#1
What is meant by macroeconomic equilibrium?
When aggregate demand equals aggregate supply
ExplanationEquilibrium is achieved when the total demand for goods and services in an economy matches the total supply.
#2
Which of the following is a tool of expansionary monetary policy?
Decreasing interest rates
ExplanationLowering interest rates is a common strategy in expansionary monetary policy to encourage borrowing and spending.
#3
Which of the following is an example of a contractionary fiscal policy measure?
Increasing taxes on consumers
ExplanationRaising taxes on consumers is a contractionary fiscal policy action, intended to reduce overall spending and curb inflationary pressures.
#4
Which of the following is NOT a component of aggregate demand?
Exports
ExplanationAggregate demand includes consumption, investment, government spending, and net exports, with exports being a separate category.
#5
What is the primary goal of contractionary monetary policy?
Controlling inflation
ExplanationContractionary monetary policy aims to reduce inflationary pressures by decreasing the money supply and raising interest rates.
#6
What is the primary tool of expansionary fiscal policy?
Increasing government spending
ExplanationExpansionary fiscal policy involves boosting economic activity by raising government spending.
#7
Which of the following is a goal of monetary policy?
Minimizing inflation
ExplanationMonetary policy aims to maintain price stability by minimizing inflation and supporting overall economic stability.
#8
In the AS-AD model, a decrease in aggregate demand will result in:
Lower output and lower price level
ExplanationA decline in aggregate demand leads to reduced production (output) and a decrease in the overall price level.
#9
Which of the following is an automatic stabilizer in fiscal policy?
Unemployment benefits
ExplanationUnemployment benefits automatically increase during economic downturns, providing income support and stabilizing the economy.
#10
What is the formula for calculating the GDP deflator?
Nominal GDP / Real GDP
ExplanationThe GDP deflator is the ratio of nominal GDP to real GDP, providing a measure of overall price level changes in the economy.
#11
Which of the following is a goal of supply-side economics?
Reducing government intervention
ExplanationSupply-side economics aims to boost economic growth by reducing government interference and promoting free-market policies.
#12
What does the term 'stagflation' refer to in macroeconomics?
High inflation coupled with high unemployment
ExplanationStagflation is an economic condition characterized by simultaneous high inflation rates and high levels of unemployment.
#13
What is the formula for the unemployment rate?
(Unemployed / Labor Force) * 100
ExplanationThe unemployment rate is calculated by dividing the number of unemployed individuals by the labor force and multiplying the result by 100.
#14
What is the difference between fiscal policy and monetary policy?
Fiscal policy involves changes in government spending and taxation, while monetary policy involves changes in the money supply and interest rates.
ExplanationFiscal policy focuses on government spending and taxation, while monetary policy deals with controlling the money supply and interest rates.
#15
According to the Phillips curve, if policymakers want to decrease unemployment, they should:
Increase inflation expectations
ExplanationHigher inflation expectations can lead to lower unemployment, as people anticipate rising prices and accept lower real wages.
#16
What does the Laffer curve depict?
The relationship between tax rates and government revenue
ExplanationThe Laffer curve illustrates the concept that there is an optimal tax rate maximizing government revenue, beyond which higher rates lead to lower revenue.
#17
What is the Crowding Out effect in economics?
An increase in government spending leads to a decrease in private investment
ExplanationCrowding out occurs when elevated government spending reduces funds available for private investment, potentially hindering overall economic growth.
#18
In the context of monetary policy, what does 'open market operations' refer to?
Buying and selling of government securities by central banks
ExplanationOpen market operations involve central banks trading government securities to influence the money supply and interest rates.
#19
What is the concept of the 'liquidity trap' in economics?
A situation where interest rates are low, leading to hoarding of money instead of spending or investing.
ExplanationIn a liquidity trap, low interest rates fail to stimulate economic activity as individuals prefer holding cash rather than investing or spending.
#20
What is the concept of 'crowding in' in the context of fiscal policy?
An increase in government spending leads to an increase in private investment.
ExplanationCrowding in occurs when elevated government spending encourages additional private sector investment, stimulating overall economic growth.