Question 1

Which of the following statements supports deregulation of industries?

Accepted Answer

A)  Many instances of government regulation have succeeded in reducing competition in industries where competition may be beneficial. 
B)  Technological change has made it possible for many industries to become more competitive. 
C)  Since few real natural monopolies exist, there is rarely a reason for government regulation. 
D)  All of the above 
A)  Many instances of government regulation have succeeded in reducing competition in industries where competition may be beneficial. 
B)  Technological change has made it possible for many industries to become more competitive. 
C)  Since few real natural monopolies exist, there is rarely a reason for government regulation. 
D)  All of the above D

Question 2

Supply- side policies are government policies

Accepted Answer

A)  that focus on increasing long- term production. 
B)  regarding taxes and expenditures. 
C)  that directly attempt to control prices and wages. 
D)  that are used to control the money supply. 
A)  that focus on increasing long- term production. 
B)  regarding taxes and expenditures. 
C)  that directly attempt to control prices and wages. 
D)  that are used to control the money supply. A

Question 3

Give two arguments to explain why the free market might lead to a sub- optimal level of investment.

Accepted Answer

• Many markets are monopolistic (this removes some of the incentive for investment).
• Firms may only be interested in short- term profits.
• Investment might appear too risky, especially if the free market is subject to cyclical fluctuations.
• Investment decisions by private firms may not take into account the social rate of return, e.g. the full benefits from the training of labour.
• Financial institutions may be unwilling to finance long- term investment.

Question 4

Discuss the problems that have arisen from the introduction of market relationships in the provision of public sector services such as health and education.

Accepted Answer

Problems include reductions in the quali

Question 5

Proponents for supply- side policies argue that the best way to increase the supply of goods and services is

Accepted Answer

A)  to increase government production so that public sector employment increases. 
B)  to stimulate the supply of labour and capital and increase investment. 
C)  for the government to directly control prices and wages. 
D)  to increase the supply of money in the economy. 
A)  to increase government production so that public sector employment increases. 
B)  to stimulate the supply of labour and capital and increase investment. 
C)  for the government to directly control prices and wages. 
D)  to increase the supply of money in the economy.

Question 6

Give an example of a supply- side policy which has demand- side effects. Explain.

Accepted Answer

An example of a supply- side policy whic

Question 7

Comment on the incentive effects for employers and workers of a cut in the rate of income tax.

Accepted Answer

Employers face a lower total labour cost

Question 8

Would lowering wages raise the potential GDP of a country?

Accepted Answer

A) True 
 B)False

Question 9

The Coalition's Enterprise Zones are an example of regional and urban policy.

Accepted Answer

A) True 
 B)False

Question 10

New Classical economists are in favour of locally negotiated wages in depressed areas because they believe this will lead to

Accepted Answer

A)  increased government intervention in depressed areas. 
B)  lower wages in prosperous areas giving incentives to workers to move. 
C)  low wages attracting new employers. 
D)  all of the above 
A)  increased government intervention in depressed areas. 
B)  lower wages in prosperous areas giving incentives to workers to move. 
C)  low wages attracting new employers. 
D)  all of the above

Question 11

Deindustrialisation refers to

Accepted Answer

A)  the modernisation of the manufacturing industry. 
B)  the decline in the country's manufacturing base. 
C)  the growth in the service sector. 
D)  the growth in science parks where only high technology industries are located. 
E)  the movement back to an agriculturally- based economy. 
A)  the modernisation of the manufacturing industry. 
B)  the decline in the country's manufacturing base. 
C)  the growth in the service sector. 
D)  the growth in science parks where only high technology industries are located. 
E)  the movement back to an agriculturally- based economy.

Question 12

If market prices were perfectly flexible, and there was perfect factor mobility, there would be no problem of regional or local inequality.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following regional or urban policies would be advocated by free market economists and which by interventionists?
(a) Offering local facilities and the improvement of local infrastructure for potential new business
free market/interventionist
(b) The migration of labour should be encouraged by the reduction of benefit levels
free market/interventionist
(c) Capping high- spending local authorities, that impose excessive local taxation, since high taxation is a disincentive to firms locating in particular areas
free market/interventionist
(d) The government preventing the location of firms in already prosperous parts of the country
free market/interventionist
(e) Replacing nationally negotiated wage agreements by locally negotiated ones
free market/interventionist
(f) Provision of a range of local subsidies and grants to firms
free market/interventionist
(g) Setting a uniform business rate across the whole country
free market/interventionist

Accepted Answer

(a), (d) and (f) are all interventionist

Question 14

What effect will a successful supply- side policy have on the production possibility curve?

