MULTIPLE CHOICE QUESTIONS TESTBANK –
CHAPTER 19
Go to memorandum
Answer the following questions by selecting the appropriate answer from the list below.
Question 1
Which one of the following statements is correct?
A. The money market is one of the most important markets in the real sector of the economy.
B. Monetarists believe that an increase in money supply will increase output in the long run.
C. An increase in money supply is one of the main instruments of fiscal policy.
D. Monetarists would recommend that money supply should be increased at approximately the
same rate as real production.
Question 2
Which one of the following statements is incorrect?
A. The aggregate AD-AS model seeks to explain the general price level and the aggregate
production of goods and services.
B. The aggregate demand curve shows the aggregate quantities that are demanded at different
price levels.
C. If aggregate supply falls, there will be an upward pressure on prices, ceteris paribus.
D. In terms of the AD-AS model, if aggregate demand falls, with no change in aggregate supply,
unemployment will tend to decrease.
E. An increase in investment spending will result in a rightward shift of the AD curve.
Question 3
Which one of the following statements is correct?
A. The aggregate demand curve (AD curve) can be shifted by monetary as well as fiscal policy
measures.
B. A restrictive fiscal policy will result in a rightward shift of the aggregate demand curve.
C. A general increase in wages in the economy will, ceteris paribus, shift the aggregate supply
curve downward (to the right).
D. A supply shock results in a simultaneous increase in prices and production in the economy.
E. None of the above statements is correct.
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Question 4
According to supply-side theorists, the aggregate supply curve will shift to the right when:
A. the quantity of money increases.
B. marginal tax rates rise.
C. government spending on on-the-job training increases.
D. unemployment benefits are increased.
E. the government’s education budget is cut.
Question 5
The policy recommendations of supply-side economists include that:
A. government needs to increase the quantity of money to bring about full employment.
B. the supply of goods and services produced by the government needs to be increased.
C. the government should introduce specific regulations to see that the correct type of
investment is undertaken.
D. government should reduce its spending and general involvement in the economy.
E. taxes should be increased to provide for a greater supply of government services to the
poor.
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Question 6
Consider the following diagram and answer Questions (a) and (b).
Question (a)
The immediate effect of a decrease in government expenditure will be to:
A. move the AD curve to the left.
B. move the AD curve to the right.
C. move the AS curve to the left.
D. move the AS curve to the right.
E. leave the curves unchanged.
Question (b)
If South Africa were to discover a plentiful supply of cheap oil, this would:
A. move the AD curve to the left.
B. move the AD curve to the right.
C. move the AS curve to the left.
D. move the AS curve to the right.
E. have no effect on the curves.
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Question 7
Consider the following diagram and answer Questions (a) and (b).
Question (a)
Which of the following statements is correct?
A. The economy is in equilibrium at full employment.
B. Fiscal policy can be freely used to achieve full employment without risking a rise in the price
level.
C. The use of fiscal policy to achieve full employment will bring about a rise in the price level.
D. Monetary policy can be freely used to achieve full employment without risking a rise in the
price level.
E. Monetary policy cannot be used to achieve full employment since it will affect only the price
level in the short run.
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Question (b)
In terms of the AD-AS approach, if South Africa’s cheap coal reserves were to run out and had to
be replaced as an energy source by expensive imported oil:
A. total output would drop because the AD curve would move to the left.
B. total output would rise because the AS curve would move to the right.
C. the price level would rise because the AD curve would move to the right and the AS curve
would move to the left.
D. the price level could not be predicted because the AD and AS curves would both move to the
left.
E. total output would drop because the AS curve would move to the left but the AD curve
would be unaffected.
Question 8
Classical economists who preceded Keynesians believed that:
A. increases in the quantity of money could alter the level of production in the economy.
B. as demand increases, supply increases.
C. economies that do not suffer from government interference will reach full employment
equilibrium.
D. increases in government spending are necessary during times of recession.
Question 9
According to the supply-siders, tax cuts announced by the Minister of Finance:
A. result in higher saving and work effort, which will lead to greater production in the
economy.
B. increase inflation in South Africa.
C. reduce inflation in South Africa.
D. cause both A and C to occur.
Question 10
Stagflation refers to a situation where:
A. economic growth is experienced and leads to an increase in the inflation rate.
B. high inflation rates and high employment rates are experienced simultaneously.
C. high inflation rates and high unemployment rates are experienced simultaneously.
D. a period of high inflation is followed by a period of stagnation in the economic growth rate.
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Question 11
Using AD-AS analysis, it follows that an expansionary monetary policy will result in:
A. an increase in equilibrium income and the price level in the short run.
B. a decrease in equilibrium income and the price level in the short run.
C. an increase in equilibrium income and no change in the equilibrium price level.
D. a decrease in equilibrium income and an increase in the equilibrium price level.
E. an increase in equilibrium income and a decrease in the equilibrium price level.
Question 12
The policy recommendations of the supply-side economists would differ from those of Keynesians as
follows:
A. Keynesians believe that government expenditure should be increased to bring about full
employment, whereas supply-siders believe that government should increase the quantity
of money.
