Unit 10 A Level ECON Practice

Which two government macroeconomic policy objectives are most likely to benefit from an increase in aggregate demand?

• a decrease in cyclical unemployment and an increase in economic growth

• a decrease in import expenditure and a decrease in demand-pull inflation

• an increase in price stability and an increase in frictional unemployment

• an increase in exports and a decrease in cost-push inflation

What must exist for a progressive income tax to redistribute income?

• inequality of income

• an absence of tax evasion

• private ownership of wealth

• state-owned industry

Why might the government macro policy objective of redistribution of income result in inflation?

• It will increase aggregate demand as people with a low income have a higher mpc than those with a high income.

• It will increase aggregate supply as there will be a greater incentive to become an entrepreneur.

• It will increase the role of automatic stabilisers.

• It will increase the value of leakages from the circular flow.

Which situation would most likely to increase a country's output and employment?

• G + T + S < I + M + X

• G + X + S < I + M + T

• I + G + X > S + T + M

• I + S + M > G + X + T

Which policy tool could help a government achieve its objective of low unemployment?

• a decrease in limits on bank lending

• a lower school leaving age

• an increase in income tax

• a revaluation of the exchange rate

Why might a government NOT welcome an increase in a trade surplus?

• The country has a high rate of cyclical unemployment.

• The country has a high rate of demand-pull inflation.

• The country has a high rate of development.

• The country has a high rate of economic growth.

A country's economic growth rate rises but so does its unemployment rate. What could explain this?

• a decrease in the rate of interest

• a decrease in the size of the labour force

• an increase in net exports

• an increase in productivity

An economy experiences high cost-push inflation and an appreciation of its currency. What is most likely to occur as a result of this combination of changes?

• a decrease in exports

• a decrease in the terms of trade

• an increase in employment

• an increase in investment

A government has the macro policy objective of reducing demand-pull inflation. Which policy measure should it NOT introduce?

• increase income tax rates

• increase the rate of interest

• reduce the growth of the money supply

• reduce the value of the currency

A country experiences a significant fall in unemployment, a rise in its current account surplus and a fall in its inflation rate. What is most likely to explain this combination of changes?

• Aggregate demand increased by more than aggregate supply.

• Government tax revenue increased by more than government spending.

• Productivity increased by more than the average wage rate.

• The external value of money increased by more than the internal value of money.