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SECTION THREE QUESTIONS (MACROECONOMICS)


1. Can government macroeconomic demand management policies raise the real output of an economy in the long-run?



2. Most nations tax personal income. What are the arguments for and against personal income taxes? At what rates would you recommend setting income taxes? How would considerations of equity and efficiency influence your decision?



3. Unemployment can either be structural or cyclical. How would government intervention differ in each case?



4. Under what conditions are high interest rates likely to benefit or damage a country's economy?



5. “A reduction in unemployment is desirable, but it is certain to lead to other problems, such as inflation or balance of payments difficulties.” Discuss.



6. Discuss the view that unemployment is a more serious economic problem that inflation. Why might Keynesian and Monetarist economists disagree on questions like this?



7. Distinguish between ‘supply side’ policies and ‘demand management’ policies. Why do many governments now appear to wish to focus increasingly on the supply side?



8. Discuss whether there is a relationship between money supply and inflation.



9. Why might knowledge of the value of the multiplier be useful to government policy makers? Should governments make more use of this and other Keynesian ideas, or should they adopt non-Keynesian policies?



10. Why is investment important to a country? Why do some countries have lower rates of investment than others and what is the role of the government in encouraging investment?



11. What are the social costs of unemployment? In view of these costs, why do some countries give higher priority to tackling other problems such as inflation and balance of payments difficulties?



12. A government introduces ‘supply side’ policies in order to have a flexible work force. Describe the policies, which might be introduced. Consider whether such policies would be worthwhile.



13. (a) What is monetarism? (10)
(b) How would a monetarist’s view of economic problems (such as inflation and unemployment) and policies differ from that of a Keynesian? (15)



14. Evaluate the costs and benefits for a country if its government adopts privatization as a major policy.



15. (a) Is full employment possible? (8)
(b) Is full employment desirable (8)
(c) Do international trading blocks such as nafta or the eu increase or reduce unemployment? (9)



16. To what extent is it wise for governments to follow a policy of always balancing their national budgets?



17. (a) Briefly explain the various objectives of macroeconomic policy. (10)
(b) Critically examine the view that the control of inflation should always be the most important objective of governments. (15)



18. Is there a long-term trade-off between inflation and unemployment?


19. (a) Explain how governments can use fiscal policy to redistribute income. (12)

(b) Evaluate the advantages and disadvantages of policies aimed at reducing income inequalities (13)




20. “What is wanted is not inflation (a rise in the general price level) or deflation (a fall in the general price level) but price stability.” Discuss.



21. (a) What are the consequences of unemployment in an economy? (10)
(b) Examine the strategies that may be used to reduce unemployment, referring to more developed countries and less developed countries in your answer. (15)



22. (a) What are the main macroeconomic objectives of government? (10)
(b) Assume the government chooses to pursue one of these objectives. Evaluate the possible consequences for the other objectives.(15)


23. Evaluate the view that the achievement of price stability should be the major objective of government economic policy.



24. (a) With the help of diagrams distinguish between demand-pull and cost-push inflation.
(b) Explain which policies would be appropriate to deal with these two types of inflation



25. ‘Unemployment remains persistently high in a majority of countries throughout the world’
(a) Explain the economic problems that high unemployment may cause for a country.
(b) Discuss the reasons why governments find the goal of full employment difficult to achieve.

26. Evaluate the effectiveness of demand-side and supply-side policies in the short and long run.


27. (a) What are the possible causes of inflation? (10 marks)

(b) Evaluate possible policies that might be used to lower the natural rate of unemployment (15 marks)




28. (a) Using suitable examples, explain the difference between the multiplier and the accelerator (10 marks)

(b) Evaluate the proposition that the most effective way to reduce unemployment is through the use of demand-side policies. (15 marks)




29. (a) Explain the relationship between the Lorenz curve and the Gini coefficient (10 marks)

(b) Evaluate the effectiveness of the various methods that government may use to redistribute income (15 marks)





30. (a) Explain the difference between demand-side and supply-side policies (10 marks)

(b) ’Higher economic growth can only be achieved through the implementation of supply-side policies (15 marks)

31. (a) Explain how interest rates can be used to bring about an increase in economic activity (10 marks)

(b) Discuss the strengths and weaknesses of demand-side policies (15 marks)



32. (a) What are the causes of inflation (10 points)

(b) Evaluate the possible effects of a persistently high inflation rate on a country’s current account balance and its exchange rate (15 points)



33. (a) Explain why a government might find it difficult to maintain a low rate of inflation as the economy approaches full employment (10 marks)

