1. In an economy, the marginal propensity to consume is 0.2, the marginal propensity to save is 0.3, the marginal propensity to tax is 0.3 and the marginal propensity to import is 0.2 at all levels of
income.
What would be the most likely consequence of an increase in government expenditure of
$1000m?
A Import expenditure would increase by $200m.
B Import expenditure would increase by $1000m.
C Tax revenues would increase by $75m.
D Tax revenues would increase by $375m.

2. A developing (low-income) economy is heavily dependent on the production of primary products.
A multinational car manufacturing company invests in the country and builds a new factory.
What will not be a long lasting benefit of the company’s investment in the developing economy?
A The company introduces new technology to the economy.
B The company provides diversification of production for the economy.
C The company provides skills training for local workers.
D The company purchases non-renewable local construction materials for the factory.

3. An economy adopts an expansionary monetary policy to boost employment. A result of this policy is that the consumer price index rises at an accelerating rate.
Which curve could represent this?
A Kuznets curve
B Laffer curve
C Lorenz curve
D Phillips curve

4. A government wishes to increase economic efficiency in the country. It raises the rate of income
tax which leads to the emigration of high-earning skilled workers that the country needs.
How would this outcome be described?

	Government failure	Market failure	Negative extenality
A	No	No	Yes
B	No	Yes	No
C	Yes	Yes	No
D	Yes	No	No

5. An economy is operating at full employment.
Which policy is most likely to lead to an increase in real national output without an increase in the
rate of inflation in the short term?
A additional spending on subsidies to increase export earnings
B the central bank introduces quantitative easing
C labour market reforms result in increased output per hour worked
D the government reduces income tax rates

Answers