Transcript UNIT 2 The National Economy Click here to Commence quiz 2.1 The Measurement of Macroeconomic Performance Test 1 © APT Initiatives Ltd.

UNIT 2
The National Economy
Click here to
Commence quiz
2.1
The Measurement of
Macroeconomic Performance
Test 1
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AQA AS Economics Unit 2 – The National Economy
Question 1
Gross Domestic Product is defined as…
the value of goods and services produced by
households in a country.
Incorrect
the value of goods and services produced by
factors owned by the population of a country.
Incorrect
the value of goods and services produced by
factors within a country.
Correct
the value of goods and services after capital
consumption is taken into account.
Incorrect
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Gross Domestic Product
is one of the measures of
National Income. It
includes the value of
output produced,
irrespective of the
nationality of the
businesses responsible.
Therefore, C is the
correct answer.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 2
An economy is currently experiencing growth in GDP below trend. In the
short-run, if the rate of growth of aggregate demand is less than the
rate of growth in productive capacity, then this economy is most likely to
experience…
an increase in inflation.
Incorrect
a decrease in output.
Incorrect
an increase in unemployment.
Correct
a decrease in imports.
Incorrect
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In these circumstances,
actual output will grow less
quickly than potential
output, a deflationary (or
negative) output gap will
grow, and unemployment
will rise. Hence, option C is
the correct response.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 3
The diagram adjacent shows 2 production
possibility frontiers for an economy. The
movement of the economy from position S
to T could indicate that there has been…
a boom, and GDP is
growing faster than
trend.
a recession, and the rate
of growth in GDP is
falling.
Capital
Goods
Incorrect
T
Consumer
Goods
Incorrect
an increase in GDP per
capita.
Incorrect
there is a leftward shift
in the country’s
aggregate supply curve.
Correct
S
The diagram, with a leftward shift in the production
possibility, could either represent a fall in output below
trend growth, which is not offered as an option, or a
long term fall in the productive capacity of this
economy, which could also be illustrated as a leftward
shift in the long-run in the aggregate supply curve.
Hence, option D is the correct response.
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AQA AS Economics Unit 2 – The National Economy
Question 4
A country’s per capita GDP is a useful measure of economic
welfare because…
Incorrect
it takes out the effect of inflation.
it reflects the average wealth of each
factor owner.
Incorrect
it measures the average income
earned by each citizen.
Correct
it takes out the effect of output from
foreign owned businesses.
Incorrect
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GDP refers to the flow of
goods and services and
corresponding income
produced in an economy
over a period of time.
Therefore, GDP per capita
means income per person in
the population. Hence, C is
the correct option.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 5
The Consumer Price Index has been
chosen as the means of measuring
inflation because…
it makes use of a more extensive range
of products compared to the retail
price index.
Incorrect
it is calculated using the same methods
as those found elsewhere in the EU.
Correct
it mirrors closely changes in the Retail
Price Index.
Incorrect
it includes mortgage interest payments.
Incorrect
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The earlier measure of price
change, the Retail Price Index, was
found to be a less useful measure
of inflation because it included
changes in mortgage interest
payments. Since interest rates were
the primary way of managing
inflation, their inclusion would be
misleading. Primarily for this
reason, in 2004, the Consumer
Price Index (CPI), which excluded
these payments, was introduced.
Furthermore, calculation of CPI
used the same methodology
adopted by other EU countries,
enabling more useful comparisons
of economic performance and
policy effectiveness. Hence, B is the
correct response.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 6
If the Consumer Price Index
rises from 100 to 104, this
means that…
the price of each product
has increased by 4%.
Incorrect
the average price level has
increased by 4%.
Correct
consumer goods inflation
has increase by 4%.
Incorrect
inflation is rising at a
constant 4% per annum.
Incorrect
The Consumer Price Index (CPI) provides a
measure of the level of prices in the
economy, and because it excludes some
changes that also affect inflation, it can
only remain an indicator of inflation.
Hence option B can be the only correct
response. Since price changes, over a
time period, vary significantly between
products, option A is clearly incorrect.
Option C is incorrect because it excludes
changes in the prices of services, which
must be included in the CPI in order to
remain representative of price change
generally. Given the different cost,
market and price pressures in different
markets, at different times, inflation
cannot be constant, and therefore option
D is also incorrect.
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AQA AS Economics Unit 2 – The National Economy
Question 7
From the data adjacent it can
be concluded that…
average prices rose is some
years and fell in others.
Incorrect
prices were at their lowest in
2005.
Incorrect
prices remained constant in
2006.
Incorrect
prices grew least quickly in
2005.
Correct
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YEAR
Annual % change
in Retail Prices
2003
3.9
2004
2.9
2005
2.5
2006
3.0
2007
3.0
The data shows that prices rose
each year, and at various rates.
However, in 2005 the price level
grew least, at only 2.5%. Hence,
option D is the correct
response.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 8
The Government decides in April 2011 to use the Retail Price Index to
increase the Basic State Pensions by 4.2% to £120.68 per week. How
much would this pension have been worth in 2010, to the nearest penny?
