Assessment exercises Multiple choice 1 What is the basic economic problem? A. Finite resources and limited wants B__ Finite resources and unlimited wants € Infinite resources and limited wants D_ Infinite resources and unlimited wants Which statement best explains why drought is an economic problem? A. Rainfall cannot be predicted easily B_ The effects of drought require government action © Droughts cannot be prevented D_ Water isa scarce good New oil reserves are discovered. What has increased n supply? Capital Enterprise Labour Land vamp ‘Which statement about the factors of produ: correct? A. Capital includes human-made machines that lose value over time to wear and advances in technology B__ Enterprise is a natural factor of production that cannot be taught € Labour is an immobile factor that does not change its skill level D_ Land refers only to farmland that cannot be improved by human effort ‘The following are four ways factors of production are used. What is likely to require the greatest use of, the factor enterprise? A. A carpenter making wooden articles in his, leisure time for sale at a monthly market BA com farmer negotiating with other farmers to hire expensive machinery € A food shop owner sometimes selling flowers in the shop D_ A householder harvesting vegetables grown at home Hala makes cakes she bakes in her kitchen at home. She sells them at a local market. To produce more cakes she decides to invest in a larger oven and to employ someone to help. ‘Which factors of production have changed? Labour Capital Labour and capital Enterprise and capital camp A new dam is built in Turkey to provide hydroelectric power and a water supply. What is the opportunity cost to the country of building the dam? A The cost to households and businesses of consuming the water supply B_ The benefits foregone from other uses of the money used to pay for the dam € The cost to consumers of using hydroelectric power D__ The money used to pay for the construction and running of the dam A social club has sold raffle tickets at US$10 each. The owner of the winning ticket received a prize of US$250. A student bought a ticket, but did not win. ‘What is the opportunity cost to the student? A. uss10 B_ US$250 What could have been bought with the Us$10 D__ What could have been bought with the US$250 A firm can produce a number of possible combinations of two goods. It can either produce 500 of good x and 300 of good y, or 600 xand 250 y. What is the opportunity cost of producing an extra 100 of good x? A 100y B 250) © soy D__The extra wages paid to the workers10 In the diagram below what is the opportunity cost of increasing the output of wheat from 300 tonnes to 400 tonnes per month? o 720 800 Batley 7000 800 tonnes of barley 80 tonnes of barley 120 tonnes of barley 720 tonnes of barley vamp> LL The diagram below shows the production possibility curve for an economy. Which point in the diagram represents the most efficient allocation of resources to the production of both consumer goods and capital goods in the cease g 2 A a) ¢ ¢ : ° o Consumer goods 12. The movement in the production possibility curve from PPC1 to PPC2 in the diagram indicates there has been growth in the productive potential of an economy. What is most likely to have caused this? Consumer goods ect 0 Capital goods ‘An increase in wages A better educated workforce A decrease in the availability of natural resources D__ An increase in factor mobility au>Assessment exercises Multiple choice 1 The market demand curve for a product shows the relationship between the quantity demanded of that product and. A A change in income B_ Consumer tastes © The supply of the product D_ The price of the product 2. Other factors unchanged, an increase in the market demand for a product will cause... A. The market price to rise and supply to contract B The market price to fall and supply to extend € The market price to rise and quantity supplied to extend ‘The market price to rise and an increase in supply D 3. Which of the following pairs of products is an example of goods in complementary demand? A Beef and lamb B_ Colle and tea € Butter and margarine D_ Quilts and quilt covers 4 What is meant by the equilibrium quantity in the market for a product? A. The quantity produced each period B_ The quantity at which demand matches supply € The quantity at which maximum profit occurs D_ The quantity which maximizes revenue 5 The diagram shows the market for com. P price quantity What would have caused the equilibrium price to rise from PI to P2? A government subsidy to com farmers Poor weather conditions A successful advertising campaign for corn Improved farming methods vamD> oamD> The and the new market eq 8 Dem ‘There is excess demand in the market for a product. What change would cause the market to reach equilibrium? A decrease in market supply A fallin price An increase in market supply A tise in price librium point X. introduction of new technology reduces costs increases production. Which point represents ‘quantity nand for a product is likely to be price inelastic the... A B a D 9 Dem Fewer substitutes it has Fewer complements it has Higher its market price Greater the proportion of income spent on it nand for a product is price elastic. What will happen to total revenue from sales