#1
What is the formula for calculating GDP (Gross Domestic Product)?
GDP = C + I + G + NX
ExplanationGDP is the sum of consumption, investment, government spending, and net exports.
#2
Which of the following is NOT a component of Aggregate Demand (AD)?
Net Exports (NX)
ExplanationNet exports are not directly part of aggregate demand, which includes consumption, investment, and government spending.
#3
What happens to the equilibrium level of real GDP if autonomous consumption decreases?
Equilibrium level of real GDP decreases
ExplanationAutonomous consumption is independent of income and a decrease in it leads to a lower equilibrium GDP.
#4
Which of the following is a policy tool used by the Federal Reserve to stabilize the economy?
Monetary Policy
ExplanationThe Federal Reserve uses monetary policy to regulate the money supply and interest rates to influence economic activity.
#5
What is the Phillips curve relationship?
Inverse relationship between inflation and unemployment
ExplanationThe Phillips curve illustrates an inverse relationship between inflation and unemployment.
#6
Which of the following best describes the concept of the natural rate of unemployment?
The level of unemployment that exists when the economy is operating at full employment
ExplanationThe natural rate of unemployment is the level that exists when the economy is at full employment, with no cyclical unemployment.
#7
What is the role of the government in an economy during a recession according to Keynesian economics?
Decrease taxes and increase government spending
ExplanationKeynesian economics suggests that during a recession, the government should lower taxes and boost spending to stimulate demand.
#8
According to the Keynesian perspective, what happens when there is an increase in aggregate demand in the short run?
Prices and output both rise
ExplanationIn the short run, an increase in aggregate demand leads to higher prices and output according to Keynesian economics.
#9
In the IS-LM model, what does the LM curve represent?
Equilibrium in the money market
ExplanationThe LM curve shows combinations of interest rates and levels of income at which the money market is in equilibrium.
#10
What is the crowding-out effect in macroeconomics?
The decrease in private investment due to government borrowing
ExplanationCrowding out occurs when increased government borrowing leads to higher interest rates, reducing private investment.
#11
What does the term 'stagflation' refer to in economics?
A situation of high inflation and high unemployment
ExplanationStagflation is characterized by simultaneous high inflation and high unemployment rates.