Macroeconomics June 2012

Please choose one of the following options for each question:

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





2. All other things being equal, which one of the following would be the most likely consequence of an appreciation in the external value of a country’s currency?
An increase in





3. Which one of the following is most likely to result in an increase in the long-run trend rate of economic growth?





4. The diagram below shows an economy operating on its production possibility frontier at point Y.

All other things being equal, which one of the following is most likely to move the economy from point Y to point X within its production possibility frontier?





5. Which one of the following best illustrates the accelerator process?





6. The table below shows the index of Gross Domestic Product (GDP) measured at current prices and the associated price index for an economy.

The table shows that between 2001 and 2011





7. Which one of the following is most likely to result in a rightward shift of the short-run aggregate supply curve?





8. A cut in income tax rates could be considered





9. The four diagrams below show aggregate demand (AD) and long-run and short-run aggregate supply (LRAS/SRAS) curves for an economy where OP1 is the initial equilibrium price and OY1 the initial equilibrium level of real national output.


Which diagram, A, B, C or D, shows the change resulting from an increase in innovation and productivity improvements?




10. A rise in the level of domestic investment will most likely result from a rise in





11. Fiscal policy involves changes in both





12. Deflation is most likely to





13. The diagram below shows an aggregate demand (AD) curve for an economy.

The movement down the aggregate demand curve from X to Y shows that





14. An economy is currently operating with a negative output gap. In the short run, if the rate of growth of aggregate demand is positive but less than the rate of growth of productive capacity, then the economy is most likely to experience





15. The table below shows the components of the balance of payments on current account for an economy in 2011.

It follows that the balance of payments on current account for 2011 is





16. The UK economy enters a recession but the current account deficit on the balance of payments remains high. Given these problems, which one of the following would be most likely to improve the performance of the UK economy?





17. An increase in interest rates when the exchange rate is rising is most likely to lead to an increase in





18. The diagram below shows the aggregate demand (AD) curve and two long-run aggregate supply (LRAS) curves for an economy.

The decline in equilibrium real national output from Y1 to Y2 implies that the economy





19. Which one of the following is an example of expansionary fiscal policy?





20. Which one of the following is most likely to lead to a fall in aggregate investment?





21. All other things being equal, a large increase in an economy’s rate of interest will cause





22. Inflation in an economy is currently at 10%. Which of the following changes in monetary and fiscal policy, A, B, C or D, is most likely to reduce the rate of inflation in the economy?





23. The government introduces a policy which initially increases the budget deficit but, in the long run, increases the trend rate of economic growth.
This policy is most likely to have been





24. The UK steel industry pays for its imported inputs in US dollars and sells its output abroad in euros.
It follows from the above that the UK steel industry will benefit most when the pound is





25. The diagram below shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves for the UK economy.

The government predicts that aggregate demand will increase in the long run from AD1 to AD2. All other things being equal, which one of the following policies is most likely to move the economy to a new long-run equilibrium at point E rather than point F?