Deck 10: Measuring Macroeconomic Variables and Policy Issues

Question 1

The level of gross domestic product (GDP) per capita measures the:

A) average income per person in a country.
B) the total income of a country in a given year.
C) the average working age population in a country.
D) the total market value of goods and services sold in a given year.

Answer 1

average income per person in a country.

Question 2

Which of the following is a drawback of using gross domestic product (GDP) per capita as a measure of economic welfare?

A) It does not show the average income earned per person in the country.
B) It does not throw any light on the distribution of income in the economy.
C) It includes the value of income earned from illegal activities such as smuggling and tra?cking.
D) It includes the value of non-monetary transactions in the economy.

Answer 2

It does not throw any light on the distribution of income in the economy.

Question 3

Which of the following is likely to occur in a recession?

A) An increased level of innovation in the economy.
B) A decline in the level of employment.
C) An increase in aggregate supply.
D) A high level of aggregate demand.

Answer 3

A decline in the level of employment.

Question 4

The difference between gross domestic product (GDP) and gross national product (GNP) is that GNP includes _____.

A) net property income from abroad
B) depreciation
C) subsides and taxes
D) consumption and investment

Question 5

A retailer sells a good to a consumer for £500. The cost of all the inputs used to produce the good is equal to £210. The value added of the retailer will be equal to _____.

A) £210
B) £500
C) £290
D) £790

Question 6

If higher GDP stems from an increase in aggregate demand, then it is likely that:

A) the level of in?ation will also increase.
B) aggregate supply will decrease.
C) investments in infrastructure will reduce.
D) unemployment rate will also increase.

Question 7

Other things unchanged, which of the following would reduce the level of gross domestic product (GDP) in a country?

A) An increase in the country's stock of capital goods.
B) An improvement in managerial techniques.
C) An increase in the country's population.
D) An Increase in the country's investment in human capital.

Question 8

A decline in interest rates leads to a sharp increase in consumption and investment. The general price level in the economy also increases. This is an example of:

A) demand pull in?ation.
B) cost push in?ation.
C) stag?ation.
D) de?ation.

Question 9

Double counting can be avoided by:

A) deducting a double-counting factor from the GNP estimates.
B) adding the value of only the intermediate (non-?nal) goods and services produced.
C) adding the incremental value added at each stage of production.
D) including the value of all output produced in the economy.

Question 10

If there is an increase in aggregate supply while aggregate demand remains unchanged, then:

A) the in?ation rate decreases.
B) the equilibrium GDP decreases.
C) the standard of living in the economy falls.
D) the purchasing power of money decreases.

Question 11

If there is an increase in aggregate demand while aggregate supply is perfectly inelastic, then:

A) the in?ation rate increases.
B) the equilibrium GDP decreases.
C) the quality of life in the economy improves.
D) the purchasing power of money increases.

Question 12

Which of the following statements is true?

A) Higher economic growth is associated with higher levels of carbon-dioxide emissions.
B) Other things constant, an increase in the working age population will increase the
C) A 10% increase in the level of GDP per capita implies that each individual in the economy earns 10% more.
D) An economy that has a higher level of GDP is likely to consume lower levels of energy.

Question 13

Which of the following is included in calculating national income at market prices?

A) Illegal income, such as income earned from smuggling.
B) The market value of intermediate goods.
C) Non-monetary payments for goods and services.
D) Subsidies and taxes.

Question 14

The total output of an economy can be measured as the:

A) net value of the goods and services produced by ?rms in an economy.
B) value of household earnings spent outside the economy.
C) net value of corporate and income taxes paid.
D) value of non-monetary transactions within the economy.

Question 15

Which of the following is a possible cause of demand pull in?ation?

A) An increase in the prices of imported raw materials.
B) A higher decline in wages than in the rate of in?ation.
C) A decrease in the income tax rates in the economy.
D) An increase in the interest rates in the economy.

Question 16

When does demand pull in?ation occur in an economy?

