Macroeconomics January 2011

Please choose one of the following options for each question:

1. Which one of the following would be an example of a loosening of fiscal policy?





Which one of the following could explain the shift of the aggregate demand curve from AD1 to AD2 ?

An Increase in





3. Economic growth is usually measured by the annual change in





4. Which one of the following is most likely to result in a demand-side shock to the UK economy?

A large rise in





5. The relationship between the growth of national income and the resulting increase in investment is termed the





6. All other things being equal, which one of the following combinations, A, B, C or D, is most likely to lead to a deterioration in the UK balance of payments on current account?





7. The Monetary Policy Committee (MPC) of the Bank of England meets each month to decide on the rate of interest that is most likely to help it achieve the government’s inflation target.

The MPC is most likely to decrease interest rates if





8. All other things being equal, which one of the following is most likely to lead to a decrease in aggregate demand?

An increase in





9. The annual rate of inflation in the UK falls from 5 per cent to 2 per cent but the annual rate of inflation in the UK’s main trading partners remains at 5 per cent. As a result, all other things being equal, it is likely that in the long term





10. Which one of the following developments is most likely to directly cause the shift in the long-run aggregate supply curve from LRAS1 to LRAS2?





11. Which one of the following is most likely to be an example of cyclical unemployment?





12. Assuming there is no change in the production possibility frontier, a movement from point X to point Y illustrates that there has been





13. In October 2008, the Chancellor of the Exchequer announced plans to increase government spending on construction projects, such as schools, medical buildings, housing and leisure centres, in order to help prevent the UK economy from entering recession.

Such a policy could best be considered an example of





14. All other things being equal, demand-pull inflation is most likely to result from an increase in





15. All other things being equal, in the long run a fall in the exchange rate is likely to





16. The diagrams below show aggregate demand (AD) curves and short-run aggregate supply (SRAS) curves for an economy. The economy is initially at output OY.

Which diagram, A, B, C or D, shows the most likely impact of a rise in wage rates together with a fall in interest rates charged on consumer credit?





17. All other things being equal, a large increase in interest rates in the UK is most likely to





18. In Country X, the underlying trend rate of growth is 2.75 %. The table below shows the actual rate of growth in real national income over four successive years.

Between Year 1 and Year 4, it is most likely that





19. A country is experiencing a balance of payments surplus but growing inflationary pressures. Which measure is most likely to reduce both a balance of payments surplus and the inflation rate?





20. Which one of the following is most likely to be classified as an instrument of monetary policy?





21. The diagram below shows two aggregate demand (AD) curves and the short-run aggregate supply (SRAS) curve for an economy.

The change in real national output from Y1 to Y2 could be due to





22. Which one of the following is an example of fiscal policy having a direct supply-side effect?





23. In the diagram below, a decline in consumer confidence in an economy is represented by a leftward shift in its aggregate demand curve from AD1 to AD2

As a result of the fall in aggregate demand, output falls from Y1 to Y2 and unemployment rises.
The type of unemployment that results from this fall in demand is best described as





24. Which one of the following is most likely to reduce the level of investment in a particular economy?

A fall in





25. Foreign companies build new factories in a country to take advantage of cheap labour and cheap land.
All other things being equal, the result of this investment for that country’s economy would be