Question 1

The UK in?ation target is _____.

Accepted Answer

A)  0.5 per cent 
B)  4.5 per cent 
C)  6 per cent 
D)  2 per cent 
A)  0.5 per cent 
B)  4.5 per cent 
C)  6 per cent 
D)  2 per cent

Question 2

An economy's potential GDP is ﬁxed; it cannot be changed.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following correctly explains why real wages may vary in the short run?

Accepted Answer

A)  Workers usually prefer inﬂexible nominal wage agreements. 
B)  Since wage bargaining is costless, ﬁrms and workers negotiate new wages frequently. 
C)  The level of inﬂation in most economies is stable. 
D)  In most industries, nominal wage adjustment is instantaneously linked to inﬂation. 
A)  Workers usually prefer inﬂexible nominal wage agreements. 
B)  Since wage bargaining is costless, ﬁrms and workers negotiate new wages frequently. 
C)  The level of inﬂation in most economies is stable. 
D)  In most industries, nominal wage adjustment is instantaneously linked to inﬂation.

Question 4

When an increase in aggregate demand causes higher inﬂation, the central bank should _____ to bring inﬂation back to the target level.

Accepted Answer

A)  increase interest rates 
B)  restrict exports 
C)  increase the money supply 
D)  manage the exchange rate 
A)  increase interest rates 
B)  restrict exports 
C)  increase the money supply 
D)  manage the exchange rate

Question 5

Extreme Keynesians believe that all markets adjust instantly, leading to a clearing equilibrium.

Accepted Answer

A) True 
 B)False

Question 6

For an economy which is facing an inﬂationary recession, an increase in interest rates will help to move the economy towards long-term equilibrium.

Accepted Answer

A) True 
 B)False

Question 7

If output gap in an economy declines because of a gradual increase in aggregate demand as the economy moves out of a recession, it is called a real business cycle effect.

Accepted Answer

A) True 
 B)False

Question 8

The short-run Philips curve shifts downwards when there is a rise in inﬂationary expectations.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following would cause an increase in long-run aggregate supply?

Accepted Answer

A)  An inﬂow of migrant workers in the economy. 
B)  A fall in the capital stock of an economy. 
C)  A decline in labour productivity in the economy. 
D)  A falling birth rate. 
A)  An inﬂow of migrant workers in the economy. 
B)  A fall in the capital stock of an economy. 
C)  A decline in labour productivity in the economy. 
D)  A falling birth rate.

Question 10

Can an economy's potential output change over time? Explain your answer.

Accepted Answer

A rising birth rate, an in?ow of migrant

Question 11

Consider an economy which is in both long-run and short-run equilibrium. Which of the following will occur in the short-run if consumer conﬁdence in this economy fell signiﬁcantly?

Accepted Answer

A)  The aggregate demand curve will shift to the left. 
B)  Firms will increase production as real wages will have fallen. 
C)  The short-run aggregate supply curve will move to the right. 
D)  The level of inﬂation in the economy will increase. 
A)  The aggregate demand curve will shift to the left. 
B)  Firms will increase production as real wages will have fallen. 
C)  The short-run aggregate supply curve will move to the right. 
D)  The level of inﬂation in the economy will increase.

Question 12

What does the Phillips curve show?

Accepted Answer

A)  The output gap for an economy over a number of years. 
B)  The relationship between output and interest rates. 
C)  The relationship between unemployment and in?ation. 
D)  The growth rate of potential GDP over a period of time. 
A)  The output gap for an economy over a number of years. 
B)  The relationship between output and interest rates. 
C)  The relationship between unemployment and in?ation. 
D)  The growth rate of potential GDP over a period of time.

Question 13

The _____ believe that markets adjust instantly, leading to long-run equilibrium.

Accepted Answer

A)  gradual monetarists 
B)  new classical economists 
C)  moderate Keynesian economists 
D)  extreme Keynesian economists 
A)  gradual monetarists 
B)  new classical economists 
C)  moderate Keynesian economists 
D)  extreme Keynesian economists

Question 14

Aggregate demand is the sum of consumption, investment, government expenditure and net exports.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following correctly explains the Taylor rule?

Accepted Answer

A)  It links interest rates to short-term deviations in in?ation and output. 
B)  It maps the changes in actual and potential GDP over time. 
C)  It shows the trade-off between unemployment and in?ation. 
D)  It links the growth of money supply to changes in the price level. 
A)  It links interest rates to short-term deviations in in?ation and output. 
B)  It maps the changes in actual and potential GDP over time. 
C)  It shows the trade-off between unemployment and in?ation. 
D)  It links the growth of money supply to changes in the price level.

Question 16

When the aggregate demand in an economy falls, there is a downward movement along the short- run Philips curve.

Accepted Answer

A) True 
 B)False

Question 17

When the aggregate demand curve shifts to the left, there is a rise in prices and fall in GDP in the short run.

Accepted Answer

A) True 
 B)False

Question 18

If the annual real income of an individual is £45,000 and the annual inﬂation rate is 3 per cent, compute the nominal income.

