Macroeconomics June 2010

Please choose one of the following options for each question:

1. An economy is operating below its trend rate of growth and simultaneously experiencing inflation and a deficit on its balance of trade. All other things being equal, a reduction in the rate of income tax is most likely to lead to a decrease in the





2. Which one of the following headlines directly indicates the use of monetary policy?





3. The current account of the balance of payments comprises





4. The shift in the long-run aggregate supply curve is most likely to have been caused by a fall in





5. The exchange rate of a country has fallen. All other things being equal, which one of the following is most likely to occur as a result of this?





6. All other things being equal, which one of the following is most likely to lead to an increase in imports?

A fall in





7. From the graph, it can be inferred that





8. Which one of the following fiscal policy measures would be most likely to increase aggregate demand?





9. ‘The multiplier’ usually refers to how an initial increase in investment, government spending or exports leads to a larger increase in the level of





10. Which one of the following would be likely to lead to a new equilibrium position, with a fall in the price level?





11. The government wishes to increase the trend rate of growth of national output through the use of supply-side policies. To achieve its objective, the government would most likely increase its spending on





12. A country’s banking system is an important part of the institutional structure of its economy because of its role





13. The diagram below shows the aggregate demand (AD) and short-run aggregate supply (SRAS) curves for an economy. OP1 is the initial equilibrium price level and OY1 the initial equilibrium level of real national output.





14. The government reduces its spending. At the same time, the Bank of England increases interest rates. All other things being equal, the most likely outcome is that





15. The rate of inflation is measured by





16. The production possibility diagram below shows an economy operating on its boundary producing the combination of consumption and capital goods shown at point Y.





17. A government wishing to reduce the level of unemployment through the use of fiscal policy would be most likely to





18. All other things being equal, the movement from AD1 to AD2 has most likely been caused by a growth in





19. Which one of the following is most likely to lead to an increase in structural unemployment in the UK?





20. The Bank of England is most likely to increase interest rates to prevent an increase in the rate of inflation when





21. ‘Unemployment has begun to rise in the UK. What should policy makers do? Already the Bank of England has cut interest rates. Also, the government has begun to spend more without covering all of the increase by a rise in taxes.’

It can be inferred from the data that, in response to rising unemployment





22. Which one of the following is most likely to be an example of a supply-side policy?

Measures to





23. All other things being equal, which one of the following is most likely to lead to an increase in the size of the UK’s current account deficit on the balance of payments?





24. Which one of these is most likely to be reduced by a long-term improvement in UK labour productivity?





25. Which one of the following is most likely to rise if the growth of aggregate demand is less than the underlying trend rate of growth of output?