Macroeconomics

Table of Contents

1. Topic pack - Macroeconomics - introduction
2. 2.1 The level of overall economic activity (notes)
3. 2.1 The level of overall economic activity (questions)
4. Section 2.2 Aggregate demand and supply (notes)
5. Section 2.2 Aggregate demand and supply (simulations and activities)
6. 2.2 Aggregate Demand and Aggregate Supply (questions)
7. 2.3 Macroeconomic objectives (notes)
8. Low Unemployment
9. 2.3 Macroeconomic objectives (questions)
   1. Macroeconomic objectives - self-test questions
   2. Short questions
   3. Data response question (1)
   4. Data response question (2)
   5. Long questions
10. 2.4 Fiscal policy (notes)
11. 2.4 Fiscal policy (questions)
12. 2.5 Monetary policy (notes)
13. 2.5 Monetary Policy (questions)
14. Section 2.6 Supply-side policies (notes)
15. 2.6 Supply-side policies (questions)
16. Print View

Macroeconomic objectives - self-test questions

1

Demand-side unemployment Demand-side unemployment is partly caused by: a) Imperfections in the labour market b) Occupational and geographic immobility of factors c) Demographic changes d) A lack of aggregate demand Yes, that's correct. Well done. This is the main reason demand-side unemployment arises.No, that's not right. The correct answer is D, as this is the main reason demand-side unemployment arises. A is central to supply-side unemployment and B is also considered to be part of the supply-side theory. C is certainly a cause of unemployment, but not directly related to the demand-side theory.Your answer has been saved.

2

Types of unemployment Which of the following is NOT a type of unemployment? a) Frictional b) Casual c) Structural d) Demographic Yes, well done. That's correct. Demographic is not a type of unemployment.The correct answer is D, which refers to people and the population. It might have some influence on the rate of unemployment, but it is not a type. The others are all types of unemployment together with cyclical or demand deficient.Your answer has been saved.

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Costs of unemployment Which of the following is not a cost of unemployment? a) Loss of output within the economy b) Loss of tax revenue c) Loss of import flows d) Loss of profits Yes, that's correct. Well done. Imports have only a limited link to employment.No, that's not right. The correct answer is C as imports have only a limited link to employment. The others, together with an increase in government expenditure are all 'costs' of unemployment.Your answer has been saved.

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Reducing unemployment Which of the following might be used by government to lower unemployment? a) Reduce government spending b) Increase taxation c) Increase interest rates d) Lower taxation Yes, that's correct. Well done. This should boost spending and lead to a need to employ more people to meet the increase in demand.No, that's not right. The correct answer is D as this should boost spending and lead to a need to employ more people to meet the increase in demand. A would have the opposite affect and so would B. C, which is monetary policy would also be used to slow an economy and that might increase unemployment.Your answer has been saved.

5

Types of unemployment When there is unemployment caused by a lack of consumer spending, we classify this type of unemployment as? a) Cyclical b) Regional c) Seasonal d) Structural Please select an answerYes, well done. Cyclical unemployment results from a fall in the level of demand (related to the trade cycle).No, this is caused by regions being unable to attract businesses.Not really - this is caused by the seasonal patterns of output of some industries.No, this is caused by structural issues within the economy.

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Types of unemployment When there are vacancies in the job-market, but also high levels of unemployment, then we could say that this unemployment is? a) Cyclical b) Regional c) Seasonal d) Structural Please select an answerNo, this is caused by spending being too low.This is a type of unemployment, but there is a more appropriate answer that matches the description better.Not really. Seasonal unemployment is specific to a particular time and this is not really what the question asks.Yes, well done. Structural unemployment results from a change in the structure of industry.