£113.12
Incorrect
£115.82
Correct
£117.27
Incorrect
£125.75
Incorrect
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Since £120.68 is 4.2%
greater than the Basic State
Pension in 2010, this
pension in 2010 can be
derived by the following
calculation: (120.68 / 104.2)
x 100, which equals
£115.82. Hence, B is the
correct option.
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AQA AS Economics Unit 2 – The National Economy
Question 9
The labour force only includes those who…
are willing and able to work.
Correct
are employed full and part time.
Incorrect
are employed or are claiming
Jobseeker’s Allowance.
Incorrect
who are not earning money in the
black economy.
Incorrect
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The labour force includes those
from the workforce who are
economically active and,
therefore, are either in work, or
are actively seeking work.
Hence, it refers to those who
are willing and able to work.
They may or may not be able to
claim Jobseeker’s Allowance, or
may or may not be working in
the black economy. Therefore,
the correct answer is option A.
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AQA AS Economics Unit 2 – The National Economy
Question 10
A current account deficit on the UK balance of payments means
that typically…
the value of the goods we sell overseas is
less than the value of the goods we
import.
Incorrect
the total value of exports of goods and
services is less than the total value of
imports of goods and services.
Correct
the volume of exported goods and
services is less than the volume of
imported goods and services.
Incorrect
government revenue is less than
government expenditure.
Incorrect
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A current account deficit
refers to the fact that the
value of goods and services
exported from the UK is less
than the corresponding value
of goods and services
imported. Hence, option B is
the correct response.
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AQA AS Economics Unit 2 – The National Economy
Question 11
The current account of the balance of payments does not
include…
invisible trade.
Incorrect
the value of exports in services.
Incorrect
profits earned from overseas
investment.
Incorrect
the transfer of funds to be invested
overseas.
Correct
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The current account of the balance
of payments identifies transactions
in goods and services between the
residents of a country and the rest
of the world. It, therefore, includes
factor rewards from earlier
investment overseas. The actual
investment, which will generate this
reward at some future date, is
included in the capital account.
Therefore, option D is the correct
answer.
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AQA AS Economics Unit 2 – The National Economy
Question 12
Macroeconomists make extensive use of index numbers because
it can help them to …
demonstrate more clearly a percentage
change in output.
Incorrect
understand how much the level of
unemployment has fallen.
Incorrect
clarify trends in economic data over a
period of time.
Correct
compare the price of a product across
different countries with different
currencies.
Incorrect
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Economic data is often expressed
using large, detailed, and precise
numbers. Hence any comparison,
for example over time, or across
two or more variables, is very
difficult and time consuming. By
using index numbers, with 100
representing a typical and therefore
useful base year, the size and
significance of any changes is much
more apparent. Hence, option C is
the correct response.
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AQA AS Economics Unit 2 – The National Economy
Question 13
The economic cycle is characterised by…
Correct
changing rates of real GDP growth.
changing rates of inflation arising from
Bank of England intervention.
Incorrect
the change of emphasis in the UK
economy from manufacturing to
services.
Incorrect
increasing rates of unemployment over
two consecutive quarters.
Incorrect
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The economic cycle refers to
the way in which real GDP
changes around the long
term growth trend. Hence,
option A is the correct
response.
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AQA AS Economics Unit 2 – The National Economy
Question 14
Recession is defined as a period of time over which…
output growth falls below the trend
rate.
Incorrect
nominal output falls, but real output
continues to grow.
Incorrect
output falls over two consecutive
quarters.
Correct
output grows less fast over two
consecutive quarters.
Incorrect
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Recession is a feature of
some economic (or business)
cycles. It occurs when
output is falling, at least over
two consecutive quarters
compared with the previous
quarter. Hence, option C is
the correct answer.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 15
The UK trend rate of economic growth is 2.5%. If next
year’s inflation is expected to be at 3% and money
national income is expected to grow by 4%, which one
of the following is most likely?
The economy will operate below its trend
rate, and unemployment will increase
Correct
Employment will rise, and national output
will be above trend rate
Incorrect
Employment will fall, and the economy will
operate above its trend rate
Incorrect
Unemployment will decrease, and the
economy will grow below the trend rate
Incorrect
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According to this data, the economy
will grow by 4% in £ terms, but with
a 3% rate of inflation real growth will
be restricted to about 1%, which is
below trend. Trend growth reflects
the ability of the economy to
maintain current levels of
employment and, therefore, in
principle, unemployment. Thus, a
real growth rate of less than trend,
in this case 1%, will result in an
increase in unemployment. Hence,
option A is the correct response.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 16
Higher rates of inflation are typically
associated with…
the boom phase of the economic
cycle.
Correct
an increase in the trend rate of real
GDP.
Incorrect
the recovery phase of the economic
cycle.
Incorrect
higher rates of unemployment.