of the product following a 10% increase in its price? ona> 10 useh A B rt fall by less than 10% 1t will fall by more than 10% ise by less than 10% Itwill rise by more than 10% Why is knowledge of price elasticity of demand jul? To monitor the rate of price inflation ‘To calculate changes in disposable incomes ‘To estimate the effects of changes in production costs ‘To forecast the impact on revenues of different pricing strategies Assessment [IIE)u 12 B ry 16 Which pair of economic institutions would exist ina pure market economy? A. Charities and nationalized industries B_ Multinationals and commercial banks € State-owned enterprises and private limited companies Private schools and government hospitals, D A government decides that an economy should make more use of the market economic system. Which policy measure might help to achieve this? A decrease in controls on imported goods An increase in government ownership of land An increase in subsidies to industry The fixing of minimum wage levels for workers oam> A mixed economy is one that has. ‘A Farms and factories B_ A public and a private sector € Capital and consumer goods D_ Goods and services In.a market economic system the price mechanism... A Helps the government to provide services B_ Measures the total value of wealth Makes profits for firms D__ Determines the allocation of resources During the 1990s the economies of Eastern Europe changed from planned economies to market economic systems. Which of the following best describes the change that took place? A More centralized government plannii allocate resources B_ Fewer price controls € Increased dependence on the price mechanism to allocate resources Increased resource unemployment 1g t0 D What is an advantage claimed for the market economic system? A. It responds quickly to consumer wants B_ It provides public goods © Unemployment can rise rapidly D_Itrelies on traditional methods of production Br vr erionctrescures 7 18. 19. 20 2 Which of the following is a market failure? Some workers receive higher wages than others Private firms aim to maximize their profits Natural resources are used up in production ‘The market prices of products will not take account of their external costs and benefits vamD> What is an external cost of building a new airport? A The price paid for the land B_ The cost of materials € The noise caused by construction D__ Wages paid to workers A large supermarket has applied to build on protected woodland. Despite the loss of the woodland and its recreational value, the proposal is likely to be profitable and create many new jobs. ‘What economic concepts are directly involved in this statement? A__ External costs and private benefits B__ Income distribution and inelastic demand © Private investment and a decrease in supply Social costs and monopoly If the production of a good or service results in high external benefits, but low private benelits, then.. A__ Private firms will produce more than the society wants B Private firms will produce just enough to satisfy the wants of the society © Private firms will produce less than the society wants Private firms will use resources to produce something else A government intervenes in the market for rented accommodation. It sets the maximum weekly rent a Jandlord can charge per square metre of accommodation below the current market equilibrium rent. What is most likely to be observed at the new rental charge? A Demand for rented accommodation will contract B The supply of accommodation for rent will extend C There will be an excess demand for rented accommodation There will be an excess supply of rented accommodation22. A government subsidizes the production of electric cars. This is likely to. Increase the market price of electric cars Raise the costs of supplying electric cars Raise revenue for the government Increase the supply of electric cars at every possible price cau> 23 The diagram below shows the market for alcoholic drinks. The government has set a minimum price of $0.60 per unit of alcohol. What will be the impact of this policy measure? Price a ‘Quantity ll cause supply to exceed demand It will reduce the market price 1t will cause demand to exceed supply It will have no effect on the market vamD> 24 The diagram below shows the market for fizzy drinks with a high sugar content. The initial market equilibrium is at point X. Which point will represent the new market equilibrium following the introduction of an indirect tax on these drinks? price ° quantiy 25 Governments may intervene in their economies when free markets fail to produce desirable ‘outcomes, Why may an intervention make these problems worse? A. A government may introduce new taxes to reduce negative externalities B_ Government subsidies can make firms less efficient € A government will have to use scarce resources to enforce regulations D_ A government may set the legal minimum price for a demerit good above its market equlibrium Structured questions 1 The following headline appeared i UK newspapers in 2017: ‘More resources must be devoted to the National Health Service’. This would involve making some difficult choices because of the basic economic problem. ‘A__Define the basic economic problem. PI B__ Explain and contrast how resources are allocated to different uses in market and mixed economic systems. uW Using a production possibility curve diagram, analyse why choices have to be made to allocate resources. (61 D_ Discuss whether an economy would benefit from an increase in resources allocated to healthcare. 