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Demand-pull inflation Demand-pull inflation is said to exist when: a) Costs are increasing faster than output b) The level of aggregate demand is growing faster than the underlying level of supply c) The prices of imports are rising faster than domestic goods d) An external event has caused prices to rise e.g. an increase in oil prices Yes, that's correct. Well done. For demand pull inflation to exist demand must be rising faster than supply.No, that's not right. The correct answer is B as for demand-pull inflation to exist demand must be rising faster than supply. A refers to cost-push inflation and C is import led inflation. D is a 'shock' and is not part of demand-pull inflation.Your answer has been saved.

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Costs of inflation Shoe leather costs are: a) The costs to individuals as they hold less cash and have to visit banks more frequently to get cash out b) The cost of changing price lists c) The arrival of fiscal drag as fixed rate taxes will gross higher revenues as prices rise d) The less well-off will lose part of their purchasing power Yes, that's correct. Well done. Shoe leather costs are associated with our need to get more cash as prices rise.No, that's not right. The correct answer is A, as shoe leather costs are associated with individual's need to get more cash as prices rise. B is what is called 'menu costs'. C takes place if tax allowances do not keep pace with inflation and people pay more tax as their income increases. D is wage distortion, which is part of unanticipated inflation, whilst all the others used in this question are anticipated costs of inflation.Your answer has been saved.

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Costs of inflation Why might uncertainty arise during a period of sustained price rises? a) Because resource costs will increase b) Because a redistribution of income process will take place c) A real reduction in international competitiveness will arise d) Inflation tends to cause things to be less predictable and this makes planning more difficult Yes, that's correct. Well done. Inflation tends to lead to less certainty and so business becomes less likely to invest and expand.No, that's not right. The correct answer is , as inflation tends to lead to less certainty and so business becomes less likely to invest and expand. A is part of unanticipated inflation, but is not directly related to uncertainty. B also takes place during a period of unanticipated inflation and may cause serious social problems. C may also take place and may lead to increases in unemployment. It is always worth thinking about LINKS between the main parts of macroeconomics, as a change in one may well affect another.Your answer has been saved.

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Inflation Which of the following would not influence the rate of inflation? a) The rate at which prices are rising b) Whether the rate was expected c) The number of people affected by inflation d) How the rate compares with other countries and in particular our main trading partners Yes, well done. That's correct. Inflation is an increase in the general level of prices. The number of people affected by it will not have any impact on its rate.The correct answer is C, for although those affected by inflation would be rather worried by this is NOT a direct influence on the rate of consistent increases in the general level of prices. The others would all have an influence on the rate of inflation.Your answer has been saved.

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Economic growth What is economic growth? a) The increase in the amount of spending by consumers b) The percentage increase in the real GDP c) The increase in annual government spending d) The amount of capital consumed in a year Yes, well done. That's correct. This is the best definition of economic growth.The correct answer is B. A reflects changes in consumer spending, which is always closely watched by economists. C has nothing to directly to do with growth although government spending can increase/decrease the possibilities for growth. D is capital consumption and needs to be covered by growth before real economic expansion has been achieved.Your answer has been saved.

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Increases in consumer spending Which of the following is the least likely to occur if there is a sustained rise in consumer spending? a) Demand-pull inflation b) Falling unemployment c) Labour shortages d) Lower imports Please select an answerNo, this is likely to occur. The increase in consumer spending is an increase in aggregate demand and this may cause demand-pull inflation.No, this is likely to occur. Higher consumer spending will mean more demand which will lead to more jobs being created.No, this possibly could occur. Higher consumer spending will mean more demand which will lead to more jobs being created.Yes, it is likely that imports will increase not fall when consumer spending increases.

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Cost-push inflation Which of the following best defines cost-push inflation? a) Price rising due to an excessive growth in aggregate spending b) Price rising due to an increase in the price of a firm's inputs. c) Prices rising due to an over rapid growth in the money supply d) Prices falling over a period of time Please select an answerNo, this is demand-pull inflation.Yes, well done. This is a definition of cost-push inflation.No, this is monetary inflation - not seen as a major issue today.No, certainly not. Falling prices would be known as deflation.