Deck 26: The Macroeconomic Environment of Business

Question 1

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

A) a discouraged worker.
B) unemployed.
C) not in the labour force.
D) employed.

Answer 1

employed.

Question 2

Which two major issues are concerned with economic growth?
(i) Short- run issue of ensuring that actual growth is such that actual output is as close as possible to the potential output of an economy
(ii) Only short- run issues related to fluctuations in the business cycle
(iii) Long- run issues addressing what determines the rate of potential economic growth
(iv) Monitoring of income and living standards

A) (i) and (iv)
B) (i) and (iii)
C) (ii) and (iii)
D) (iii) and (iv)

Answer 2

(i) and (iii)

Question 3

Gross domestic product (GDP) is

A) the total market value of all final goods and services produced within a given period by factors of production located within a country.
B) a nation's total product minus what is required to maintain the value of its capital stock.
C) the total market value of all final goods and services produced within a given period by factors of production owned by a country's citizens, regardless of where output is produced.
D) the total amount of income earned by the factors of production in the economy.

Answer 3

the total market value of all final goods and services produced within a given period by factors of production located within a country.

Question 4

Gross domestic product (GDP) measured in current pounds is_____, whereas GDP measured in terms of the prices of a fixed (or base) year is_____.

A) current GDP; real GDP
B) current GDP; constant GDP
C) nominal GDP; constant GDP
D) nominal GDP; real GDP

Question 5

Which of the following is not a cause of economic growth?

A) Emigration
B) Immigration
C) Investment
D) Innovation

Question 6

The largest income component of GDP is _____, whereas the largest expenditure component of GDP is _______.

A) gross trading profits of companies; exports
B) income from employment; consumption
C) income from self- employment; investment
D) rent; government purchases

Question 7

Which of the following events would lead to actual growth?

A) The discovery of new more efficient techniques which could benefit industry generally
B) A reduction in the working week
C) The discovery of new raw materials
D) Firms take on more labour in response to an increase in consumer demand

Question 8

Which of the following defines potential growth?

A) The speed at which the economy could grow
B) The level of output when the economy is operating at full capacity
C) The percentage increase in national output from one period to another
D) The difference between actual and potential output

Question 9

The largest income component of GDP is

A) income from employment.
B) rent.
C) income from self- employment.
D) gross trading profits of companies.

Question 10

Of the following, the smallest income component of GDP is

A) gross trading profits of companies.
B) income from employment.
C) rent.
D) income from self- employment.

Question 11

Actual output cannot grow faster than____ over the____.

A) potential output; short term
B) target output; longer term
C) cyclically adjusted output; longer term
D) potential output; longer term

Question 12

What is the correct ascending order of the following periods typically associated with the business cycle or trade cycle?

A) Upturn, diversification, peaking out, recession
B) Formation, ascension, peaking out, recession
C) Upturn, rapid expansion, peaking out, recession
D) Upturn, rapid expansion, recession, peaking out

Question 13

A contraction or recession is the period in the business cycle from a

A) trough to a trough.
B) trough up to a peak.
C) peak down to a trough.
D) peak to a peak.

Question 14

If the rate of change in output is negative

A) then the economy is in the expansionary phase of the business cycle, regardless of the overall level of output.
B) but the level of output is low, then the economy is entering the expansionary phase of the business cycle.
C) but the level of output is high, then the economy is still in the expansionary phase of the business cycle.
D) then the economy is in the contractionary phase of the business cycle, regardless of the overall level of output.

Question 15

Business cycles are highly irregular in practice because

A) in a recovery growth is very rapid but, in a downturn, growth declines quickly so recoveries last a short time but downturns occur very slowly.
B) the length of each stage can vary.
C) the magnitude of each stage can vary.
D) booms are short- lived, while recessions last a long time.
E) B and C F) A and D

Question 16

Output gaps vary from year to year, but over the long term

A) they tend to one.
B) they tend to zero.
C) they will tend to be positive.
D) they will tend to be negative.

Question 17

During a boom, which of the following is likely to occur?