8] AaseanrestGlobal food prices have increased significantly in recent years. Food poverty has also increased as result. In an attempt to reduce the prices of hasic foodstuffs, some governments have introduced policy measures to encourage farmers to increase their output and shift market supply curves to the right. A. Identify what determines an equilibrium price ina market. RI B__Explain two factors that may cause the supply curve of a product to shift out to the right. u © Analyse what effect a fall in food prices may have on the profit of farm owners. 61 D__Discuss whether food prices are likely to continue rising in the future. Is] Global demand for bicycles has been rising rapidly and sales are expected to reach US$60 billion a year by 2021 according to a report published in 2016. The highest growth in demand is expected in countries in the Asia Pacific region. Here, the price elasticity of demand for bicycles is estimated to be around -0.2, much lower than in many Western countries. Cigarette consumption also continues to rise in many countries in the Asia Pacific region, A. Define demand. RI B__ Explain two probable causes of an increase in consumer demand for bicycles. 4 © Analyse why consumer demand for a product may be more price elastic in one country than in another. (6) D__ Discuss whether a government should increase indirect tax on cigarettes. 18] ‘To combat rising levels of obesity, many governments have introduced measures to discourage people from eating processed foods with high fat and high sugar content whilst encouraging more people to eat fruit, including apples and pears. The success of these measures will depend in large part on the price elasticity of supply of these products and the responsiveness of consumer demand. A. Deline price elasticity of supply. RI B__Explain two reasons why the supply of apples may decrease. 6] Apples are a close substitute for pears. Use diagrams to analyse the effect a rise in the price of apples will have on the market for pears. lol D__ Discuss whether governments should only impose indirect taxes on products for which consumer demand is price inelastic. Is} About half the land in Nigeria used to be covered in trees. Today all but about 10% of those trees have been cut down. The deforestation rate in ‘Nigeria has been among the highest in the world along with Honduras, The Phillipines and Benin, It is seen as evidence of market failure by some economists who want the sector to be regulated by governments. A. Define regulation. RI B__ Explain how resources are allocated in a market economic system. [4] © Analyse the causes of market failure. lol D Using examples, discuss whether or not an economy will benefit from cutting down its forests. 18]Assessment exercises Multiple choice 1 What is the usual reason why people trust notes and coins issued by the government or central bank in their country? ‘A. They are generally acceptable for trade and exchange B_ They are easy to carry and are in infinite supply They are backed by gold at the central bank D_ They are convertible into the US dollar or Euro, 2. The use of a mobile phone app to make payments, from a bank account is an example of which function of money? A store of value or wealth A.unit of account ‘A means of deferred payment ‘A medium of exchange oam> 3. A-key function of a money is to be a measure of value. What does this mean? is used for future savings B__Itisused to enable monthly payments for expensive goods C__Itis used to pay the price of a good D_Itis used to compare the worth of different goods 4 Which of the following statements about different banks in economy is correct? A. The central bank determines the tax and spending policies of the government B_ The central bank loans money to small businesses and members of the public € Commercial banks hold the gold and foreign currency reserves of the government D_Commercial banks settle debts by clearing customers’ cheques and debit card payments 5 Which one of the following types of household is most likely to spend the highest proportion of its disposable income? A. High income, middle-aged with no children B__Low income, young single parent with young, children Middle income, young single person with no children D_ High income, middle-aged couple with two grown-up children Why might a period of rapid inflation combined with low interest rates be of concer for a consumer? A. Because the consumer lives on a pension linked to the consumer price index B__ Because the consumer needs to draw from savings to pay monthly bills Because the consumer pays a fixed rent for their accommodation D__ Because the consumer has a large bank loan to repay What may cause an individual to increase their savings as a proportion of their current income? A A belief that the prices of goods will rise in the future B_ A {all in the rate of interest paid by banks © A fear that the individual may be made unemployed in the future DA desire to increase current consumption Karimah works part-time in a local supermarket. She lives with her parents