Question

Which of the following describes a ‘repo’?

a- Where a bank agrees to buy certain assets from an institution for cash in return for being able to borrow from that institution in the future

b- Where a bank sells some assets (e.g. bonds) and agrees to buy them back at a particular price after a set period of time

c- Where a bank sells some assets (e.g. bonds) and agrees to buy them back at a particular price after a set period of time

d- Where a bank sells assets to person or institution X in return for buying assets from person or institution Y

Frictional unemployment is the result of:

a- A shift in the pattern of consumer demand

b- Workers and employers being ill-informed about the labour market

c- The introduction of new technology

d- The economy entering the recessionary phase of the business cycle

Which one of the following would be the cause of cost-push inflation?

a-A cut in the rate of VAT

b- A cut in interest rates

c- A rise in the exchange rate

d- A rise in the price of oil

Crowding out is defined as:

a-Increased public expenditure replacing private-sector expenditure

b-Increased taxes pushing up interest rates

c-When there are insufficient tax revenues to finance increased government

expenditure

d-The difficulty some people find in paying their taxes

Answer 1

1) Solution: Where a bank sells some assets (e.g. bonds) and agrees to buy them back at a particular price after a set period of time.
Explanation: Repo occurs when the bank is selling assets but also agrees to buy them back after specified time frame at a defined price.

2) Explanation: Workers and employers being ill-informed about the labour market
Explanation: Frictional unemployment occurs due to the search time on the jobs when a worker is looking for a job or transferring from one employment to another. For example when workers are poorly informed about the labour market

3) Solution: A rise in the price of oil
Explanation: Cost-push inflation occurs due to a rise in resource costs

4) Solution: increased public expenditure replacing private-sector expenditure
Explanation: Crowding out arises when the increased public expenditure will be a replacement to the private-sector expenditure