A) Consumer confidence will fall, but there will be a rise in the availability of credit.
B) Consumer confidence will rise and the availability of credit is likely to fall.
C) Consumer confidence is likely to rise and there will be greater availability of credit.
D) Consumer confidence is likely to fall and the availability of credit is also likely to be lower.

Question 18

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

A) peak to a peak.
B) peak down to a trough.
C) trough up to a peak.
D) trough to a trough.

Question 19

The magnitude of cyclical fluctuations resulting from any initial shock to the economy will be greater

A) the smaller the value of both the multiplier and the accelerator.
B) the greater the difference in the values of the multiplier and accelerator.
C) the greater the value of the multiplier and the smaller the value of the accelerator.
D) the greater the value of both the multiplier and the accelerator.

Question 20

The phase of the business cycle when national income does not change very much is called the

A) peak.
B) upturn.
C) expansion.
D) recession.

Question 21

Which of the following is not a component of aggregate demand?

A) Investment
B) Savings
C) Consumption
D) Net exports
E) Government expenditure

Question 22

Which of the following factors will not cause the AD curve to shift to the right?

A) A reduction in prices abroad leads to a fall in the demand for UK exports.
B) Higher prices lead to higher interest rates.
C) Consumer confidence improves.
D) The government reduces interest rates.

Question 23

The position of the AS curve is influenced by all except which one of the following?

A) Education and training
B) Production costs
C) Productivity
D) Consumption
E) Technology

Question 24

Which of the following stylised facts about economic growth is not valid?

A) Economic growth has been a continuous process spanning the past 2000 years.
B) The gap in living standards among the industrialised countries has narrowed.
C) Economic growth has only been significant once countries have undergone an industrial revolution.
D) In general, the richer developed countries have grown at a slower rate than the less rich ones in recent years.

Question 25

The rate of economic growth is equal to____multiplied by the ______.

A) investment; MEC
B) labour productivity; the working week
C) investment; productivity
D) labour productivity; the working year minus holidays

Question 26

An increase in capital per worker will generally______output, but to increase capital requires______Expenditure, which in turn requires resources that could have been used for producing______Goods.

A) increase; consumption; investment
B) decrease; investment; consumer
C) decrease; consumption; investment
D) increase; investment; consumer
E) increase; consumption; consumer

Question 27

Which of the following factors explain sustained economic growth?

A) Increases in human capital
B) Increases in labour productivity
C) Technological progress
D) All of the above
E) None of the above

Question 28

A rise in the capital stock will lead to

A) higher long- term growth but short- term unemployment.
B) constant steady state output but faster economic growth in the long term.
C) higher short- term and higher long- term growth.
D) higher short- term growth but not long- term growth.

Question 29

Human capital refers to______ that contribute to a worker's productivity.

A) holidays
B) tea breaks
C) machinery
D) qualifications

Question 30

Human capital refers to

A) those machines that require workers to operate them.
B) the skills and expertise of workers.
C) products that have been manufactured by the workforce that now produce other goods.
D) all of the above

Question 31

The marginal capital/output ratio refers to

A) the change in investment.
B) the level of investment needed to achieve full employment.
C) the change in investment over a year.
D) the amount of additional capital required to produce an additional unit of output.

Question 32

Long- term growth does not depend on

A) technological change.
B) the quantity of resources.
C) the productivity of resources.
D) the stage of the business cycle.

Question 33

Supply- side policies are government policies

A) that directly attempt to control prices and wages.
B) that are used to control the money supply.
C) that focus on aggregate supply and increasing production.
D) regarding taxes and expenditures.

Question 34

Which two official measures of unemployment are commonly used in official statistics?
(i) People in receipt of unemployment- related benefits such as a 'jobseeker's allowance'
(ii) People who have never worked in their lives
(iii) People of working age who are without work can immediately start working and are actively seeking employment
(iv) People who have never actively sought employment

A) (i) and (iv)
B) (ii) and (iii)
C) (i) and (iii)
D) (iii) and (iv)

Question 35

A 21- year- old university graduate wants to work full- time but is unable to find a full- time job, so she accepts a part- time job. She is classified as

A) unemployed.
B) frictionally employed.
C) employed.
D) structurally unemployed.