in a small house. Akram runs a successful business and owns a large apartment. Which of the following statements is most likely to be correct? A. Karimah spends a smaller proportion of her disposable income than Akram B__ Karimah has a lower disposable income than Akram © Karimah saves most of her disposable income D_ Karimah will find it easier than Akram to borrow money What shows the correct examples of income and wealth? A. Annual salary Dividends from shares B_ Wages Overtime payments C Dividends from shares Rent from letting a house D_ Rent from lettinga Shares house nana10 In the diagram, D1D1 and S1SI represent the demand for and the supply of labour to the hotels, and restaurants sector. W indicates the legal minimum wage. ‘An increase in migrant labour causes the labour supply curve to shift from $181 to $282. wage (8) 45678910 labour (thousands) How many people would be employed in the sector if the minimum wage is abolished? A 4000 B 5,000 © 6,000 D 7,000 11 In which occupations do wages tend to be lowest? A_ In those where there is an excess supply of labour B__ In those where the work is dangerous € In those where employees are paid an annual salary D__In those where employees need advanced educational qualifications 12 Why might manutacturing workers have higher ‘wage rates than agricultural workers? A Manufacturing workers are in greater supply B_ Manufacturing workers face fewer health and safety risks © Manufacturing workers have better working conditions D_ Manufacturing workers use more productive equipment 13. Which of the following is most likely to limit increases in wages in an industry? A. An increase in profits in the industry B An increase in consumer demand for the industry's products © An increase in the wages of workers with similar jobs D_ An increase in the substitution of labour in production processes by robots Microeconomic decision makers 14 The table shows how the average weekly earnings of four workers (A to D) changed between ages 16 and 64, Which row is most likely to represent the change in the weekly earnings of an unskilled, manual labourer over time? ‘$600 $600 $600 ‘$600 A B $900 = $800 $700 $600 © $600 $700» $800» $700 D $600 «= $700» $800» $900 15 What might be a disadvantage to a trade union in discussions with the owners of a firm to increase the pay of its members? A. An increase in imports of a cheaper, similar product B_ The closure of a training centre resulting in fewer skilled workers € Increasing consumer demand for the firms’ product D_ The development of new techniques that increase productivity 16 A manufacturer of sports equipment expands by merging with a sports retail chain. What type of merger does this describe? Backward vertical Conglomerate Forward vertical Horizontal vau> 17 Which type of economy of scale will benelit a firm producing a range of different products? A. Buying B_ Financial € Technical D_ Risk-bearing 18 India is experiencing rapid growth in air travel. The number and size of airlines is increasing every year. Which effect arising from this growth is an external economy of scale? A. Banks offer low-cost credit facilities to large airlines B_ Fuel suppliers charge lower prices to airlines that buy in bulk Colleges are established to train flight crew Larger airlines operate aircraft which can carry more passengers ga19 20 21 22 23 24 Which change must occur when a firm starts to experience diseconomies of scale? A. Average costs begin to rise B Average revenue falls € Total fixed costs increase D_ Total variable costs rise ‘How can a firm guarantee that it earns a maximum profit? A By maximizing its prices B__ By minimizing the difference between average revenue and average cost By maximizing the number of items it sells D_ By maximizing the difference between its total revenue and total cost, A firm produced 4,000 cars each month and employed 100 workers. A fall in demand caused the firm to cuts output to 3,200 cars a week an workforce to 64, What was the percentage change in the firm’s labour productivity? It fell by 20% It increased by 25% € _Itinereased by 20% It fell by 25% Some worker co-operatives in the agricultural sector have changed from using labour-intensive methods of production to capital-intensive methods. What might be the cause of this change? A. Some agricultural land has been sold for housing. Farming equipment has become more efficient. People are eating less food for health reasons, Average productivity of agricultural workers has increased. B c D A firms total variable cost is $3,000 when it produces 1,000 units each week and its total fixed cost is $27,000. What is the average cost of producing each unit of output? AS B $27 c $30 D_ $300 The table shows a firm’s average revenue and average cost. What level of output, A, B, C or D will maximize its profit? rans (i) revenue ($) A 10 40 B 25 52 45, ic 30 55 2 D 35 62 43 25 The diagram shows the costs of a firm 26 27 28 Cy 50. (a0 30. 