A) When a rise in aggregate demand leads to an increase in overall prices.
B) When a fall in aggregate demand leads to an increase in overall prices.
C) When a rise in aggregate supply leads to a reduction in overall prices.
D) When a fall in aggregate supply leads to an increase in overall prices.

Question 17

The _____ measures the percentage of people of working age who are in employment.

A) jobholding rate
B) claimant count
C) labour force ratio
D) participation rate

Question 18

_____ accounts for the use of productive capital in the creation of output.

A) Depreciation
B) The discount rate
C) Devaluation
D) Deferred expenditure

Question 19

Demand pull in?ation can be caused by:

A) the widespread usage of new cost-saving production technology.
B) an increase in the level of capital used in production.
C) a large number of ?rms exiting the market.
D) an increase in consumption by households.

Question 20

Which of the following is an example of a cost incurred in generating higher levels of GDP per capita?

A) A high level of investment in infrastructure.
B) An increase in worker productivity from improved health and education services.
C) A high number of hours worked per week.
D) An increase in innovation that aids the development of new products.

Question 21

If the value of the price index was 120 in 2009 and 150 in 2010, then what was the in?ation rate in 2010?

A) 30%
B) 25%
C) 20%
D) 10%

Question 22

The in?ation rate is measured as _____.

A) (price index in current year - price index in previous year)/price index in previous year
B) price index in current year/price index in previous year
C) price index in previous year/price index in current year
D) price index in previous year/(price index in current year - price index in previous year)

Question 23

Suppose a person receives a salary of £15 000 in 2012 and the price index for the year is 115. The in?ation-adjusted salary is approximately _____.

A) £17 250
B) £13 274
C) £15 000
D) £13 043

Question 24

If the in?ation rate was 5 per cent in 2010 and the price index was 120 in 2009, what was the value of the price index in 2010?

A) 124
B) 125
C) 126
D) 127

Question 25

If the nominal rate of interest is 6 per cent and the real rate of interest is 10 per cent, the rate of in?ation is _____.

A) 4%
B) -4%
C) 3%
D) -3%

Question 26

A sharp rise in fuel prices increases the general price level in an economy. This is an example of:

A) cost push in?ation.
B) demand pull in?ation.
C) stag?ation.
D) de?ation.

Question 27

If the in?ation rate was 10 per cent and the price index was 120 in 2010, then what was the approximate value of the price index in 2009?

A) 130
B) 121
C) 109
D) 100

Question 28

When does cost push in?ation occur in an economy?

A) When a fall in aggregate demand leads to an increase in overall prices.
B) When a rise in aggregate supply leads to an increase in overall prices.
C) When a rise in aggregate demand leads to an increase in overall prices.
D) When a fall in aggregate supply leads to an increase in overall prices.

Question 29

Which of the following is a disadvantage of in?ation?

A) It reduces the nominal rate of interest.
B) It increases the real value of the pro?ts made when an asset is sold.
C) It reduces the purchasing power of money.
D) It increases the real value of household savings.

Question 30

If the value of the price index was 103 in 2009 and 105 in 2010, what was the in?ation rate in 2010?

A) 2.2%
B) 2.1%
C) 2%
D) 1.9%

Question 31

De?ation can leave households that have mortgages with negative equity. This means that:

A) de?ation causes the value of the mortgage to fall.
B) de?ation transfers wealth from the bank to the household with the mortgage.
C) de?ation increases the real value of assets like housing.
D) de?ation causes the value of the house to be lower than the outstanding balance of the

Question 32

When prices are rising quickly, retailers will have to constantly change their prices. The cost incurred in changing prices is called a(n) _____.

A) ?xed cost
B) implicit cost
C) menu cost
D) out-of-pocket cost

Question 33

Which of the following is an effect of de?ation?

A) It makes borrowers worse off.
B) It increases the nominal value of assets like stocks and bonds.
C) It reduces the purchasing power of money.
D) It increases the costs of production.

Question 34

Suppose that households, businesses and organized labour all expect the in?ation rate to increase and behave accordingly, this will cause:

A) an acceleration of the in?ation rate.
B) a reduction in the in?ation rate.
C) the Phillips curve to shift away towards the origin.
D) the level of unemployment to increase.