Question 36

Refer to the table below.
The labour force

A) equals 7,500.
B) equals 5,500.
C) equals 5,000.
D) cannot be determined from this information.

Question 37

Refer to the table below.
The unemployment rate

A) is 10%.
B) is 9.09%.
C) is 11%.
D) cannot be determined from this information.

Question 38

Which of the following statements is false?

A) The national unemployment rate does not tell us how the burden of unemployment is distributed across the population.
B) During a recession, the number of disheartened workers increases and this tends to reduce the unemployment rate.
C) A low national unemployment rate does not mean that the entire nation is growing and producing at the same rate.
D) If the unemployment rate is 10%, this means that on average people have been unemployed for 10% of the year.

Question 39

It is often true that, as the economy begins to recover from a recession, the unemployment rate rises. Which of the following statements would be the best explanation for this?

A) The unemployment rate would rise because, as the economy initially recovers from a recession, the demand for goods and services falls and so the demand for workers falls.
B) As the economy initially recovers from a recession, firms do not immediately increase the number of workers they hire. Firms wait to hire more individuals until they are convinced that the recovery is strong.
C) As the economy begins to recover from a recession, workers who were previously discouraged about their chances of finding a job begin to look for work again.
D) The unemployment rate seems to rise as the economy begins to recover from a recession because of errors in the way the data are collected.

Question 40

If the number of people employed is 120,000 and the labour force is 150,000, the unemployment rate

A) is 20%.
B) is 25%.
C) is 8%.
D) cannot be determined from this information.

Question 41

The unemployment rate can drop even if the total number of people with and without jobs remains constant if

A) people become disheartened about finding jobs and stop looking for work.
B) people have been unemployed for so long that they no longer qualify for unemployment benefit.
C) the size of the total population decreases.
D) the size of the total population increases.

Question 42

What costs does unemployment generate?

A) Public spending
B) Financial loss of wage as well as loss of self- esteem of unemployed people
C) Financial and social consequences to the families of unemployed people
D) All of the above

Question 43

Indicate which is not a cost of unemployment.

A) Unemployed people resting between jobs
B) Other workers' lost wages from higher national output
C) Lost government tax revenue
D) Firms' lost profit

Question 44

Which of the following is not a common cause of disequilibrium unemployment?

A) The economy falls into a recession, leading to a fall in consumer demand.
B) Trade unions use their monopoly power to drive wages above the market- clearing level.
C) Inflation forces employers to pay wages above the market- clearing level.
D) More labour is coming to the market but fails to meet the demand.

Question 45

Disequilibrium unemployment means that

A) the supply of labour exceeds the demand for it.
B) at the going wage rate, there are people who want to work but who cannot find work.
C) there are some people who will not be working due to the season of the year.
D) the wage rate is too low to attract all those people who wish find employment.

Question 46

If the labour market becomes more efficient so that the unemployed are more quickly matched with jobs, this

A) could either increase or decrease the equilibrium level of unemployment.
B) will decrease the equilibrium level of unemployment.
C) will not affect the equilibrium level of unemployment.
D) will increase the equilibrium level of unemployment.

Question 47

Frictional unemployment is the

A) portion of unemployment that is due to the normal working of the labour market.
B) unemployment that occurs during recessions.
C) portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries.
D) unemployment that results when people become disheartened about their chances of finding a job so they stop looking for work.

Question 48

The Ministry of Defence closes its headquarters in Bath and transfers to a new building in 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

A) not in the labour force because she turned down the opportunity to relocate.
B) frictionally unemployed.
C) cyclically unemployed.
D) structurally unemployed.

Question 49

Which of the following is a type of inflation?

A) Cost push
B) Demand pull
C) Profit- driven
D) A and B

Question 50

If the price index in period 3 is 125 and the price index in period 4 is 140, the rate of inflation between period 3 and period 4

A) is 12%.
B) is 15%.
C) is 10.7%.
D) cannot be determined from this information because the base year is not known.

