Question

11) If the government wanted to reduce unemployment using supply side policy it could

A) Decrease the money supply

B) Increase unemployment benefits

C) Lower government spending on the infrastructure

D) Improve labour skills through training

E) Raise interest rates

12) Calculate the value of the multiplier where C = 25 + 0.75Y

A) 4

B) 25

C) 0.75

D) 0.25

E) 25.75

13) A total ban on trade with another country is known as

A) An export restraint

B) A quota

C) A tariff

D) An embargo

E) An admin barrier

14) When the economy is operating well below its full capacity unemployment can be reduced by

A) Using supply side policies to shift the Aggregate Supply curve to the left

B) Raising income tax

C) Using quotas to reduce imports

D) Encouraging people to save and spend less

E) Lowering interest rates

15) When investment in the economy is rising and unemployment is falling it is most likely that the economy is

A) In the recovery phase of the business cycle

B) In a recession

C) Entering the downturn phase

D) At the lowest level of potential output

E) Operating at full economic capacity

16) If the CPI is 160 in July 2019 and 164 in July 2020 then the rate of annual inflation will be

A) 0.25%

B) 3.33%

C) 4%

D) 1.67%

E) 2.5%

17) The ‘output gap’ can best be defined as

A) The difference between the level of exports and imports

B) A surplus in the budget

C) The difference between actual and potential output

D) Where production exceeds the level of demand in the economy

E) The level of claimant count unemployment

18) According to the theory of comparative advantage in trade a country should

A) Maintain a trade surplus with other nations

B) Specialise in producing goods which have the lowest opportunity cost

C) Subsidise exports in technical products

D) Introduce tariffs to protect new industries

E) Import goods which are labour intensive in production

19) In a floating exchange rate system a rise in exports is likely to do which of the following?

A) Increase withdrawals from the circular flow of income

B) Cause the exchange rate to depreciate

C) Decrease injections into the circular flow of income

D) Cause the exchange rate to appreciate

E) Increase the level of unemployment

20) Which of the following is most closely associated with supply side policy?

A) Increasing the money supply

B) Reducing income tax

C) Building new hospitals

D) Lowering interest rates

E) Improving labour market flexibility

Answer 1

11.

D

Offering training to workers and improve their skills to raise productivity and employment is supply side policy.

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12.

A

Multiplier = 1/(1-MPC) = 1/(1-.75)

Multiplier = 4

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13.

D

It is the embargo that brings a total ban on trade or any other activity with a specific country.

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14.

E

Lowering of rates, causes decrease in the cost of borrowings. It stimulates consumption and investment spending. As a result, new jobs are created and unemployment decreases.

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15.

A

It is a scenario when economy is recovering from recession and investment is increased by the firms. It is creating new jobs as well so boost the economy.

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16.

E

Annual rate of inflation = (164-160)/160

Annual rate of inflation = 2.5%

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17.

C

Output gap is the difference between potential output and actual output produced in the economy.

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18.

B

It is the basis of comparative advantage theory of international trade.

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