MCQ Questions:

1. A government achieves a high rate of economic growth. How may this conflict with other government aims?
A) It may increase government income
B) It may increase incomes for the lower paid
C) It may increase the supply of exports
D) It may increase the volume of imports

2. What is not usually an aim of a government?
A) Economic growth
B) Full employment
C) Inequality of incomes
D) Price stability

3. Which government policy would most likely lead to a redistribution of income?
A) A change in the rate of exchange
B) Control of commercial bank lending
C) Control of interest rates
D) Expenditure on unemployment benefits

4. During 2009, some governments adopted policies to try to end the recession in their country and increase economic growth. Which combination of policies is most likely to achieve this?
A) Lower taxes and decrease government spending
B) Lower taxes and increase government spending
C) Raise taxes and decrease government spending
D) Raise taxes and increase government spending

5. The central bank of Mexico set its rate of interest to try to keep the rise in the price level to only 3%. Which government aim was it directly trying to achieve?
A) Balance of payments equilibrium
B) Economic growth
C) Full employment
D) Low inflation

6. In 2009, the Chinese Government tried to increase household spending. Which policy measure would have been most likely to achieve this objective?
A) An increase in both direct and indirect taxes
B) A reduction in subsidies given to manufacturing
C) A requirement for commercial banks to reduce their lending
D) A switch from public to private sector provision of health care and pensions

7. Which statement about the meaning of government economic aims is correct?
A) Economic growth means that a country’s real output must rise over time.
B) Full employment means that no one must be unemployed.
C) Price stability means that the price of all goods and services must remain unchanged.
D) Redistribution of income means that everyone must have equal incomes.

8. Which combination of government policies would most likely increase the rate of growth of domestic production in an economy?
A) An increase in expenditure on infrastructure and an increase in income tax
B) An increase in interest rates and an increase in quotas on imported goods
C) An increase in subsidies to domestic industry and an increase in tariffs
D) An increase in value-added tax (goods and services tax) and an increase in education expenditure

9. In 2010, the Brazilian Government stated it was concentrating on making the country the world’s fifth biggest economy by 2025 and on narrowing the gap between the rich and the poor in the country. What does the statement indicate were the main aims of the Brazilian Government?
A) Balance of payments stability and price stability
B) Economic growth and redistribution of income
C) Price stability and economic growth
D) Redistribution of income and balance of payments stability

10. A government wishes to stimulate economic recovery. Which action will assist this?
A) Decreasing government investment
B) Decreasing income tax
C) Increasing indirect taxation
D) Increasing interest rates

11. A government reduces the interest rate to encourage economic growth. Which other aim of government policy might now become more difficult to achieve?
A) Reducing a balance of trade in goods surplus
B) Reducing a government budget deficit
C) Reducing the level of unemployment
D) Reducing the rate of inflation

12. In an economic recession, which policy might be adopted to reduce unemployment?
A) An increase in foreign exchange rates
B) An increase in interest rates
C) A reduction in import duty
D) A reduction in tax rates

13. Which aim of government policy is most likely to be achieved by an increase in interest rates?
A) Economic growth
B) Greater equality of income
C) Full employment
D) Price stability

14. Which combination of government policies is most likely to be successful at reducing unemployment?
A) Budgeting for a surplus and lowering interest rates
B) Budgeting for a deficit and raising interest rates
C) Budgeting for a surplus and raising interest rates
D) Budgeting for a deficit and lowering interest rates

15. The government wishes to raise the general standard of living in its country. In the short run, which policy would be the most likely to achieve this aim?
A) Preventing the merger of two companies into a monopoly
B) Raising taxation to repay government debts
C) Reducing the rate of income tax while maintaining the services it provides
D) Spending more on roads in rural areas rather than in city centers

16. Government advisers have suggested the following policies to reduce youth unemployment. Which would not increase public expenditure?
A) A cut in the minimum wage paid to young people
B) A rise in the school-leaving age
C) A subsidy to employers to recruit young people
D) National military service for all

17. Which policy is an example of an expansionary monetary policy?
A) Lower interest rates
B) Lower money supply growth
C) Lower public sector spending
D) Lower taxation

18. Which pair of government actions combines a fiscal policy with a supply-side policy?
A) Changing government spending with changing interest rates
B) Cutting tax rates with providing information on job vacancies
C) Limiting bank lending with the privatization of industry
D) Restricting credit with less control over labor markets

Answers:

1. D
2. C
3. D
4. B
5. D
6. D
7. B
8. C
9. B
10. B
11. D
12. D
13. D
14. D
15. C
16. A
17. A
18. B