Lesson 4.2.3.1
4.2.3.1 Economic growth and the economic cycle Quiz: AQA Economics, Unit 2
20 questions
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Lesson 4.2.3.1, Economic growth and the economic cycle: 20 multiple choice questions for the AQA Economics (7136), Unit 2: The national and international economy, written with Revision Ninja.
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The 20 questions
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What is the difference between short-run and long-run economic growth?
- Short-run growth is a rise in real output from demand or supply changes, while long-run growth is a rise in productive capacity
- Short-run growth is only measured in nominal terms, while long-run growth is only measured in real terms
- Short-run growth is always caused by rising prices, while long-run growth is caused by falling prices and lower rates
- Short-run growth lasts a decade, while long-run growth lasts a single quarter
-
What does a positive output gap indicate?
- Investment exceeds saving by a fixed amount
- Real GDP is below the productive potential of the economy
- Inflation is zero and unemployment is at its natural rate
- Real GDP is above the productive potential of the economy
-
Which phase of the economic cycle is typically marked by falling real GDP and rising unemployment?
- Trough growth
- Recession
- Recovery
- Boom
-
What does a negative output gap indicate?
- The economy is at its natural rate of unemployment
- Potential output is rising faster than actual output
- Real GDP is above the productive potential of the economy
- Real GDP is below the productive potential of the economy
-
Which of the following is a cause of cyclical instability in an economy?
- Balanced government budgets over the cycle
- A stable and predictable exchange rate
- A steady rise in the number of high-skilled workers
- Excessive growth in credit and levels of debt
-
Which of the following is a cost of economic growth?
- Higher real incomes for households, which always raise the quality of the environment and reduce the level of pollution
- Greater access to healthcare and education
- Environmental damage and pollution from increased production
- Lower unemployment as more people find jobs
-
What is meant by the trend rate of economic growth?
- The average long-run rate of growth of real national output, reflecting the economy's productive capacity over time
- The rate of growth of nominal GDP in a single year
- The rate at which the price level changes each year, measured by the consumer prices index, and used to set the bank rate
- The rate of change of the exchange rate over the cycle
-
Real GDP is 1200 billion pounds and productive potential is 1100 billion pounds. What is the output gap as a percentage of potential output?
- Plus 8.3 per cent
- Minus 9.1 per cent
- Plus 12.0 per cent
- Plus 9.1 per cent
-
Real GDP rises from 1000 billion pounds to 1030 billion pounds in one year. What is the percentage growth rate?
- 2.9 per cent
- 30 per cent
- 1.5 per cent
- 3 per cent
-
Rapid growth in bank lending and rising house prices are followed by a sharp fall in asset prices and a downturn. Which cause of cyclical instability does this best illustrate?
- An asset price bubble fuelled by excessive credit growth
- A rise in the price of imported raw materials
- A decline in the number of firms in the economy, which reduces the level of competition and raises the cost of borrowing for households
- A fall in the rate of corporation tax
-
Unemployment is rising, business investment is falling and real GDP has fallen for several quarters. Which phase of the economic cycle does this best describe?
- Recovery
- Inflationary peak
- Recession
- Boom
-
A global rise in oil prices raises firms' costs. What is the most likely effect on the output gap and real GDP?
- LRAS shifts right, so the output gap becomes more positive
- SRAS shifts left, so real GDP falls and a negative output gap is likely
- SRAS shifts right, so real GDP falls and a positive output gap is likely
- AD shifts left, so real GDP rises and a positive output gap is likely
-
Government spending rises sharply and firms' confidence is high, while inflation rises. Which phase of the cycle is most likely?
- Boom
- Recession
- Trough
- Negative output gap recession
-
A country invests heavily in education and new technology, raising its productive capacity. What is most likely to happen to the economy's long-run growth?
- Real GDP falls in the long run because higher productivity reduces the number of workers needed by firms to produce output
- The economy moves to a recession automatically
- The trend rate of growth is likely to rise, as potential output increases over time
- The output gap becomes permanently negative
-
Which of the following best describes why economic growth may be argued to be unsustainable?
- Growth raises unemployment permanently for all workers
- Growth always leads to falling prices, which harms firms and reduces the level of investment, so the economy shrinks each year
- Growth always reduces incomes for households in the long run
- Growth can use up natural resources and raise pollution, damaging the environment for future generations
-
Does economic growth always improve the well-being of individuals?
- No, growth always reduces incomes for every household
- No, growth can bring higher incomes but also inequality, congestion and pollution that reduce well-being for some
- Yes, growth removes the need for any government intervention, because rising incomes reduce every social and economic problem
- Yes, growth always raises well-being equally for all individuals
-
Why do animal spirits, herding and destabilising speculation contribute to cyclical instability?
- They raise the productive capacity of the economy, so output gaps vanish
- They reduce the level of investment, so the economy stays on its trend
- They can drive investors to over-invest or sell together, creating booms and busts in demand
- They always keep demand stable by balancing the actions of investors, which removes the need for any policy to smooth the cycle
-
An economy has a negative output gap of 5 per cent of potential output, with inflation below target. What policy direction is most consistent with closing the gap?
- Contractionary demand-side policy to reduce aggregate demand
- A fall in the money supply to reduce inflation
- A rise in the exchange rate to reduce import prices
- Expansionary demand-side policy to raise aggregate demand
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Actual growth of real output is 2 per cent a year while potential output grows by 3 per cent a year. What happens to a zero output gap at the start of the period?
- The output gap becomes increasingly negative
- The output gap becomes increasingly positive
- The output gap stays at zero
- The economy moves to a long-run equilibrium with full employment
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Why might a sustained positive output gap be difficult to maintain?
- Interest rates always fall when real GDP is above potential
- Output always falls when prices rise, so the gap closes automatically, which means the economy never needs any policy response
- Demand exceeds the economy's productive capacity, creating inflationary pressure and shortages of labour and resources
- Demand falls below capacity, so firms have too many unsold goods
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