A2 ECONOMICS

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A2 ECONOMICS

Most Challenging Questions 2019

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Which assumption is not made in the Keynesian model of national income and employment determination? *

1 point

A An increase in aggregate demand can increase real national income.

B Interest rates move to equalise planned savings and investment.

C Investment depends on the expectation of entrepreneurs.

D Planned consumption is a function of national income.

In a 4-sector economy, consisting of households, firms, government and foreign trade, the level of national income is in equilibrium where C + I + G + (X – M) = Y. What must Y include for an equilibrium to exist? *

1 point

C + S + M

C + S + T

S + T

S + T + M

In the long run, what is a feature of monopolistic competition, but not of perfect competition? *

1 point

A a small number of buyers

B product differentiation

C the existence of abnormal profits

D the existence of barriers to entry

The diagram represents the demand and supply of labour in a competitive industry. What is true about unit of labour L when they are paid wage W? *

1 point

A L is paid only economic rent.

B L is paid an element of economic rent and transfer earnings.

C L is paid below transfer earnings and leaves the industry.

D L is paid exactly transfer earnings and remains in work.

In which exchange rate regime would the central bank of a country be best able to pursue an independent monetary policy to control the rate of inflation? *

1 point

A a freely floating exchange rate system

B a system where the country’s currency has a targeted value in relation to the US$

C a system where the central bank buys and sells foreign currency at a fixed rate

D where the country participates in a monetary union with other countries

The graph shows the total utility (TU) obtained by a consumer from eating biscuits over a period of one hour. After eating how many biscuits does the consumer’s marginal utility begin to diminish? *

1 point

What will be the most likely consequence of an increase in the dependency ratio? *

1 point

A a decrease in GDP per head

B a decrease in labour productivity

C an increase in the labour force

D an increase in unemployment

The table shows the values of selected macroeconomic variables over a period. What is the value of the multiplier? *

1 point

Which statement about the ‘kinked demand curve’ model of oligopoly is incorrect? *

1 point

A The kink in the demand curve of each firm is based on expectations about other firms’ responses to changes in its price.

B The marginal revenue curve of the firm has a vertical segment at the market price.

C The model explains how the equilibrium market price is determined.

D The model suggests price stickiness within a certain range of marginal costs.

Under which conditions will a Keynesian expansionary fiscal policy be most likely to take an economy out of a recession without too much inflation? *

1 point

It has been estimated by the United Nations that the total external debt of developing countries has been increasing by about $425 billion each year. What is least likely to have contributed to this? *

1 point

A disincentives for foreign direct investment through political instability

B increased government subsidies for the development of tourism industries

C withdrawal of multinational companies due to delays in the award of government contracts

D worsening of the terms of trade with partners in developed economies

The table gives some economic indicators for four countries. Which country is closest to achieving the principal aims of government economic policy? *

1 point

The diagram shows a consumer’s indifference curves (IC) for goods F and G together with the consumer’s budget lines. What could explain the movement from X to Z on the diagram? *

1 point

A a fall in the price of G when G is an inferior good

B a fall in the price of G when F is a Giffen good

C a fall in the price of G when G is a normal good

D a fall in the price of G when G is a Giffen good

A government finances its public sector borrowing by selling securities to the non-bank private sector. What will follow? *

1 point

A The budget deficit will fall.

B The deficit on the current account will increase.

C The money supply will rise.

D The national debt will increase.

The production of a good creates a constant marginal external cost at all levels of output. What value of price elasticity of demand for the good will cause the greatest deadweight welfare loss from the externality? *

1 point

A between zero and one

B equal to one

C greater than one

D zero

A consumer demands two goods, X and Y. The indifference curve diagram shows the effect of a change in the price of one of these goods on the consumer’s equilibrium. *

1 point

The table shows the substitution effect and income effect for a Giffen good and an inferior good as the price of the good changes. Which combination is correct? *

1 point

The diagram shows a production possibility curve PPC1. The economy is initially at point X. If the economy achieves actual economic growth but not potential growth, what would the final position be? *

1 point

When would a central bank be able to exert the closest control over the money supply of the country? *

1 point

A If it intervened in the foreign exchange market to influence the value of domestic currency.

B If it only issued domestic currency at a fixed price in exchange for US$.

C If the country was part of a monetary union with other countries.

D If the domestic currency was allowed to float freely in the foreign exchange market

The graph shows a shift in the liquidity preference curves for an economy from LP1 to LP *

1 point

What may lead to a reduction in bank lending in a country? *

1 point

A an increase in commercial banks’ balances with the central bank

B an increase in the liquidity ratios operated by the country’s commercial banks

C an increase in the monetary base of the country

D an increase in the volume of liquid assets held by the country’s commercial banks

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