NEC training 3

The diagram shows a shift in a country’s production possibility curve (PPC).

What would cause the shift from X to Y?

• a fall in the unemployment rate

• a fall in consumer demand

• a rise in the rate of inflation

• a rise in the size of the labour force

A farmer decides to grow potatoes instead of wheat.

What is the opportunity cost of growing the potatoes?

• the output of wheat

• the price of seed potatoes

• the profit from growing potatoes

• the time spent preparing the potato field

What is the function of the price mechanism in a market economy?

• allocating resources and guiding choices

• allowing governments to provide price stability

• enabling markets to operate fairly

• preventing competitors from entering a market

What is an advantage to a country of having an efficient commercial banking system?

• It controls the money supply

• It discourages spending.

• It encourages tax evasion.

• It enables investment.

What is not included in public expenditure?

• capital spending by firms

• interest payments on government borrowing

• investment in defence by the central government

• subsidies to bus companies from local government

When is the budget described as balanced?

• when direct taxes and indirect taxes are equal

• when exports and imports are equal

• when government spending and government revenue are equal

• when the demand for money and the supply of money are equal

What is the main aim of supply-side policy?

• increasing economic growth by raising productivity

• increasing the balance of payments surplus by restricting free trade

• reducing the government’s budget deficit by increasing taxation

• reducing the money supply by increasing the rate of interest

A government has a contractionary fiscal policy to reduce inflation. What will the government increase?

• expenditure on infrastructure

• income tax rates

• personal tax allowances

• unemployment benefits

What is the basic economic problem?

• excess supply of goods and services

• lack of profits

• recession

• scarcity of resources

On which factor of production does innovation directly depend?

• decisions of entrepreneurs

• high inputs of capital

• long hours of manual labour

• plentiful supplies of land