Unit 3 Macro Review!

Which diagram is the most appropriate to depict the MO of equity in the distribution of income?

• Lorenz curve

• PPC

• Keynesian

• New classical/monetarist

Answer explanation

The question asked for the 'most appropriate', so the correct answer is Lorenz curve.

How does contractionary monetary policy impact a country's economy?

• A decrease in interest rates reduces two components of AD.

• An increase in interest rates reduces two components of AD.

• A decrease in government spending reduces a component of AD.

• An increase in taxes reduces two components of AD.

Answer explanation

Monetary policy is about interest rates. Contractionary monetary policy reduces the (C) and (I) components of AD.

What does a market-oriented and interventionist supply-side policy have in common?

• Both policies increase the productive capacity of a country's economy.

• Both policies negatively impact a government's budget.

• Both policies increase AD.

• Both policies create inflationary pressure in a country's economy.

Answer explanation

Productive capacity is a fancy term for 'long-run aggregate supply'.

So, if LRAS increases, we say that a country's productive capacity has increased.

In the short run, an increase in AD can create a trade-off between which two macroeconomic objectives?

• Inflation and purchasing power.

• Inflation and real GDP.

• Inflation and unemployment.

• Inflation and sustainability.

Answer explanation

The trade-off is higher inflation but lower unemployment.

Which of the following is produced when the costs of imported energy supplies increases for a country?

• Demand-pull inflation

• Cost-push inflation

• 'Good' deflation

• 'Bad' deflation

Answer explanation

It should decrease SRAS, which raises the average price level. This is cost-push inflationary pressure.

Which of the following is NOT part of the Human Development Index (HDI)?

• Life expectancy (years)

• GDP or GNI per capita

• Unemployment rate

• Expected number of years of schooling

Assume a government increases its transfer payments to lower-income households. What is likely to happen?

• Country's Gini coefficient moves closer to 0

• Country's Gini coefficient moves closer to 1

• Equity in the distribution of income worsens

• Cost-push inflation may arise

Answer explanation

If the Gini coefficient moves closer to 0, it means that the country has a more equitable distribution of income

Instead of relying on imports, Country A has decided to provide its manufacturing industry with generous subsidies to increase production of capital goods. What do you think Country A is trying to do?

• Reduce the government budget

• Decrease employment opportunities

• Diversify away from the primary sector

• Liberalise trade

Answer explanation

Diversify away from the primary sector is the MOST appropriate answer.

Absolute poverty refers to what?

• Earning an income below the national poverty line

• Earning an income that is a certain percentage below the median income

• Earning an income that is a certain percentage below the average income

• Earning an income not enough to maintain a typical standard of living in that country

The government decides to increase unemployment benefits. Which type of unemployment is affected?

• Seasonal unemployment

• Structural unemployment

• Frictional unemployment

• Cyclical unemployment