This test consists of 10 questions designed to test your understanding of Macro Economics The links provide you with a choice of answer, along with explanations.

Which of the following is a Fiscal Policy? a. Increasing Interest Rates b. Increasing direct taxes c. Introducing Trade Union legislation

Correct - Fiscal policy relates to Government taxation and expenditure

An example of monetary policy.

An example of Supply Side policies

Which of the following is a direct tax? A. VAT B. Customs and excise duties C. Higher rate income tax

Value added tax is an indirect tax - a tax on income.

Customs and excise duties are indirect taxes - a tax on expenditure.

Correct, direct taxes are taxes on income

Which of the following policies is likely to increase the value of the £ against the €? A. A reduction in income tax levels B. An increase in interest rates C. Switch from direct to indirect taxation

This would probably increase imports therefore reducing the value of the £

Correct. Demand for £’s would increase ( hot money flows), therefore increasing value of £

Likely to have no effect on value of £

Which type of unemployment varies with fluctuations in economic activity? A. Cyclical B. Frictional C. Structural

Frictional unemployment is job search unemployment.

Structural unemployment relates to changes in technology or patterns of demand

Well done! Cyclical unemployment results from fluctuations in the economic cycle

Which of the following cause inflation? A. An increase in imports because of the increasing value of the £ on Forex markets. B. An increase in demand levels above the capacity of UK industry

This is likely to lower the cost of imports and therefore reduce inflationary pressure.

Correct! In these circumstances firms can increase prices, and maintain demand levels

A Which of the following is a cause of inflation? A. Fall in consumer confidence B. Increase in investment by firms C. Increase in firms costs

Correct.

Wrong.

Which of the following defines supply side policies? A. The MPC’s policy of controlling inflation through interest rates. B. Attempts to make the operation of the economy more efficient.

Wrong, Monetary policy

Correct. Supply side policies attempt to increase aggregate supply in the economy, by making labour, and all other markets operated more efficiently

Which of the following is a government Macro economic objective? A. maintaining a stable exchange rate B. maintaining a low rate of crime C. maintaining stable and sustainable growth of GDP

Wrong.The £ is allowed to float freely on the Forex markets.

Correct. This is one of the main macro economic objectives along with, low rates of unemployment and inflation, as well as balance on the Current Account of Balance of Payments

Wrong. A social objective

Which of the following are examples of monetary policy? 1. Controls on Bank lending 2. Changes in National Insurance rates 3. Controls on consumer credit A. 1 onlyB. all 3 C. 1 and 3

Wrong This is an example of monetary policy, but not the only one given.

Wrong. B is an example of Fiscal Policy.

Correct. Both of these are examples of monetary policy, but rarely now used.

For which of the following can fiscal policy be used? 1. Controlling demand in the economy 2. Controlling the budget deficit 3. Adjusting distribution of income and wealth A. 2 only B. 2 and 3 C. All of the above

. True, but it is not the only one listed

True, but look again

Correct. Fiscal policy can and has been be used for all three purposes.

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