Summer exam

Question 1

Which of the following statements relating to economic growth is false?

A. Economic growth is volatile in the short run
B. Nominal economic growth captures changes in the volume of output
C. The business cycle is created by fluctuations in the path of real GDP
D. None of the above

Answer 1

B. Nominal economic growth captures changes int he volume of output

Question 2

Which of the following statements relates to potential output?

A. The economy’s maximum output
B. The economy’s output level when it’s resources are being used at normal levels of utilisation
C. The output of an economy during periods of recession
D. None of the above

Answer 2

B. The economy’s output level when it’s resources are being used at normal levels of utilisation

Question 3

Nominal GDP is observed to have increased. Which of these is true?

A. Constant price GDP will have increased
B. Constant price GDP will have decreased
C. Money GDP will have increased
D. None of the above

Answer 3

C. Money GDP will have increased

Question 4

Which of the following relates to a decrease in withdrawals from the circular flow model?

A. An increase in government purchases
B. An increase in income tax
C. An increase in investment expenditure
D. An increase in government payments made to households

Answer 4

D. An increase in government payments made to households

Question 5

Which of the following are TRUE in the context of the circular flow model?

A. An increase in injections leads to an increase in AD
B. A reduction in child benefit payments leads to a reduction in injections
C. A reduction in saving leads to a fall in national income
D. National income increases when flows of withdrawals rise relative to flows of injections

Answer 5

A. An increase in injections leads to an increase in AD

Question 6

Which of the following are FALSE about the AD curve?

A. Curve is expected to move rightwards following an increase in consumer confidence
B. The downward sloping curve may be partly explained by an international substitution effect
C. The curve would be expected to move leftwards following a decrease in investment spending
D. None of the above

Answer 6

D. None of the above

Question 7

Which of the following about the short run AS curve is TRUE?

A. It will be upward sloping because of changes in technology
B. It will move vertically upwards because of technological progress
C. It will move vertically downwards if wages rise
D. None of the above

Answer 7

D. None of the above

Question 8

Assume there’s an increase in the price of oil. Which is TRUE in the context of the AD-AS model?

A. The short run AS curve will move vertically downwards
B. In the short run, the economy’s price level rises and its output level falls
C. The AD curve will move rightwards
D. None of the above

Answer 8

B. In the short run, the economy’s price level rises and its output level falls

Question 9

Which is FALSE?

A. In most countries household consumption is the largest component of AD in value
B. Private sector investment spending is observed to be relatively volatile
C. Government consumption includes the payment of social benefits
D. The value of exports of goods and services is also known as the balance of trade

Answer 9

C. Government consumption includes the payment of social benefits

Question 10

Which of the following in the context of forward looking theories of consumption is FALSE?

A. Financial institutions are an important determinant of consumer spending
B. The growth path of total consumer spending will tend to be more volatile than that of disposable income
C. Both current and future incomes determine consumer spending
D. Current incomes can be the main determinant of consumer spending when people are credit constrained

Answer 10

B. The growth path of total consumer spending will tend to be more volatile than that of disposable income

Question 11

Which of the following factors would cause a decrease in the market demand of potatoes

A. An increase in the price of potatoes
B. A decrease in the price of potatoes
C. A decrease in the price of a substitute good
D. Reports in the press on the health risks of eating parsnips

Answer 11

C. A decrease in the price of a substitute good

Question 12

All of the following will cause an increase in the market supply of potatoes EXCEPT

A. A fall in the costs of harvesting potatoes
B. An expectation of falling potato prices in the future
C. A reduction in government in the potato sector
D. An increase in the price of potatoes

Answer 12

D. An increase in the price of potatoes

Question 13

Which of the following will result in a decrease in total consumer expenditure on a product?

A. Demand for the product is unitary elastic and price increases
B. Demand for the product is elastic and price falls
C. Demand for the product is elastic and the price rises
D. Demand for the product is inelastic and price rises

Answer 13

C. Demand for the product is elastic and the price rises

Question 14

The market research department of a company where you work has estimated that the income elasticity of demand for a product is -0.6. This tells you it’s

A. An inferior good
B. A luxury good
C. A substitute good
D. A normal good

Answer 14

A. An inferior good

Question 15

Dean enjoys watching football. Tickets cost £30. he’s willing to pay £100 for a ticket. Alternative use of time is to work in uni for £15. What’s the opportunity cost of going to the game instead?

A. £30
B. £50
C. £15
D. £20

Answer 15

C. £15

Question 16

Assume that there’s an expectation that car prices will increase in the future. Which is TRUE

A. The demand for cars would be expected to increase
B. The supply of cars would be expected to increase
C. The current price of cars would be expected to fall
D. None of the above

Answer 16

A. The demand for cars would be expected to increase

Question 17

Which of the following about market structures is CORRECT

A. A firm in a monopolistic competitive market will not be able to generate sustainable economic profits because product differentiation is costly
B. Firms in a perfectly competitive market will compete with each other mainly through advertisement
C. A firm in a monopolistic market will not be able to generate sustainable economic profits because there are no entry barriers into the market
D. Firms in a perfectly competitive market will not be able to generate sustainable economic profits because managers do not have perfect knowledge

Answer 17

C. A firm in a monopolistic market will not be able to generate sustainable economic profits because there are no entry barriers into the market

Question 18

Suppose a firm that produces in a perfectly competitive markets wants to raise the price of its product above the market price. Which of the following statements is CORRECT

A. Its total revenue will increase
B. It will maximise its profits
C. All other companies will also increase their prices
D. The firms total revenue drops to zero

Answer 18

D. The firms total revenue drops to zero

Question 19

If at the current level of output a firm’s marginal revenue exceeds its marginal costs, then to maximise profits it should

A. Increase its level of output until marginal revenue equals marginal costs
B. Decrease its level of output until marginal revenue equals marginal costs
C. Increase its level of output until average revenue equals average costs
D. Decrease its level of output until average revenue equals average costs

Answer 19

A. Increase its level of output until marginal revenue equals marginal costs

Question 20

What is NOT an example of a barrier to entry into a market?

A. Perfect information
B. Absolute cost advantages
C. Economies of scale
D. Switching costs

Answer 20

A. Perfect information