Macroeconomics June 2014

Please choose one of the following options for each question:

1. All other things being equal, a large rise in interest rates is most likely to lead to an increase in





2. The following table shows figures for population and index numbers for inflation (CPI) and money national income (GDP at current prices) in the years 2012 and 2013 in an

In 2013, compared to 2012, which one of the following statements can be inferred from the data?





3. Which one of the following is most likely to be regarded as a supply-side cause of higher economic growth?





4. The diagram below shows the aggregate demand (AD) and short-run aggregate supply (SRAS) curves for an economy. The economy is in equilibrium at point E.

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





5. 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





6. The diagram below shows a shift in aggregate demand (AD) in an economy.

Which one of the following combinations, A, B, C or D, is most likely to have caused the shift from AD1 to AD2?





7. The table below shows the expenditure components of Gross Domestic Product (GDP) in Year 1 and Year 2 (£ billion).

Between Year 1 and Year 2, aggregate demand increased by





8. The relationship between the growth of national income and the resulting increase in investment is known as the





9. Which one of the following is most likely to be deflationary?
A reduction in





10. 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?





11. Which one of the following is an instrument of monetary policy?





12. In the diagrams below, AD1 and SRAS1 represent the initial aggregate demand and short-run aggregate supply curves for an economy. Which one of the following diagrams, A, B, C or D, illustrates the most likely effects of a simultaneous increase in oil prices and an increase in savings?





13. An economy is experiencing inflation and a balance of payments deficit on current account. All other things being equal, which policy is most likely to reduce both inflation and the balance of payments deficit?





14. The table below shows the value of a country’s currency against other currencies, in index number form.

All other things being equal, the most likely consequence of the changes in the exchange rate index for the period shown in the table is that





15. ‘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





16. A government attempts to reduce the rate of inflation by reducing aggregate demand (AD). All other things being equal, in the short run, which one of the following combinations, A, B, C or D, is most likely to result from the reduction in AD?





17. All other things being equal, which one of the following is most likely to reduce cyclical unemployment in the short run?





18. In which one of the following combinations of events, A, B, C or D, is the Bank of England most likely to increase interest rates to try to reduce inflation?





19. The diagram below shows three aggregate demand (AD) and three long-run aggregate supply (LRAS) curves for an economy, with the initial equilibrium at X.

What would be the most likely new long-run equilibrium position, A, B, C or D, following government policy to lower the exchange rate and to improve the quality of the labour force through retraining programmes?





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





21. The Consumer Prices Index (CPI) is a measure of changes in the





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





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

In the short run, output falls from Y1 to Y2 and unemployment rises. The type of unemployment that results is best described as





24. An economy, operating at full capacity, exports and imports final goods and services. It also imports a large proportion of the raw materials and components used for its domestic manufacturing production.
All other things being equal, a depreciation of the exchange rate is likely to





25. Choosing between faster economic growth and a satisfactory balance of payments best illustrates