B. Keynesians believe that government often needs to manipulate aggregate demand, whereas
supply-siders believe that it should manipulate aggregate supply by taking over the
production of key goods and services.
C. Keynesians believe that government should control the level of prices whereas supply-siders
do not.
D. Keynesians believe that government needs to intervene in the economy to maintain
stability, whereas supply-siders do not.
E. Keynesians believe that the correct way to stabilise the economy is through the use of fiscal
policy whereas supply-siders believe the appropriate instrument is monetary policy.
Question 13
Which of the following features is not consistent with supply-side theory?
A. Deregulation
B. Privatisation
C. Reductions in marginal tax rates
D. Expansionary fiscal policy
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Question 14
Which of the following statements is/are true of the major schools of economic thought?
i.
Keynesians believe in the use of macroeconomic tools to stabilise the economy whereas
the others do not.
ii.
Monetarists believe that monetary policy is more effective than fiscal policy in
eliminating unemployment, whereas Keynesians believe the opposite.
iii. Supply-siders believe that incentives to work, save and invest are more important than
macroeconomic demand manipulation in managing the economy.
iv. The classical economists believed that the monetary and real sides of the economy
were entirely separate, whereas the other schools believe that the monetary sector can
affect the real economy, at least in the short run.
A. i
B. i and ii
C. i, iii and iv
D. ii, iii and iv
E. i, ii, iii and iv
Question 15
Indicate which one of the following statements is false
A.
B.
C.
D.
In the AD-AS model prices are regarded as variable.
In the AD-AS model wages have no impact on the level of output.
In the AD-AS model the impact of monetary policy on the level of output can be analysed.
In the AD-AS model the level of economic activity (output) is determined by the interaction
of aggregate demand and supply.
Question 16
Which one of the following statements is true?
A.
B.
C.
In the AD-AS model the price level refers to the general level of prices.
In the AD-AS model the derivation of the aggregate demand curve and the aggregate supply
curve involves the summation of market demand and supply curves for different goods and
services in the economy.
In the AD-AS model it is assumed that aggregate supply adjusts passively to aggregate
demand.
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Question 17
Which one of the following is not assumed in the AD-AS model?
A.
B.
C.
D.
E.
Prices are variable.
Wages are variable.
Aggregate supply can change independently of aggregate demand.
The quantity of money is fixed.
Interest rates are variable.
Question 18
Which one of the following statements is incorrect?
In the AD-AS model:
A.
B.
C.
D.
E.
the general price level (P) is depicted on the vertical axis.
total production or income (Y) is depicted on the horizontal axis.
the equilibrium levels of P and Y are determined by the interaction of AD and AS.
we deal with the economy as a whole.
the price level is determined by the cost of production, particularly wages.
Question 19
Which one of the following statements is incorrect?.
In the AD-AS model:
A.
B.
C.
D.
E.
there is an inverse relationship between the general price level and the volume of goods
and services demanded.
there is a positive relationship between the general price level and the volume of goods
and services supplied.
the volume of goods and services demanded decreases as the general price level
decreases.
the volume of goods and services supplied increases as the general price level increases.
the AD curve has essentially the same shape as any normal demand curve.
Question 20
Which one of the following is not a component of aggregate demand in the economy?
A.
B.
C.
D.
E.
Consumption spending by households.
Investment spending by firms.
Spending on our exports by foreigners.
The productivity of the factors of production.
Government spending.
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Question 21
Which one of the following is not a possible explanation for the slope of the AD curve?
A.
B.
C.
D.
E.
The oil price effect.
The interest rate effect.
The real balance effect.
The wealth effect.
The international trade effect.
Question 22
Which one of the following will give rise to a rightward shift of the AD curve?
A.
B.
C.
D.
E.
Households decide to increase their saving rate.
There is a sharp and sustained increase in share prices on the JSE.
Personal tax rates are increased.
The SARB increases the repo rate.
Real government spending is lowered.
Question 23
Which one of the following will give rise to an increase in aggregate demand, illustrated by a
rightward shift of the AD curve?
A.
B.
C.
D.
E.
A deterioration in business confidence as a result of increased political violence.
A decrease in the repo rate.
An increase in the company tax rate.
A decrease in the international prices of the commodities that we export (eg gold,
platinum, coal).
A sharp appreciation of the rand against the major currencies.
Question 24
Which one of the following statements about the AS curve is incorrect?
A.
B.
C.
D.
E.
In the short run the AS curve tends to have a positive slope.
In the long run the AS curve tends to be vertical.
The AS curve is primarily governed by the costs of production.
