Fiscal policy refers to: the government's attitude to taxation.

the actions of the central bank in controlling the money supply. the government's regulation of financial intermediaries. the spending and taxing policies used by the government to influence the economy Net taxes are: taxes paid by firms and households to the government minus the cost of collecting the taxes. government expenditures minus government revenues. taxes paid by firms and households to the government plus transfer payments made to firms and households taxes paid by firms and households to the government minus the transfer payments made to firms and households Automatic stabilisers act to__________ government expenditures and __________ government revenues during recessions. decrease; decrease increase; decrease increase; increase decrease; increase Automatic stabilisers act to __________ government expenditures and __________ government revenues during an expansionary period. decrease; increase increase; increase increase; decrease decrease; decrease The negative effect on the economy that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion is: debt burden. the Laffer curve fiscal drag. bracket creep The budget deficit tends to decrease when GDP decreases rapidly GDP increases. GDP remains unchanged GDP decreases slightly Time lags which often erode effectiveness of monetary and fiscal policy measures represent: the change in exchange rates. the foreign response to price changes. the change in export and import prices. delays in the response of the economy to stabilisation policy

The implementation lag for monetary policy is generally much shorter than it is for fiscal policy unrelated to central bank action. much longer than it is for fiscal policy the same as it is for fiscal policy The response lag of stabilisation policy represents: the time needed for parliament to agree to a tax cut. the time that is necessary to put the desired policy into effect. the time that it takes for policy makers to recognise the existence of a boom or bust. the time that it takes for the economy to adjust to the new conditions after a new policy has been implemented The parable of 'Riding a Switchback' suggests that stabilizing policy: is desirable. is effective. is not sufficiently stimulating or contracting the economy at any time is stimulating or contracting the economy at the wrong times The multiple by which total deposits can increase for every pound increase in reserves is the: required reserve ratio money multiplier. liquidity ratio. bank's line of credit As the required reserve ratio is decreased, the money multiplier: decreases. remains the same, as long as banks hold no excess reserves increases. could either increase or decrease Following the work of _________________ in the 1960s, and the controversy associated with these views in the 1970s, there was a revival of interest by economists and government in monetary policy. Margaret Thatcher Ronald Reagan John Maynard Keynes Milton Friedman The idea that the money supply should change to accommodate changes in aggregate demand is associated with the ideas of: Ronald Reagan. Margaret Thatcher. John Maynard Keynes Milton Friedman

Goodhart's Law suggests that: the money supply must only expand at the rate of growth of real national income. bad money drives out good. controlling one part of the money supply will merely result in that item becoming less important. monetary policy can only be effective if it is a long-term policy By 'financial crowding out' economists mean: government borrowing drives up interest rates. what the government borrows cannot be used for private investment credit rationing. Bank of England controls on commercial bank lending

If the Bank of England wished to pursue a 'tight' monetary policy it would: buy government securities on the open market lower interest rates. sell government securities on the open market reduce the minimum reserve asset ratio

If the Bank of England wished to pursue an expansionary monetary policy it would increase the minimum reserve asset ratio. sell government securities on the open market. raise interest rates. buy government securities on the open market Over-funding is when the Bank of England: buys government securities on the open market. sells government securities on the open market. sells less government bonds than are required to finance the PSBR. sells more government bonds than are required to finance the PSBR By 'controlling the monetary base' economists mean: not allowing commercial banks to issue notes and coins restricting the amount of cash in circulation. making banks keep a certain % of their assets as M0 controlling the money multiplier

The National Economy Macroeconomics is the branch of economics that deals with: imperfectly competitive markets. the economy as a whole. the functioning of individual industries and the behaviour of individual decision-making units - business firms and households.

only the long run adjustments to equilibrium in the economy

The diagram that shows the income received and payments made by each sector of the economy is the: income-price diagram. aggregate demand-aggregate supply diagram income-expenditures diagram circular flow diagram

Macroeconomic theory that emphasised the theories of Keynes and de-emphasised the classical theory developed as the result of the failure of: fine tuning during the 1960s. the economy to grow at a rapid rate during the 1950s. the classical model to explain the prolonged existence of high unemployment during the Great Depression economic theory to explain the simultaneous increases in inflation and unemployment during the 1970s

The percentage of the labour force that is unemployed is the: unemployment rate. labour force rate. unemployment population ratio employment rate The index used most often to measure inflation is the: wholesale price index.(WPI). producer price index (PPI). consumer price index GDP deflator

An index of prices of all domestically produced goods in the economy is the: consumer price index (CPI). GDP deflator. wholesale price index (WPI). producer price index (PPI).