Question 35

Suppose that the nominal interest rate is constant and the average price level begins to rise. Which of the following is most likely to happen?

A) The real interest rate will fall.
B) The level of national output will fall.
C) The real interest rate will increase.
D) The unemployment rate will increase.

Question 36

_____ occurs when tax-free income allowances grow at a slower rate than earnings.

A) Fiscal drag
B) Revenue equivalence
C) De?ation
D) In?ation illusion

Question 37

If an economy has a volatile in?ation rate:

A) uncertainty will increase making investment decisions di?cult.
B) net exports will rise since goods will be imported from other countries.
C) the business cycle will be relatively stable.
D) the government will pursue policies to shift aggregate supply to the left.

Question 38

During periods of rising in?ation, there is a transfer of wealth from _____.

A) the government to taxpayers
B) the young to the elderly
C) the poor to the rich
D) lenders to borrowers

Question 39

Suppose that the rate of in?ation is 6% per year and the nominal interest rate for the year is 9%. The real rate of interest is _____.

A) 15%
B) 3%
C) 9%
D) 6%

Question 40

Cost push in?ation can be caused by:

A) a substantial increase in the level of government spending.
B) a decrease in the income tax rates.
C) an increase in the pace of technological innovation.
D) an increase in the prices of oil, wheat and other commodities.

Question 41

Which of the following implies that the measurement of key macroeconomic data is not always accurate?

A) The earlier the estimate of the data, the more accurate it is.
B) The revisions of key economic data are always positive by 0.25%.
C) Estimates of key macroeconomic data are nearly always subject to revision.
D) All relevant data are usually available within a month after the end of the ?nancial year.

Question 42

A policy implication of the downward-sloping Phillips curve is that:

A) monetary policy is more appropriate than ?scal policy in controlling in?ation.
B) it is not possible for the economy to achieve full employment.
C) policy makers may face a trade-off between in?ation and unemployment.
D) it is possible to control in?ation and maintain a high level of employment.

Question 43

In the following graph, S and D represent the supply and demand curves respectively, in the labour market. Refer to the graph to answer the question. When the wage in the market is set at £15:

A) there is a surplus of 300 workers.
B) there is a shortage of 100 workers.
C) there is a surplus of 200 workers.
D) there is a shortage of 275 workers.

Question 44

Unemployment that results when a worker quits one job and is searching for a new opportunity is called _____.

A) classical unemployment
B) structural unemployment
C) cyclical unemployment
D) frictional unemployment

Question 45

In the UK, the _____ measures the number of people who are eligible and receiving the jobseeker's allowance.

A) natural rate of unemployment
B) percentage of working-age population
C) labour force participation rate
D) claimant count

Question 46

In the following graph, S and D represent the supply and demand curves respectively, in the labour market. Refer to the graph to answer the question. The labour union in the market demands that workers should be paid a wage rate of £15. The resulting unemployment is called _____.

A) classical unemployment
B) structural unemployment
C) cyclical unemployment
D) frictional unemployment

Question 47

The balance of payments measures the:

A) difference between government spending and tax receipts.
B) difference between actual in?ation and the in?ation target in an economy.
C) difference between the ?nancial ?ows coming in and going out of a country.
D) relationship between the level of in?ation and the unemployment rate.

Question 48

When would in?ation targeting using interest rates lead to a recession in an economy?

A) When the central bank publicizes its target goal for the in?ation rate.
B) When in?ation is inversely linked to employment.
C) When the target rate of in?ation is very high.
D) When the in?ation has been caused by a reduction in aggregate supply.

Question 49

When the UK is running a balance of payments de?cit, this means that:

A) the UK is exporting high-productivity capital items.
B) the average wage level in the UK is very high.
C) the UK is importing more goods and services than it is exporting overseas.
D) the government has to take policies that will shift the aggregate supply curve to the left.

Question 50

Which of the following statements is correct?

A) Factories and ?rms reduced in size during recession.
B) Unemployment rate decreases during a recession.
C) In?ation causes real interest rates to decrease.
D) In?ation is always costless.

