1. Which type of unemployment is associated with a deficiency in aggregate demand?
A cyclical
B frictional
C structural
D voluntary

2. There has been a switch in demand from goods produced by labour-intensive methods of
production to similar goods produced using high-technology methods of production. This has led
to an overall increase in unemployment.
What is the best policy to reduce this type of unemployment?
A reduce the rate of income tax
B increase the rate of interest on borrowing for investment
C subsidise products produced by labour-intensive methods
D subsidise exports produced by high-technology industries

3. What would not exist in a free-market, open economy?
A autonomous investment
B household saving
C import spending
D indirect taxation

4. What is most likely to be found in an economy with a positive output gap?
A a higher potential than actual GDP
B high unemployment
C inflation
D low labour costs

5. Which statement about the Keynesian liquidity preference demand for money model is correct?
A Both the transactions and precautionary motives for holding liquidity are interest rate elastic.
B The demand for liquidity is completely interest rate inelastic at low rates of interest.
C The demand to hold liquidity by households is stable.
D The rate of interest on long-term government securities is inversely related to their price.

Answers