20 10+ output ‘The firm is currently producing 200 units per day. What are the firm’s total fixed costs at this level of output? Ao B_ $10,000 € $50,000 D_ $60,000 A firm intends to expand its scale of production by \vesting in additional factory space and machinery. What immediate impact will this decision have on its costs? Total variable costs will rise Total fixed costs will rise Total cost will be unchanged Average costs will rise vooDp Why are firms in perfect competition price takers? A. They have no information about market price B_ They are unable to influence market equilibrium, © They are no natural barriers to entry D_ There are only a few firms in the industry What exists in monopoly? A ighly competitive market but not in Barriers to entry Economies of scale Many sellers B D_ Product differentiation nana29 Prices tend to be lower in a competitive industry 30 What isa possible advantage to the consumer of a than in a monopoly. Why is this? monopoly supplier in a market? A. Profits are lower in a monopoly A. It’s average production costs will be lower than B_ A monopoly is a price taker if there were many suppliers. € Competitive industry has more economies of B_ I's profits will be higher than if there were scale many suppliers. D__New firms are free to enter the competitive © _Itisable to restrict competition. industry D_ It can determine the market price. Structured questions 1 Driving the changes in the car manufacturing industry Around 72 million cars were produced in 2017, over 50% of which were produced by just 10 companies. The global car market is dominated by Japanese giant Toyota. It produces over 10 million cars each year and captures over 9% of global sales. ‘Toyota has production plants all over the world including two in the UK. Other major car producers including Nissan and Honda also have factories in the UK. ‘The UK automotive industry is the 10" largest in the world, According to the Society of Motor Manufacturers and Traders (SMMT), 1.67 million cars left UK factories in 2017, a decline of 3% compared with the year before. ‘The SMMT said the fall was primarily the result of lower demand from UK consumers worried about future economic conditions and further rises in interest rates. Buyers of cars often withdraw savings and borrow money from commercial banks to make their purchases. However, despite this decline, car manufacturing in the UK remained high replaced the jobs of some less skilled employees with new capital equipment. ‘Over the same period, the wages of the lowest paid car workers fell by 7.5%, according to data from the UK Office of National Statistics Manufacturers say that reduced wages and hours were among deals struck with trade unions during the economic recession in 2008/9 to protect UK jobs and factories from closures as demand fell. In comparison, declining car sales in Europe forced the closure of a number of car plants in Germany, France, Belgium and Italy. The global car industry is now undergoing significant change. The development of electric, connected and potentially driverless cars is having a powerful impact on the way established, volume car makers organize their operations. It is forcing them to work with software and battery producers and is creating opportunities for many smaller automobile and parts manufacturers. A. Identify three ways of measuring whether an industry in a country is large or small pI B__ Explain, using information from the extract, why wages in the UK car industry fell, RUsing information from the extract, explain how trade union membership may benefit workers. i D_ Analyse two reasons, referred to in the extract, why a decrease in ‘employment may increase labour productivity. 141 E__ Using information from the extract, explain two functions of commercial banks. fo] F _ Discuss whether a government should protect a declining car industry. (1 G__ Discuss whether small car manufacturers can compete successfully with large car manulacturers. s] ‘A modern economy cannot function without money. A. Define money. RI B__ Explain how money functions as a unit of account and a means of deferred payment. ro) © Analyse the possible effects of an increase in bank lending on the supply of money and economic growth. 61 D__ Discuss whether the interest rate is the only influence on a person’s decision to borrow money from a bank. 8] Over the last 50 years, rapid growth in the use of electronic payment cards has changed how consumers pay for goods and services. Electronic payment cards have reduced the use of cash and cheques making payments more secure and reducing costs to business of cash management and handling. ‘They have also increased financial inclusion. The number of people with bank deposit and savings accounts and bank loans has increased entify two influences on the amount people save. RI Explain why notes and coins are money. ia Analyse the role that commercial banks can perform in an economy. [6] Discuss whether poor people are more likely to borrow than rich people. (81 opamD> Canadian manufacturer Bombardier began making and selling regional passenger jets in 1991. It employs a high value of capital goods and was the monopoly supplier of regional jets until Embraer of Brazil entered the global market with a rival aircraft in 2002. Bombardier also specializes in the production of trains. A__ Define specialization. PI B__Explain why fixed costs are high in the aircraft-making industry. [4] © Analyse what determines a firm’s demand for capital goods. 6] D__ Discuss whether the quality of products is likely to be higher in a monopoly or in a perfectly competitive market. 