Muhammad Shahid Iqbal Macroeconomics Date: 18-10-18

Class Quiz
1) In the diagram, C1 shows the initial relationship between consumption and national income.

C1
C2

consumption

O national income

What could cause the consumption function to shift to C2?

A an increase in exports

B an increase in investment
C a decrease in the rate of unemployment benefits
D a decrease in the standard rate of income tax

2) Which statement is consistent with a Keynesian view of the workings of the macroeconomic?

A Recessions can result from fluctuations in private investment expenditure.

B Interest rates move to ensure continuous equality between savings and investment plans.

C Money wages in the economy in the short run are perfectly flexible.

D Changes in aggregate demand cannot occur without e q u i v a l e n t changes i n the

m o n e y supply.

3) Assuming a constant income velocity of circulation of money, if real output grows by 3 %, and the
rate o f growth of the money s u p p l y i s 10 %, what will be the approximate change in the price
level?

A –7% B +7% C + 10 % D + 13 %
4) Real output in an economy grows by 1.5 % but at the same time the level of unemployment
increases.

What can be deduced from this information?

A Labour productivity has decreased.

B Actual output has grown more slowly than potential output.

C Population of working age has fallen.
D There has been an increase in the rate of inflation.

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Muhammad Shahid Iqbal Macroeconomics Date: 18-10-18

5) A country's national income per head falls, but there is a rise in consumption.

What could explain this?

A a decrease in the net property income from abroad

B a fall in population
C an increase in the trade deficit
D a rise in negative externalities
6) The diagram shows an economy's consumption function.

C
consumption

O income

What might explain why the consumption function shifts over time?

A Autonomous consumption is greater than zero.

B Income is only one of several variables that affect consumption.

C The average propensity to consume falls as income increases.
D The marginal propensity to consume falls as income increases.
7) In an e c on om y , the m a r g i n a l p r o p e n s i t y to consume of the u n e m p l o y e d is higher t h a n
t h a t of taxpayers.

The government increases b o t h expenditure o n unemployment b e n e f i t s a n d taxation

by
$10 million.

What will be the impact on aggregate demand?

A It will be unchanged.
B It will increase by less than $10 million.
C It will increase by $10 million.
D It will decrease by $10 million.

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Muhammad Shahid Iqbal Macroeconomics Date: 18-10-18

8) The table gives data for an economy

2000 2001 2002 2003 2004

Gross Domestic Product (GDP)
200 220 240 300 320
at current prices ($ billion)
GDP deflator 100 109 118 149 154
In which year did real GDP decline compare with the previous year?

A 2001 B 2002 C 2003 D 2004

9) What is a central assertion of ‘Monetarist’ economics?

A Fiscal policy should be used for the continuous management of the
economy.
B Major recessions can occur despite an unchanged money supply.
C The money supply dominates the determination of aggregate monetary
expenditure.
D The velocity of circulation of money is unstable over time.
10) A c l o s e d e c o n o m y w i t h n o government h a s an equilibrium level of n a t i o n a l
income of
$10 000 million. Consumption expenditure is $8000 million.

Assuming that the MPC = APC what will be the change in national income followi ng an increase in
investment of $100 million?

A $100 m B $120 m C $400 m D $500 m

11) Which change would best indicate that a country has experienced economic development?

A an improvement in the average citizen’s quality of life

B an increase in the country’s real GDP
C an improvement in the country’s trade balance
D an appreciation in the country’s currency

12) What is most likely to lead in the long run to an increase in world real GDP per head?

A faster population growth

B trade liberalization
C a lower propensity to save
D faster growth of the money supply

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Muhammad Shahid Iqbal Macroeconomics Date: 18-10-18

13) What is likely to be the effect of an oil price increase on the global economy?

A a strengthening of demand inflation

B a weakening of cost inflation
C a decrease in the rate of growth
D a decrease in unemployment

14) Why might GNP per capita of different countries in a given year, measured in US dollars, be a poor
indicator of their comparative standards of living?
a. Their exchange rates are different from purchasing power parities.
b. Their population growth rates are different.
c. Their rates of inflation are different.
d. Their ratios of imports to national income are different

15) Which assertion could be described as monetarist rather than Keynesian?

a. Central banks must directly control interest rates to influence the money supply.
b. The interest elasticity of investment expenditure is close to zero.
c. The money supply is the main determinant of aggregate monetary expenditure.
d. The velocity of circulation of money is unstable over time.

16) What will be most likely to decrease a country’s national output in the short run but to increase its potential
for long-run growth?
A a decrease in the level of import tariffs
B a decrease in the rate of immigration
C an increase in female participation in the labour force
D an increase in the money supply

17) What is likely to be the effect on developing economies of an increase in inward foreign direct investment?
a. an increase in the burden of debt
b. a slowdown of rural-urban migration
c. an increase in visible trade deficits
d. an acceleration of technology transfers

18) During a year, a country’s national income in money terms increased by 8 %, prices increased by
4 % and total population increased by 2 %.

What was the approximate change in real income per head?

A a decrease of 2 %
B nil
C an increase of 2 %
D an increase of 4 %
19) What is likely to result in an increase in GDP per worker in a developing economy?

A an increase in the employment rate

B an increase in the population of working age
C a shift from working in subsistence agriculture to working in manufacturing
D a shift from working in manufacturing to working in subsistence agriculture

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Muhammad Shahid Iqbal Macroeconomics Date: 18-10-18

20) An economy is operating initially at its natural rate of unemployment.

According to monetarist theory, w h a t will be the effect on unemployment in the short run and in the
long run of an unanticipated increase in the money supply?

short run long run

A no change no change
B no change reduction
C reduction no change
D reduction reduction