CIE economy AS-v1

A tourist visits the coast for a holiday. 2 On her first day, she visits the local tourist office for information, goes for a swim in the sea, spends the evening enjoying the view of the coastline and rents a campsite for an overnight stay. Which activities involve economic goods and which involve free goods?

• A

• B

• C

• D

Which aspect of a planned economy might be viewed unfavourably by a consumer but favourably by a producer?

• a bureaucratic system of decision-making

• a long response time to changing economic events

• an absence of incentives to work and to produce

• an emphasis on the production of capital goods

Which statement would be classified by an economist as a positive statement?

• Balancing the budget cannot be more important than reducing inflation.

• Maintaining the real income of pensioners needs to be a priority.

• The government should increase indirect taxation.

• The government will not increase direct taxation.

The price elasticity of demand for a firm’s product is equal to one for all price changes. What would be the result of this?

• A percentage increase in price will cause demand to fall by a larger percentage.

• A percentage increase in price will cause demand to increase by the same percentage.

• Quantity demanded will always be the same whatever the price.

• The firm’s revenue will always be the same whatever the price.

What will definitely stop, following the nationalisation of an industry?

• dividend payments to the industry’s shareholders

• job losses among the industry’s workforce

• price increases for the industry’s product

• the closure of unprofitable factories in the industry

What will cause a movement along an aggregate supply curve?

• a rise in the demand for exports

• a rise in the price of raw materials

• a rise in the productivity of labour

• a rise in the rate of sales tax

A government devalues its fixed exchange rate. What is most likely to be its aim?

• to improve the terms of trade

• to increase the level of aggregate demand

• to reduce a current account surplus

• to reduce demand-pull inflation

Between 2011 and 2013, retailers reported that expenditure on domestically-produced and imported goods had reduced. This was because consumers did not take out loans as the economy was in a recession. What is the likely result of this?

• a decline in the deficit in the trade account

• a decline in the level of savings

• a decline in the terms of trade

• a decline in unemployment

Increased international competition leads to a worsening in a country’s current account balance. In the absence of any offsetting factors, how is this likely to affect the exchange rate and domestic cost-push inflation?

• A

• B

• C

• D

Which policy will not cause a reduction in the rate of inflation?

• increasing income tax

• reducing government spending

• reducing interest rates

• removing subsidies