LNDN 07002 – Economic Principles Quiz 2 (Macroeconomics) Practice Questions

Choose the one alternative that best completes the statement or answers the question.

1. A circular flow diagram traces the flows of inputs and outputs between:
   1. households and the government.
   1. households and firms.
   1. households in one country and households in another country.
   1. firms in one country and households in another country.

• GDP measures:
  • expenditure on all final goods and services.
  • total income of everyone in the economy.
  • total value added by all firms in the economy.
  • All of the answers are correct.

• What is the correct ascending order of the following periods typically associated with the business cycle?
• Upturn, rapid expansion, recession, peaking out
• Formation, ascension, peaking out, recession
• Upturn, diversification, peaking out, recession
• Upturn, rapid expansion, peaking out, recession

• An expansion or boom is the period in the business cycle from a:

A) peak down to a trough.      B) peak to a peak.

C) trough to a trough.             D) trough up to a peak.

• Which of the following factors will not cause the AD curve to shift to the right?
• Higher prices lead to higher interest rates.
• The government reduces interest rates.
• Consumer confidence improves.
• Higher prices abroad lead to an increase in the demand for UK exports.
• Which of the following would be most likely to cause a recession, according to the Keynesian model?

A) Excessive government borrowing.            B) Inflationary policies.

C) A decrease in the saving rate.                    D) A decline in business investment.

• A loan made by a bank is considered               _ of that bank, whereas a time deposit in a bank is considered                              of that bank.

A) an asset, an investment.                 B) capital, a liability.

C) an asset, a liability.                        D) capital, an investment.

• Which of the following is not a demand for money?

A) Transactions motive          B) Precautionary motive

C) Goods motive                    D) Speculative motive

• Which of the following is a monetary policy tool used to control inflation?
• Interest rate
• Exchange rate
• Taxation
• Fines

• The Phillips curve shows an                  relationship between inflation and unemployment.

A) indirect     B) perverse     C) inverse       D) direct

• The inflation caused by supply shocks is called:
  1. expected inflation.
  1. wage inflation.
  1. demand-pull inflation.
  1. cost-push inflation.

• An individual who has a job but has been temporarily absent, with or without pay, is classified as:

A) a discouraged worker.       B) employed.

C) unemployed.                      D) not in the labour force.

• Disequilibrium unemployment means that:
• at the going wage rate, there are people who want to work but who cannot find work.
• there are some people who will not be working due to the season of the year.
• the wage rate is too low to attract all those people who wish find employment.
• the supply of labour exceeds the demand for it.

• The increase in unemployment that occurs during recessions is called:

A) structural unemployment. B) cyclical unemployment.

C) normal unemployment.     D) frictional unemployment.

• The portion of unemployment that is due to changes in the economy that result in a significant loss of jobs in certain industries is called:

A) natural unemployment.     B) structural unemployment.

C) cyclical unemployment.    D) frictional unemployment.

• The Ministry of Defence closes its Headquarters in Bath and transfers to a new buildingin Bristol.

A worker at the Bath office is given the opportunity and finance to move to Bristol. She turns down this opportunity because of family obligations. While she is searching for a new job she would be classified as:

1. not in the labour force because she turned down the opportunity to relocate.
2. cyclically unemployed.
3. frictionally unemployed.
4. structurally unemployed.

• Unemployment that occurs when potential workers lack the skills required for available jobs is called:

A) Real-wage unemployment.                        B) Demand-deficient unemployment.

C) Structural unemployment.                         D) Frictional unemployment.

• If the bank of England raises interest rates it will
• lower aggregate demand and raise the exchange rate.
• raise aggregate demand and lower the exchange rate.
• raise aggregate demand and raise the exchange rate.
• lower aggregate demand and lower the exchange rate.

• Supply-side policies are government policies:
• that focus on aggregate supply and increasing production.
• used to control the money supply.
• that directly attempt to control prices and wages.
• regarding taxes and expenditures.

• A decrease in the money supply aimed at decreasing aggregate output is:

A) an expansionary fiscal policy.       B) a contractionary fiscal policy.

C) an expansionary monetary policy. D) a contractionary monetary policy.

• Which of the following is NOT an example of fiscal policy?
  • UK introduces new financial regulation for foreign-operated banks
  • Italy cuts taxation on diesel fuel used by the timber industry
  • France cuts spending on state-run schools

• If the government wants to reduce unemployment, government spending could be    and/or taxes should be          .

A) increased, decreased          B) decreased, increased

C) decreased, decreased         D) increased, increased

• What is not a part of the balance of payments account?

A) Financial account              B) Capital account

C) Fiscal account                    D) Current account

• The record of a country’s transfers of land, inter-governmental payments and money sent by migrants to and from abroad is called its:
• balance of payments.
• balance of payments on current account.
• capital account of the balance of payments.
• financial account of the balance of payments.

• The price of one country’s currency in terms of another country’s currency is the

A) currency valuation.            B) exchange rate.

C) terms of trade.                    D) balance of trade.

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