The AS curve is influenced by the prices and productivity of the various factors of
production.
Because imports do not form part of GDP, import prices have no effect on the AS curve.
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Question 25
Which one of the following will not give rise to a shift of the AS curve?
A.
B.
C.
D.
E.
An increase in wages.
A decrease in wages.
An increase in productivity.
A decrease in productivity.
An increase in spending by households.
Question 26
Which one of the following will give rise to an increase in aggregate supply, illustrated by a rightward
shift of the AS curve?
A.
B.
C.
D.
E.
An increase in wages.
An increase in productivity.
An increase in interest rates.
An increase in the price of oil.
An increase in government spending.
Question 27
Which one of the following will give rise to a decrease in aggregate supply, illustrated by a leftward
shift of the AS curve?
A.
B.
C.
D.
E.
A decrease in the price of imported oil.
A decrease in wages.
A decrease in interest rates.
A decrease in productivity.
A decrease in consumption spending by households.
Question 28
Which one of the following statements is incorrect?
An expansionary monetary policy:
A.
B.
C.
D.
E.
can be illustrated by an upward movement of the AS curve.
can be illustrated by an upward movement of the AD curve.
will tend to increase the price level in the short run.
will tend to increase the level of income and production the short run.
will leave the AS curve unchanged in the short run.
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Question 29
Which one of the following is an example of an expansionary fiscal policy?
A.
B.
C.
D.
E.
A decrease in interest rates.
An increase in interest rates.
An increase in government spending.
A decrease in government spending.
An increase in taxes.
Question 30
Which one of the following statements is incorrect?
An upward (leftward) shift of the AS curve:
A.
B.
C.
D.
E.
is often referred to as an adverse supply stock.
is often used to illustrate stagflation.
may be caused by an increase in wages.
may be caused by an increase in productivity.
may be caused by an increase in the price of imported oil.
Question 31
In the AD-AS model a simultaneous increase in government spending and increase in the price of oil
will lead to:
A.
B.
C.
D.
E.
a simultaneous increase in the price level and in the level of production and income.
an increase in the price level and an indeterminate change in the level of production and
income.
a decrease in the price level and an indeterminate change in the level of production and
income.
an increase in the level of production and income and an indeterminate change in the price
level.
a decrease in the level of production and income and an indeterminate change in the price
level.
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Question 32
In the AD-AS model a simultaneous increase in investment spending and increase in the productivity
of labour will lead to:
A.
B.
C.
D.
E.
a simultaneous increase in the price level and in the level of production and income.
an increase in the price level and an indeterminate change in the level of production and
income.
a decrease in the price level and an indeterminate change in the level of production and
income.
an increase in the level of production and income and an indeterminate change in the price
level.
a decrease in the level of production and income and an indeterminate change in the price
level.
Question 33
In the AD-AS model a simultaneous decrease in wages and decrease in consumption spending by
households will lead to:
A.
B.
C.
D.
E.
a simultaneous increase in the price level and in the level of production and income.
an increase in the price level and an indeterminate change in the level of production and
income.
a decrease in the price level and an indeterminate change in the level of production and
income.
an increase in the level of production and income and an indeterminate change in the price
level.
a decrease in the level of production and income and an indeterminate change in the price
level.
Question 34
A decrease in the price level will:
A.
B.
C.
D.
E.
shift the AS curve to the left.
shift the AS curve to the right.
shift the AD curve to the left.
shift the AD curve to the right.
leave both the AD curve and the AS curve unchanged.
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Question 35
In the AD-AS model an increase in productivity without any increase in remuneration will:
A.
B.
C.
D.
E.
leave the AS curve unchanged.
shift the AD curve to the right.
increase the general price level.
increase the level of production and income.
leave prices, production and income unchanged.
Question 36
The monetary transmission mechanism:
A.
B.
C.
D.
E.
explains how banks create money.
explains how the central bank transmits messages to the other banks.
describes the ways in which changes in the monetary sector are transmitted to the rest of
the economy.
describes how the Monetary Policy Committee announces its decisions.
explains how developments in the economy affect the monetary sector, especially the
banks.
Question 37
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
When the SARB changes the repo rate, all other short-term interest rates tend to move in
the same direction.
In the models we use a single interest rate to represent all interest rates in the economy.
A key element of the monetary transmission mechanism is the relationship between the
interest rate and investment spending.
The money stock is the most important element of the monetary transmission mechanism.
In the AD-AS model the relative impact of a change in the monetary sector on the price
level and the level of total production and income depends on aggregate supply conditions.
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Question 38
Complete the following sentence:
In terms of the AD-AS model a decrease in the interest rate leads to a(n) _______________ in
investment spending, a(n) _______________ in aggregate spending, a(n) ______________ in
aggregate demand and, eventually to a(n) ________________ in total production and (or) a(n)
_______________ in the price level.
A.
