Question 1

True or False - An inward shift of the aggregate demand curve normally causes an inward shift of the long run aggregate supply curve

Accepted Answer

false

Answer

true

Question 2

True or False - If the actual level of GDP is less than potential GDP then prices across the economy will start falling because of excess supply

Accepted Answer

false

Answer

true

Question 3

True or False - A ten per cent rise in UK house prices has more of an effect on aggregate demand than a ten per cent rise in share prices

Accepted Answer

true

Answer

false

Question 4

The table above shows the aggregate demand and aggregate supply schedules for an
economy. What is the equilibrium level of national income?

Accepted Answer

£100 billion

Answer

£120 billion

Answer

£110 billion

Answer

£90 billion

Question 5

Which of the following will NOT cause an increase in the equilibrium level of GDP?

Accepted Answer

An increase in imports

Answer

An increase in government spending

Answer

An increase in exports

Answer

An increase in consumption

Question 6

Which of the following will not cause a fall in the equilibrium level of GDP?

Accepted Answer

An increase in the propensity to consume

Answer

An increase in the propensity to import

Answer

An increase in the marginal propensity to save

Answer

An increase in the rate of income tax

Question 7

Macro-economic disequilibrium exists when

Accepted Answer

Aggregate supply is not equal to aggregate demand

Answer

Aggregate output is not equal to aggregate real income

Answer

Aggregate exports are not equal to aggregate imports

Answer

Government expenditure is not equal to tax revenue

Question 8

If the aggregate supply curve is perfectly inelastic an increase in AD will lead to an
increase in

Accepted Answer

The price level

Answer

Employment

Answer

Economic growth

Answer

Real national output

Question 9

The change in equilibrium national output shown in the diagram would be likely
to lead to

Accepted Answer

A fall in the level of real national income per head of population

Answer

A fall in the rate of unemployment

Answer

A rising level of employment

Answer

A rise level of government tax revenue

Question 10

The diagram shows the long run aggregate supply curve and AD curves for a
country over a period of time. The main cause of the shift in the long run aggregate supply curve from LRAS1 to LRAS2 might have been

Accepted Answer

An improvement in the rate of growth of productivity and technological progress in the economy

Answer

A fall in interest rates leading to a boom in house prices

Answer

A fall in the exchange rate leading to a higher level of exports

Answer

A decision by the government to increase spending on welfare benefits

Question 11

The increase in aggregate demand from AD1 to AD3 shown in the diagram is likely
to lead to

Accepted Answer

A rise in real national output and rise in the rate of inflation

Answer

A fall in the rate of inflation and rising unemployment

Answer

An increase in the government budget deficit

Answer

A fall in prices and a fall in unemployment

Question 12

If the aggregate supply curve is perfectly elastic an increase in aggregate demand
brought will cause an increase in

Accepted Answer

The level of real national output

Answer

The rate of price inflation

Answer

The government budget deficit

Answer

The level of consumer debt

Question 13

If an economy is operating at full capacity an increase in aggregate demand usually
leads to an increase in inflation because it is likely that

Accepted Answer

The rate of increase in money wages will rise

Answer

The exchange rate will appreciate

Answer

Interest rates will fall

Answer

Government tax revenues will increase

Question 14

The process by which an initial change in aggregate demand can lead to a larger final
effect on local or national income is known as

Accepted Answer

The multiplier

Answer

The economic cycle

Answer

The production possibility frontier

Answer

The output gap

Question 15

Because of the multiplier effect if UK exports rise by £600 million per year then UK
equilibrium GDP will rise by

Accepted Answer

More than £600 million per year

Answer

£600 million per year

Answer

Less than £600 million per year

Answer

Nothing

Question 16

Which of the following if increased would have an expansionary effect on the UK
economy?

Accepted Answer

Investment in new plant and machinery in the UK

Answer

Imports of goods and services

Answer

Direct taxation

Answer

Overseas investment by UK companies

Question 17

The shift in the short run aggregate supply curve shown in the diagram might
have been caused by

Accepted Answer

A fall in government spending

Answer

A rise in interest rates

Answer

A fall in consumer confidence

Answer

A fall in the costs of raw materials and components

Question 18

"The UK economy grew 0.9% in the final quarter of 2003. That suggests there was quite a lot more momentum in the economy at the end of last year than most commentators thought."
Which one of the following factors might have explained the stronger than expected growth in the UK economy?

Accepted Answer

A lower exchange rate

Answer

A rise in labour costs

Answer

A rise in interest rates

Answer

A slowdown in the UK's main export markets

Question 19

"Shortages of skilled labour suggest that wages in the service sector and manufacturing sector are set to pick up in coming months." The main result of this rise in wage rates would be

Accepted Answer

A rise in cost-push inflation

Answer

A rise in government spending

Answer

A rise in UK exports

Answer

A rise in the UK exchange rate

Question 20

In 2004 Country X’s potential GDP is Euro 210 billion per year. Its actual GDP is Euro 225 billion per year. The difference between potential and actual GDP is

Accepted Answer

A positive output gap

Answer

A budget deficit

Answer

A balance of payments deficit

Answer

A negative output gap

Question 21

The current level of equilibrium national income in the diagram is Y1.  At this level
of national income

Accepted Answer

There is a negative output gap

Answer

There is a positive output gap

Answer

There is rising inflation

Answer

There is low unemployment

Question 22

In which diagram would an increase in exports of goods and services leave the general price level unchanged?

Accepted Answer

B

Answer

C

Answer

D

Answer

A

Question 23

A government decides to pursue a more reflationary fiscal policy and the central bank decides to pursue a more deflationary monetary policy. Which of the following is consistent with this policy change?

Accepted Answer

D

Answer

C

Answer

A

Answer

B

Question 24

“Over the last year the rate of inflation for foreign holiday prices has fallen
significantly. In the year to December 2002 prices rose 11.1%. By contrast in the year to December 2003 they fell 2.4%”. Which of the following might explain this price trend?

Accepted Answer

Increased competition among companies selling foreign holidays

Answer

A fall in the sterling exchange rate

Answer

A reduction in the number of holidays made available for sale

Answer

A rise in demand for foreign holidays

Question 25

The US government increases its spending. At the same time the US Federal Reserve
announces a cut in US interest rates. All other things being equal the most likely outcome for the US economy is that

Accepted Answer

Aggregate demand will rise and inflationary pressures will increase

Answer

The US current account deficit will reduce and inflation will fall

Answer

Aggregate supply will increase but economic growth will remain the same

Answer

Inflation will fall but unemployment will rise

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