D An increase in investment expenditure
```
A
83
A cut in income tax rates could be considered
A both a monetary policy and a fiscal policy.
B both a monetary policy and a supply-side policy.
C both a fiscal policy and a supply-side policy.
D neither a monetary policy nor a fiscal policy
C
84
The four diagrams below show aggregate demand (AD) and long-run and short-run aggregate supply (LRAS/SRAS) curves for an economy where OP1 is the initial equilibrium price and OY1 the initial equilibrium level of real national output. Which diagram, A, B, C or D, shows the change resulting from an increase in innovation and productivity improvements?
A- shift right in lras
B- shift right in ad
C- shift right in ad on a lras curve
D- shift left in lras
A
85
```
A rise in the level of domestic investment will most likely result from a rise in
A the current account deficit.
B interest rates.
C company profits.
D the exchange rate.
```
C
86
Fiscal policy involves changes in both
A the budget balance and the balance of payments.
B interest rates and the supply of credit.
C the money supply and the exchange rate.
D government spending and tax revenue.
D
87
Deflation is most likely to
A cause consumers to delay their purchases.
B lead to a rise in interest rates.
C lead to a rise in imports.
D reduce the real value of any money that has been lent.
A
88
The movement down the aggregate demand curve from X to Y shows that
A as real national output rises, firms can lower their costs due to mass production.
B as real national output falls, the price of imported goods rises.
C as the price level rises, the nominal value of consumption and investment falls.
D as the price level falls, consumers and firms purchase more goods.
D
89
An economy is currently operating with a negative output gap. In the short run, if the rate of growth of aggregate demand is positive but less than the rate of growth of productive capacity, then the economy is most likely to experience
A a decrease in output.
B an increase in unemployment.
C a decrease in its trend rate of growth.
D a decrease in exports.
B
90
```
The table below shows the components of the balance of payments on current account for an economy in 2011.
Export of goods 500
Export of services 400
Import of goods 800
Import of services 300
Net investment income +50
Net transfers +100
It follows that the balance of payments on current account for 2011 is
A + £2150 bn
B + £200 bn
C – £200 bn
D – £50 bn
```
D (imports minus exports)
91
The UK economy enters a recession but the current account deficit on the balance of payments remains high. Given these problems, which one of the following would be most likely to improve the performance of the UK economy?
A An increase in taxes on imported goods and a fall in the value of the pound
B A fall in interest rates and a rise in the value of the pound
C A fall in the money supply and an increase in taxes on imported goods
D A fall in government spending and a rise in interest rates
A
92
```
17 An increase in interest rates when the exchange rate is rising is most likely to lead to an increase in
A economic growth.
B aggregate supply.
C the current account surplus.
D unemployment levels.
```
D
93
The diagram below shows the aggregate demand (AD) curve and two long-run aggregate supply (LRAS) curves for an economy.
Lras shifts left
The decline in equilibrium real national output from Y1 to Y2 implies that the economy A is operating within its production possibility frontier.
B has a falling level of unemployment.
C has a negative rate of economic growth.
D is experiencing a low rate of productivity growth.
C
94
```
Which one of the following is an example of expansionary fiscal policy?
A A reduction in interest rates
B An increase in the budget deficit
C An increase in the money supply
D An increase in tax rates
```
B
95
Which one of the following is most likely to lead to a fall in aggregate investment?
A A reduction in the level of unemployment
B An increase in spare capacity in the economy
C A reduction in the average level of interest rates
D An increase in aggregate demand
C
96
All other things being equal, a large increase in an economy’s rate of interest will cause
A both its aggregate demand curve and its short-run aggregate supply curve to shift to the right.
B its aggregate demand curve to shift to the right and its short-run aggregate supply curve to shift to the left.
C both its aggregate demand curve and its short-run aggregate supply curve to shift to the left.
D its aggregate demand curve to shift to the left and its short-run aggregate supply curve to shift to the right.
C
97
Inflation in an economy is currently at 10%. Which of the following changes in monetary and fiscal policy, A, B, C or D, is most likely to reduce the rate of inflation in the economy?