B.
C.
D.
E.
decrease; decrease; decrease; decrease; decrease
increase; increase; increase; increase; increase
increase; increase; decrease; decrease; decrease
decrease; decrease; increase; increase; increase
decrease; increase; increase; increase; decrease
Question 39
Which one of the following is not a channel in the broad monetary transmission mechanism?
A.
B.
C.
D.
E.
The money stock channel.
The interest rate channel.
The credit channel.
The exchange rate channel.
The asset price channel.
Question 40
When the SARB adjusts the repo rate, the change in interest rates tends to affect investment
spending and consumption spending in the economy. To which of the channels of the broad
monetary transmission mechanism does this effect belong to?
A.
B.
C.
D.
E.
The money stock channel.
The interest rate channel.
The credit channel.
The exchange rate channel.
The asset price channel.
Question 41
When the SARB adjusts the repo rate, this tends to affect share prices and property prices. This
impact forms part of which channel of the broad monetary transmission mechanism?
A.
B.
C.
D.
E.
The money stock channel.
The interest rate channel.
The credit channel.
The exchange rate channel.
The asset price channel.
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Question 42
When the SARB adjusts the repo rate, the volume of bank loans tends to be affected. To which
channel of the broad monetary transmission mechanism does this impact belong?
A.
B.
C.
D.
E.
The money stock channel.
The interest rate channel.
The credit channel.
The exchange rate channel.
The asset price channel.
Question 43
When the SARB adjusts the repo rate, this may eventually impact on the volume of exports or the
volume of imports. Through which channel of the broad monetary transmission mechanism is this
impact possible?
A.
B.
C.
D.
E.
The money stock channel.
The interest rate channel.
The credit channel.
The exchange rate channel.
The asset price channel.
Question 44
Which one of the following statements is incorrect?
An expansionary monetary policy:
A.
B.
C.
D.
E.
involves a decrease in interest rates.
may be illustrated by a rightward shift of the AD curve.
will always be successful in combating inflation.
tends to be less successful in stimulating the economy than an expansionary fiscal policy.
leaves the AS curve unchanged.
Question 45
Which one of the following statements is incorrect?
An expansionary fiscal policy:
A.
B.
C.
D.
E.
may involve increased government spending.
may involve a decrease in taxes.
tends to be more successful in stimulating the economy than an expansionary monetary
policy.
may be illustrated by a rightward shift of the AD curve.
is not subject to any policy lags.
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Question 46
Which one of the following statements is not a lag associated with monetary and fiscal policy?
A.
B.
C.
D.
E.
Recognition lag.
Macroeconomic lag.
Impact lag.
Decision lag.
Implementation lag.
Question 47
The fact that the first (provisional) estimates of GDP become available only after a lag of about 6
weeks, forms part of the:
A.
B.
C.
D.
E.
recognition lag.
macroeconomic lag.
impact lag.
decision lag.
implementation lag.
Question 48
The fact that income tax rates are adjusted annually only, forms part of the:
A.
B.
C.
D.
E.
recognition lag.
macroeconomic lag.
impact lag.
decision lag.
implementation lag.
Question 49
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
The recognition lag is shorter for monetary policy than for fiscal policy.
The decision lag is shorter for monetary policy than for fiscal policy.
The implementation lag is shorter for monetary policy than for fiscal policy.
The impact lag is longer for monetary policy than for fiscal policy.
The impact lag is sometimes also called the outside lag.
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Question 50
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
Monetary policy actions tend to take a long time to have their full impact on the economy.
Decisions on fiscal policy can be taken very quickly.
Monetary policy is generally more suited to dampening an overheated economy than to
stimulating a depressed economy.
Fiscal policy tends to have a shorter impact lag than monetary policy.
Because there are various lags associated with monetary and fiscal policy, timing is of the
utmost importance in macroeconomic policy.
Question 51
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
According to Say’s law, there will never be insufficient demand at the macroeconomic
level, since supply creates its own demand.
According to John Maynard Keynes, aggregate demand is the driving force behind
aggregate economic activity.
According to the monetarists, inflation is the result of excessive increases in the quantity of
money.
The monetarists believe that extensive government intervention is required to stabilise the
economy.
The monetarists believe that the private sector is inherently stable.
Question 52
Which one of the following economists will prescribe active, discretionary fiscal policy measures to
stabilise the economy?
A.
B.
C.
D.
E.
A classical economist.
A Keynesian economist.
A monetarist.
A supply-side economist.
A new classical economist.
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Question 53
Which one of the following economists will not have a fundamental problem with government
involvement in the economy?
A.
B.
C.
D.
E.
A classical economist.
A monetarist.
A supply-side economist.
A new classical economist.
A new Keynesian economist.
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Multiple Choice Questions Testbank – Chapter 20
MEMORANDUM
Go back to Multiple Choice Questions
Answer the following questions by selecting the appropriate answer from the list below.
