Macroeconomics June 2011

Please choose one of the following options for each question:

1. Which one of the following would be classified as fiscal policy? A UK government decision to





2. All other things being equal, a substantial cut in the rate of income tax in the short run is most likely to reduce





3. According to the UK government’s definition, the economy is said to be in recession when





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

The shift of the short-run aggregate supply curve from SRAS1 to SRAS2 can be explained by a fall in





5. In an economy with a positive output gap





6. According to the accelerator theory, investment is most likely to increase when





7. Which one of the following is most likely to be an example of a supply-side improvement in the economy?
An increase in





8. A country imports many of its raw materials and exports a large proportion of its finished goods. The diagrams below show the initial aggregate demand (AD1) and short-run aggregate supply (SRAS1) curves together with possible shifts of these curves.
All other things being equal, which diagram, A, B, C or D, best illustrates the likely impact of a rise in the country’s exchange rate?





9. The diagram below shows a shift of the aggregate demand (AD) curve for an economy.

Which one of the following combinations, A, B, C or D, would be most likely to cause the shift from AD1 to AD2?





10. All other things being equal, a fall in the exchange rate will stimulate aggregate demand through a fall in the





11 Which one of the following statements about the UK financial system is true?





12. All other things being equal, which one of the following situations is most likely to lead to a deterioration in the UK’s balance of payments on current account?
A fall in





13 The effects on the economy of increased investment expenditure by firms are illustrated by a movement from X to Y. Which one of the following diagrams, A, B, C or D, best illustrates this movement?





14. Which one of the following statements relating to the use of fiscal policy is correct?





15. An economy had nominal GDP growth of 8% last year, inflation of 5.5% and population growth of 2.5%. The approximate percentage change in real GDP per capita was





16 .Since the 1970s, many of the UK’s primary and secondary sector firms have closed or shrunk in size. The real value of manufacturing output today is little different from forty years ago. The result has been enormous job losses in these sectors. Some regions badly affected by closures still have above national average unemployment rates despite large injections of taxpayers’ money. In contrast, the service sector has seen very fast growth over this period.
Which one of the following can be inferred from the data? Over the past 40 years





17. Which one of the following will be most effective in reducing inflation in the short run when the economy is operating at full employment?





18. The table below contains data on the components of aggregate demand in an economy in 2009.

Which one of the following is supported by the data?





19. The table below contains selected indicators for an economy experiencing inflation.

The information above shows that between 2000 and 2010 there was





20. The type of unemployment caused by insufficient aggregate demand is





21. All other things being equal, which one of the following is the most likely effect on the UK economy of a change in the exchange rate from $1 = 60p to $1 = 80p?





22. Which one of the following is a monetary policy measure that may be used to reduce inflation?





23. An economy has introduced a series of successful supply-side policies. All other things being equal, which combination of macroeconomic indicators, A, B, C or D, is the most likely outcome?





24. The consequence of increasing the interest rate when the exchange rate is rising is likely to be an increase in





25. Which one of the following statements concerning UK investment is correct?