8} Capital is a fixed factor of production in economics in the short run. This ‘means that firms are only able to increase production in the short run if they have spare capacity or if they employ more variable factors of production. However, in the long run firms will also be able to employ ‘more capital to increase their scale of production, As a result, many firms should be able to reduce their average costs of production, ‘A. Identify the two human factors of production. PI B__ Explain two influences on demand for factors of production. i Assessment leu}Analyse why some people are prepared to work in low-paid (61 D__ Discuss whether or not the average cost of production will always fall asa firm increases its scale of production. 15] 6 The factor resources available to an economy will determine its output of economic goods. The relationship between resources and output can be shown on a production possibility curve diagram. For example, growing demand for meat free, vegetarian and vegan diets is changing the way resources are being used in food production and processing in many countries. Many existing suppliers of vegan foods are new and relatively small, but the expanding market is creating opportunities for growth. The price elasticity of demand for different types of foods has also been changing over time. A. Define economic good. RI B Explain two economic concepts shown by a production possibility curve diagram. uy © Analyse why demand for a product may become more price elastic over time. lol D__ Discuss whether the growth of a firm is advantageous for both the firm and consumers. Is}Assessment exercises Multiple choice 1 When is the budget of a government described as balanced? A When direct taxes and indirect taxes are equal B_ When exports and imports are equal © When government spending and government revenue are equal D_ When the demand for money and the supply of money are equal 2 The table shows the earnings and total income tax paid cach year by an individual. 1,000 2,000 3,000 Which type of tax does this illustrate? A Indirect B_ Progressive € Proportional D_ Regressive 3 A country has different rates of income tax depending on the level of income earned. The highest rate of income tax is cut from 35% to 30% From this statement it can be deduced that taxation will become: Less indirect Less regressive Less progressive More difficult to evade vam> 4 A government collects the followi a year. tax revenues in Taxes on goods Taxes on personal incomes 150 Taxes on services 30 Taxes on company profits 60 Customs and excise duties 40 Taxes on property 20 BYZ@ Government and the macroeconomy How much did the government raise from indirect taxes? A s70bn B_ $110bn © $150bn D_ $230bn A government fixes the rate of income tax at $0.15 per dollar earned. Which word describes this type of tax? A. Indirect B_ Progressive © Proportional D_ Regressive Which aim of government policy is most likely to be achieved by an increase in interest rates? Economic growth Greater equality of income Full employment Price stability vau> ‘A government wishes to stimulate economic activity in its national economy. Which action will assist A Decreasing government investment B Decreasing income tax € increasing indirect taxation D__ Increasing interest rates The government lowers the rate of interest. Who is most likely to be disadvantaged by this policy? A House buyers B_ Manufacturers © Retailers D Savers The owners of a company discuss the following issue. Which one is least likely to be directly affected by the government's influence on the company? ‘The interest it pays on borrowed money Replacing one of its suppliers ‘Minimum wages it must pay its workers Competition laws vamD>10 A government may adopt a number of supply-side policies to encourage economic growth. Which of the following is a supply-side policy? A_ Increasing the money supply B Lowering interest rates Reducing direct taxation D_ Retraining unemployed workers 11 Economic growth can be defined as ‘An increase in a country’s exports {An increase in a country’s population An increase in the total output of real GDP A increase in the general price level ona> 12 What is most likely to cause economic growth? A better educated workforce A reduction in savings Decreased wages Higher taxation oamD> 13 What is a long-term advantage of economic growth? Lower unemployment Higher incomes Higher prices Lower savings oamD> 14 What is typically observed during an economic A. Falling Gross Domestic Product B_ Falling unemployment Rising living standards D_ Rising consumer price index 15. Which of the following is a supply-side policy that «will expand total output in the long-run? ‘An increase in welfare payments An increase in the rate of income tax ‘An increase in spending on higher education An increase in the rate of corporation tax voauD 16 Labour force participation has been rising over time in many counties. What is the most likely reason for this trend? Unemployment has fallen More females have entered employment ‘The working population has increased More people are retiring earlier vomD 17 Which type of unemployment is most likely to occur when total demand in an economy falls during an Seasonal Voluntary Structural cydlical caeD> 18 Many fishermen have become unemployed after new laws