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)
10. 2.4 Fiscal policy (notes)
11. 2.4 Fiscal policy (questions)
12. 2.5 Monetary policy (notes)
13. 2.5 Monetary Policy (questions)
    1. Self-test questions
    2. Short questions
    3. Data response (1)
    4. Data response (2)
    5. Long questions
14. Section 2.6 Supply-side policies (notes)
15. 2.6 Supply-side policies (questions)
16. Print View

Self-test questions

1

Interest rates Which is the most likely to occur if interest rates are increased? a) Exchange rate appreciation b) Exchange rate depreciation c) Exchange rate devaluation d) Exchange rate unchanged Please select an answerYes, well done. An increase in interest rates will lead to an increase in demand for sterling and this will lead to an appreciation of the exchange rate.No, this normally happens if interest rates are cut.No, this rarely happens when interest rates change. A devaluation is a deliberate change in a fixed exchange rate.Unlikely, interest rates often affect the exchange rate.

2

Rising interest rates If interest rates were to rise the impact on consumption would be: a) that it would increase b) that it would remain unaltered c) that it would fall d) that luxury goods would continue to be bought in similar amounts Yes, that's correct. Well done. A rise in interest rates would be expected to cause incomes to fall and so consumption would drop.No, that's not right. The correct answer is C - a rise in interest rates would be expected to cause incomes to fall and so consumption would drop. A is the complete opposite and B is not what we would normally expect. D is also the opposite of what we would expect as most people would try to continue some consumption of necessities but would drop luxuries as the cost of money increased.No, that's not right. Try again. Expansionary fiscal policy will boost the level of aggregate demand (e.g. tax cuts) while contractionary fiscal policy will have the opposite effect (e.g. tax increases). Expansionary monetary policy is a reduction in interest rates as this will boost aggregate demand. Contractionary monetary policy is the opposite. Supply-side policies are those that are aimed at boosting aggregate supply.Your answer has been saved.

3

Rising interest rates If interest rates were to rise the impact on consumption would be: a) that it would increase b) that it would remain unaltered c) that it would fall d) that luxury goods would continue to be bought in similar amounts Yes, that's correct. Well done. A rise in interest rates would be expected to cause incomes to fall and so consumption would drop.No, that's not right. The correct answer is C - a rise in interest rates would be expected to cause incomes to fall and so consumption would drop. A is the complete opposite and B is not what we would normally expect. D is also the opposite of what we would expect as most people would try to continue some consumption of necessities but would drop luxuries as the cost of money increased.Your answer has been saved.

4

Government policies Match the examples of government policy given to the appropriate type. a) Cutting the rate of income tax Choose... Expansionary fiscal policy Contractionary fiscal policy Expansionary monetary policy Contractionary monetary policy Supply-side policy b) Offering investment allowances to encourage investment Choose... Expansionary fiscal policy Contractionary fiscal policy Expansionary monetary policy Contractionary monetary policy Supply-side policy c) Increasing interest rates Choose... Expansionary fiscal policy Contractionary fiscal policy Expansionary monetary policy Contractionary monetary policy Supply-side policy d) Increasing the rate of indirect tax Choose... Expansionary fiscal policy Contractionary fiscal policy Expansionary monetary policy Contractionary monetary policy Supply-side policy e) Cutting interest rates Choose... Expansionary fiscal policy Contractionary fiscal policy Expansionary monetary policy Contractionary monetary policy Supply-side policy Yes, that's correct well done. Expansionary fiscal policy will boost the level of aggregate demand (e.g. tax cuts) while contractionary fiscal policy will have the opposite effect (e.g. tax increases). Expansionary monetary policy is a reduction in interest rates as this will boost aggregate demand. Contractionary monetary policy is the opposite. Supply-side policies are those that are aimed at boosting aggregate supply.No, that's not right. Try again. Expansionary fiscal policy will boost the level of aggregate demand (e.g. tax cuts) while contractionary fiscal policy will have the opposite effect (e.g. tax increases). Expansionary monetary policy is a reduction in interest rates as this will boost aggregate demand. Contractionary monetary policy is the opposite. Supply-side policies are those that are aimed at boosting aggregate supply.Your answer has been saved.

5

Government policies Match the examples of government policy given to the appropriate type. a) Cutting government expenditure Choose... Expansionary fiscal policy Contractionary fiscal policy Expansionary monetary policy Contractionary monetary policy Supply-side policy b) Increasing tax-free allowances Choose... Expansionary fiscal policy Contractionary fiscal policy Expansionary monetary policy Contractionary monetary policy Supply-side policy c) Cutting interest rates Choose... Expansionary fiscal policy Contractionary fiscal policy Expansionary monetary policy Contractionary monetary policy Supply-side policy d) Boosting tax relief on training schemes Choose... Expansionary fiscal policy Contractionary fiscal policy Expansionary monetary policy Contractionary monetary policy Supply-side policy e) Imposing controls on the amount of credit financial institutions are allowed to create Choose... Expansionary fiscal policy Contractionary fiscal policy Expansionary monetary policy Contractionary monetary policy Supply-side policy Yes, that's correct well done. Expansionary fiscal policy will boost the level of aggregate demand (e.g. tax cuts) while contractionary fiscal policy will have the opposite effect (e.g. tax increases). Expansionary monetary policy is a reduction in interest rates as this will boost aggregate demand. Contractionary monetary policy is the opposite. Supply-side policies are those that are aimed at boosting aggregate supply.No, that's not right. Try again. Expansionary fiscal policy will boost the level of aggregate demand (e.g. tax cuts) while contractionary fiscal policy will have the opposite effect (e.g. tax increases). Expansionary monetary policy is a reduction in interest rates as this will boost aggregate demand. Contractionary monetary policy is the opposite. Supply-side policies are those that are aimed at boosting aggregate supply.Your answer has been saved.

6

Inflation policy Which of the following would be an acceptable policy to reduce the inflation rate? a) Increasing taxation b) Reducing interest rates c) Devaluation of currency d) Increased government spending Please select an answerYes, that's correct. This would slow down spending.No, this is more likely to increase inflation as it would boost people's disposable income and lead to an increase in demand.No, this will lead to higher inflation through costlier imports.No, this is likely to boost inflation as it leads to an increase in aggregate demand.

7

Inflation policy Which policy is mainly used in the UK to control inflation? a) Monetary policy b) Incomes policies c) Fiscal policy d) Supply-side policies Please select an answerYes, that's correct. Interest rates are set by the Monetary Policy Committee of the Bank of England to keep inflation within targets set by the Chancellor of the Exchequer.No, these have been used but not since the 1970s.No, although it was used for this purpose until the 1970s.No, these are mainly used to reduce unemployment and boost productivity and potential output.