Economics Gauntlet

Which of the following statements about economic growth is false?

• Economic growth solves the economic problem.

• Economic growth can be helped by having new technology.

• Economic growth can be helped with more education.

• Economic growth can be helped by using tidal power

Answer explanation

Statement a is false. The economic problem will persist for as long as there is a gap between what people want and what the world can produce, which may be for ever; but economic growth may ease the problem by narrowing the gap.

Each of the following statements includes two terms. In three cases, the two terms mean the same as each other. In which case do the two terms not mean the same as each other?

• Nominal GDP and GDP at current prices.

• Real GDP and GDP at constant prices.

• The base period and the reference period.

• Changes in real GDP and the GDP deflator.

Answer explanation

Statement d is correct. Changes in real GDP measure changes in the quantity of goods and services produced whereas the GDP deflator measures changes in the price level of those goods and services.

Suppose year 1 is taken as a base period. Nominal GDP that year is £500 billion. By a later year 2, nominal GDP has reached £700 billion but the GDP deflator is 125. What will real GDP be each year?

• £625 billion in year 1 and £560 billion in year 2.

• 625 billion in year 1 and £700 billion in year 2.

• £500 billion in year 1 and £560 billion in year 2.

• £500 billion in year 1 and £700 billion in year 2.

Answer explanation

Statement c is correct. As year 1 was the base year, real GDP was the same as nominal GDP, that is £500 billion. In year 1, prices were four-fifths of their level in year 2, so real GDP in year 2 was four-fifths of £700 billion, that is £560 bn.

In what circumstances is an economy said to be in recession?

• If real GDP falls in one quarter compared with the quarter before.

• If real GDP falls for two consecutive quarters.

• If real GDP falls in one year compared with the year before.

• If real GDP falls for two consecutive years.

Answer explanation

Statement b is correct: this is the definition of a recession used by economists.

Which one of the following are regarded as being in the labour force?

• People aged 60 who have retired early.

• Full-time students who do not have paid employment.

• People who have chosen to care for their families or homes rather than seek paid employment.

• People who have lost their jobs because of the recession and cannot at present find another job.

Answer explanation

Statement d is correct. Those in the other groups are either not available to work or are unwilling to work.

Measures of unemployment based on people who receive Job-Seekers' Allowance make no allowance for the four groups of people listed below. Which of these four groups is also excluded from the international measure?

• Unemployed people aged 16-17 who have left school.

• Unemployed people aged 60 or more.

• People who work part-time but want to work full-time.

• Unemployed people who have not worked long enough to be entitled to Job-Seekers' Allowance.

Answer explanation

Statement c is correct. For example, if someone who wants full-time work manages to secure employment for just one hour a week, the international measure of unemployment ignores them.

Which of the following statements is false?

• Even in the worst recorded cases of hyperinflation, the price level always took at last a week to double.

• Some people lose out if actual inflation turns out to be below the rate they expected.

• Some people lose out if actual inflation turns out to be above the rate they expected.

• Some people lose out if actual inflation turns out to be equal the rate they expected.

Answer explanation

Statement a is false: in several cases the price level doubled in less than a week, and in Hungary in 1946 it doubled in less than a day. Regarding the other statements, employers who negotiate wages in advance may lose out if inflation is less than they expected, workers who negotiate wages in advance may lose out if inflation is more than they expected, and if import prices rise, everyone may lose out even if inflation equals the rate that was expected; the text gives some other examples of people who lose out in these various situations.

Which of the following statements is false?

• The GDP deflator is a price index that covers all goods and services included in GDP.

• The RPI is a price index that covers a wide range of goods and services bought by households.

• The CPI is a price index that covers a wide range of goods and services bought by households.

• The CPI generally rises more quickly than the RPI.

Answer explanation

Statement d is false. The CPI generally rises more slowly than the RPI.

In which of the following situations would real GDP increase while the price level stayed the same?

• The aggregate demand and aggregate supply curves both shifted up by the same amount.

• The aggregate demand and aggregate supply curves both shifted right by the same amount.

• The aggregate demand curve stayed put but aggregate supply shifted right.

• The aggregate demand curve shifted right but the aggregate supply curve stayed put.

Answer explanation

Statement b is correct.

Which of the following statements is false?

• Between 1990 and 2010, the UK had a higher average rate of economic growth than any other G7 country.

• Between 1990 and 2010, the UK had a lower average rate of unemployment than any other G7 country.

• Since 1855, the average rate of economic growth in the UK has been about 2%.

• Since 1855, the average rate of unemployment in the UK has been about 6%.

Answer explanation

Statement b is false: both Japan and the US had lower average rates of unemployment. (Note: you do not need to learn these facts to understand any later material, but hopefully you will find them interesting.)