Incorrect
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The Economic Cycle is often
associated with significant changes
in Aggregate Demand, which in
turn have implications for inflation.
During a boom phase, there is
high aggregate demand, and
therefore the economy is typically
producing at a higher-than-trend
rate of growth. As a result, there
will be increased inflationary
pressures through shortages, as
businesses strive to keep pace with
demand. Therefore, option A is
the correct response.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 17
During the recovery phase of the economic cycle after a
prolonged recession, economists would expect the rate of
inflation, all other factors being equal, to…
be falling at a faster rate.
Incorrect
be rising at a slower rate.
Incorrect
remain unchanged.
Incorrect
be rising at a faster rate.
Correct
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During the recovery phase, as
aggregate demand increases at a
faster rate than aggregate
supply, the rate of inflation
would be expected to rise, and at
a faster rate than rates incurred
before. Hence, the correct
response is option D. NB Inflation
can be affected by factors
outside the economic cycle.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 18
Unemployment may not fall during a recovery phase in an
economic cycle because…
the rate of change of output is
increasing.
Incorrect
businesses will first try to increase
output with existing factors.
Correct
unemployment will rise for noncyclical reasons.
Incorrect
all of the above.
Incorrect
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There is typically a time lag
between the recovery phase of the
economic cycle and a
corresponding reduction in
unemployment. This is because
businesses may be nervous about
the strength and duration of the
recovery and, in the first instance,
will accommodate increases in
demand from existing resources.
Hence, option B is the correct
response.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 19
The rate of change of investment during a period of boom could
be…
decreasing in anticipation of an economic
slowdown.
Correct
rising or falling, because many businesses
are unconcerned about the economic cycle.
Incorrect
negative because interest rates may have
fallen.
Incorrect
rising or falling, because businesses do not
take a long-run view.
Incorrect
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Investment levels across the
whole economy will broadly
reflect current and anticipated
changes in the economic cycle.
Therefore, during a boom, in
anticipation of a en economic
slowdown some businesses
may cancel or postpone
investment plans. Hence,
option A is the correct answer.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 20
The macroeconomic performance of the UK economy may be
undermined by supply shocks, for example…
an increase in the world price of oil.
Correct
an increase in £ exchange rate in
relation to other major currencies.
Incorrect
low inflation and corresponding low
interest rates.
Incorrect
falling house prices.
Incorrect
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A supply shock typically refers to an
unanticipated reduction in aggregate
supply, which results in
macroeconomic disequilibrium and,
in due course, less being supplied at
each price level (ie a shift usually to
the left in the long-run aggregate
supply curve). The most common
examples arise from wars, natural
disasters, and increases in the price
of key commodities such as oil.
Hence, A is the correct response.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 21
A positive output gap is defined as the extent to which…
actual output is greater than the
productive potential of an economy.
Correct
GDP is greater than GNP.
Incorrect
the productive potential of an economy
output is greater than actual output.
Incorrect
GNP is greater than GDP.
Incorrect
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A positive output gap (also
known as an inflationary
gap) occurs when an
economy is producing at a
level of output, which, in the
short term, is greater than
the productive potential of
the economy. Hence, option
A is the correct response.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 22
A positive output gap is more likely to occur when…
growth is below trend.
Incorrect
there is full employment.
Correct
inflation is low.
Incorrect
aggregate demand equal
aggregate supply.
Incorrect
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A positive (or inflationary)
output gap occurs when
actual output is greater than
potential output. Output at
these exceptionally high
levels is more likely to be
associated with full
employment. Hence, the
correct answer is option B.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 23
If an economy’s output gap moves from being negative to
positive, the economy is likely to experience…
deflation.
Incorrect
excess aggregate supply.
Incorrect
inflationary pressure.
Correct
rising unemployment.
Incorrect
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Such a move will result in this
economy moving from
producing real output levels
below production potential, to
real output above output
potential (albeit temporarily).
Therefore, of the options
available, this economy is
more likely to be experiencing
Inflation. Hence, option C is
the correct response.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 24
A deflationary gap is typically associated with…
aggregate demand and aggregate
supply in equilibrium.
Incorrect
increasing imports.
Incorrect
a higher price level.
Incorrect
changes in the economic cycle.
Correct
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A deflationary gap (also known as
a negative output gap) occurs
when real GDP (output) falls
below potential output levels,
usually as a result of a deficiency
of aggregate demand. Changes
in the level of aggregate demand
are most commonly associated
with changes in the economic
cycle. Hence, option D is the
correct response.
Next question
AQA AS Economics Unit 2 – The National Economy
Question 25
A negative output gap is defined as the extent to which…
actual output is greater than the
productive potential of an economy.
Incorrect
Inflation is falling.
Incorrect
output is falling.
Incorrect
the productive potential of an economy
output is less than actual output.
Correct
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A negative output gap (also
known as a deflationary gap)
occurs when an economy is
producing at a level of output
that is below the productive
potential of the economy.
Hence, option D is the correct
response.
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