1. Which one of the following is NOT an example of the use of government fiscal policy? A change in

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1 1.1 Macroeconomics Revision Test (1) 1. Which one of the following is NOT an example of the use of government fiscal policy? A change in a) Government spending on the National Health Service b) Interest rates c) The size of the budget deficit d) A tax imposed on imports of goods and services 2. Which one of the following would cause an outward shift of the long run aggregate supply curve? An increase in a) The demand for credit b) The rate of consumer price inflation c) The volume of exports produced d) The productivity of labour and capital inputs 3. The chart below shows real consumer spending in the UK for each year from 1987 to From the chart it can be seen that a) The real level of consumer spending fell in 1995 b) Consumer spending grew more strongly in the second half of the 1990s than the first half of the same decade c) The UK economy was in recession in 1991 and 1992 d) The level of consumer spending was at its highest in 1988 tutor2u Page 6

2 General Price Level LRAS P2 P1 SRAS1 AD1 AD2 Y1 Y2 Yfc Real National Income 4. The change in aggregate demand shown in the diagram above could have been caused by all of the factors below except a) An increase in the level of household disposable income b) An increase in the level of government borrowing c) A fall in the value of the sterling exchange rate d) An increase in the level of direct taxation for consumers and businesses 5. Which of the following is likely to decrease short run aggregate supply in an economy? a) A rise in the price of raw materials and components b) Improvements in production technology c) Increased geographical mobility of labour d) A rise in business confidence 6. Supply-side economic policies are most likely to be concerned with influencing a) The value of the UK exchange rate against the Euro b) The long run trend rate of economic growth c) Short run fluctuations in the general price level d) Short run fluctuations in the volume of UK exports sold overseas tutor2u Page 7

3 7. The chart above provides information on house prices in the UK from data published by the Halifax and the Nationwide, two of Britain's leading mortgage providers. From the data it can be seen that a) UK House prices were at their lowest in January 2001 b) The Nationwide has sold fewer houses than the Halifax during the period c) The UK housing market experienced a recession during 2003 d) On average, house prices have risen by more than ten per cent per annum since Other things being equal, a rise in interest rates in the UK is most likely to a) Decrease the external value of the pound against other currencies b) Decrease the demand for new homes c) Decrease the propensity to save among consumers d) Decrease the level of government spending on public and merit goods 9. Which one of the following is a supply-side policy to reduce the level of unemployment? a) A cut in interest rates b) An increase in the real value of unemployment benefits c) A reduction in the basic rate of income tax from 22% to 20% d) A cut in spending on the Government s New Deal programme 10. If the short run aggregate supply curve is drawn as perfectly inelastic, an increase in aggregate demand will lead to an increase in a) Inflation b) Real national output c) Both inflation and real national output d) Real national output and employment tutor2u Page 8

4 11. In the short run an increase in the government s budget deficit is most likely to reduce a) The demand for imported goods and services b) Unemployment c) Interest rates d) Inflation 12. A decision by the Bank of England to cut UK interest rates at a time when the value of the UK exchange rate is falling is most likely to lead to an increase in a) Long run aggregate supply b) Unemployment c) The trade surplus in goods and services d) Aggregate demand 13. The chart above shows the household savings ratio for the UK for each year from 1990 to From the data shown in the chart above we can say that a) Consumers were spending less in 2001 than they were in 2000 b) Interest rates were higher in 1992 than there were in 2001 c) The average propensity to save has fallen since 1994 d) The number of households in debt has increased since Other factors remaining the dame, a 10 per cent fall in the UK exchange rate is most likely to lead to a) A fall in the UK price of imported food and drink b) A rise in the foreign price of UK exports of cars c) Higher demand for imported televisions into the UK d) Higher demand for exports of digital cameras out of the UK tutor2u Page 9

5 15. Economic growth occurs when there is an increase in a) Aggregate demand b) The rate of inflation c) Wage rates d) Productive capacity 16. Which one of the following would not be regarded as a macro-economic government objective? a) Achieving a steady rate of economic growth b) Increasing capital investment and productivity in the steel industry c) Keeping the rate of consumer price inflation within target d) Reducing the rate of claimant count unemployment 17. The level of structural unemployment is most likely to be reduced by a) Reducing interest rates b) Reducing tariff barriers on imports of new technology c) Increasing funding for training schemes for the unemployed d) Decreasing capital investment grants for small businesses 18. The diagram above shows the annual rate of growth of real GDP for the Euro Zone countries and the UK. From the data it can be seen that a) The UK has grown faster than the Euro Zone throughout the period shown b) Unemployment has fallen in both the Euro Zone and the UK since 1997 c) Both the Euro Zone and the UK economy experienced a recession in 2001 d) The UK economy experienced an upturn in economic growth in 2003 tutor2u Page 10

6 19. Which one of the following is most likely to lead to an increase in the rate of consumer price inflation? a) An appreciation of the exchange rate b) A fall in the balance of payments surplus c) A rise in the budget surplus d) A rise in world commodity prices 20. A government wishes to increase the rate of economic growth and reduce a deficit on the balance of payments. Which of the following mix of policies would be most likely to achieve these objectives? a) Expansionary fiscal policy together with a rise in interest rates b) Expansionary monetary policy together with a rise in taxes c) Policies aimed at increasing investment and education and training d) Increased investment in infrastructure together with policies aimed at raising the exchange rate tutor2u Page 11

7 Macroeconomics Revision Test (1) - Answers 1. (b) 2. (d) 3. (b) 4. (d) 5. (a) 6. (b) 7. (d) 8. (b) 9. (c) 10. (a) 11. (b) 12. (d) 13. (c) 14. (d) 15. (d) 16. (b) 17. (c) 18. (d) 19. (d) 20. (c) tutor2u Page 12