Accepted Answer

A)  £45,000 
B)  £43,689.32 
C)  £58,500 
D)  £46,350 
A)  £45,000 
B)  £43,689.32 
C)  £58,500 
D)  £46,350

Question 19

Which of the following is likely to be associated with a negative output gap?

Accepted Answer

A)  Full employment. 
B)  Zero inﬂation. 
C)  A boom. 
D)  A recession. 
A)  Full employment. 
B)  Zero inﬂation. 
C)  A boom. 
D)  A recession.

Question 20

A rise in in?ationary expectations in the economy will:

Accepted Answer

A)  lead to an increase in labour productivity. 
B)  shift the short-run Phillips curve upward. 
C)  lead to a fall in the long-run equilibrium level of GDP. 
D)  cause workers to negotiate lower nominal wages. 
A)  lead to an increase in labour productivity. 
B)  shift the short-run Phillips curve upward. 
C)  lead to a fall in the long-run equilibrium level of GDP. 
D)  cause workers to negotiate lower nominal wages.

The UK in?ation target is _____.

An economy's potential GDP is ﬁxed; it cannot be changed.

Which of the following correctly explains why real wages may vary in the short run?

When an increase in aggregate demand causes higher inﬂation, the central bank should _____ to bring inﬂation back to the target level.

Extreme Keynesians believe that all markets adjust instantly, leading to a clearing equilibrium.

For an economy which is facing an inﬂationary recession, an increase in interest rates will help to move the economy towards long-term equilibrium.

If output gap in an economy declines because of a gradual increase in aggregate demand as the economy moves out of a recession, it is called a real business cycle effect.

The short-run Philips curve shifts downwards when there is a rise in inﬂationary expectations.

Which of the following would cause an increase in long-run aggregate supply?

Can an economy's potential output change over time? Explain your answer.

Consider an economy which is in both long-run and short-run equilibrium. Which of the following will occur in the short-run if consumer conﬁdence in this economy fell signiﬁcantly?

What does the Phillips curve show?

The _____ believe that markets adjust instantly, leading to long-run equilibrium.

Aggregate demand is the sum of consumption, investment, government expenditure and net exports.

Which of the following correctly explains the Taylor rule?

When the aggregate demand in an economy falls, there is a downward movement along the short- run Philips curve.

When the aggregate demand curve shifts to the left, there is a rise in prices and fall in GDP in the short run.

If the annual real income of an individual is £45,000 and the annual inﬂation rate is 3 per cent, compute the nominal income.

Which of the following is likely to be associated with a negative output gap?

A rise in in?ationary expectations in the economy will:

Economics for Business

Consumers in the Marketplace

Firms in the Marketplace

Markets in Action

Market Structure and Firm Performance

Strategic Rivalry

Growth Strategies

Governing Business

Introduction to the Macroeconomy

Measuring Macroeconomic Variables and Policy Issues

Expenditure and Fiscal Policy

Money, Banking and Interest

Supply-Side Policies and Economic Growth

Exchange Rates and the Balance of Payments

Globalization

Filters

Exam 13: Inflation, Output and Economic Policy

The UK in?ation target is _____.

An economy's potential GDP is ﬁxed; it cannot be changed.

Which of the following correctly explains why real wages may vary in the short run?

When an increase in aggregate demand causes higher inﬂation, the central bank should _____ to bring inﬂation back to the target level.

Extreme Keynesians believe that all markets adjust instantly, leading to a clearing equilibrium.

For an economy which is facing an inﬂationary recession, an increase in interest rates will help to move the economy towards long-term equilibrium.

If output gap in an economy declines because of a gradual increase in aggregate demand as the economy moves out of a recession, it is called a real business cycle effect.

The short-run Philips curve shifts downwards when there is a rise in inﬂationary expectations.

Which of the following would cause an increase in long-run aggregate supply?

Can an economy's potential output change over time? Explain your answer.

Consider an economy which is in both long-run and short-run equilibrium. Which of the following will occur in the short-run if consumer conﬁdence in this economy fell signiﬁcantly?

What does the Phillips curve show?

The _____ believe that markets adjust instantly, leading to long-run equilibrium.

Aggregate demand is the sum of consumption, investment, government expenditure and net exports.

Which of the following correctly explains the Taylor rule?

When the aggregate demand in an economy falls, there is a downward movement along the short- run Philips curve.

When the aggregate demand curve shifts to the left, there is a rise in prices and fall in GDP in the short run.

If the annual real income of an individual is £45,000 and the annual inﬂation rate is 3 per cent, compute the nominal income.

Which of the following is likely to be associated with a negative output gap?

A rise in in?ationary expectations in the economy will:

Economics for Business

Consumers in the Marketplace

Firms in the Marketplace

Markets in Action

Market Structure and Firm Performance

Strategic Rivalry

Growth Strategies

Governing Business

Introduction to the Macroeconomy

Measuring Macroeconomic Variables and Policy Issues

Expenditure and Fiscal Policy

Money, Banking and Interest

Supply-Side Policies and Economic Growth

Exchange Rates and the Balance of Payments

Globalization

Filters