Economics Class: Supply-Side Policy Effects

Questions and Answers

What is the most likely effect on an economy of a successful supply-side policy?

an increase in the money supply

an increase in the general price level

an increase in the interest rate

an increase in the potential GDP (correct)

What are the most likely effects on inflation and unemployment due to high economic growth caused by an increase in consumer spending?

inflation falls and unemployment falls

inflation rises and unemployment falls (correct)

inflation rises and unemployment rises

inflation falls and unemployment rises

Which pair is most likely to be provided by the private sector in a mixed economy?

weapon manufacture and defence

hospitals and tax collection

insurance and banks (correct)

courts and prisons

What term is used to describe a sustained fall in the general price level?

deflation Signup and view all the answers

What is most likely to cause an increase in relative poverty?

pension increases below the rate of inflation Signup and view all the answers

Which factor is likely to contribute to high population growth in developing countries?

cultural attitudes toward family size Signup and view all the answers

What is the most probable relationship between inflation and unemployment in a booming economy?

inflation rises while unemployment falls Signup and view all the answers

What economic condition is likely indicated by persistent inflation coupled with a stagnant economy?

stagflation Signup and view all the answers

What is a significant reason why even high GDP per capita does not eliminate economic problems for Swiss citizens?

Income in Switzerland is unevenly distributed. Signup and view all the answers

Which of the following factors is likely to lead to inflation in a mixed economy?

Increased consumer demand outpacing supply. Signup and view all the answers

What is one possible consequence of deflation in an economy?

Consumers may delay purchases expecting further price drops. Signup and view all the answers

What relationship exists between unemployment and economic recession?

Recessions typically lead to increased unemployment rates. Signup and view all the answers

Which of the following is a likely characteristic of a mixed economy regarding public services?

Government intervention plays a role in providing essential services. Signup and view all the answers

Which statement best describes the effects of poverty on economic factors?

High poverty levels can lead to decreased workforce productivity. Signup and view all the answers

What role does inflation play in purchasing power?

Inflation decreases purchasing power as prices rise faster than income. Signup and view all the answers

How could a government stimulate economic growth in a context of high unemployment?

By investing in infrastructure projects to create jobs. Signup and view all the answers

In a mixed economy, which of the following statements about market regulation is true?

Regulation helps to balance private interests and public welfare. Signup and view all the answers

What could have caused the production possibility curve to shift from PPC1 to PPC2?

A decrease in the rate of unemployment Signup and view all the answers

Which factor is most likely to increase the geographical mobility of labour?

An increase in the quantity of low-cost housing Signup and view all the answers

Which of the following actions is considered a microeconomic decision?

A firm decides to increase the price of its product Signup and view all the answers

What is a characteristic feature of a market in equilibrium?

The market will clear Signup and view all the answers

What is the impact of a fall in the birth rate on the economy?

Potential long-term population decline Signup and view all the answers

Which scenario could lead to deflation in an economy?

A reduction in government spending Signup and view all the answers

What role does improved education play in an economy?

Enhances the productivity of the workforce Signup and view all the answers

Which of the following factors does NOT influence poverty levels in an economy?

Personal saving habits of individuals Signup and view all the answers

Study Notes

Economic Policies and Effects

Decreasing government investment may lead to reduced public services and infrastructure, impacting economic growth.
Decreasing income tax can increase disposable income for consumers, potentially boosting consumer spending.
Increasing indirect taxation often raises the cost of goods and services, influencing consumer behavior and potentially reducing demand.
Rising interest rates can restrict borrowing, dampening investment and consumer spending, thus slowing economic growth.

Successful Supply-Side Policy

A successful supply-side policy is likely to result in an increase in potential GDP, enhancing the economy's capacity to produce goods and services.

Economic Growth and Consumer Spending

High economic growth driven by increased consumer spending typically results in rising inflation and declining unemployment, creating a dynamic labor market.

Private Sector Contributions in a Mixed Economy

In a mixed economy, insurance and banks are primarily provided by the private sector, emphasizing the role of private entities in financial services.

Economic Terminology

A sustained fall in the general price level is referred to as deflation, indicating adverse economic conditions if prolonged.

Relative Poverty Factors

An increase in relative poverty may occur due to pension increases that do not keep pace with inflation, reducing the purchasing power of the elderly.

Population Growth in Developing Countries

High population growth in some developing nations can be attributed to factors such as limited access to education and healthcare, influencing fertility rates.

Wealth Disparity in Switzerland

Despite a high GDP per capita, Switzerland faces basic economic problems due to uneven income distribution among citizens.

Production Possibility Curve (PPC)

A shift in the PPC from PPC1 to PPC2 can be caused by improved education, leading to enhanced productivity and economic capacity.

Labor Mobility

Geographical mobility of labor may increase due to investments in low-cost housing, enabling workers to relocate for job opportunities.

Microeconomic Decision-Making

A government's decision to increase interest rates is not a microeconomic decision; it pertains to macroeconomic policy affecting the overall economy.

Market Equilibrium

A feature of a market in equilibrium is that the market will clear, meaning supply equals demand, with no surpluses or shortages.

Supply Curve Dynamics

Movement along the supply curve from point X to Y indicates a change in quantity supplied due to market price changes or shifts in supply conditions.

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Description

Explore the impacts of supply-side policies on the economy in this quiz. Carefully analyze various fiscal measures like taxation and investment changes. Determine what effect a successful implementation of these policies might have on GDP and other economic indicators.