chp 2 - mock exam
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Questions and Answers

What is another term for a state-controlled economy?

  • Planned economy (correct)
  • Mixed economy
  • Capitalist economy
  • Free market economy

    • In a state-controlled economy, what replaces profit as the primary incentive of production?

  • Common good (correct)
  • Market forces
  • Government regulations
  • Individual choice

    • What challenge can arise in state-controlled economies due to excessive bureaucracy?

  • Lack of government control
  • High levels of unemployment
  • Removal of individual choice
  • Increase in inequality (correct)

    • Why are planned economies sometimes referred to as 'planned'?

    <p>Because production and resource allocation are planned in advance</p> Signup and view all the answers

    What has led to the reform of many planned economies towards mixed economies?

    <p>Excessive layers of bureaucracy</p> Signup and view all the answers

    What determines how resources are allocated in a market economy?

    <p>Consumer preferences</p> Signup and view all the answers

    In a market economy, what is the market-clearing price?

    <p>The equilibrium price where supply equals demand</p> Signup and view all the answers

    What happens in a market economy if there is oversupply?

    <p>Some producers will leave the market</p> Signup and view all the answers

    In a market economy, what serves as the 'price' in the labor market?

    <p>Wage level</p> Signup and view all the answers

    How does competition impact the value of scarce resources in a market economy?

    <p>It increases their value</p> Signup and view all the answers

    What term is used to describe a country preventing other countries from trading freely with it to protect its domestic market?

    <p>Protectionism</p> Signup and view all the answers

    Which organization is responsible for promoting the growth of free trade between economies and arbitrating trade disputes?

    <p>World Trade Organization (WTO)</p> Signup and view all the answers

    What is the primary purpose of the World Trade Organization (WTO)?

    <p>Promoting free trade</p> Signup and view all the answers

    What do regional and bilateral trade agreements aim to achieve beyond what is stipulated in global trade agreements under the WTO?

    <p>Boost economic growth</p> Signup and view all the answers

    Why do some governments introduce tariffs on imports, as mentioned in the text?

    <p>To protect domestic industry</p> Signup and view all the answers

    What is the primary responsibility of central banks with regard to the national debt?

    <p>Managing the national debt</p> Signup and view all the answers

    Which function of central banks aims to prevent systemic collapse during financial crises?

    <p>Acting as lender of last resort</p> Signup and view all the answers

    What role do central banks play in influencing a nation's currency value?

    <p>Holding the nation’s gold and foreign currency reserves</p> Signup and view all the answers

    In what capacity do central banks act when they accept deposits from commercial banks?

    <p>Acting as banker to the banking system</p> Signup and view all the answers

    Which task falls under the responsibility of setting monetary policy for a nation's financial system?

    <p>Controlling the money supply</p> Signup and view all the answers

    What is the primary tool used by central banks to control inflation?

    <p>Interest rates</p> Signup and view all the answers

    How long can it take for changes in a central bank's interest rate to fully impact inflation?

    <p>2 years</p> Signup and view all the answers

    What characterizes deflation in an economy?

    <p>General fall in price levels</p> Signup and view all the answers

    What is the primary action taken by a central bank to combat rising inflation?

    <p>Raising interest rates</p> Signup and view all the answers

    In what situation does a central bank reduce its official rate according to the text?

    <p>When inflation is below target level</p> Signup and view all the answers

    What is the primary difference between measuring economic activity through individuals' total expenditure and by the value of total output generated by firms?

    <p>The consideration of economy-wide spending vs. firm-specific production</p> Signup and view all the answers

    What aspect ultimately determines the rate of sustainable growth in an economy over the long run?

    <p>The efficiency of domestic savings and capital allocation</p> Signup and view all the answers

    Which factor plays a crucial role in influencing an economy's trend rate of growth according to the text?

    <p>Innovative technology adoption</p> Signup and view all the answers

    What is the primary impact of efficient infrastructure development on economic growth?

    <p>Enhances labor productivity</p> Signup and view all the answers

    How does Gross Domestic Product (GDP) differ from Gross National Product (GNP) in measuring a country's economic output?

    <p>GDP includes foreign income while GNP does not</p> Signup and view all the answers

    What factor is mentioned as a key determinant of long-term productivity growth in a mature economy?

    <p>Utilisation of new technology</p> Signup and view all the answers

    During a recession, what is a common result in the economy?

    <p>Spare capacity and unemployment</p> Signup and view all the answers

    What term is used to describe the phenomenon when actual output exceeds potential output in an economy growing above its trend rate?

    <p>Stagflation</p> Signup and view all the answers

    In a post-industrialized economy, why are productivity gains more challenging to extract compared to economies with a large manufacturing base?

    <p>Shift towards services-based industries</p> Signup and view all the answers

    What is the consequence of economic growth rates exceeding a country's long-term trend growth rate?

    <p>Stagflation</p> Signup and view all the answers

    What must the balance of payments include in order to balance?

    <p>Current account and net inflow of capital</p> Signup and view all the answers

    Which type of investment involves trading in stocks and bonds?

    <p>Portfolio investment</p> Signup and view all the answers

    In the context of the text, what is the role of the balancing item in the balance of payments?

    <p>Correcting measurement errors</p> Signup and view all the answers

    If a country has a current account deficit due to net importation, how can it be offset according to the text?

    <p>With a net inflow of capital from overseas</p> Signup and view all the answers

    What category of investment involves transactions in currency and bank deposits?

    <p>Other investments</p> Signup and view all the answers

    What is the primary difference between government debt and budget deficit according to the text?

    <p>Government debt is the shortfall between tax receipts and government spending, while budget deficit is what the government owes.</p> Signup and view all the answers

    How are debt measures usually presented according to the text?

    <p>As a percentage of GDP to account for effects such as inflation.</p> Signup and view all the answers

    In what economic scenario would government spending exceed tax revenues according to the text?

    <p>In a recession with low levels of employment and corporate profits.</p> Signup and view all the answers

    How does a buoyant economy impact government borrowing according to the text?

    <p>Enables the government to reduce public sector borrowing due to higher tax revenues.</p> Signup and view all the answers

    What is the conventional way of comparing debt measures over time according to the text?

    <p>By dividing them by GDP.</p> Signup and view all the answers

    What term do economists use to refer to the extent to which those seeking employment cannot find work?

    <p>Natural rate of employment</p> Signup and view all the answers

    How do higher levels of unemployment affect a government's finances according to the text?

    <p>Decrease in income due to lack of tax revenues</p> Signup and view all the answers

    What impact does high unemployment levels have on the demand for goods and services in an economy?

    <p>Decreases demand for goods and services</p> Signup and view all the answers

    Why does care need to be taken when looking at official unemployment figures according to the text?

    <p>Due to fixed hour contracts distorting statistics</p> Signup and view all the answers

    What negative impact does high unemployment levels have on a government's finances?

    <p>Need to increase social security/welfare payments</p> Signup and view all the answers

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