Unit 2 - Past Paper Questions

Question 1

lower inflation in an economy is most likely to be achieved if there is an increase in

Answer 1

productivity

Question 2

structural unemployment is most likely to be caused by

Answer 2

the skills of the unemployments not matching those skills required for the available jobs

Question 3

aggregate demand ma fall as a result of a decrease in

Answer 3

the governments budget deficit

Question 4

what is most likely to brig about an improvement in its balance of payments deficit on current account

Answer 4

an increase in taxes on income, a fall in the exchange rate and increase in labour productivity

Question 5

what could cause the long-run AS curve to shift to the right is

Answer 5

the provision of funds by the banking system to finance investment in manufacturing

Question 6

a sustained fall in the exchange rate is most likely to decrease

Answer 6

unemployment

Question 7

supply-side improvements in the economy may originate in..

Answer 7

the business sector independently of government

Question 8

the multiplier effect of an increase in investment in an economy is

Answer 8

a large increase in national income than in investment

Question 9

if inflation in the UK economy falls 3% to 1%, it can be conclude that

Answer 9

the cost of living for the average person in the UK has continued to rise

Question 10

a country experiences both unemployment and persistent surpluses in the balance of payments. what is most likely to increase employment and to reduce a balance of payments surplus?

Answer 10

increasing government expenditure

Question 11

the government is most likely to pursue an expansionary fiscal policy in order to increase AD when

Answer 11

cyclical unemployment in increasing

Question 12

what can affect AD in the Short-Run?

Answer 12

an increase in government spending

Question 13

in the short-run, contractionary fiscal policy is most likely to cause ..

Answer 13

a rise in unemployment

Question 14

a conflict between macroeconomic policy objectives sometimes exists because

Answer 14

an increase in AD might reduce unemployment but result in a deterioration in the balance of payments on current account

Question 15

an example of institutional structure of an economy is

Answer 15

The Banking System

Question 16

an examples of supply-side policy

Answer 16

a reduction in company taxes to encourage grater investment

a cut in income tax rates to boots incentives to work

Question 17

what would be most likely consequence of an appreciation in the external value of a country’s currency?

Answer 17

the volume of imports

Question 18

what is most likely to result in an increase in the long-run tried rate of economic growth

Answer 18

a reduction in taxes which increases risk-taking and incentives to work

Question 19

what can illustrates the accelerator process?

Answer 19

an increase in national income resulting in a proportionately larger rise in investment

Question 20

what is most likely to result in a rightward shift of the short0run AS curve?

Answer 20

a decrease in wage rates

Question 21

a cut in income tax rates could be consider..

Answer 21

both fiscal policy and supply-side policy

Question 22

a rise in the level of domestic investment will most likely result from a rise in

Answer 22

company profits

Question 23

fiscal policy involves changes in both

Answer 23

government spending and tax revenue

Question 24

deflation is most likely to ..

Answer 24

cause consumers to really their purchases

Question 25

an economy is currently operating with a negative output gap. in the short-run , the rate of grow of AD is positive but less than the rate of growth of productive capacity, then the economy is most likely to experience ..

Answer 25

an increase in unemployment

Question 26

the uk economy enters a recession but the current account deficit on the balance of payments remains high. given these problems, which is the most likely to improve the performance if the UK economy?

Answer 26

an increase in taxes on imported goods and a fall in the value of the pound

Question 27

an increase in interest raes when the exchange rate is rising is most likely to lead to an increase in

Answer 27

unemployment levels

Question 28

an example of fiscal policy

Answer 28

an increase in the budget deficit - surplus

Question 29

what is likely to lead ta a fall in A Investment?

Answer 29

an increase in spare capacity

Question 30

all things being equal, a large increase in an economy’s rate of interest will cause

Answer 30

both its AD curve and its short-run AS curve to shift to the left

Question 31

the government introduces a policy which initially increases the budget deficit but, in the long run, increases the trend rate of economic growth. the policy in most likely to have been..

Answer 31

increasing subsidies for research and development

Question 32

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 still industry will benefit most when the pound is

Answer 32

a strong against the US dollar, weak against the euro

Question 33

economist predict that a negative output gat 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?

Answer 33

an increase in government expenditure accompanied by a growing budget deficit

Question 34

what might lead to an increase in both saving and investment?

Answer 34

an increase in interest rate

Question 35

when the economy is operating inside its production frontier, it must have a

Answer 35

negative output gap

Question 36

all other things being equal, a rise in the exchange rate is likely to

Answer 36

reduce domestic employment

Question 37

What is most likely to lead to an increase in structural unemployment in the UK?

Answer 37

improving international competitiveness of the Chinese and Indian economies

Question 38

in the circular flow of income model, what is the equation?

Answer 38

income= output= expenditure

Question 39

which fiscal policy measures would be most likely to reduce AD?

Answer 39

a reducing state retirement pensions and lining taxation unchanged

Question 40

an economy is in recession, with falling real GDP. The accelerator theory predicts that

Answer 40

the level of investment will fall

Question 41

what is most likely to contribute to an increase in inflation in an economy?

Answer 41

a growing positive output gap

Question 42

an expansionary monetary policy designed to increase AD is less likely to achieve this objective if, at the same time, the government..

Answer 42

reduces the budget deficit

Question 43

an economy is most likely to be in the boom phase of the economic cycle when there is a rise in

Answer 43

the demand for imports

Question 44

fiscal policy in the UK affects…

Answer 44

is controlled by the UK government but not by the Bank of England

Question 45

In the Short-run a decrease in AD in an economy is most likely to result in a reduction in

Answer 45

the balance of payments deficit on current account

Question 46

what is most likely to lead to an increase in the size of the UK’s current account deficit on the balance of payments?

Answer 46

UK income tax rates

Question 47

statement of monetary policy

Answer 47

while reduction excess demand, an interest rate rise may increase easy-push inflation

Question 48

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

Answer 48

inflation will fall but unemployment will rise