Interest rates Goverment expenditure Taxation revenue
A Increase Increase Decrease
B Decrease Decrease Increase
C Increase Decrease Increase
D Decrease Increase Increase
C
98
The government introduces a policy which initially increases the budget deficit but, in the long run, increases the trend rate of economic growth.
This policy is most likely to have been
A placing a tax on imports.
B increasing subsidies for research and development.
C bringing about a fall in the exchange rate.
D increasing the age of retirement.
B
99
The UK steel industry pays for its imported inputs in US dollars and sells its output abroad in euros.
It follows from the above that the UK steel industry will benefit most when the pound is
A strong against the US dollar, weak against the euro.
B weak against the US dollar, weak against the euro.
C weak against the US dollar, strong against the euro.
D strong against the US dollar, strong against the euro.
A
100
The diagram below shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves for the UK economy.
E= shift right in AD on Y2 when price decreases and F= on AD2 and one the lras curve
The government predicts that aggregate demand will increase in the long run from AD1 to AD2. All other things being equal, which one of the following policies is most likely to move the economy to a new long-run equilibrium at point E rather than point F?
A Pursuing an expansionary monetary policy
B Allowing the exchange rate to rise
C Increasing taxation
D Improving the flexibility of the labour marke
D
101
```
All other things being equal, lower inflation in an economy is most likely to be achieved if there is an increase in
A productivity.
B exports.
C consumption.
D welfare benefits.
```
A
102
Structural unemployment is most likely to be caused by
A a recession in the economy.
B changes in the demand for labour at different times of the year.
C an increase in the number of people changing jobs.
D the skills of the unemployed not matching those skills required for the available jobs
D
103
The table below shows the index for nominal national income (GDP) and the price level index (CPI) for a country in 2009 and 2010.
2009 2010
GDP 100 130
CPI 120 150
According to these figures, between 2009 and 2010 the country’s real national income
A increased.
B decreased.
C stayed the same.
D changed by an amount which cannot be determined without further information
A
104
```
Aggregate demand may fall as a result of a decrease in
A savings relative to investment.
B the government’s budget surplus.
C the government’s budget deficit.
D imports.
```
C
105
All other things being equal, which one of the following sets of changes in an economy, A, B, C or D, would be most likely to bring about an improvement in its balance of payments deficit on current account?
A A decrease in taxes on income, a fall in the exchange rate and a decrease in labour productivity
B A n increase in taxes on income, a fall in the exchange rate and an increase in labour productivity
C A n increase in government spending, a rise in the exchange rate and a decrease in labour productivity
D A decrease in government spending, a rise in the exchange rate and an increase in labour productivity
B
106
The diagram below represents an economy that has experienced inflation, with the price level rising from P1 to P2.
Sras left
The most likely cause of the inflationary pressures shown in the diagram is
A a sustained increase in bank lending.
B a growing budget deficit.
C money wages increasing faster than productivity.
D a period of time when interest rates are too low.
C
107
In 2010, the euro declined in value against other major currencies. All other things being equal, which one of the following combinations, A, B, C or D, indicates the most likely consequences for the economies of the eurozone?
Combination Exports Unemployment Economic Growth A Increase Decrease Increase B Decrease Increase Decrease C Increase Decrease Decrease D Decrease Increase Increase
A
108
All other things being equal, more innovation in an economy is most likely to lead to
A a rise in the equilibrium price level.
B an increase in the trend rate of economic growth.
C a reduction in the country’s international competitiveness.
D a fall in money spent on future research and development.
B
109
The diagram below shows an economy producing at point X within its production possibility frontier.
X= inside curve Y= on curve
All other things being equal, which one of the following would be most likely to move the economy to point Y?
A An increase in interest rates and a reduction in exports
B An increase in household saving and a reduction in investment
C An increase in imports and a reduction in exports
D An increase in government spending and a reduction in the exchange rate
D
110
All other things being equal, which one of the following is most likely to cause the long-run aggregate supply curve to shift to the right?
A The provision of funds by the banking system to finance investment in manufacturing
B An increase in consumption which causes a rise in the price level
C A rise in consumption which causes a fall in cyclical unemployment
D An increase in the provision of government unemployment-related benefits
A
111
The diagram below shows two aggregate demand (AD) curves for an economy.
