Macroeconomic Theories and Concepts Quiz

GDP is the total value of all goods and services produced in a country.

Ceteris Paribus assumes that all relevant variables except the ones under consideration are constant.

Fiscal policy involves government decisions on taxation and spending to influence the economy.

Monetary policy involves actions by central banks to control money supply and interest rates.

The business cycle typically consists of phases, with an expansion following a recession.

A Trade Surplus occurs when a country exports more goods and services than it imports.

Inflation is the rise in the overall price level, leading to a decrease in the purchasing power of a currency.

Imports are part of Aggregate Demand (AD); the correct answer would be excluded components like government spending.

The Phillips Curve depicts the inverse relationship between inflation and unemployment in an economy.

Central banks use open market operations to control the money supply and influence interest rates.

Fiscal policy aims to stabilize the economy, including maintaining employment levels.

The Laffer Curve illustrates the relationship between tax rates and government revenue, suggesting an optimal tax rate for maximum revenue.

Keynesian theory suggests that government should boost spending during a recession to stimulate demand and economic activity.

The Quantity Theory of Money posits a direct link between the money supply and the general price level.

Crowding Out occurs when increased government spending reduces private sector investment.

Classical economics emphasizes supply-side policies and believes in the self-regulating nature of markets.

The Multiplier Effect amplifies changes in expenditure, causing a greater impact on national income.

A Liquidity Trap occurs when interest rates are very low, limiting the effectiveness of monetary policy.