King: Economics Chapter 22 Instructions Answer the following questions and then press 'Submit' to get your score. Question 1 Which of the following groups of people are not regarded as economically inactive? a) People who want a job but do not have one. b) Family or home carers. c) Students with no employment. d) Discouraged workers. Question 2 Which of the following statements is false as far as the UK is concerned? a) The unemployment rate for people aged 50+ is lower than the rate for people aged 16-24. b) The unemployment rate tends to vary across ethnic groups. c) The unemployment rate for males is lower than the rate for females. d) The unemployment rate for people in the East of England is lower than the rate for people in the North East of England. Question 3 If all the following events occurred in 2013, which one would put upward pressure on the rate of natural unemployment in the UK in 2013? a) A cut in the benefits available to unemployed people. b) An increase in the school leaving age to 17. c) An increased in consumer demand for meals out. d) Much tighter regulations for the UK financial services industry. Question 4 Which of the following will not cause the level of unemployment to settle above the level where the aggregate supply curve of labour intersects the aggregate demand curve for labour? a) Efficiency wages. b) Successful trade union action to force up wages. c) Hysteresis. d) A minimum wage law. Question 5 What is the main reason that led classical economists to believe that the government need not respond to a demand shock which led to unemployment? a) Demand shocks are always very small. b) Real wages are highly flexible. c) Governments always act too late. d) Economies never displayed demand-deficient unemployment. Question 6 According to the idea of the neutrality of money, or the classical dichotomy, which of the following statements describes the long-run effect of a rise in the money stock? a) It has no effect. b) It affects variables expressed in nominal terms, notably prices, but not variables expressed in real terms, notably output and unemployment. c) It affects variables expressed in real terms, notably output and unemployment, but not variables expressed in nominal terms, notably prices. d) It affects variables expressed in nominal terms and variables expressed in real terms, notably prices, output and unemployment. Question 7 According to the quantity theory of money, what long-run effect will a 10% rise in the money stock have on the price level? a) No effect. b) The price level will rise, but by less than 10%. c) The price level will rise by 10%. d) The price level will rise by more than 10% Question 8 Keynes suggested several reasons why the government should not rely on flexible real wages to remove demand-deficient unemployment. Which of the following was not one of these reasons? a) Workers would resist cuts in nominal wages which reduced their wages relative to those paid in other occupations. b) Trade unions would resist cuts in nominal wages. c) Even if nominal wages fell, there might then be falls in prices, and this could lead to a further fall in demand in the economy if people deferred some purchases until they felt prices would fall no further. d) Any efforts by the government to increase demand in the economy would lead to higher real wages and so increase unemployment. Question 9 Faced with a choice between fiscal and monetary policy to try and increase aggregate demand, Keynes believed that fiscal policy would have more effect. Which of the following was not one of his key reasons for holding this belief? a) Fiscal expansion was highly effective because of the balanced budget multiplier. b) Monetary expansion might have little effect because the demand for money is interest elastic. c) If interest rates fell, consumer spending might not rise much, because it depends chiefly on incomes, not on interest rates. d) If interest rates fell, investment spending might not rise much, because it depends substantially on firms' 'animal spirits'. Question 10 Faced with a choice between fiscal and monetary policy to try and increase aggregate demand, monetarists believed that monetary policy would have more effect. Which of the following was not one of their key reasons for holding this belief? a) A tax cut which consumers thought would be only temporary might have very little effect on their spending. b) Monetary expansion might have considerable effect because the demand for money is interest elastic. c) If interest rates fell, consumer spending might rise greatly. d) If interest rates fell, investment spending might rise greatly.