Question 51

If a union negotiates a wage above the equilibrium wage in an industry, then the resultant unemployment is called _____ unemployment.

A) classical
B) structural
C) cyclical
D) frictional

Question 52

In the following graph, S and D represent the supply and demand curves respectively, in the labour market. Refer to the graph to answer the question. When the wage in the market is set at £7:

A) there is a surplus of 100 workers.
B) there is a shortage of 150 workers.
C) there is a surplus of 200 workers.
D) there is a shortage of 275 workers.

Question 53

Which of the following is an instrument of ?scal policy?

A) Taxation.
B) Interest rates.
C) Open market operations.
D) Money supply.

Question 54

Which of the following is true for the UK economy?

A) The UK economy's manufacturing base contributes to approximately 75% of GDP.
B) The UK economy is centered around the production of services, which are not easy to
C) Exported services are worth around ?ve times more than manufacturing exports.
D) Balancing manufacturing and service industries will help the UK economy prevent classical

Question 55

Suppose the demand for construction jobs declines drastically during a recession. The resulting unemployment is called _____.

A) classical unemployment
B) structural unemployment
C) cyclical unemployment
D) frictional unemployment

Question 56

The unemployment that resulted when the typewriter industry went into decline is called _____.

A) classical unemployment
B) structural unemployment
C) frictional unemployment
D) cyclical unemployment

Question 57

In the following graph, S and D represent the supply and demand curves, respectively, in the labour market. Refer to the graph to answer the question. The labour market is in equilibrium when _____ workers are employed.

A) 200
B) 100
C) 300
D) 275

Question 58

The Phillips curve shows the relationship between:

A) the unemployment rate and the level of real income.
B) the in?ation rate and the level of aggregate demand.
C) the rate of change in the price level and the unemployment rate.
D) the wage rate and the level of unemployment.

Question 59

Which of the following is a key monetary policy tool that is used by a country's central bank?

A) Transfer payments
B) Interest rates
C) Taxation
D) Government spending

Question 60

Which of the following types of unemployment is temporary?

A) Classical unemployment.
B) Structural unemployment.
C) Cyclical unemployment.
D) Frictional unemployment.

Question 61

Menu costs are the costs of changing shelf labels and price lists when prices rise quickly.

Question 62

The difference between frictional unemployment and cyclical unemployment is that cyclical unemployment is temporary.

Question 63

National income at basic prices is calculated by adjusting national income at market prices for indirect taxes and subsidies.

Question 64

In order to reduce structural unemployment, unemployed workers need to be retrained to suit new types of jobs.

Question 65

A worker who loses his job due to recessionary conditions in the economy is said to be cyclically unemployed.

Question 66

If the inflation rate is 6% per year and the nominal interest rate is 5%, then the real interest rate is 11%.

Question 67

Cost push inflation occurs when aggregate demand increases.

Question 68

Classical unemployment occurs when individuals have left one job and are looking for another job.

Question 69

The International Labour Organization (ILO) defines employment as a measure of jobless people who want to work but are not necessarily available to work.

Question 70

In order to calculate national income, depreciation is deducted from GDP.

Question 71

If the actual rate of inflation is higher than the expected rate of inflation, there is a redistribution of wealth from creditors to debtors.

Question 72

The participation rate for an economy refers to the percentage of people in the total population who are in employment.

Question 73

Gross domestic product is calculated by adding net property income from abroad to gross national product.

Question 74

Deflation increases the purchasing power of money.

Question 75

A firm reduces hiring in the next quarter following an agreement with the union to increase prices. This leads to structural unemployment.

Question 76

If incomes rise by 10% and the government does not lift its tax-free income allowance, individuals will start paying lesser real tax.

Question 77

Since the prices of goods and services are falling, deflation positively affects workers and firms.

Question 78

The output method of measuring GDP is equivalent to the incomes method of measuring GDP.

Question 79

The claimant count in the UK is generally lower than the International Labour Organization's (ILO) measure of unemployment.

Question 80

Economic growth that is driven by increases in aggregate demand will lead to increases in inflation.