It has become conventional to classify a recession as a period where national output falls for ______ or more. a year three years two years six months The length of a business cycle would be measured from:

the slump to the expansion peak to peak. trough to peak peak to trough

Indicate below what is NOT a main macroeconomic goal. Reducing inflation. Increasing North Sea oil production. Reducing unemployment. Achieving a sustainable rate of economic growth

Aggregate demand includes only: consumer expenditure, government expenditure and investment. consumer debt, investment debt and government debt. consumer expenditure, investment, government expenditure, and exports less imports consumer expenditure and investment

Total withdrawals from the circular flow of income include consumption, savings and taxes. savings, taxes and imports. savings, government expenditure and imports savings, taxes and exports Total injections are made up of: investment + government expenditure + imports Investment + government expenditure + exports savings + government expenditure + exports investment + tax + exports Equilibrium in the circular flow of income occurs when: Injections = withdrawals Injections > withdrawals There is a Bank Holiday Injections < withdrawals There are three ways to measure GDP. True False Real GDP is nominal GDP measured in constant: interest rates. taxes. prices.

exchange rates The underground economy consists of: part of the rail network. legal transactions not declared for tax and illegal activities legal transactions. the water distribution system Purchasing power parity exchange rates are used to: convert nominal GDP to real GDP. pay wages by multinational companies. compare living standards of different countries estimate the costs of economic growth Two of the major factors contributing to growth are: money and efficiency. money and luck. resources and a good climate. resources and efficiency According to the classical economists, the only gainers from growth would be: peasants. landlords. the army politicians Aggregate supply is the total amount: of labour supplied by all households. produced by the government. of goods and services produced in an economy of products produced by a given industry Background to supply Profit-maximising firms want to maximize the difference between: marginal revenue and marginal cost total revenue and total cost. marginal revenue and average cost. total revenue and marginal cost Which statement is FALSE? Fixed costs are the difference between total costs and total variable costs Fixed costs do not depend on the firm's level of output Fixed costs are zero if the firm is producing nothing There are no fixed costs in the long run Which of the following is most likely to be a variable cost for a firm?

The monthly rent on office space that it leased for a year. The interest payments made on loans. The franchiser's fee that a restaurant must pay to the national restaurant chain The payroll taxes that are paid on employee wages The costs that depend on output in the short run are: total variable costs only. total costs only. total fixed cost only. both total variable costs and total costs The short run, as economists use the phrase, is characterised by: all inputs being variable. no variable inputs - that is, all of the factors of production are fixed. a period where the law of diminishing returns does not hold. at least one fixed factor of production and firms neither leaving nor entering the industry. Diminishing marginal returns implies: decreasing average variable costs decreasing average fixed costs decreasing marginal costs increasing marginal costs Which of the following is a correct statement about the relationship between average product (AP) and marginal product (MP)? If AP = MP, then total product is at a maximum If AP is at a maximum, then MP is also If AP exceeds MP, then AP is falling If TP is declining, then AP is negative If the total product of two workers is 80 and the total product of 3 workers is 90, then the average product of the third worker is _____ and the marginal product of the third worker is _______. 10; 30 10; 3.33 30; 10 160; 270 Engineers for The All-Terrain Bike Company have determined that a 15% increase in all inputs will cause a 15% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause _________ as output increases. marginal costs to increase average costs to remain constant average costs to decrease average costs to increase

Suppose Handel's Ice Cream experiences economies of scale up to a certain point and diseconomies of scale beyond that point. Its long-run average cost curve is most likely to be: upward sloping to the right. downward sloping to the right U-shaped horizontal Most empirical studies show that firms' cost curves: slope down to the right. are U-shaped. slope up to the right. slope down to the right and then level off A graph showing all the combinations of capital and labour that can be used to produce a given amount of output is: a production function an isocost line. an isoquant. an indifference curve The rate at which a firm can substitute capital for labour and hold output constant is the: marginal rate of production. marginal rate of factor substitution law of diminishing marginal returns marginal rate of substitution A graph showing all the combinations of capital and labour available for a given total cost is the budget constraint. expenditure set isocost line isoquant The formula for average fixed costs is: TFC - q Dq/DTFC q/TFC TFC/q The formula for average variable cost (AVC) is: q/TVC TVC/q DTVC/Dq Dq/DTVC Marginal revenue is: the added revenue that a firm takes in when it increases output by one additional unit the difference between total revenue and total costs.

