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Question 1
Question
Which one of the following is most likely to lead to an increase in structural unemployment in the UK?
Answer
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An increase in the size of the UK government’s budget deficit
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A decision by the Monetary Policy Committee (MPC) of the Bank of England to increaseinterest rates
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Improving international competitiveness of the Chinese and Indian economies
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A fall in consumer confidence which leads to a recession in the UK
Question 2
Question
All other things being equal, in the short run a decrease in aggregate demand in an economy is most likely to result in a reduction in
Answer
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government spending on welfare benefits.
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the unemployment rate.
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the budget deficit.
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the balance of payments deficit on current account.
Question 3
Question
‘Unemployment has begun to rise in the UK. What should policy makers do? Already the Bank of England has cut interest rates. Also, the government has begun to spend more without covering all of the increase by a rise in taxes.’
It can be inferred from the data that in response to rising unemployment
Answer
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both monetary policy and fiscal policy are expansionary.
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monetary policy is expansionary whilst fiscal policy is contractionary.
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monetary policy is contractionary whilst fiscal policy is expansionary.
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both monetary policy and fiscal policy are contractionary.
Question 4
Question
All other things being equal, which one of the following is most likely to reduce cyclical
unemployment in the short run?
Answer
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A reduction in the budget deficit
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A reduction in the budget surplus
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An increase in the exchange rate
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An increase in interest rates
Question 5
Question
In the diagram below, a decline in consumer confidence in an economy is represented
by a leftward shift in its aggregate demand curve from AD1 to AD2.
In the short run, output falls from Y1 to Y2 and unemployment rises. The type of
unemployment that results is best described as:
Answer
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structural unemployment.
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cyclical unemployment.
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seasonal unemployment.
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frictional unemployment.
Question 6
Question
The economy is growing below its underlying trend rate and unemployment is rising. Which
one of the following policies would be the best course of action to remedy the situation?
An increase in
Answer
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interest rates to encourage investment
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the exchange rate to increase exports
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indirect taxes to raise consumption
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government spending to boost aggregate demand
Question 7
Question
Which one of the following types of unemployment is best defined as ‘unemployment for short
lengths of time between jobs’?
Answer
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Frictional
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Seasonal
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Cyclical
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Structural