Year 12 Economics Unit 4 Topic 1

Many economists believe that governments should be primarily concerned with increasing the growth potential of the economy, because achieving this objective is likely to

• increase output

• reduce short-term business costs

• lead to deflation

• improve living standards

If a government has as a high priority the aim of distributing income more equitably, then the two most appropriate methods would be:

• regressive taxation and increase in unemployment benefits

• regressive income taxation and cash benefits for social security

• progressive income taxation and decreased social security benefits

• increased progressive taxation at higher income levels and provision for increased aged pension rate

Under a floating exchange rate system, a fall in the Australian interest rates relative to those of the rest of the world will lead to:

• a decrease in the domestic money supply

• a increase in the domestic money supply

• an appreciation of the Australian dollar

• an depreciation of the Australian dollar

Price stability is a key government objective, primarily because it

• reduces menu costs

• leads to lower unemployment levels

• requires fewer interventions by the central bank 

• creates a better decision making environment for businesses and consumers

Governments are keen to see higher levels of employment because this enables

• more government spending and more aggregate demand

• higher levels of output and higher tax revenues

• higher business investment and higher prices

• higher output levels and lower prices

A central bank raises interest rates, ceteris parabus this is likely to cause the following:

• A fall in aggregate demand and a decrease in imports

• A rise in aggregate demand and an increase in imports

• A decrease in exports and a rise in economic growth

• An increase in exports and a rise in economic growth

Conflict can arise between the various government objectives, at least in the short-run; when attempting to achieve economic growth through reduced interest rates, this can lead to

• an increase in the government's budget deficit

• an increase in unemployment

• an increase in inflation

• a reduction in the equality in income distribution

Conflict can arise between government economic objectives, at least in the short-run; when attempting to achieve a reduction in the unemployment rate by implementing quantitative easing, this will lead to

• demand-pull inflation

• a reduction in the deficit in balance of payments on current account

• lower economic growth

• cost-push inflation

Which one of the following combinations of the government's economic objectives is most likely to result from the following two policies: an increase in the rate of interest and a rise in government expenditure?

• Decreased unemployment and higher inflation levels

• Decreased economic growth and higher unemployment levels

• Lower levels of inflation and higher economic growth

• Higher inflation and increased unemployment levels

Gross Domestic Product is defined as

•  the value of goods and services produced by factors within a country

• the value of goods and services produced by factors owned by the population of a country

• the value of goods and services produced by households in a country

•  the value of goods and services after capital consumption is taken into account