the ratio of total revenue to quantity. the additional profit the firm earns when it sells an additional unit of output A firm in a perfectly competitive industry is producing 50 units, its profit-maximising quantity. Industry price is 2 and total fixed costs and total variable costs are 25 and 40, respectively. The firm's economic profit is: 35 30 60 15 Maximum profit can be shown on a diagram using: the MR and MC curves the AC and AR curves the AC and MC curves the MR and AR curves A firm will shut down in the short run if: it is suffering a loss. total costs exceed revenues. variable costs exceed revenues fixed costs exceed revenues

Supply and Demand The 'law of demand' implies that: as prices fall, demand increases. as prices fall, quantity demanded increases as prices rise, quantity demanded increases as prices rise, demand decreases The Setrite Corporation produces chairs. An economist working for the firm predicts that 'if people's incomes rise next year, then the demand for our chairs will increase, ceteris paribus.' The accuracy of the economist's prediction depends on whether the chairs Setrite produce: have few complementary goods. have many complementary goods have few substitutes are normal goods What effect is working when the price of a good falls and consumers tend to buy it instead of other goods? The ceteris paribus effect. The substitution effect. The income effect. The diminishing marginal utility effect The quantity demanded of Pepsi has decreased. The best explanation for this is that: Pepsi's advertising is not as effective as in the past

Pepsi consumers had an increase in income the price of Coca Cola has increased the price of Pepsi increased Demand curves are derived while holding constant: income, tastes, and the price of other goods income and tastes. income, tastes, and the price of the good tastes and the price of other goods When the decrease in the price of one good causes the demand for another good to decrease, the goods are: substitutes. complements inferior normal

Suppose the demand for good Z goes up when the price of good Y goes down. We can say that goods Z and Y are: perfect substitutes substitutes. unrelated goods complements If the demand for coffee decreases as income decreases, coffee is: a substitute good. an inferior good. a complementary good a normal good Which of the following will NOT cause a shift in the demand curve for compact discs? A change in income. A change in wealth. A change in the price of compact discs. A change in the price of pre-recorded cassette tapes Which of the following is consistent with the law of supply? As the price of calculators rise, the supply of calculators increases, ceteris paribus. As the price of calculators rise, the quantity supplied of calculators decreases, ceteris paribus As the price of calculators falls, the supply of calculators increases, ceteris paribus. As the price of calculators rise, the quantity supplied of calculators increases, ceteris paribus The price of computer chips used in the manufacture of personal computers has fallen. This will lead to __________ personal computers. a decrease in the supply of a decrease in the quantity supplied of

an increase in the quantity supplied of an increase in the supply of When excess demand occurs in an unregulated market, there is a tendency for: quantity demanded to increase price to fall. quantity supplied to decrease price to rise Market equilibrium exists when _____________ at the prevailing price. quantity demanded is less than quantity supplied quantity demanded equals quantity supplied quantity supplied is greater than quantity demanded quantity demanded is greater than quantity supplied A movement along the demand curve to the left may be caused by: a fall in the number of substitute goods a rise in the price of inputs a decrease in supply a rise in income The price elasticity of demand is the: ratio of the percentage change in price to the percentage change in quantity demanded ratio of the change in price to the change in quantity demanded. ratio of the change in quantity demanded to the change in price. ratio of the percentage change in quantity demanded to the percentage change in price

The price of apples falls by 5% and quantity demanded increases by 6%. This means that demand is: inelastic. elastic. zero elastic. perfectly elastic The price of burgers increases by 22% and the quantity of burgers demanded falls by 25%. This indicates that demand for burgers is: inelastic. unitarily elastic elastic. perfectly elastic If the cross-price elasticity of demand between two goods is negative, then the two goods are: normal goods. unrelated goods substitutes. complements

If the quantity demanded of beef increases by 5% when the price of chicken increases by 20%, the cross-price elasticity of demand between beef and chicken is: 4. -0.25 0.25 -4 When the market operates without interference, price increases will distribute what is available to those who are willing and able to pay the most. This process is known as: quantity adjustment price fixing. price rationing. quantity setting