ECONOMICS EXAM 2

Its balance on trade in goods and services is a

• deficit of £30m

• deficit of £40m

• surplus of £10

• deficit of £20m

The price elasticity of demand for bottled water in Yorkshire is -2, while the price elasticity of demand for bottled water in London is -0.8. In other words, demand in Yorkshire is __________ and demand in London is ___________

• elastic, unitarily elastic

• highly inelastic, slightly inelastic

• elastic, inelastic

• inelastic, elastic

A central bank wishing to operate a tighter monetary policy might

• lower interest rates to encourage spending and discourage saving

• reduce interest rates but use open-market operations so as to reduce the money supply

• promote investment in other countries by domestic frims

• raise interest rates and use open-minded operations so as to reduce the money supply

For a given amount of resources, Japan and the UK can produce the following quantities of motorbikes or bicycles: Which statement is correct?

• Japan has a comparative advantage in bicycles

• The UK has a comparative advantage in bicycles

• The UK has a comparative advantage in motorbikes

• The UK has an absolute advantage in bicycles

Assume that the UK's unemployment rate is 10% and the inflation rate is 1%. The most likely policy for the Bank of England to pursue would be to

• do nothing because the inflation rate is so low

• increase interest rates to try to bring the inflation rate to zero

• decrease interest rates so long as predicated inflation remained below 2%

• decrease interest rates to try to eliminate unemployment

How much are net errors and omissions?

• $5

• -$5

• 15$

• $20

The government is going to increase the tax on petrol to raise additional revenue for road repairs. The government will be able to raise more revenue by raising the petrol tax if the demand for petrol is

• relatively elastic

• perfectly elastic

• relatively inelastic

• unitarily elastic

When the price of a good falls and customers tend to buy more of it instead of the other goods, economists call this the ________________ effect.

• diminishing marginal utility

• substitution

• income

• ceteris paribus

If the central bank raises interest rates it will

• raise aggregate demand and lower the exchange rate

• raise aggregate demand and raise the exchange rate

• lower aggregate demand and raise the exchange rate

• lower aggregate demand and lower the exchange rate

Which of the following is the most likely cause of a decrease in demand for petrol?

• An increase in bus fares

• A decrease in the price of cars

• A decrease in the price of petrol

• The imposition of road charging in most major cities