Accepted Answer

A)  An inward shift 
B)  A movement along 
C)  An outward shift 
D)  No effect 
A)  An inward shift 
B)  A movement along 
C)  An outward shift 
D)  No effect

Question 15

Of the following possible reforms to the National Health Service (NHS), which were adopted by the 1990s Conservative governments in the UK?
  (i) Devolution of responsibility for the provision of health care from regional authorities to hospital trusts
(ii) General practitioner budget holders purchasing services directly from hospitals on behalf of their patients
(iii) The introduction of charges to patients for consulting their NHS doctors
(iv) Greater competition between hospitals

Accepted Answer

A)  (ii) and (iv) 
B)  (i), (ii) and (iv) 
C)  (i), (ii) and (iii) 
D)  (ii) and (iii) 
E)  (ii), (iii) and (iv) 
A)  (ii) and (iv) 
B)  (i), (ii) and (iv) 
C)  (i), (ii) and (iii) 
D)  (ii) and (iii) 
E)  (ii), (iii) and (iv)

Question 16

A key supply- side policy is to make sure that workers are well trained. Which of the following is true?

Accepted Answer

A)  UK labour turnover is less than that of comparable countries. 
B)  The UK spends a smaller percentage of its GDP on training than comparable countries. 
C)  UK workers are better trained than German workers. 
D)  UK workers are better educated than US workers. 
A)  UK labour turnover is less than that of comparable countries. 
B)  The UK spends a smaller percentage of its GDP on training than comparable countries. 
C)  UK workers are better trained than German workers. 
D)  UK workers are better educated than US workers.

Question 17

Lowering interest rates to prevent the exchange rate appreciating is a supply- side policy.

Accepted Answer

A) True 
 B)False

Question 18

If market prices were perfectly flexible, but there was significant factor immobility, there would be	   specifically regional or local unemployment problem.

Accepted Answer

A) True 
 B)False

Question 19

If the government succeeds in reducing the power of labour, equilibrium unemployment may fall.

Accepted Answer

A) True 
 B)False

Question 20

Decide whether the following measures to cure employment are supply- side, demand- side or have elements of both.
(a) The use of incomes policy to keep costs down by preventing excessive wage increases
supply- side/demand- side/both
(b) The launch of a new government training programme for school leavers
supply- side/demand- side/both
(c) A new computer network to provide more detailed national information at job centres on vacancies
supply- side/demand- side/both
(d) A government investment programme targeted at key growth industries
supply- side/demand- side/both
(e) Income tax cut by 2p in the pound
supply- side/demand- side/both
(f) Lower interest rates to prevent the exchange rate appreciating
supply- side/demand- side/both

Accepted Answer

(a) Supply- side
(b) Supply- side
(c) Su

Exam 31: Supply-Side Policy

Which of the following statements supports deregulation of industries?

Supply- side policies are government policies

Give two arguments to explain why the free market might lead to a sub- optimal level of investment.

Discuss the problems that have arisen from the introduction of market relationships in the provision of public sector services such as health and education.

Proponents for supply- side policies argue that the best way to increase the supply of goods and services is

Give an example of a supply- side policy which has demand- side effects. Explain.

Comment on the incentive effects for employers and workers of a cut in the rate of income tax.

Would lowering wages raise the potential GDP of a country?

The Coalition's Enterprise Zones are an example of regional and urban policy.

New Classical economists are in favour of locally negotiated wages in depressed areas because they believe this will lead to

Deindustrialisation refers to

If market prices were perfectly flexible, and there was perfect factor mobility, there would be no problem of regional or local inequality.

What effect will a successful supply- side policy have on the production possibility curve?

A key supply- side policy is to make sure that workers are well trained. Which of the following is true?

Lowering interest rates to prevent the exchange rate appreciating is a supply- side policy.

If market prices were perfectly flexible, but there was significant factor immobility, there would be specifically regional or local unemployment problem.

If the government succeeds in reducing the power of labour, equilibrium unemployment may fall.

The Business Environment and Business Economics

Economics and the World of Business

Business Organisations

The Working of Competitive Markets

Business in a Market Environment

Demand and the Consumer

Demand and the Firm

Products, Marketing and Advertising

Costs of Production

Revenue and Profit

Profit Maximisation Under Perfect Competition and Monopoly

Profit Maximisation Under Imperfect Competition

An Introduction to Business Strategy

Alternative Theories of the Firm

Growth Strategy

The Small-Firm Sector

Pricing Strategy

Labour Markets, Wages and Industrial Relations

Investment and the Employment of Capital

Reasons for Government Intervention in the Market

Government and the Firm

Government and the Market

Globalisation and Multinational Business

International Trade

Trading Blocs

The Macroeconomic Environment of Business

The Balance of Payments and Exchange Rates

Banking, Money and Interest Rates

Business Activity, Employment and Inflation

Demand-Side Policy

International Economic Policy

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