#1
What is the primary component of aggregate demand in macroeconomics?
Consumption
ExplanationConsumption forms the largest part of aggregate demand, reflecting household spending.
#2
Which of the following is considered an autonomous component of aggregate demand?
Government spending
ExplanationGovernment spending is considered autonomous as it's not directly tied to income or output levels.
#3
What does the multiplier effect refer to in the context of aggregate demand?
The amplification of initial changes in spending through the economy
ExplanationThe multiplier effect describes how an initial change in spending leads to magnified effects on overall economic activity.
#4
In the AD-AS model, what is the impact of an increase in aggregate demand on the price level and real output in the short run?
Price level and real output both increase
ExplanationIn the short run, an increase in aggregate demand leads to higher prices and increased output.
#5
What is the formula for calculating the expenditure multiplier in macroeconomics?
Multiplier = 1 / (1 - MPC)
ExplanationThe expenditure multiplier formula calculates the total impact of an initial change in spending.
#6
Which of the following is a component of net exports in the aggregate demand equation?
Both exports and imports
ExplanationNet exports consider the difference between a country's exports and imports, affecting aggregate demand.
#7
What is the relationship between the real interest rate and investment in the context of aggregate demand?
As the real interest rate decreases, investment increases
ExplanationLower real interest rates encourage borrowing for investment, stimulating aggregate demand.
#8
How does an increase in the exchange rate affect net exports and aggregate demand?
Decrease in net exports, decrease in aggregate demand
ExplanationA higher exchange rate makes exports more expensive, reducing net exports and thus, aggregate demand.
#9
Which government policy tool is most directly related to influencing aggregate demand?
Fiscal policy
ExplanationFiscal policy involves government actions related to taxation and spending aimed at influencing aggregate demand.
#10
What does the Phillips Curve illustrate in the context of macroeconomics?
The relationship between inflation and unemployment
ExplanationThe Phillips Curve shows the inverse relationship between unemployment and inflation rates.
#11
According to classical economics, what is the long-run impact of changes in aggregate demand on the economy?
No impact on output or employment
ExplanationClassical economics suggests that in the long run, changes in aggregate demand do not affect output or employment levels.
#12
What is the role of the central bank in implementing monetary policy to influence aggregate demand?
Set interest rates and manage money supply
ExplanationThe central bank adjusts interest rates and controls the money supply to influence borrowing, spending, and ultimately, aggregate demand.
#13
What is the role of the government budget deficit in influencing aggregate demand?
A government budget deficit increases aggregate demand
ExplanationGovernment deficits inject additional funds into the economy, boosting aggregate demand.
#14
What is the significance of the natural rate of unemployment in macroeconomic analysis?
It indicates the level of unemployment when the economy is at potential output
ExplanationThe natural rate of unemployment represents the level of unemployment when the economy is operating at its potential output.