Macroeconomic Policy Review

What is an aim of government policy?

• income tax

• interest rates

• stable prices

• unemployment

A government is faced with rising inflation. It wishes to reduce inflationary pressure while avoiding a fall in output. Which action is most likely to meet its needs?

• an increase in laws to promote competition

• an increase in taxation

• an increase in the budget surplus

• an increase in the exchange rate

Why does more emphasis on education and training lead to an increase in national output?

• It improves the productivity of the labour force.

• It lowers the inputs of capital investment.

• It reduces demands for higher pay.

• It reduces the power of trade unions.

Which government policy is most likely to cause expenditure switching that will benefit a country’s current account?

• increasing import quotas

• increasing income tax allowances

• increasing spending on unemployment benefits

• increasing subsidies to domestic firms

What could be described as an expansionary fiscal policy?

• an increase in the budget deficit

• an increase in the budget surplus

• a decrease in the exchange rate

• a decrease in the money supply

Which measure would a government take to reduce a current account deficit?

• increase tariffs

• increase value added tax

• increase income tax

• reduce domestic subsidies

In the past, governments have adopted policies to try to end a recession in their country and increase economic growth. Which combination of policies is most likely to achieve this?

• lower taxes and decrease government spending

• lower taxes and increase government spending

• raise taxes and decrease government spending

• raise taxes and increase government spending

Why will a contractionary monetary policy reduce inflation?

• Banks will lend more.

• Consumers will have higher disposable income.

• Consumers will pay more tax.

• Consumers will save more

Raising interest rates is proposed to reduce a balance of payments deficit. Which justification for this action is not valid?

• It will attract more foreign currency inflows.

• It will encourage exporters to find new foreign markets.

• It will lower the level of imported consumer goods.

• It will put downward pressure on the exchange rate.

What are government monetary policies that would be the most effective in a global recession?

• allowing the rate of interest to fluctuate and increasing business taxation

• increasing the budget surplus and raising tariffs on imports

• keeping the rate of interest very low and increasing the money supply

• raising the rate of interest and restricting the money supply