GCE A-Level - Higher 2 (H2) · Economics (9570)

Macroeconomic Policies: Practice Questions

5 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on Macroeconomic Policies.

10 questions29 marksFree, no account

Question 1

1 mark

In a small and open economy like Singapore, which of the following best explains why exchange rate management is a more effective tool for achieving price stability compared to interest rate management?

Question 2

1 mark

A government increases expenditure on vocational training and lifelong learning credits. Which of the following best explains how this supply-side policy improves the long-term trade-off between inflation and unemployment?

Question 3

1 mark

Which of the following best distinguishes between automatic stabilizers and discretionary fiscal policy?

Question 4

1 mark

In the context of Singapore's managed float exchange rate regime, why does the Monetary Authority of Singapore (MAS) utilize the exchange rate rather than domestic interest rates as its primary instrument for price stability?

Question 5

1 mark

A country experiences a simultaneous increase in the prices of imported raw materials and a decline in consumer confidence. Which combination of policies would be most appropriate to address both the resulting cost-push inflation and the risk of a recession?

Question 6

3 marks

Explain how a modest and gradual appreciation of the Singapore dollar acts as a policy tool to maintain price stability when global commodity prices rise.

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Question 7

5 marks

Explain the process of crowding-out and its impact on the effectiveness of discretionary fiscal policy when the government finances its deficit through domestic borrowing.

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Question 8

3 marks

Describe the mechanism through which an increase in the central bank's policy interest rate is intended to curb demand-pull inflation in a closed economy.

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Question 9

5 marks

In an economy experiencing high demand-deficient unemployment and sluggish growth, the government decides to implement a combination of expansionary fiscal policy and interest-rate based monetary policy.

(a) Using the Aggregate Demand and Aggregate Supply (AD-AS) framework, explain how these policies are intended to achieve the objective of full employment.

(b) Discuss the likely impact of these policies on the general price level if the economy is operating near its full employment level of output.

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Question 10

8 marks

An economy is currently experiencing a period of low actual economic growth and a rising unemployment rate. In response, the government is considering the implementation of an expansionary fiscal policy. However, the central bank expresses concerns regarding the potential impact on the country's long-term price stability and its exchange rate.

(a) Explain how the use of expansionary fiscal policy is intended to stimulate actual economic growth and reduce unemployment in an economy. [4]

(b) Discuss the view that the effectiveness of fiscal policy in achieving these objectives is limited in a small and open economy, such as Singapore, compared to a large and relatively closed economy. [4]

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