AD shifts left
```
The shift from AD1 to AD2 could be explained by an increase in
A imports.
B the price level.
C costs of production.
D investment.
```
A
112
The graph below shows the annual percentage change in an economy’s Gross Domestic Product (GDP) between 2000 and 2010, at 2000 prices.
from 2000-2002 they are below 2 (2001 is a minus) and they rest stay above 2
Assuming that inflation was constant at 2% each year, it can be concluded that
A real GDP decreased between 2007 and 2008.
B real national output increased each year from 2002.
C money GDP fell between 2000 and 2002.
D real GDP was highest in 2004
B
113
```
A sustained fall in the exchange rate is most likely to decrease
A inflation.
B international competitiveness.
C economic growth.
D unemployment.
```
D
114
Which one of the following is a correct statement relating to the supply side of the economy?
Supply-side improvements in the economy
A may originate in the business sector independently of government.
B usually involve the use of monetary policy.
C are designed to reduce the potential output of the economy.
D are aimed mainly at the control of inflation.
A
115
The multiplier effect of an increase in investment in an economy is
A an increase in productive capacity.
B a larger increase in national income than in investment.
C an increase in the underlying trend rate of growth.
D the movement of the economy from recession to boom.
B
116
All other things being equal, if inflation in the UK economy falls from 3% to 1%, it can be concluded that
A money incomes in the UK have decreased.
B on average, the prices of goods and services in the UK have fallen.
C UK goods have become more competitive in international markets.
D the cost of living for the average person in the UK has continued to rise.
D
117
A country experiences both unemployment and persistent surpluses in the balance of payments. Which one of the following is most likely both to increase employment and to reduce a balance of payments surplus?
A Increasing interest rates
B Increasing government expenditure
C Increasing the government’s budget surplus
D A rise in the exchange rate
B
118
The table below shows changes in macroeconomic indicators for an economy. During a time of rising unemployment, labour productivity has increased whilst at the same time income per head has fallen.
All other things being equal, which combination, A, B, C or D, is most likely to result from these changes?
rate of inflation BOP deficit on current account
A Increases Decreases
B Decreases Increases
C Increases Increases
D Decreases Decrease
D
119
In which one of the following situations is a government most likely to pursue an expansionary fiscal policy in order to increase aggregate demand?
When
A there is a positive output gap
B the long-run trend rate of economic growth is too low
C there is a high level of structural unemployment
D cyclical unemployment is increasing
D
120
The rapid expansion of large, developing economies such as China and India has led to rising world commodity prices and a larger market for the exports of countries such as the UK. In the diagrams below, the initial equilibrium price level is P1 and the initial equilibrium level of real national output is Y1. Which diagram, A, B, C or D, best illustrates the effects of such events on the UK economy?
A- sras right ad right
B- sras left ad right
C- sras left ad left
D- sras right ad left
B
121
```
Which one of the following is most likely to affect aggregate demand in the short run?
A An increased rate of innovation
B An increase in labour productivity
C An increase in government spending
D An increase in the mobility of labour
```
C
122
In the short term, contractionary fiscal policy is most likely to cause
A a deterioration in the current account on the balance of payments.
B a rise in unemployment.
C a fall in export volumes.
D an increase in the rate of inflation.
B
123
A conflict between macroeconomic policy objectives sometimes exists because
A demand-pull inflation requires action that increases aggregate demand.
B costs can be reduced only if prices fall.
C a n increase in aggregate demand might reduce unemployment but result in a deterioration in the balance of payments on current account.
D supply-side policies cannot be used alongside demand-management policies.
C
124
```
Which one of the following forms part of the institutional structure of an economy?
A The productivity of labour
B Fiscal policy
C The banking system
D The underlying trend rate of growth
```
C
125
The diagram below shows the aggregate demand (AD) and short-run aggregate supply (SRAS) curves for an economy.
```
Given that X is the initial equilibrium position, what would be the new equilibrium position following an increase in the price of imported oil and a general restriction on bank lending in the economy?
A Point T- ad left sras left
B Point U- ad right sras left
C Point V- ad right sras right
D Point W- ad left sras right
```
A
