Question 1

All other things being equal, which one of the following is most likely to increase an economy’s underlying trend rate of growth

Accepted Answer

imports of consumer goods

Answer

household income

Answer

A rise in the rate of growth of

Answer

inflation

Question 2

It can be concluded from the data that, over the 4-year period

Accepted Answer

the average price level has risen

Answer

assuming constant money incomes, real income has risen

Answer

prices of goods and services have fallen

Answer

the purchasing power of money has increased

Question 3

To boost the level of AD using monetary policy, the government might increase the

Accepted Answer

amount of money in circulation

Answer

rate of interest

Answer

exchange rate

Answer

level of government expenditure

Question 4

Which one of the following is most likely to lead to an increase in spending on imports?

Accepted Answer

A cut in income tax rates

Answer

A rise in unemployment

Answer

A fall in the exchange rate

Answer

A rise in the rate of Value Added Tax (VAT)

Question 5

Which of the following best illustrates the difference between saving and investment?

Accepted Answer

B

Answer

A

Answer

C

Answer

D

Question 6

A shift to the left of AD might have been caused by a decrease in

Accepted Answer

the government budget deficit

Answer

labour productivity

Answer

imports

Answer

household savings

Question 7

A large increase in interest rates in the UK is most likely to

Accepted Answer

decrease house prices

Answer

lead to an increase in bank lending

Answer

decrease the size of the government budget deficit

Answer

increase aggregate investment

Question 8

Which one of the following is an example of a contractionary fiscal policy designed to reduce inflationary pressures?

Accepted Answer

An increase in the government budget surplus

Answer

A reduction in the supply of money available to banks for lending purposes

Answer

Higher interest rates

Answer

A reduction in the exchange rate

Question 9

Which of the following is most likely to have caused the changes shown in AD and SRAS?

Accepted Answer

Government spending on welfare benefits falls, money wage rates in the economy fall

Answer

The level of investment rises, average productivity rises

Answer

The level of exports decreases, business taxes increase

Answer

The level of consumption falls, the cost of oil and other imported raw materials increases

Question 10

The current account of the balance of payments comprises

Accepted Answer

trade in goods and services, investment income and transfers

Answer

all government income and expenditure in a financial year

Answer

money that may be withdrawn from the economy at any time

Answer

all transactions involving money leaving or entering the country

Question 11

Assuming that there is no change in the production possibility frontier, a movement from point X to point Y illustrates that there has been

Accepted Answer

a rise in real national income

Answer

long-run economic growth

Answer

an improvement in technology

Answer

an increase in spare capacity

Question 12

From the indexed data, it can only be concluded that

Accepted Answer

the total volume of exports fell relative to the total volume of imports over the period.

Answer

during the period, the total value of imports increased and the total value of exports fell

Answer

apart from in 2012, there was a surplus in the balance of trade in services

Answer

in 2014, the value of the deficit in the balance of trade in goods and services was £50bn

Question 13

For a classical economist, a fall in AD will lead to a long run fall in

Accepted Answer

price level

Answer

real income

Answer

level of output

Answer

employment

Question 14

A cut in the size of a government’s budget surplus is most likely in the short run to both

Accepted Answer

reduce unemployment and increase economic growth

Answer

reduce the balance of payments deficit on current account and reduce unemployment

Answer

reduce inflation and reduce the balance of payments deficit on current account

Answer

reduce unemployment and reduce inflation

Question 15

Inflation in an economy falls below that of a key trading partner, this is likely to

Accepted Answer

increase exports

Answer

cause a deterioration in the current account balance

Answer

increase withdrawals from the circular flow

Answer

increase imports

Question 16

Which diagram best illustrates the likely impact of a rise in the country’s exchange rate?

Accepted Answer

C

Answer

A

Answer

B

Answer

D

Question 17

A significant cut in the rate of tax on a company’s profits is most likely to

Accepted Answer

increase both aggregate demand and long-run aggregate supply

Answer

increase neither aggregate demand nor long-run aggregate supply.

Answer

increase aggregate demand but not long-run aggregate supply

Answer

increase long-run aggregate supply but not aggregate demand

Question 18

When an increase in exports leads to a larger increase in national income, this illustrates

Accepted Answer

the operation of the multiplier

Answer

demand-pull inflation

Answer

an increase in long-run aggregate supply

Answer

an improvement in the balance of payments

Question 19

Which one of the following is most likely to be classified as a supply-side policy?

Accepted Answer

A reduction in welfare benefits

Answer

An increase in subsidies on essential goods

Answer

An increase in the government budget deficit

Answer

A reduction in the exchange rate

Question 20

Which one of the following is most likely to deteriorate as a result of contractionary fiscal policy being used?

Accepted Answer

Unemployment

Answer

The current account position

Answer

Export volumes

Answer

International competitiveness

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