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Question Bank - Economics

National Income: Equilibrium and policy

Q1. The quantity theory of money implies that a given percentage change in the money supply will cause

(Select one answer)

(a) * an equal percentage change in nominal GDP.
(b) * a smaller percentage change in nominal GDP.
(c) * a larger percentage change in nominal GDP.
(d) * an equal percentage change in real GDP.

Source: Pearson logo

Q2. If government spending is increased by £700 and taxes are increased by £700, the equilibrium level of income will

(Select one answer)

(a) * decrease by £700.
(b) * increase by £700.
(c) * not change.
(d) * increase by £1,400.

Source: Pearson logo

Q3. Automatic stabilisers act to __________ government expenditures and __________ government revenues during an expansionary period.

(Select one answer)

(a) * increase; increase
(b) * increase; decrease
(c) * decrease; increase
(d) * decrease; decrease

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Q4. A variable whose value is determined by the model of which it is a part is termed ___________

(Select one answer)

(a) * constant
(b) * endogenous
(c) * exogenous
(d) * independent

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Q5. Rapid increases in the price level during periods of recession or high unemployment are known as

(Select one answer)

(a) * stagnation.
(b) * stagflation.
(c) * slump
(d) * inflation.

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Q6. If the investment demand curve is vertical,

(Select one answer)

(a) * both monetary and fiscal policy are ineffective.
(b) * both monetary and fiscal policy are effective.
(c) * monetary policy is effective, but fiscal policy is ineffective.
(d) * monetary policy is ineffective, but fiscal policy is effective.

Source: Pearson logo

Q7. The idea that government spending causes a reduction in private investment is called

(Select one answer)

(a) * fiscal drag
(b) * crowding-out
(c) * investment blight
(d) * the Thatcher effect

Source: Pearson logo

Q8. According to supply-side economists, if taxes are cut so that people have an increased incentive to work and businesses have an increased incentive to invest

(Select one answer)

(a) * aggregate supply will increase, aggregate output will increase, and the price level will increase.
(b) * aggregate supply will increase, aggregate output will increase, and the price level will decrease.
(c) * both aggregate supply and demand will increase and the price level will increase.
(d) * aggregate supply will increase, aggregate demand will decrease and the price level will decrease.

Source: Pearson logo

Q9. The practice of using fiscal and monetary policy to stabilise the economy is known as

(Select one answer)

(a) * monetarism
(b) * supply side economics
(c) * fine tuning
(d) * sound money

Source: Pearson logo

Q10. Which one of the following statements is correct?

(Select one answer)

(a) * if the general price level increases, aggregate demand will eventually increase also
(b) * a reduction in the general price level results in a reduction in aggregate demand
(c) * when adjusted for inflation, there is no relationship between the general price level and the level of real aggregate demand
(d) * a shift of the aggregate demand curve will eventually change both the price level and the level of real output

Source: McGraw Hill logo

Q11. In a macroeconomic model without foreign trade or government spending, aggregate demand is the sum of

(Select one answer)

(a) * personal saving and private investment
(b) * personal saving and personal consumption
(c) * personal consumption and personal income
(d) * personal consumption and private investment

Source: McGraw Hill logo

Q12. The 1990s recession in the UK was prolonged by

(Select one answer)

(a) * collapse of the housing market
(b) * high private sector borrowing
(c) * higher interest rates
(d) * all of the above

Source: McGraw Hill logo

Click to view your total score for all the above questions that you have attempted.

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