CHAPTER 3

Question 1

Within the UK economy, there is a growth of money supply as measured by M0 and M4. What impact is this most likely to have, if any, on UK interest rates?
Question 2Answer

a.
They will fall long-term.

b.
They will reduce short-term.
Incorrect, chapter reference 3D2A

c.
It will have no impact.

d.
They will rise.

Answer 1

D

Question 2

Under quantitative easing the Bank of England purchases gilts. As a result, the total demand for gilts:
Question 5Answer

a.
increases, leading to an increase in gilt yields.

b.
decreases, leading to a reduction in gilt yields.
Incorrect, chapter reference 3G1A

c.
increases, leading to a reduction in gilt yields.

d.
decreases, leading to an increase in gilt yields.

Question 3

Recently, the UK inflation rate was 2.1%. The following month, the UK inflation rate was 1.8%. What term is used to describe this change?
Question 7Answer

a.
Deflation.
Incorrect, chapter reference 3E2

b.
Stagflation.

c.
Disinflation.

d.
Inflation.

Answer 3

C

Question 4

An economy’s gross domestic product for the first three quarters of the year is £1bn, £1.2bn and £1.1bn respectively. After quarter three the economy is said to be:
Question 9Answer

a.
contracting.

b.
in recession.
Incorrect, chapter reference 3A1

c.
in a trough.

d.
in a depression.

Answer 4

A

Question 5

When an economy is booming, this is most likely to result in a:
Question 11Answer

a.
rise in unemployment.

b.
rise in property values.

c.
fall in interest rates.
Incorrect, chapter reference 3B2A

d.
fall in the price of equities.

Answer 5

B

Question 6

n the first quarter of an economic year, the UK suffers negative growth. In which other quarter[s], if any, would it also need to experience negative growth before the UK was deemed to be in recession?
Question 12Answer

a.
Quarter two only.

b.
Either quarter two or quarter three.
Incorrect, chapter reference 3A1

c.
Quarters two and three.

d.
Any two other quarters.

Answer 6

A