Question 1
Which one of the following statements is correct?
A. The money market is one of the most important markets in the real sector of the economy.
B. Monetarists believe that an increase in money supply will increase output in the long run.
C. An increase in money supply is one of the main instruments of fiscal policy.
D. Monetarists would recommend that money supply should be increased at approximately the
same rate as real production.
Question 2
Which one of the following statements is incorrect?
A. The aggregate AD-AS model seeks to explain the general price level and the aggregate
production of goods and services.
B. The aggregate demand curve shows the aggregate quantities that are demanded at different
price levels.
C. If aggregate supply falls, there will be an upward pressure on prices, ceteris paribus.
D. In terms of the AD-AS model, if aggregate demand falls, with no change in aggregate supply,
unemployment will tend to decrease.
E. An increase in investment spending will result in a rightward shift of the AD curve.
© VAN SCHAIK PUBLISHERS
Question 3
Which one of the following statements is correct?
A. The aggregate demand curve (AD curve) can be shifted by monetary as well as fiscal policy
measures.
B. A restrictive fiscal policy will result in a rightward shift of the aggregate demand curve.
C. A general increase in wages in the economy will, ceteris paribus, shift the aggregate supply
curve downward (to the right).
D. A supply shock results in a simultaneous increase in prices and production in the economy.
E. None of the above statements is correct.
Question 4
According to supply-side theorists, the aggregate supply curve will shift to the right when:
A. the quantity of money increases.
B. marginal tax rates rise.
C. government spending on on-the-job training increases.
D. unemployment benefits are increased.
E. the government’s education budget is cut.
Question 5
The policy recommendations of supply-side economists include that:
A. government needs to increase the quantity of money to bring about full employment.
B. the supply of goods and services produced by the government needs to be increased.
C. the government should introduce specific regulations to see that the correct type of
investment is undertaken.
D. government should reduce its spending and general involvement in the economy.
E. taxes should be increased to provide for a greater supply of government services to the
poor.
© VAN SCHAIK PUBLISHERS
Question 6
Consider the following diagram and answer Questions (a) and (b).
Question (a)
The immediate effect of a decrease in government expenditure will be to:
A. move the AD curve to the left.
B. move the AD curve to the right.
C. move the AS curve to the left.
D. move the AS curve to the right.
E. leave the curves unchanged.
Question (b)
If South Africa were to discover a plentiful supply of cheap oil, this would:
A. move the AD curve to the left.
B. move the AD curve to the right.
C. move the AS curve to the left.
D. move the AS curve to the right.
E. have no effect on the curves.
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Question 7
Consider the following diagram and answer Questions (a) and (b).
Question (a)
Which of the following statements is correct?
A. The economy is in equilibrium at full employment.
B. Fiscal policy can be freely used to achieve full employment without risking a rise in the price
level.
C. The use of fiscal policy to achieve full employment will bring about a rise in the price level.
D. Monetary policy can be freely used to achieve full employment without risking a rise in the
price level.
E. Monetary policy cannot be used to achieve full employment since it will affect only the price
level in the short run.
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Question (b)
In terms of the AD-AS approach, if South Africa’s cheap coal reserves were to run out and had to
be replaced as an energy source by expensive imported oil:
A. total output would drop because the AD curve would move to the left.
B. total output would rise because the AS curve would move to the right.
C. the price level would rise because the AD curve would move to the right and the AS curve
would move to the left.
D. the price level could not be predicted because the AD and AS curves would both move to the
left.
E. total output would drop because the AS curve would move to the left but the AD curve
would be unaffected.
Question 8
Classical economists who preceded Keynesians believed that:
A. increases in the quantity of money could alter the level of production in the economy.
B. as demand increases, supply increases.
C. economies that do not suffer from government interference will reach full employment
equilibrium.
D. increases in government spending are necessary during times of recession.
Question 9
According to the supply-siders, tax cuts announced by the Minister of Finance:
A. result in higher saving and work effort, which will lead to greater production in the
economy.
B. increase inflation in South Africa.
C. reduce inflation in South Africa.
D. cause both A and C to occur.
Question 10
Stagflation refers to a situation where:
A. economic growth is experienced and leads to an increase in the inflation rate.
B. high inflation rates and high employment rates are experienced simultaneously.
C. high inflation rates and high unemployment rates are experienced simultaneously.
D. a period of high inflation is followed by a period of stagnation in the economic growth rate.
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Question 11
Using AD-AS analysis, it follows that an expansionary monetary policy will result in:
A. an increase in equilibrium income and the price level in the short run.
B. a decrease in equilibrium income and the price level in the short run.
C. an increase in equilibrium income and no change in the equilibrium price level.
D. a decrease in equilibrium income and an increase in the equilibrium price level.
E. an increase in equilibrium income and a decrease in the equilibrium price level.
Question 12
The policy recommendations of the supply-side economists would differ from those of Keynesians as
follows:
A. Keynesians believe that government expenditure should be increased to bring about full
employment, whereas supply-siders believe that government should increase the quantity
of money.