Question 51

If real GDP decreased from 1995 to 1996, then

A) only prices decreased from 1995 to 1996.
B) it cannot be determined whether output or prices or both decreased from 1995 to 1996.
C) output and prices both must have decreased from 1995 to 1996.
D) output decreased from 1995 to 1996.

Question 52

Real GDP is not a perfect measure of social welfare because

A) GDP includes output produced in both the market and in the home.
B) real GDP may be increasing only because of price increase, not increases in output.
C) GDP accounting rules do not adjust for production that causes negative externalities.
D) GDP accounting rules lead to different weights being placed on goods produced in the government sector compared to the private sector.

Question 53

Which of the following statements is false?

A) GDP says nothing about the distribution of output among individuals in a society.
B) GDP is neutral about the kinds of goods that an economy produces. All goods get counted in the same way regardless of the different weights that society might attach to these items.
C) GDP is adjusted to reflect losses or social ills.
D) GDP cannot be used to measure the effects of policies that redistribute income from one group to another.

Question 54

If real GDP is growing more slowly than the rate of population growth then, ceteris paribus, the average standard of living is

A) increasing.
B) either increasing or decreasing.
C) decreasing.
D) remaining stable.

Question 55

If the price index in period 3 is 125 and the price index in period 4 is 120, the rate of inflation between period 3 and period 4 is

A) - 4%
B) - 5.1%
C) 4%
D) 4.17%

Question 56

Study the following data.
Which one of the following represents a correct interpretation of the data over the four years?

A) Prices are rising but annual inflation is falling.
B) Prices are falling but annual inflation is rising.
C) Prices are rising and annual inflation is rising.
D) Prices are rising and annual inflation is constant.
E) Prices are falling and annual inflation is falling.

Question 57

Study the following data.
Which one of the following represents a correct interpretation of the data over the four years?

A) Prices are falling and annual inflation is falling.
B) Prices are falling but annual inflation is rising.
C) Prices are rising and annual inflation is rising.
D) Prices are rising but annual inflation is falling.
E) Prices are rising and annual inflation is constant.

Question 58

Nominal values are measured in______and real values take account of____________.

A) cash; utility
B) inflation; current prices
C) current prices; inflation
D) banks; exchange rates

Question 59

You want to make a 4% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 5%. You should charge an interest rate of

A) 1%
B) 4.5%
C) 9%
D) 5%

Question 60

In a period of rapid inflation, which of the following would be the least desirable store of wealth?

A) Land
B) Stocks and shares
C) Money
D) Vintage wine

Question 61

Which of the following is the real balance effect?

A) When real incomes fall, because incomes do not rise as fast as prices
B) When prices rise, people require more money which drives up interest rates, encouraging saving and thereby reducing aggregate demand
C) The impact of the value on people's savings following a change in the price level
D) When prices rise, people switch to alternative goods produced in other countries

Question 62

Which one of the following does not explain why the AD curve slopes downwards?

A) A lower price level increases the competitiveness of the country's exports.
B) As the price level falls, the real value of money balances held increases. This increases the real purchasing power of consumers.
C) A lower price level increases the relative price of imports.
D) A lower price level increases the real money supply.
E) As the price level falls, people will save more in order to protect the real value of their savings.

Question 63

As the price level in the economy rises, which of the following occurs?

A) The quantity of 'real money' decreases.
B) Real aggregate demand decreases.
C) Total spending in money terms decreases.
D) A and B
E) B and C

Question 64

In the following aggregate demand and supply diagram, at price level P₂ there is in the economy.

A) an equilibrium
B) excess supply
C) overheating
D) excess demand

Question 65

If there is a rightward shift in aggregate demand and a rightward shift in aggregate supply, which of the following will occur?

