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Self-test Questions
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1

The Phillips curve shows that the rate of inflation and the rate of unemployment are:
A)Negatively related
B)Linearly related
C)Positively related
D)Independent of eachother
2

A policy implication of the downward-sloping Phillips curve is that:
A)Monetary policy is more appropriate than fiscal policy in controlling inflation.
B)It is not possible for the economy to achieve full employment.
C)Policy makers may face conflicts between achieving full employment and maintaining stable prices.
D)It is possible to both control inflation and maintain a high level of employment.
3

Most people dislike inflation because it:
A)Reduces the nominal rate of interest.
B)Reduces the capital gains earned when an asset is sold.
C)Reduces the purchasing power of money.
D)Increases the cost of making decisions.
4

The relationship between the level of unemployment and economic activity is:
A)Constant
B)Negative
C)Positive
D)Random
5

When the structure of the economy changes and workers are unemployed because their skills are not suitable for alternative employment this is an example of:
A)Structural unemployment
B)Frictional unemployment
C)Demand deficient unemployment
D)Classical unemployment
6

All the following statements are correct except:
A)Per capita real GDP is often used as a measure of a nation's standard of living.
B)A changing distribution of income does not affect per capita GDP.
C)In a comparison of per capita real GDP over time, changing population growth does not affect the measure.
D)Growth per capita real GDP is often used as a measure of a nation's changing standard of living.
7

The inflation rate shows:
A)The average price level during a particular period of time.
B)The price level in a given year expressed in terms of a base year.
C)The percentage rate per period that prices are increasing.
D)A measure of the change in real output from one year to the next.
8

The Retail price index is:
A)An index of prices for a basket of goods.
B)A weighted index of selected commodity prices.
C)The most commonly used measure of price behaviour.
D)Often used to describe changes in a nation's inflation rate.
E)All the above.
9

A country running a current account deficit is:
A)Reducing its holdings of foreign assets.
B)Increasing its holdings of foreign assets.
C)Reducing its debts to foreigners.
D)Reducing its debts to itself.
10

Balance of payments problems arise when:
A)Current account deficits are sporadic.
B)Current account surpluses are small.
C)Current account surpluses are sporadic.
D)Current account deficits are persistent.
11

An economy at full employment will have zero frictional unemployment:
A)TRUE
B)FALSE
12

The movement of call centre services from the UK to India may result in structural unemployment:
A)TRUE
B)FALSE
13

A 50% rise in the price of latte coffees will have little effect on the UK inflation rate.
A)TRUE
B)FALSE
14

Luxembourg has the highest per capita GDP in the world and must, therefore, have the highest standards of living.
A)TRUE
B)FALSE
15

The Phillips curve relationship between inflation and unemployment is correct.
A)TRUE
B)FALSE
16

An increase in inflation and GDP is likely to reflect __________.
A)Cost push inflation
B)Demand pull inflation
C)Rising input prices
D)Unemployment
17

A rise in inflation and a fall in GDP are likely to reflect __________.
A)Cost push inflation
B)Demand pull inflation
C)Structural unemployment
D)Frictional unemployment
18

Menu costs as an inflationary problem are the costs of ___________.
A)Changing layouts
B)Changing Prices
C)Changing dishes
D)Changing styles
19

A strong union, successful in achieving high wage deals, is likely to deliver ______ unemployment.
A)Classical
B)Cyclical
C)Frictional
D)Structural
20

Your real earnings can be calculated as nominal earnings x (100 / __________).
A)Inflation
B)GDP
C)Price index
D)Price level





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