#1
Which of the following is a component of aggregate demand (AD)?
Government spending
ExplanationGovernment spending is one of the components of aggregate demand (AD) alongside consumption, investment, and net exports.
#2
What is the primary tool used by central banks to influence the money supply?
Monetary policy
ExplanationMonetary policy refers to central banks' actions to control the money supply, interest rates, and credit conditions.
#3
What is the term for the situation in which the economy's output is equal to its potential output?
Full employment equilibrium
ExplanationFull employment equilibrium occurs when the economy is producing at its potential output level, with no cyclical unemployment.
#4
What is the name of the market where final goods and services are bought and sold?
Product market
ExplanationThe product market is where final goods and services are exchanged between producers and consumers.
#5
What does the term 'ceteris paribus' mean in economics?
All other things being equal
ExplanationCeteris paribus is a Latin phrase meaning 'all other things being equal' and is used in economics to isolate the effect of one variable while holding all others constant.
#6
Which of the following is not a determinant of aggregate demand (AD)?
Technology
ExplanationTechnology is a determinant of aggregate supply, not aggregate demand.
#7
What is the name of the measure that represents the total value of all final goods and services produced within a country's borders in a specific time period?
Gross Domestic Product (GDP)
ExplanationGross Domestic Product (GDP) measures the total value of all final goods and services produced within a country's borders in a specific time period.
#8
What happens when planned investment exceeds planned saving in the economy?
The economy experiences inflation
ExplanationWhen planned investment exceeds planned saving, it increases aggregate demand, potentially leading to demand-pull inflation.
#9
In the aggregate demand-aggregate supply (AD-AS) model, what happens to the price level and real output in the short run if aggregate demand increases?
Price level increases, real output increases
ExplanationIn the short run, an increase in aggregate demand leads to both higher prices (inflation) and increased real output, reflecting the upward-sloping short-run aggregate supply curve.
#10
What is the formula for the marginal propensity to consume (MPC)?
Change in consumption / Change in income
ExplanationThe marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in income.
#11
Which of the following is a measure of income inequality?
Gini coefficient
ExplanationThe Gini coefficient is a statistical measure of income inequality within a population, where 0 represents perfect equality and 1 represents perfect inequality.
#12
Which of the following is not a tool of fiscal policy?
Open market operations
ExplanationOpen market operations are a tool of monetary policy used by central banks, not fiscal policy.
#13
Which of the following is considered an automatic stabilizer in fiscal policy?
Unemployment insurance
ExplanationUnemployment insurance is an automatic stabilizer in fiscal policy because it provides income support to individuals during economic downturns, reducing the impact of recessions.
#14
What effect does an increase in the reserve requirement have on the money supply?
It decreases the money supply
ExplanationAn increase in the reserve requirement reduces the amount of money banks can lend out, thereby decreasing the money supply.
#15
According to the Phillips curve, what is the relationship between inflation and unemployment?
There is a positive relationship
ExplanationThe Phillips curve suggests a trade-off between inflation and unemployment in the short run, meaning as unemployment decreases, inflation tends to rise.