B. Keynesians believe that government often needs to manipulate aggregate demand, whereas
supply-siders believe that it should manipulate aggregate supply by taking over the
production of key goods and services.
C. Keynesians believe that government should control the level of prices whereas supply-siders
do not.
D. Keynesians believe that government needs to intervene in the economy to maintain
stability, whereas supply-siders do not.
E. Keynesians believe that the correct way to stabilise the economy is through the use of fiscal
policy whereas supply-siders believe the appropriate instrument is monetary policy.
Question 13
Which of the following features is not consistent with supply-side theory?
A. Deregulation
B. Privatisation
C. Reductions in marginal tax rates
D. Expansionary fiscal policy
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Question 14
Which of the following statements is/are true of the major schools of economic thought?
i.
Keynesians believe in the use of macroeconomic tools to stabilise the economy
whereas the others do not.
ii.
Monetarists believe that monetary policy is more effective than fiscal policy in
eliminating unemployment, whereas Keynesians believe the opposite.
iii.
Supply-siders believe that incentives to work, save and invest are more important
than macroeconomic demand manipulation in managing the economy.
iv.
The classical economists believed that the monetary and real sides of the economy
were entirely separate, whereas the other schools believe that the monetary sector
can affect the real economy, at least in the short run.
A. i
B. i and ii
C. i, iii and iv
D. ii, iii and iv
E. i, ii, iii and iv
Question 15
Indicate which one of the following statements is false
A. In the AD-AS model prices are regarded as variable.
B. In the AD-AS model wages have no impact on the level of output.
C. In the AD-AS model the impact of monetary policy on the level of output can be
analysed.
D. In the AD-AS model the level of economic activity (output) is determined by the
interaction of aggregate demand and supply.
Question 16
Which one of the following statements is true?
A. In the AD-AS model the price level refers to the general level of prices.
B. In the AD-AS model the derivation of the aggregate demand curve and the aggregate
supply curve involves the summation of market demand and supply curves for different
goods and services in the economy.
C. In the AD-AS model it is assumed that aggregate supply adjusts passively to aggregate
demand.
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Question 17
Which one of the following is not assumed in the AD-AS model?
A.
B.
C.
D.
E.
Prices are variable.
Wages are variable.
Aggregate supply can change independently of aggregate demand.
The quantity of money is fixed.
Interest rates are variable.
Question 18
Which one of the following statements is incorrect?
In the AD-AS model:
A.
B.
C.
D.
E.
the general price level (P) is depicted on the vertical axis.
total production or income (Y) is depicted on the horizontal axis.
the equilibrium levels of P and Y are determined by the interaction of AD and AS.
we deal with the economy as a whole.
the price level is determined by the cost of production, particularly wages.
Question 19
Which one of the following statements is incorrect?.
In the AD-AS model:
A. there is an inverse relationship between the general price level and the volume of goods
and services demanded.
B. there is a positive relationship between the general price level and the volume of goods
and services supplied.
C. the volume of goods and services demanded decreases as the general price level
decreases.
D. the volume of goods and services supplied increases as the general price level increases.
E. the AD curve has essentially the same shape as any normal demand curve.
Question 20
Which one of the following is not a component of aggregate demand in the economy?
A.
B.
C.
D.
E.
Consumption spending by households.
Investment spending by firms.
Spending on our exports by foreigners.
The productivity of the factors of production.
Government spending.
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Question 21
Which one of the following is not a possible explanation for the slope of the AD curve?
A.
B.
C.
D.
E.
The oil price effect.
The interest rate effect.
The real balance effect.
The wealth effect.
The international trade effect.
Question 22
Which one of the following will give rise to a rightward shift of the AD curve?
A.
B.
C.
D.
E.
Households decide to increase their saving rate.
There is a sharp and sustained increase in share prices on the JSE.
Personal tax rates are increased.
The SARB increases the repo rate.
Real government spending is lowered.
Question 23
Which one of the following will give rise to an increase in aggregate demand, illustrated by a
rightward shift of the AD curve?
A.
B.
C.
D.
A deterioration in business confidence as a result of increased political violence.
A decrease in the repo rate.
An increase in the company tax rate.
A decrease in the international prices of the commodities that we export (eg gold,
platinum, coal).
E. A sharp appreciation of the rand against the major currencies.
Question 24
Which one of the following statements about the AS curve is incorrect?
A.
B.
C.
D.
In the short run the AS curve tends to have a positive slope.
In the long run the AS curve tends to be vertical.
The AS curve is primarily governed by the costs of production.
The AS curve is influenced by the prices and productivity of the various factors of
production.
