#1
What does the term 'macroeconomic equilibrium' refer to?
A situation where the aggregate demand equals aggregate supply in an economy
ExplanationBalanced state where demand matches supply.
#2
Which of the following is NOT a component of aggregate demand?
Imports
ExplanationImported goods are not part of the total demand.
#3
What is the primary objective of fiscal policy?
To achieve full employment
ExplanationGovernment efforts for optimal job levels.
#4
Which of the following is a tool of expansionary fiscal policy?
Tax cuts
ExplanationReducing taxes to stimulate spending.
#5
What is the term used to describe a situation where there is a sustained increase in the general price level of goods and services in an economy?
Inflation
ExplanationPersistent rise in overall prices.
#6
What happens in the short run if an economy is operating above its full employment level of output?
Inflation increases due to excess demand
ExplanationOvercapacity leads to price hikes.
#7
In the AD-AS model, what happens to the equilibrium price level and real output if there is an increase in aggregate demand?
Price level increases, real output remains unchanged
ExplanationPrices rise without affecting output.
#8
What does the term 'sticky wages' refer to in macroeconomics?
A condition where wages remain unchanged despite changes in the price level
ExplanationWage rigidity despite economic changes.
#9
Which of the following is an example of an automatic stabilizer in the economy?
Unemployment benefits
ExplanationPrograms that counter economic fluctuations.
#10
According to the Phillips curve, what is the relationship between inflation and unemployment?
There is a negative relationship
ExplanationInverse correlation between price levels and joblessness.
#11
What is the significance of the natural rate of unemployment in macroeconomics?
It indicates the level of unemployment when the economy is at full employment
ExplanationBaseline unemployment under full employment conditions.
#12
Which of the following is a key component of the monetary policy transmission mechanism?
Interest rate changes
ExplanationManipulating lending rates to influence economy.
#13
What is the primary mechanism through which the economy self-regulates in the long run according to classical economists?
Price flexibility and market forces
ExplanationPrices adjust naturally through market mechanisms.
#14
What is the concept of the 'liquidity trap' in macroeconomics?
A situation where interest rates are very low, and saving is not responsive to changes in interest rates
ExplanationEconomic stagnation despite low interest rates.
#15
How does the crowding-out effect impact private investment when the government increases its borrowing to finance a budget deficit?
Private investment decreases due to higher interest rates
ExplanationGovernment borrowing reducing private sector funds.
#16
In the context of the IS-LM model, what does the LM curve represent?
The relationship between the money market and interest rates
ExplanationInteraction between money supply and interest rates.
#17
What is the effect of an increase in government purchases on the IS-LM model?
Shifts the IS curve to the right
ExplanationGovernment spending boost affecting demand.
#18
According to the Mundell-Fleming model, what happens to the exchange rate when a country implements expansionary fiscal policy?
The exchange rate depreciates
ExplanationDomestic currency loses value on global markets.
#19
What is the long-run effect of an increase in the money supply according to the quantity theory of money?
It results in a proportional increase in the price level
ExplanationMoney expansion leading to inflation over time.