Multiple choice questions

Multiple choice questions
Choose the right answer for each of the following questions. Each correct answer is
worth 2 marks. In the document you are submitting just write your answers by
question number and chosen letter, i.e., 1.d, 2.b, 3.c, etc.
1. Which of the following best illustrates the concept of unemployment due to business cycles?
a) Amanda loses her job because of a recession.
b) Ginny loses her job because of automated machinery.
c) Sam quits his job to look for work that is more fun.
d) Elle quits looking for work because she doesn’t think she can find a suitable job.
2. All of the statements below are wrong except
a) The structural and frictional unemployment are considered normal.
b) Structural unemployment occurs during a recession.
c) In the short-run a drop in unemployment always coincides with a drop in inflation.
d) People without jobs and not actively looking for a job are considered unemployed.
3. Assuming that the planned expenditure (PE) of an economy is expressed by the equation
PE=1200+0.65Y. Then
a) The multiplier equals 2.86.
b) The equilibrium output equals 3,429.
c) An increase in spending by 100 will result in new equilibrium output of 3,715.
d) All of the above.
4. The autonomous spending in an economy includes
a) The marginal propensity to consume of the households.
b) The investment spending of the firms.
c) The taxes collected by the government.
d) All of the above.
5. Growth in GDP underestimated the growth in national well-being because
a) Environmental costs are extracted out of GDP.
b) Investment such as stock purchase is not included in GDP.
c) As a country gets richer, job quality and leisure time tend to increase.
d) All of the above.
6. If Toyota produces a car in a plant in Brixton and exports it to Japan, the value of the car is
included in which country’s GDP?
a) Japan’s, because Toyota is a Japanese company.
b) UK’s, because that is where it is produced.
c) Japan’s, because that is where the car is purchased.
d) Both Japan and UK, 50-50 split.
7. Assume that currently the planned expenditure (PE) exceeds the production (Y). Then
a) Firms will experience an unexpected rise in their inventories, leading them to increase
production levels.
b) Firms will experience an unexpected drop in their inventories, leading them to increase
production levels.
c) Firms will experience an unexpected rise in their inventories, leading them to lower
production levels.
d) Firms will experience an unexpected drop in their inventories, leading them to lower
production levels.
8. If the CPI in 1982 was 100 and the CPI in 1983 was 115, then the rate of inflation was
a) 1.5 percent.
b) 11.5 percent.
c) 115 percent.
d) none of the above.
9. The Bank of England announced an increase in the interest rates. This will result in
a) Lower consumption and investment spending leading eventually to higher inflation.
b) Decrease in government spending and increase in unemployment.
c) Lower investment spending leading to slower GDP growth.
d) More than one of the above are correct.
10. The leakages from the economic system include
a) Imports, taxes, and savings.
b) Consumption, savings, and taxes.
c) Savings, exports, and imports.
d) None of the above.
11. The different types of unemployment are
a) Frictional/seasonal, structural, and governmental.
b) Inflational, structural, and cyclical.
c) Frictional/seasonal, structural, and cyclical.
d) None of the above.
12. The net exports account will increase if
a) Foreign products become relatively more expensive compared to domestic products
b) The domestic currency appreciates (i.e., it becomes stronger).
c) The domestic currency depreciates (i.e., it becomes weaker).
d) Both (a) and (c) are correct.
13. If an economy is facing a drop in aggregate demand along with an even larger drop in aggregate
supply
a) Inflation will rise but unemployment will drop.
b) both the inflation and the unemployment rate will rise
c) both the inflation and the unemployment rates will drop
d) there is a surplus of goods in the market
14. Expansionary monetary policies include __________________ and result in ____________.
a) raising taxes, lower unemployment.
b) raising interest rates, higher output
c) increasing the money supply, higher GDP.
d) Lowering interest rates, higher unemployment.
15. Contractionary fiscal policies include __________________ and result in ____________.
a) raising government spending, higher output
b) lowering taxes, higher interest rates.
c) raising taxes, higher unemployment.
d) lowering government spending, lower unemployment.
Part 2: Numerical/analytical questions
Question 1 (20 marks)
Using the AD/AS model (and by drawing an appropriate graph) discuss the effect each of the
following events will have on UK’s GDP, employment, and inflation:
a. UK signs a new trade agreement with Canada, USA, and Mexico.
b. the UK government introduces a law that increases the minimum wage.
c. Consumer confidence drops due to high prices observed in food.
d. The price of crude oil increases and (assume that) UK is a net exporter of oil.
Question 2 (30 marks)
You are in an economy where consumption, investment, government spending, taxes, and
trade are given by
?? = ???? + ??. ????????
?? = ????
?? = ????
?? = ??. ??????
?? = ????
???? = ???? + ??. ??????
a. What is the equilibrium level of income? Based on your finding, what is the amount of
taxes the government will collect? What is the value of the budget surplus (or budget
deficit) for the government?
b. What would the new equilibrium income be if the government increases its government
spending by 15? Based on your finding, what is the amount of taxes the government will
collect? What is the value of the budget surplus (or budget deficit) for the government?