Chapter 18 macroeconomics (f1 acca)

Chapter 18 – Macroeconomics: Practice Exam Questions and Answers with

Explanations

August 11, 2025

1 Questions

1 If a country’s currency strengthens with respect to that of a country to which it trades, will its exports be stimulated or weakened?

A Exports will be weakened

B Exports will be stimulated

2 Enter the term that is missing from the following sentence: John is tem-porarily unemployed as he moves from one job to another John is suffer-ing from unemployment

A Structural

B Frictional

C Cyclical

D Seasonal

3 An ad valorem tax is a fixed charge per unit of a product and is not related

to the product’s value

A True

B False

4 To which THREE of the following are the main tools of fiscal policy? (Select three)

A Interest rates

B Money supply

C Tax

D Government spending

E Government borrowing

F Government lending

5 A tax which is charged at 10% on the cost of domestic heating and which is collected by being added to all heating bills would be:

A A proportional tax

B A progressive tax

C A direct tax

D A regressive tax

6 Which of the following would not be a cause of inflation?

A Import costs

B Expectations

C High unemployment

D Demand-pull

E Cost-push

F An increase in the money supply

7 The branch of economics that deals with matters such as employment, ex-change rates, economic growth, etc is known as:

A Multi-economics

B Mega-economics

C Micro-economics

D Macro-economics

8 A strong currency makes imports:

A More expensive

B Less expensive

C Unchanged in price

D Prohibited

9 Frictional unemployment is typically:

A Long-term and structural

B Short-term and transitional

C Caused by economic downturns

D Due to seasonal fluctuations

10 Fiscal policy is primarily used to:

A Control money supply

B Influence economic activity through government spending and tax-ation

C Set interest rates

D Regulate international trade

11 An ad valorem tax is based on:

A A fixed amount per unit

B The value of the product

C Income levels

D Production costs

12 Demand-pull inflation occurs when:

A Production costs increase

B Aggregate demand exceeds supply

C Money supply decreases

D Unemployment rises

13 Macroeconomics focuses on:

A Individual markets and firms

B The economy as a whole

C Specific industries

D Consumer behavior only

14 A progressive tax takes a higher percentage from higher income earners

A True

B False

15 Cost-push inflation is caused by:

A Increased consumer demand

B Rising production costs

C Reduced government spending

D Lower interest rates

16 Government borrowing is a tool of monetary policy

A True

B False

17 A regressive tax impacts lower-income earners more heavily

A True

B False

18 Cyclical unemployment is caused by:

A Seasonal changes

B Economic downturns

C Job transitions

D Skill mismatches

19 Monetary policy primarily involves:

A Government spending and taxation

B Interest rates and money supply

D Labor market regulations

20 A proportional tax applies the same rate regardless of income

A True

B False

21 Inflation expectations can:

A Reduce inflation

B Contribute to inflation

C Have no effect on inflation

D Stabilize prices

22 A strong currency can lead to a trade deficit by:

A Increasing exports

B Reducing exports and increasing imports

C Stabilizing trade balances

D Reducing both exports and imports

23 Structural unemployment results from:

A Temporary job transitions

B Mismatches in skills or location

C Economic recessions

D Seasonal work patterns

24 Fiscal policy can stimulate economic growth by:

A Reducing government spending

B Increasing government spending

C Raising interest rates

D Decreasing money supply

• An increase in the money supply can lead to:

A Deflation

B Inflation

C Stable prices

D Reduced demand

• A direct tax is levied on:

A Goods and services

B Income or wealth

C Imports

D Business transactions

• High unemployment typically reduces inflationary pressure

A True

B False

• Macroeconomics includes the study of:

A Individual consumer choices

B National unemployment rates

C Firm-level pricing strategies

D Specific market competition

• A regressive tax takes a higher percentage from lower income earn-ers

A True

B False

• Which of the following is a tool of monetary policy?

A Government spending

B Interest rates

D Government borrowing

2 Answers and Explanations

(a) Answer: A (Exports will be weakened)

Explanation: A stronger currency makes a country’s exports more

ex-pensive for foreign buyers, reducing demand and weakening exports Imports, however, become cheaper

(b) Answer: B (Frictional)

Explanation: Frictional unemployment occurs when individuals are

temporarily unemployed while transitioning between jobs, as in John’s case Structural unemployment involves skill mismatches, cyclical is due to economic downturns, and seasonal relates to periodic work pat-terns

(c) Answer: B (False)

Explanation: An ad valorem tax is based on the value of a product

(e.g., a percentage of the price), not a fixed charge per unit, which is a specific tax

(d) Answer: C, D, E (Tax, Government spending, Government

borrow-ing)

