#1
What does the term 'macroeconomic equilibrium' refer to?
A state where aggregate demand equals aggregate supply
ExplanationBalanced state of economy with no surplus or shortage of goods/services.
#2
Which of the following is NOT a component of aggregate expenditure?
Trade surplus
ExplanationTrade surplus isn't part of total spending, unlike consumption, investment, gov. spending, and net exports.
#3
In the Keynesian model, what could cause a recessionary gap?
Aggregate supply exceeds aggregate demand
ExplanationSupply surpassing demand leads to reduced production, income, and employment.
#4
Which of the following is a characteristic of a situation of full employment in the economy?
All of the above
ExplanationFull employment implies maximum output, no cyclical unemployment, and resources fully utilized.
#5
What is the role of the marginal propensity to consume (MPC) in determining the multiplier effect?
Higher MPC leads to a larger multiplier effect
ExplanationMore spending from each additional dollar earned increases overall impact.
#6
What happens in the Keynesian cross diagram if planned aggregate expenditure exceeds actual aggregate expenditure?
There is a recessionary gap
ExplanationShortfall in actual spending compared to planned leads to economic slowdown.
#7
What is the primary tool used by central banks to influence the money supply?
Open market operations
ExplanationBuying/selling gov. securities to alter the money supply, affecting interest rates.
#8
What is the effect of an increase in government spending on the equilibrium level of income and output in the Keynesian model?
It increases equilibrium income and output
ExplanationGovernment spending boost injects more demand, lifting overall economic activity.
#9
Which of the following is true regarding the relationship between inflation and the Phillips curve?
There is a negative relationship between inflation and unemployment
ExplanationAs inflation rises, unemployment tends to fall, and vice versa.
#10
In the IS-LM model, what does the LM curve represent?
Equilibrium in the money market
ExplanationShows combinations of interest rates and income where money demand equals money supply.
#11
What is the significance of the natural rate of unemployment in the long run Phillips curve?
It represents the level of unemployment at which inflation is stable
ExplanationAt this rate, inflation is neither accelerating nor decelerating, maintaining a stable price level.
#12
What is the impact of an increase in the marginal propensity to save (MPS) on the multiplier effect?
It decreases the multiplier effect
ExplanationMore saving means less spending, reducing the overall expansionary impact.