Revision Introduction to Economics

One shortcoming of GDP as an indicator of society's social wellbeing is that it fails to measure the:

• growth in productivity

• increase in the quantity of goods

• non-market production

• change in the price level

Suppose inflation is currently running at 15% and, as a result, sales catalogues have to be reprinted every month. This is an example of:

• noise in the price system

• an unexpected redistribution in wealth

• shoe-leather costs of inflation

• menu costs due to inflation

Which of the following would not be included in Australia's GDP in this year’s GDP?

• Gross fixed private investment.

• The USA government purchases 10 000 Australian made military boots.

• A new factory's purchase of used machines from a factory that is closing down.

• New South Wales government's purchase of fresh milk for public servants.

One of the following is an example of a worker experiencing structural unemployment:

• A worker that changes jobs to move closer to her family

• A worker who quits his job because she doesn't like her fellow workers.

• An assembly line worker who loses his job because a newly acquired machine requires fewer workers to operate.

• A cargo employee who was sacked because of a recession.

The key assumption of the basic Keynesian model is that:

• planned aggregate expenditure is autonomous

• actual investment equals planned investment

• firms meet demand at pre-set prices

• planned aggregate expenditure is constant

When the Reserve Bank responds to higher inflation by raising real interest rates, consumption and investment spending:

• . fall and, thus, short-run equilibrium output decreases

• rise and, thus, short-run equilibrium output increases

• fall and, thus, short-run equilibrium output increases

• rise and, thus, short-run equilibrium output decreases

Government transfer payments usually

• rise during expansions and recessions

• rise during expansions and fall during recessions

• fall during expansions and rise during recessions

• fall during expansions and recessions

Suppose that the Bank of Japan is considering lowering the interest rate next week. Which of the following is not true?

• Currency traders expect the demand for Australian dollars to increase.

• Currency traders expect the demand for yen to decrease.

• Currency traders expect the Australian dollar to depreciate.

• People begin to sell yen and buy Australian dollars.

According to the purchasing power theory, in the long run, currencies of countries with significant inflation tend to

• depreciate

• be overvalued

• be undervalued

• appreciate

When the Reserve Bank responds to declining inflation rate by decreasing the cash rate, consumption and investment spending would:

• rise and, thus, short-run equilibrium output increases

• fall and, thus, short-run equilibrium output decreases

• fall and, thus, short-run equilibrium output increases

• rise and, thus, short-run equilibrium output decreases