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 [J13/P3/Q25]

Answer C


Long-run growth is described as an economy's ability to create more products and services over time. Long term growth can be achieved by technical innovation leading to an increase in the potential of the economy. Option B suggests short term growth while A & D are irrelevant









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 [J13/P3/Q27]

Answer C

Higher interest rates increase the cost of borrowing, reduce disposable income and therefore limit the growth in consumer spending. Higher interest rates tend to reduce inflationary pressures and cause an appreciation in the exchange rate.









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 amongst the labour force
C high ratios of saving to GNP
D restrictions on inward foreign investment

Answer C

GNP measures the goods and services produced by only residents, both domestically and abroad. High saving ratio provides funds for investment - a main determinant of long term growth. All other options are likely to reduce it.









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 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. [J14/P3/Q23]

Answer D

“Human capital” is a term that refers to the people or the workforce who are available for various jobs. Workers who are unemployed for a certain period become less skilled as their skills become increasingly out dated








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 [J14/P3/Q25]

Answer C

Generally productivity of workers is higher in manufacturing rather than agricultural sector.











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 Labour productivity has increased.
C Population of working age has fallen
D There has been an increase in the rate of inflation.

Answer B

Higher output by employing fewer workers suggests an increase in labour productivity
















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 labour [J16/P3/Q22]

Answer B

Economic growth means an increase in real national income / national output. Economic development means an improvement in the quality of life and living standards, e.g. measures of literacy, life-expectancy and health care.
It increases productivity therefore causes growth also it improves quality of life therefore contributes to the development.












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 [J17/P3/Q20]

Answer C

Low income leads to low savings and hence low investment.












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 [NI7/P3/Q30]

Answer C

Future financial security will help reduce birth rate while state pension requires employees' contribution. It therefore acts as increase in compulsory savings. Option A might reduce birth rale but it reduces savings as well while B & D are irrelevant
















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 [N18/P3/Q19]

Answer D

Long run growth is achieved by increasing the potential that shifts the country's PPC outward.