A) A fall in the price level and a decrease in real output
B) A fall in real output and an unknown effect on the price level
C) A rise in real output and an unknown effect on the price level
D) A rise in the price level and an increase in real output

Question 66

The aggregate supply curve cannot be the sum of the supply curves of all the individual firms in the economy because

A) some firms actually set prices instead of just responding to process determined in the market.
B) the outputs of some firms are the inputs of other firms.
C) it is unrealistic to believe that costs are constant for individual firms if the overall price level is increasing.
D) all of the above

Question 67

In the short run, the aggregate supply curve is

A) vertical at low levels of output and fairly flat at capacity.
B) fairly flat at very low levels of output and vertical at capacity.
C) horizontal over all levels of output.
D) a straight upward- sloping line with a constant slope.

Question 68

Which of the following factors will not cause the AD curve to shift to the right?

A) Higher prices lead to higher interest rates.
B) The government reduces interest rates.
C) Consumer confidence improves.
D) A reduction in prices abroad leads to a fall in the demand for UK exports.

Question 69

Which of the following examples does not account for the substitution effect of a rise in the price level?

A) People cannot afford to buy so much at higher prices.
B) Exports become less competitive and thus fewer are sold.
C) Higher wages and prices cause a higher demand for money. With a given supply of money in the economy, this will drive up interest rates and encourage people to spend less and save more. This will have the effect of reducing real aggregate demand.
D) Higher domestic prices lead to people purchasing fewer domestic goods and more imports.

Question 70

Inflation caused by a cut in income tax is an example of

A) demand- pull inflation.
B) expectations- generated inflation.
C) hyperinflation.
D) cost- push inflation.

Question 71

Which one of the following could lead to lower cost- push inflation but higher demand- pull inflation?

A) Higher import prices
B) A rise in income tax
C) Reduced child benefit and pensions
D) A cut in VAT and excise duties
E) An increase in saving

Question 72

Which of the following statements regarding demand- pull inflation is false?

A) Demand- pull inflation is caused by an excess of demand over supply.
B) The steeper the AS curve, the greater will be the effect of demand- pull inflation.
C) Demand- pull inflation is caused by continuous rightward shifts in aggregate demand.
D) An adverse effect of demand- pull inflation is a decrease in national output.

Question 73

Inflation caused by a rise in oil prices is an example of

A) hyperinflation.
B) cost- push inflation.
C) demand- pull inflation.
D) expectations- generated inflation.

Question 74

Inflation caused by a rise in VAT is an example of

A) cost- push inflation.
B) demand- pull inflation.
C) hyperinflation.
D) expectations- generated inflation.

Question 75

Cost- push inflation can occur as a result of which of the following?
(i) Higher import prices
(ii) Higher domestic wage rates
(iii) Higher consumer spending

A) (i), (ii) and (iii)
B) (i) and (ii)
C) (ii) and (iii)
D) (ii) only
E) (i) and (iii)

Question 76

You are a member of the Treasury, and you are concerned that the inflation rate is too high. Which of the following policies should you recommend?

A) An increase in government spending
B) A decrease in income tax rates
C) An increase in the money supply
D) A decrease in the money supply

Question 77

Inflation this year caused by a rise in inflation last year is

A) cost- push inflation.
B) expectations- generated inflation.
C) hyperinflation.
D) demand- pull inflation.

Question 78

If employers and employees are negotiating a wage rise and the expected rate of inflation is 7%, which of the following would you expect?

A) We need more information about the expectations of both employers and employees.
B) The increase in wage will be about 7%, as employees will negotiate a wage rise above that and employers a wage rate below that.
C) The increase in wage will be above 7%, as employees have more market power.
D) The increase in wage will be below 7% as employers always have more power in wage negotiations.

Question 79

Which of the following shows the correct effects of the macroeconomic objectives of a rise in national income?

A) Falling economic growth, falling unemployment, rising inflation, improvement in the balance of payments
B) Increasing economic growth, falling unemployment, rising inflation, deterioration in the balance of payments
C) Increasing economic growth, rising unemployment, falling inflation, deterioration in the balance of payments
D) Falling economic growth, rising unemployment, falling inflation, improvement in the balance of payments

Question 80

Consider the household sector.

A) Firms neither supply to nor demand from this market.
B) Firms only supply to this market.
C) Firms only demand from this market.
D) Firms both supply to and demand from this market.