E. Because imports do not form part of GDP, import prices have no effect on the AS curve.
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Question 25
Which one of the following will not give rise to a shift of the AS curve?
A.
B.
C.
D.
E.
An increase in wages.
A decrease in wages.
An increase in productivity.
A decrease in productivity.
An increase in spending by households.
Question 26
Which one of the following will give rise to an increase in aggregate supply, illustrated by a rightward
shift of the AS curve?
A.
B.
C.
D.
E.
An increase in wages.
An increase in productivity.
An increase in interest rates.
An increase in the price of oil.
An increase in government spending.
Question 27
Which one of the following will give rise to a decrease in aggregate supply, illustrated by a leftward
shift of the AS curve?
A.
B.
C.
D.
E.
A decrease in the price of imported oil.
A decrease in wages.
A decrease in interest rates.
A decrease in productivity.
A decrease in consumption spending by households.
Question 28
Which one of the following statements is incorrect?
An expansionary monetary policy:
A.
B.
C.
D.
E.
can be illustrated by an upward movement of the AS curve.
can be illustrated by an upward movement of the AD curve.
will tend to increase the price level in the short run.
will tend to increase the level of income and production the short run.
will leave the AS curve unchanged in the short run.
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Question 29
Which one of the following is an example of an expansionary fiscal policy?
A.
B.
C.
D.
E.
A decrease in interest rates.
An increase in interest rates.
An increase in government spending.
A decrease in government spending.
An increase in taxes.
Question 30
Which one of the following statements is incorrect?
An upward (leftward) shift of the AS curve:
A.
B.
C.
D.
E.
is often referred to as an adverse supply stock.
is often used to illustrate stagflation.
may be caused by an increase in wages.
may be caused by an increase in productivity.
may be caused by an increase in the price of imported oil.
Question 31
In the AD-AS model a simultaneous increase in government spending and increase in the price of oil
will lead to:
A. a simultaneous increase in the price level and in the level of production and income.
B. an increase in the price level and an indeterminate change in the level of production and
income.
C. a decrease in the price level and an indeterminate change in the level of production and
income.
D. an increase in the level of production and income and an indeterminate change in the
price level.
E. a decrease in the level of production and income and an indeterminate change in the
price level.
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Question 32
In the AD-AS model a simultaneous increase in investment spending and increase in the productivity
of labour will lead to:
A. a simultaneous increase in the price level and in the level of production and income.
B. an increase in the price level and an indeterminate change in the level of production and
income.
C. a decrease in the price level and an indeterminate change in the level of production and
income.
D. an increase in the level of production and income and an indeterminate change in the
price level.
E. a decrease in the level of production and income and an indeterminate change in the
price level.
Question 33
In the AD-AS model a simultaneous decrease in wages and decrease in consumption spending by
households will lead to:
A. a simultaneous increase in the price level and in the level of production and income.
B. an increase in the price level and an indeterminate change in the level of production and
income.
C. a decrease in the price level and an indeterminate change in the level of production and
income.
D. an increase in the level of production and income and an indeterminate change in the
price level.
E. a decrease in the level of production and income and an indeterminate change in the
price level.
Question 34
A decrease in the price level will:
A.
B.
C.
D.
E.
shift the AS curve to the left.
shift the AS curve to the right.
shift the AD curve to the left.
shift the AD curve to the right.
leave both the AD curve and the AS curve unchanged.
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Question 35
In the AD-AS model an increase in productivity without any increase in remuneration will:
A.
B.
C.
D.
E.
leave the AS curve unchanged.
shift the AD curve to the right.
increase the general price level.
increase the level of production and income.
leave prices, production and income unchanged.
Question 36
The monetary transmission mechanism:
A. explains how banks create money.
B. explains how the central bank transmits messages to the other banks.
C. describes the ways in which changes in the monetary sector are transmitted to the rest
of the economy.
D. describes how the Monetary Policy Committee announces its decisions.
E. explains how developments in the economy affect the monetary sector, especially the
banks.
Question 37
Which one of the following statements is incorrect?
A. When the SARB changes the repo rate, all other short-term interest rates tend to move
in the same direction.
B. In the models we use a single interest rate to represent all interest rates in the economy.
C. A key element of the monetary transmission mechanism is the relationship between the
interest rate and investment spending.
D. The money stock is the most important element of the monetary transmission
mechanism.
E. In the AD-AS model the relative impact of a change in the monetary sector on the price
level and the level of total production and income depends on aggregate supply
conditions.
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Question 38
Complete the following sentence:
In terms of the AD-AS model a decrease in the interest rate leads to a(n) _______________ in
investment spending, a(n) _______________ in aggregate spending, a(n) ______________ in
aggregate demand and, eventually to a(n) ________________ in total production and (or) a(n)
_______________ in the price level.
A.
B.
C.
D.