Explanation: Fiscal policy involves government spending, taxation,

and borrowing to influence the economy Interest rates and money supply are tools of monetary policy, and government lending is not a primary fiscal tool

(e) Answer: A (A proportional tax)

Explanation: A tax charged at a fixed rate (10%) on the cost of

do-mestic heating is a proportional tax, as it applies the same percentage regardless of income Progressive taxes increase with income, regres-sive taxes burden lower incomes more, and direct taxes are levied on income or wealth

(f) Answer: C (High unemployment)

Explanation: High unemployment typically reduces inflationary

pres-sure by lowering demand Import costs, expectations, demand-pull, cost-push, and increased money supply can all contribute to inflation

(g) Answer: D (Macro-economics)

Explanation: Macroeconomics studies the economy as a whole,

in-cluding employment, exchange rates, and economic growth Micro-economics focuses on individual markets and firms

(h) Answer: B (Less expensive)

Explanation: A strong currency reduces the cost of imports, as foreign

goods require fewer units of the domestic currency to purchase

(i) Answer: B (Short-term and transitional)

Explanation: Frictional unemployment is short-term, occurring

dur-ing job transitions, unlike structural (long-term skill mismatches) or cyclical (economic downturns)

(j) Answer: B (Influence economic activity through government

spend-ing and taxation)

Explanation: Fiscal policy uses government spending and taxation to

influence economic activity, unlike monetary policy, which controls interest rates and money supply

(k) Answer: B (The value of the product)

Explanation: An ad valorem tax is calculated as a percentage of the

product’s value, such as sales tax or VAT, unlike a specific tax, which is

a fixed amount per unit

(l) Answer: B (Aggregate demand exceeds supply)

Explanation: Demand-pull inflation occurs when aggregate demand

outpaces supply, driving up prices, unlike cost-push inflation, which stems from rising production costs

(m) Answer: B (The economy as a whole)

Explanation: Macroeconomics examines broad economic aggregates

like national income, employment, and growth, unlike microeconomics, which focuses on individual markets

(n) Answer: A (True)

Explanation: A progressive tax takes a higher percentage from higher

income earners, increasing the tax rate as income rises

(o) Answer: B (Rising production costs)

Explanation: Cost-push inflation occurs when rising production costs

(e.g., wages, raw materials) increase prices, unlike demand-pull, which

is driven by consumer demand

(p) Answer: B (False)

Explanation: Government borrowing is a tool of fiscal policy, not

mon-etary policy, which focuses on interest rates and money supply

(q) Answer: A (True)

Explanation: A regressive tax impacts lower-income earners more

heavily, as it takes a larger share of their income compared to higher earners

(r) Answer: B (Economic downturns)

Explanation: Cyclical unemployment is caused by economic

down-turns or recessions, reducing labor demand, unlike frictional (job tran-sitions) or structural (skill mismatches)

(s) Answer: B (Interest rates and money supply)

Explanation: Monetary policy involves managing interest rates and

money supply to control inflation and economic stability, unlike fiscal policy, which uses spending and taxation

(t) Answer: A (True)

Explanation: A proportional tax applies the same rate to all income

levels, such as a flat-rate sales tax

(u) Answer: B (Contribute to inflation)

Explanation: Inflation expectations can drive inflation, as businesses

and consumers adjust prices and wages anticipating higher costs

(v) Answer: B (Reducing exports and increasing imports)

Explanation: A strong currency reduces exports (more expensive for

foreign buyers) and increases imports (cheaper for domestic buyers), potentially leading to a trade deficit

(w) Answer: B (Mismatches in skills or location)

Explanation: Structural unemployment results from mismatches in

skills or geographic location, unlike frictional (transitional) or cyclical (economic downturns)

(x) Answer: B (Increasing government spending)

Explanation: Fiscal policy can stimulate growth by increasing

govern-ment spending, boosting demand, unlike reducing spending or raising interest rates

(y) Answer: B (Inflation)

Explanation: An increase in the money supply can lead to inflation by

increasing demand or devaluing the currency, not deflation or stable prices

(z) Answer: B (Income or wealth)

Explanation: A direct tax is levied on income or wealth (e.g., income

tax), unlike indirect taxes, which are applied to goods and services

() Answer: A (True)

Explanation: High unemployment reduces demand, lowering

infla-tionary pressure, as consumers have less purchasing power

() Answer: B (National unemployment rates)

Explanation: Macroeconomics studies aggregates like national

unem-ployment rates, unlike microeconomics, which focuses on individual markets or firms

() Answer: A (True)

Explanation: A regressive tax takes a higher percentage of income

from lower earners, disproportionately affecting them

() Answer: B (Interest rates)

Explanation: Interest rates are a key tool of monetary policy,

man-aged by central banks to influence economic activity, unlike fiscal tools like spending or taxation