to conserve fish stocks in the North Sea were introduced. What type of unemployment is this? A. Demand-deficient B Frictional © Seasonal D_ Structural 19 Look at the labour market data below. Working population 30 People employed 18 People unemployed 6 What are the unemployment rate and the labour force participation rate? A 60 40 B 80 20 iS 20 60 D 40 60 20 Government advisers have suggested the following policies to reduce youth unemployment. Which policy would not increase public expenditure? A. Cutting the minimum wage paid to young people B_ Raising the school-leaving age € Giving a subsidy to employers to recruit young, people D_ Introducing national military service for all 21. Which combination of government policies is most likely to be successful at reducing unemployment? A Budgeting for a surplus and cutting interest rates B Budgeting for a deficit and raising interest rates € Budgeting for a surplus and raising interest rates D__ Budgeting for a deficit and cutting interest rates Assessment [EYE22 The diagram shows the annual rate of inflation for a country over a five-year period, Rate of inflation 9 * Year Which statement is true of the period displayed? A. The cost of living was unchanged B_ The price level increased € The retail price index fell D_ The value of money increased si raninn andocnaresang al nee ae Rate of inflation Personal incomes What happened between Year I and Year 2? Both prices and real incomes fell Both prices and real incomes rose Prices rose but real incomes fell Prices fell but real incomes rose vau> 24 The wages of foreign workers living and working in France have been increasing rapidly and, as a result, French firms have been increasing their prices to maintain their profit margins. What type of inflation does this represent? Imported inflation Cost-push inflation Demand-pull infl Hyperinflation vau> 25 What is most likely to cause demand-pull inflation? A B c D An increase in saving ‘An increase in consumer spending An increase in interest rates ‘An increase in taxes Government and the macroeconomy 26 From the following table what is the weighted price \dex for all items? Food 120 50 Housing 130 40 Services 110 10 All items = 100 A 360 © 120 B12 D100 27 The weight for a product in the consumer price Index was increased. wh: ely t0 have caused thi adjustment? A. The product is new B_ The product has improved in quality More retailers are selling the product D__ Consumers are spending a bigger proportion of their income on the product 28 What is deflation? A. A {all in the general price level BA fall in the international value of a currency € A fall in the rate of inflation D_ A fallin the real value of money 29 Who will be made worse off during a period of, deflation? A. Fixed income earners B_ Creditors (lenders) C Debtors (borrowers) D_ People with cash savings 30 Many fishermen have become unemployed after new laws to conserve fish stocks in the North Sea were introduced, What type of unemployment is this? A. Demand-deficient B Frictional © Seasonal D_ StructuralStructured questions 1 Venezuela: an economy on the brick of collapse Venezuela has more oil than any other nation on earth. Revenue from petroleum exports accounts for more than 50% of the country’s GDP and roughly 95% of its total exports. As a result, Venezuela was once Latin America’s wealthiest nation, but it was plagued by extreme inequality. Successive governments since 1999 promised to fix the country’s deep disparity between rich and poor. Government spending on housing and services for millions of poor Venezuelans increased significantly. But «ritics and economists argued that the spending was irresponsible and unsustainable. Public sector debt ballooned and the country spiralled into a deep economic recession following a plunge in global oil prices in 2014. Government mismanagement, industrial unrest and widespread corruption also caused oll production to plummet. Shortages of food and medical supplies and power blackouts became common. Unable to fund subsidies and welfare programmes, the government ordered the central bank to print more money. When this drove up inflation, making basic goods unaffordable, it introduced price controls and devalued its foreign exchange rate. This made many imports prohibitively expensive. Businesses shut down and unemployment soared. In response, the government simply printed more money and prices skyrocketed. Y Table 1: Annual inflation rate in Venezuela, 2008-2018 2008 304 2009 274 2010 298 20n 26.1 2012 aa 2013 40.6 2014 622 2015 121.7 2016 2549 2017 2,400 2018 (estimate) 13,000 By 2016, inflation had become so rampant that it devoured people's wages. The Venezuelan Government was forced to repeatedly increase the monthly minimum wage but prices continued to rise at a faster rate. People rushed to withdraw their deposits and savings from banks as the economic crisis deepened and banks quickly began to run out of cash. Tight limits were therefore imposed on how much cash people could withdraw from their accounts each day, adding to the already significant levels of hardship and poverty among the population. With prices of basic goods rising so rapidly and out of the reach of many pockets, people were forced to ‘exchange or barter their labour for food and clothing, Assessment