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surplus or deficit on the current 
account
. 
 
 
 
 
 
CHAPTER ROUNDUP 
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PART A: THE BUSINESS ORGANISATION, ITS STAKEHOLDERS AND THE EXTERNAL ENVIRONMENT 
 
82
 
 
1
Government policy on taxation, public borrowing and public spending is: 
A 
Monetary policy 
B 
Fiscal policy 
2
A government can increase demand by using fiscal policy. 
True 
False 
3
A tax which takes a higher proportion of a poor person's salary than of a rich person's is: 
A Proportional 
tax C Progressive 
tax 
B 
Regressive tax 
D 
Indirect tax 
4
High rates of personal income tax are thought to have a disincentive effect. This refers to the likelihood 
that the high rates of tax will: 
A 
Encourage illegal tax evasion by individuals 
B 
Lead to a reduction in the supply of labour 
C 
Lead to a reduction in savings by individuals 
D Discourage 
company 
investment 
5
The government of a certain country decides to introduce a poll tax, which will involve a flat rate levy of 
$200 on every adult member of the population. This new tax could be described as: 
A Regressive 
C Progressive 
B Proportional 
D 
Ad valorem
6
Which of the following will 
not
be the immediate purpose of a tax measure by the Government? 
A 
To discourage an activity regarded as socially undesirable 
B 
To influence interest rates 
C 
To protect a domestic industry from foreign competition 
D 
To price certain products so as to take into account their social cost 
7
Which of the following government aims might be achieved by means of fiscal policy? 1. A redistribution 
of income between firms and households. 2. A reduction in aggregate monetary demand. 3. A change in 
the pattern of consumer demand. 
A 
Objectives 1 and 2 only 
C 
Objectives 2 and 3 only 
B 
Objectives 1 and 3 only 
D 
Objectives 1, 2 and 3 
8
Other things remaining the same, an increase in the money supply will tend to reduce: 
A 
Interest rates 
C 
The volume of bank overdrafts 
B 
Liquidity preference 
D 
Prices and incomes 
9
Injections into the economy are: 
A 
Consumption and Investment 
B 
Investment and Government Expenditure 
C 
Investment, Government Expenditure and Export Demand 
D 
Consumption, Investment, Government Expenditure and Export Demand 
10
A deflationary gap occurs when: 
A 
Aggregate demand is insufficient to buy up all the goods and services the company is capable of 
producing. 
B 
Aggregate demand is more than sufficient to buy up all the goods and services produced by an 
economy. 
C 
A government attempts to spend its way out of recession. 
D 
A government is cutting its level of expenditure.