(b) Evaluate the proposition that the priority in economic management should be the maintenance of low unemployment (15 marks)




34. (a) Using one or more diagrams, explain the difference between the equilibrium level of national income and the full employment level of national income

(b) Evaluate the policies a government may use to increase the full employment level of national income (15 marks)




35. (a) ’The effect of a decrease in aggregate demand on output and the price level depends on the shape of the aggregate supply curve’. Explain this statement. (10 marks)

(b) Evaluate the likely effects of a falling rate of inflation on the performance of an economy (15 marks)




36. (a) Explain the difference between progressive taxation and regressive taxation. (10 marks)

(b) Evaluate the possible effects of a decrease in direct taxation on a country’s inflation rate, unemployment rate and balance of payments. (15 marks)


Short Essay Questions

37. What difficulties arise in measuring unemployment?


38. Outline the difference between a short-run long-run Phillips curve.


39. Once statisticians have collected data on the different types of expenditure within a country, what are the main problems that have to be overcome in order to use these figures to arrive at an estimate of national income?



40. Explain how the multiplier and the accelerator might be linked to each other.



41. Explain the concept of the Natural Rate of Unemployment.


42. Explain how ‘double counting’ can occur in calculating national income, and how measuring ‘value added’ can overcome this problem.


43. Explain why some countries might find it difficult to achieve full employment at the same time as avoiding a balance of payments problem.


44. Why might knowledge of the shape of a country’s Phillips Curve might be useful to government officials?


45. What is ‘demand-deficient’ (cyclical) unemployment and what can be done about it?


46. Keynesians and Monetarists have different views of the likely shape of a country’s aggregate supply curve. Using diagrams, show how these shapes can affect macroeconomic policy.

47. What measures would you need to take in order to calculate the value of a country’s multiplier?


48. How would a change in the marginal propensity of import affect the value of the multiplier?


49. Explain why a country coming out of a recession might experience a balance of payments deficit.


50. What are the main problems involved in obtaining a measure of inflation?


51. For what reasons might a country’s Gross Domestic Product at factor cost be higher than its Gross National Product at factor cost?


52. State what Keynesian economists mean by the ‘equilibrium level of income’ and the ‘full employment level of income’ and explain why these two levels of income might not be equal to each other.


53. Discuss why higher interest rates may be good news for some people, but bad news for others.


54. Why might an increase in government expenditure have a greater multiplier effect than a corresponding reduction in direct taxes?


55. What is structural unemployment and what measures might governments take to combat it?


56. A company builds a new production unit in a certain country. Explain how this investment is likely to have a multiplier effect, and discuss reasons why this effect might take time to work.


57. Why might an increase in a country’s budget deficit be followed by an increase in its external trade deficit?


58. What is ‘crowding out and why do some economists consider it important?


59. What is the natural rate of unemployment?


60. What is demand pull inflation and what can governments do about it?


61. Define ‘crowding out’. What is its importance in macroeconomic policy modelling?

62. Use an aggregate demand/aggregate supply diagram to analyse the likely effects of an increase in interest rates.


63. Examine two reasons why a government might wish to control increases in its expenditure.


64. Use an aggregate demand / aggregate supply diagram to analyse the likely effects of an increase in income tax.


65. Explain why might the goal of full employment conflict with the goal of economic growth?


66. Use an aggregate demand/aggregate supply diagram to explain how cost push inflation may occur and outline two ways in which it might be controlled.


67. Explain two policies that a government might use to deal with the problem of demand-deficient (cyclical) unemployment.

68. What are the likely consequences of deflation for a country’s economy?

69. Using an appropriate diagram, explain how economists measure income distribution.


70. Use the Phillips Curve to explain the concept of the natural rate of unemployment.

71. Explain the multiplier effect of an increase in government spending.

72. Using AD/AS diagrams, analyse the likely impact on an economy of the following:
(a) a general rise in wage costs
(b) the discovery of new raw material sources
(c) capital stock increases.

73. Explain how an increase in government spending can lead to crowding out.

74. Explain how a progressive tax system may be used to redistribute income.

75. ‘Macroeconomic equilibrium does not necessarily occur at full employment’. Explain this statement using the concepts of inflationary and deflationary gaps.

76. With the use of example, explain the difference between a progressive and a regressive tax.

77. A government decides to raise personal income tax rates. Using diagrams, explain one possible demand side consequence and one possible supply side consequence of this decision.

78. Explain two ways a government can reduce its natural rate of unemployment.