E.
decrease; decrease; decrease; decrease; decrease
increase; increase; increase; increase; increase
increase; increase; decrease; decrease; decrease
decrease; decrease; increase; increase; increase
decrease; increase; increase; increase; decrease
Question 39
Which one of the following is not a channel in the broad monetary transmission mechanism?
A.
B.
C.
D.
E.
The money stock channel.
The interest rate channel.
The credit channel.
The exchange rate channel.
The asset price channel.
Question 40
When the SARB adjusts the repo rate, the change in interest rates tends to affect investment
spending and consumption spending in the economy. To which of the channels of the broad
monetary transmission mechanism does this effect belong to?
A.
B.
C.
D.
E.
The money stock channel.
The interest rate channel.
The credit channel.
The exchange rate channel.
The asset price channel.
Question 41
When the SARB adjusts the repo rate, this tends to affect share prices and property prices. This
impact forms part of which channel of the broad monetary transmission mechanism?
A.
B.
C.
D.
E.
The money stock channel.
The interest rate channel.
The credit channel.
The exchange rate channel.
The asset price channel.
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Question 42
When the SARB adjusts the repo rate, the volume of bank loans tends to be affected. To which
channel of the broad monetary transmission mechanism does this impact belong?
A.
B.
C.
D.
E.
The money stock channel.
The interest rate channel.
The credit channel.
The exchange rate channel.
The asset price channel.
Question 43
When the SARB adjusts the repo rate, this may eventually impact on the volume of exports or the
volume of imports. Through which channel of the broad monetary transmission mechanism is this
impact possible?
A.
B.
C.
D.
E.
The money stock channel.
The interest rate channel.
The credit channel.
The exchange rate channel.
The asset price channel.
Question 44
Which one of the following statements is incorrect?
An expansionary monetary policy:
A.
B.
C.
D.
E.
involves a decrease in interest rates.
may be illustrated by a rightward shift of the AD curve.
will always be successful in combating inflation.
tends to be less successful in stimulating the economy than an expansionary fiscal policy.
leaves the AS curve unchanged.
Question 45
Which one of the following statements is incorrect?
An expansionary fiscal policy:
A. may involve increased government spending.
B. may involve a decrease in taxes.
C. tends to be more successful in stimulating the economy than an expansionary monetary
policy.
D. may be illustrated by a rightward shift of the AD curve.
E. is not subject to any policy lags.
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Question 46
Which one of the following statements is not a lag associated with monetary and fiscal policy?
A.
B.
C.
D.
E.
Recognition lag.
Macroeconomic lag.
Impact lag.
Decision lag.
Implementation lag.
Question 47
The fact that the first (provisional) estimates of GDP become available only after a lag of about 6
weeks, forms part of the:
A.
B.
C.
D.
E.
recognition lag.
macroeconomic lag.
impact lag.
decision lag.
implementation lag.
Question 48
The fact that income tax rates are adjusted annually only, forms part of the:
A.
B.
C.
D.
E.
recognition lag.
macroeconomic lag.
impact lag.
decision lag.
implementation lag.
Question 49
Which one of the following statements is incorrect?
A.
B.
C.
D.
E.
The recognition lag is shorter for monetary policy than for fiscal policy.
The decision lag is shorter for monetary policy than for fiscal policy.
The implementation lag is shorter for monetary policy than for fiscal policy.
The impact lag is longer for monetary policy than for fiscal policy.
The impact lag is sometimes also called the outside lag.
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Question 50
Which one of the following statements is incorrect?
A. Monetary policy actions tend to take a long time to have their full impact on the
economy.
B. Decisions on fiscal policy can be taken very quickly.
C. Monetary policy is generally more suited to dampening an overheated economy than to
stimulating a depressed economy.
D. Fiscal policy tends to have a shorter impact lag than monetary policy.
E. Because there are various lags associated with monetary and fiscal policy, timing is of
the utmost importance in macroeconomic policy.
Question 51
Which one of the following statements is incorrect?
A. According to Say’s law, there will never be insufficient demand at the macroeconomic
level, since supply creates its own demand.
B. According to John Maynard Keynes, aggregate demand is the driving force behind
aggregate economic activity.
C. According to the monetarists, inflation is the result of excessive increases in the quantity
of money.
D. The monetarists believe that extensive government intervention is required to stabilise
the economy.
E. The monetarists believe that the private sector is inherently stable.
Question 52
Which one of the following economists will prescribe active, discretionary fiscal policy measures to
stabilise the economy?
A.
B.
C.
D.
E.
A classical economist.
A Keynesian economist.
A monetarist.
A supply-side economist.
A new classical economist.
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Question 53
Which one of the following economists will not have a fundamental problem with government
involvement in the economy?
A.
B.
C.
D.
E.
A classical economist.
A monetarist.
A supply-side economist.
A new classical economist.
A new Keynesian economist.
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