MCQ Questions and Answers:

17. Question: What would be most likely to stimulate long-run growth in an economy?

A) Employment protection legislation
B) Government policy to raise aggregate demand
C) Technical innovations by firms
D) The development of trade unions

Answer: C

Explanation: Long-run growth is achieved through technical innovations by firms, which lead to an increase in the economy's potential and productivity. Option B represents short-term growth, while options A and D are irrelevant to long-run growth.

18. Question: Other things being equal, what is likely to result from an increase in interest rates in a country?

A) A capital outflow from the country
B) A depreciation of the country’s currency
C) A decrease in consumption
D) An increase in investment

Answer: C

Explanation: Higher interest rates increase the cost of borrowing, reduce disposable income, and limit consumer spending, leading to a decrease in consumption. Higher interest rates tend to reduce inflationary pressures and may cause a currency appreciation (option B), but the immediate impact is on consumption.

19. Question: What is most likely to contribute to high long-term growth rates of GNP per head?

A) Government imposition of maximum prices for particular goods
B) High rates of trade union membership among the labor force
C) High ratios of saving to GNP
D) Restrictions on inward foreign investment

Answer: C

Explanation: High ratios of saving to GNP indicate higher investment levels, which can contribute to high long-term growth rates of GNP per head. Options A, B, and D are unlikely to directly contribute to long-term growth.

20. Question: An economic recession leads to an increase in unemployment. Why might this cause a fall in an economy's long-term growth rate?

A) It is impossible to regain consumption lost in a recession.
B) Rising unemployment is likely to raise real wage levels.
C) Social attitudes become less accepting of unemployment.
D) There will be a harmful effect on human capital.

Answer: D

Explanation: An increase in unemployment during a recession may lead to a fall in the economy's long-term growth rate due to the harmful effect on human capital. Unemployed workers may experience skill depreciation and reduced productivity, negatively impacting long-term growth. Options A, B, and C are not directly related to long-term growth.

21. Question: What is likely to result in an increase in GDP per worker in a developing economy?

A) An increase in the employment rate
B) An increase in the population of working age
C) A shift from working in subsistence agriculture to working in manufacturing
D) A shift from working in manufacturing to working in subsistence agriculture

Answer: C

Explanation: A shift from working in subsistence agriculture to working in manufacturing is likely to result in an increase in GDP per worker in a developing economy, as productivity tends to be higher in manufacturing sectors compared to subsistence agriculture.

22. Question: Real output in an economy grows by 2.5%, but at the same time, the level of employment decreases. What can be deduced from this information?

A) Actual output has grown more quickly than potential output.
B) Labor productivity has increased.
C) The population of working age has fallen.
D) There has been an increase in the rate of inflation.

Answer: B

Explanation: If real output grows while the level of employment decreases, it indicates an increase in labor productivity (output per worker), which is represented by option B. Options A, C, and D are not necessarily deduced from the given information.

23. Question: Which change is most likely to increase both economic growth and economic development in the long run?

A) A decrease in the saving ratio
B) An increase in investment in human capital
C) The depletion of non-renewable resources
D) The greater use of compulsory overtime working of labor

Answer: B

Explanation: Investment in human capital, such as education and training, is likely to increase both economic growth and economic development in the long run. It enhances productivity and contributes to higher living standards. Options A, C, and D are not likely to have the same positive impact.

24. Question: What is typically associated with a relatively low level of income per capita in a country?

A) Low exports
B) Low inflation
C) Low investment
D) Low population

Answer: C

Explanation: A relatively low level of income per capita in a country is typically associated with low investment. Low income leads to low savings and, consequently, low investment. Options A, B, and D are not directly related to income per capita.

25. Question: Which policy measure would be most likely to reduce a developing economy’s birth rate and its household saving ratio?

A) An increase in student tuition fees
B) A relaxation of immigration controls
C) The introduction of a basic state pension
D) The removal of tariffs on imported foodstuffs

Answer: C

Explanation: The introduction of a basic state pension is likely to reduce the birth rate and increase the household saving ratio. Future financial security provided by the pension can lead to lower birth rates, and state pensions require contributions, which can increase household saving. Options A, B, and D are not directly related to the birth rate or saving ratio.

26. Question: On a diagram showing a production possibility curve, what definitely represents long-run economic growth?

A) A change in the slope of the curve
B) A movement from a point below the frontier to a point on the curve
C) A movement from one point to another along a given curve
D) An outward shift of the curve

Answer: D

Explanation: An outward shift of the production possibility curve represents long-run economic growth, as it signifies an increase in an economy's potential to produce more goods and services over time. Options A, B, and C are not necessarily indicative of long-run economic growth.