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Answers to supplementary objective test questions

4.7 A
A world recession is likely to have a direct impact on aggregate demand.
Falling output will lead to lower income and higher unemployment, along with a
reduction in consumption and investment, both components of aggregate
demand. In a world recession exports will also suffer. All of these would lead to
a leftward shift in a country's macroeconomic demand schedule (aggregate
demand curve). In the short term there would be a contraction on the
aggregate supply curve but it would not initially shift.

4.8 B

This was caused by changes in the structure of industry.

4.9 D

A and C are seasonal unemployment, B is structural.

4.10 C

This is a supply side issue, so reductions in income tax would increase the
incentive to work

4.11 B

If the government wants to avoid recession, it should lower interest rates to
encourage investment and lower the reserve asset ratio to give banks more
liquidity.

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