Effectiveness of Macroeconomic Policies
94 questions· page 1 of 10
Which policy may increase economic growth without causing inflation?
Options
A giving subsidies to producers
B increasing government spending
C lowering direct taxes
D lowering interest rates
What is the most likely consequence when there is an increase in the national debt?
Options
A the creation of additional money
B a current account deficit on the balance of payments
C a surplus in the government’s budget
D the crowding out of private sector investment
What describes a Keynesian measure to reduce cyclical unemployment?
Options
A adopting a supply-side policy to retrain unskilled workers
B allowing the private sector to take over the supply of merit goods
C increasing the ratio of capital equipment to manual labour in production
D using fiscal policy to increase effective demand
In which situation is expansionary fiscal policy least likely to be effective?
Options
A inflation is below its target rate
B lack of confidence in the economy
C there is a negative output gap
D unemployment is high
Which combination shows the most likely outcome if a government increases the level of direct taxation?
Options
A balance of payments deteriorates and inflation increases
B economic growth increases and balance of payments improves
C inflation decreases and unemployment increases
D unemployment decreases and balance of payments improves
Sometimes monetary policy is ineffective. The supply of money (MS) is assumed to be controlled by the central bank. The demand for money is LP. There has been an increase in real income in the economy.
Which position on the diagram makes expansionary monetary policy ineffective?
Options
A point A on Fig. 14.1
B point B on Fig. 14.1
C point C on Fig. 14.1
D point D on Fig. 14.1
Which macroeconomic policy is most likely to be used as a long-run means of reducing inflationary pressures?
Options
A exchange rate policy
B fiscal policy
C supply-side policy
D monetary policy
The central bank of an economy decreases the money supply in an attempt to reduce inflation.
Under which conditions is this policy most likely to be effective?
Options
| exchange rate | responsiveness of aggregate demand to interest rate changes | |
|---|---|---|
| A | fixed | low |
| B | fixed | high |
| C | floating | low |
| D | floating | high |
What does the Laffer curve show?
Options
A the amount of tax revenue received at each tax rate
B the impact on the distribution of income after tax rates rise
C the rise in inflation following a fall in unemployment due to a cut in income tax
D the rise in poverty due to a rise in the basic rate of income tax
What is likely to be the most effective policy to reduce inflation caused by a rapid rise in import prices?
Options
A a decrease in the domestic rate of interest
B a decrease in the rate of income tax
C an increase in trade tariffs on imports
D a revaluation of the exchange rate