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WorksheetsIB Economics Quick Review August
Total questions: 20
Worksheet time: 10mins
One shortcoming of GDP as an indicator of society's social wellbeing is that it fails to measure the:
growth in productivity
increase in the quantity of goods
non-market production
change in the price level
Suppose inflation is currently running at 15% and, as a result, sales catalogues have to be reprinted every month. This is an example of:
noise in the price system
an unexpected redistribution in wealth
shoe-leather costs of inflation
menu costs due to inflation
Which of the following would not be included in Australia's GDP in this year’s GDP?
Gross fixed private investment.
The USA government purchases 10 000 Australian made military boots.
A new factory's purchase of used machines from a factory that is closing down.
New South Wales government's purchase of fresh milk for public servants.
One of the following is an example of a worker experiencing structural unemployment:
A worker that changes jobs to move closer to her family
A worker who quits his job because she doesn't like her fellow workers.
An assembly line worker who loses his job because a newly acquired machine requires fewer workers to operate.
A cargo employee who was sacked because of a recession.
The key assumption of the basic Keynesian model is that:
planned aggregate expenditure is autonomous
actual investment equals planned investment
firms meet demand at pre-set prices
planned aggregate expenditure is constant
When the Reserve Bank responds to higher inflation by raising real interest rates, consumption and investment spending:
. fall and, thus, short-run equilibrium output decreases
rise and, thus, short-run equilibrium output increases
fall and, thus, short-run equilibrium output increases
rise and, thus, short-run equilibrium output decreases
Government transfer payments usually
rise during expansions and recessions
rise during expansions and fall during recessions
fall during expansions and rise during recessions
fall during expansions and recessions
When the Reserve Bank responds to declining inflation rate by decreasing the cash rate, consumption and investment spending would:
rise and, thus, short-run equilibrium output increases
fall and, thus, short-run equilibrium output decreases
fall and, thus, short-run equilibrium output increases
rise and, thus, short-run equilibrium output decreases
An open-market sale of Commonwealth Government’s securities by the Reserve Bank will:
decrease bank reserves, and the money supply will increase
decrease bank reserves, and the money supply will decrease
increase bank reserves, and the money supply will decrease
increase bank reserves, and the money supply will increase
. Suppose a new computer model is introduced to replace a model included in the CPI basket. The price of the new model is 5% higher than the discontinued model, but the new model also includes additional features. In this situation, the CPI will tend to _____ inflation as a result of _____ bias.
overstate; substitution
understate; substitution
overstate; quality adjustment
accurately measure; substitution
James quits her job in order to spend time looking for a better paying job. This is an example of:
cyclical unemployment
seasonal unemployment
frictional unemployment
structural unemployment
If the economy is experiencing a recessionary gap, an increase in government purchases, ___________ can be used to stimulate spending and the contractionary gap;
a cut in taxes or an increase in transfer payments
the budget deficit
the aggregate demand
the aggregate supply
Suppose the government reduces its budget deficit at the same time as the price of oil rises sharply. Which of the following must happen?
Inflation will rise, since high oil price increases the cost of production.
Equilibrium output will rise; with less government spending there are more opportunities for the private sector to invest.
Equilibrium output will fall, since both events will tend to cause economic contraction.
Inflation will fall and AD curve will shift to the right.
Starting from long-run equilibrium, a large increase in government purchases will result in a(n) _____ gap in the short run and ____ inflation and ____ output in the long run.
expansionary; lower; potential
expansionary; higher; potential
expansionary; higher; higher
recessionary; higher; potential
An increase in aggregate supply will:
reduce the price level but increase real domestic output
. increase both the price level and real domestic output
C. reduce both the price level and real domestic output
increase the price level but reduce real domestic output
. If economic analysts found that real output was below potential output and that planned spending was too low, they might conclude that:
this economy faces an income inequality gap
this economy faces a contractionary narrowing
this economy faces a poverty gap
this economy faces a recessionary gap
If the government wants the economy (depicted in Figure 1) to return to full employment (Y*), it could:
increase government purchases
. increase taxes and decrease government purchases at the same time
decrease taxes
do none of the above
Suppose wages and inflation have been rising at the rate of 3% per annum over a period of time. As a result, workers negotiate a 3% per annum increase in wages. If expected inflation falls to 2% but the rate of wage increase remains at 3%, then
workers are worse off
firms are better off
workers are better off
both firms and workers are worse off
It is building up the capital stock for more future production and consumption.
interest rate
investments
income
capital
Point A inside this Production Possibilities Curve represents:
Resources are being inefficiently used
Production is not attainable
Production is possible if there is an increase in resources
Production possibilities are going to decrease
