Economics multiple choice questions

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musicangel
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#1
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#1
Hi,

I am stuck on these questions:
I thought that the answer for 9 would be C but is D.

For 11, the answer is B but am unsure why spare capacity is related to investment. (If you decrease the interest rate, what happens to investment? It could reduce if you have less return for your money (and move overseas) but could also increase as you can borrow easily?)

Finally, with 18, if there was an option for expansionary monetary & supply side and another with expansionary fiscal and supply side, how can you tell which is correct?

Thank you!
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jpt4749
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#2
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#2
Question 9

D is correct because changes in aggregate demand affect current account which includes spending on goods & services.

For choice C, I think the reverse would be correct, budget deficit makes the government cut their spendings which consequently reduces aggregate demand.



Question 11

I thought it should be D as increase in aggregate demand and Y will make central bank rise interest rate (to control inflation) and thus crowds out part of aggregate investment.



Question 18

All 3 choices apart from C can automatically be eliminated as restriction of either policy will worsen the unemployment. Expansion of monetary policy & supply side policy, on the other hand, increase Y (income/output) without increasing the price level so no inflationary pressure.

Hope this is helpful
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GCSE2016Troop
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#3
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#3
Question 9 - A decrease in AD means there will be less disposable income for households and therefore less spending on imports, thus reducing the current account deficit. It cant’t be C because a decrease in AD will mean an increase in gov spending and decrease in taxes due to the automatic stabilisers and the gov would probably adopt expansionary policy because of the fall in AD anyway.

11- My thought process would be the answer is B because an increase in spare capacity means that business confidence will be low and also there will a reduction in Demand for g/s so forms will be less likely to invest.

18 - The answer is C because they expansionary monetary policy will increase AD thus reducing the rate of unemployment while an increase in supply side policies will lead to actual and potential growth, thus increasing the long term trend rate of growth.
They wouldn’t give them two options as both would be correct in fixing those problems.
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musicangel
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#4
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#4
(Original post by Nathan9087)
Question 9

D is correct because changes in aggregate demand affect current account which includes spending on goods & services.

For choice C, I think the reverse would be correct, budget deficit makes the government cut their spendings which consequently reduces aggregate demand.



Question 11

I thought it should be D as increase in aggregate demand and Y will make central bank rise interest rate (to control inflation) and thus crowds out part of aggregate investment.



Question 18

All 3 choices apart from C can automatically be eliminated as restriction of either policy will worsen the unemployment. Expansion of monetary policy & supply side policy, on the other hand, increase Y (income/output) without increasing the price level so no inflationary pressure.

Hope this is helpful
(Original post by GCSE2016Troop)
Question 9 - A decrease in AD means there will be less disposable income for households and therefore less spending on imports, thus reducing the current account deficit. It cant’t be C because a decrease in AD will mean an increase in gov spending and decrease in taxes due to the automatic stabilisers and the gov would probably adopt expansionary policy because of the fall in AD anyway.

11- My thought process would be the answer is B because an increase in spare capacity means that business confidence will be low and also there will a reduction in Demand for g/s so forms will be less likely to invest.

18 - The answer is C because they expansionary monetary policy will increase AD thus reducing the rate of unemployment while an increase in supply side policies will lead to actual and potential growth, thus increasing the long term trend rate of growth.
They wouldn’t give them two options as both would be correct in fixing those problems.

Thank you so much for your help - really appreciate it.
Just wondering how spare capacity lowers business confidence?

Also, could you help with these micro questions?
Thank you!


8 - I thought it would be A but it is actually B
13 - Answer is B (I thought D)
22 - Is the answer not C because the -ve externality in consumption is not as a result of specifically producing at E, it just what the graph is showing?
25 - Not sure why the answer is C and not A
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GCSE2016Troop
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#5
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#5
(Original post by musicangel)
Thank you so much for your help - really appreciate it.
Just wondering how spare capacity lowers business confidence?

Also, could you help with these micro questions?
Thank you!


8 - I thought it would be A but it is actually B
13 - Answer is B (I thought D)
22 - Is the answer not C because the -ve externality in consumption is not as a result of specifically producing at E, it just what the graph is showing?
25 - Not sure why the answer is C and not A
An increase in spare capacity would signal an economic downturn or perhaps a recession. With this, firms will be reluctant to invest as they are unsure about the future forecasts of the economy.

8 - Well you can see the answer is B just by using simple maths. 125 x 0.2 = 100 so you can see it’s 20 percent cheaper in 2004. There’s multiple ways you could do it.

13 - If you look at where Q2 and p3 is, that’s where supply would shift to the left from the tax by the government. By looking at that, you should know already that the whole area p2p3 is the tax. p2p1 would be the tax paid by the producer.

22 - The answer cannot be C because with a negative externality in consumption, the MPB is greater than the MSB as we overconsume it. By process of elimination I would say A just because it can not be the others.

25 - A monopoly replacing competition in the market means the output would obviously fall and they would be able to charge higher prices as they have Producer sovereignty.
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TeeEff
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#6
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#6
(Original post by musicangel)
Thank you so much for your help - really appreciate it.
Just wondering how spare capacity lowers business confidence?
Intuitively, if there's spare capacity, a firm's output production is not being fully met by demand from it's consumers. Ergo, there are no incentives to further invest in increasing output if it's got idle product sitting on the shelves. Hence, they would be reluctant to lock up and invest further sums of money.

Hope that helps.
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jpt4749
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#7
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#7
(Original post by musicangel)
Thank you so much for your help - really appreciate it.
Just wondering how spare capacity lowers business confidence?

Also, could you help with these micro questions?
Thank you!


8 - I thought it would be A but it is actually B
13 - Answer is B (I thought D)
22 - Is the answer not C because the -ve externality in consumption is not as a result of specifically producing at E, it just what the graph is showing?
25 - Not sure why the answer is C and not A
Hello again

Question 8 : only B is correct as 80% of 125 is 100

Question 13 : negative externality needs a tax to raise the MPC up to the level of MSC so to get to the optimal quantity of OQ2 the tax of P2P1 is needed to impose. You can draw the graph of new supply curve (parallel to the original one to cross the demand curve at Q2 and you will see that the difference on Y-axis is P2P1)

Question 22 : in the graph marginal social benefit is greater than marginal private benefit and producing at OE will be less than socially optimal level and represents positive externality.

Question 25 : it seems that choice C is the most rational one as monopoly charges when MR=MC resulting in higher P and lower Q (which looks like the movement along the demand curve)
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The Introvert
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#8
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#8
Also, for Q11 I would argue that the accelerator theory of investment means that firms have no need to invest if they already have spare capacity. (I.e. why build a new factory when you have spare capacity in the current one?)

Spare factors of production also mean that there is not such a need for investment in R&D to improve productivity using scarce existing FoP.
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