2023/24 opposite questions

Question 1

Which of the following is true for the IS/LM model?
a. Prices are flexible and adjust quickly.
b. Goods and money markets operate independently.
c. Interest rates are influenced by investment.
d. It is a Keynesian demand-side model.

Answer 1

d. It is a Keynesian demand-side model.

Question 2

Which of the following statements is true about Gross National Product (GNP)?

a. GNP measures the total value of goods and services produced within a country’s borders, regardless of who produces them.
b. GNP includes the value of goods and services produced by a country’s residents, both domestically and abroad.
c. GNP is a stock concept, measuring the total value of economic activity at a specific point in time.
d. GNP excludes the income earned by residents from abroad and focuses only on domestic production.

Answer 2

b. GNP includes the value of goods and services produced by a country’s residents, both domestically and abroad.

Question 3

Which of the following is not true about the treatment of transfer payments in Aggregate Expenditure?

a. They are included in Government Spending (G).
b. They are considered part of Consumption (C).
c. They do not directly contribute to GDP.
d. They are not included in Investment (I).

Answer 3

b. They are considered part of Consumption (C).

Question 4

In the IS/LM/BP model, which of the following is possible to attain simultaneously?

a. Effective monetary policy and a flexible exchange rate
b. A fixed exchange rate, perfect capital mobility, and an independent monetary policy
c. A fixed exchange rate and effective fiscal policy
d. Internal and external balances

Answer 4

a. Effective monetary policy and a flexible exchange rate

Question 5

Which of the following pairs are not examples of automatic stabilizers?

a. Interest rates and exchange rates
b. Saving and investment
c. Taxes and welfare payments
d. Prices and output

Answer 5

a. Interest rates and exchange rates

Question 6

Which pair below are not examples of automatic stabilizers?
a. Interest rates and exchange rates
b. Saving and investment
c. Taxes and welfare payments
d. Prices and output

Answer 6

a. Interest rates and exchange rates

Question 7

In the AD/AS model, the aggregate demand curve is positively sloped because of:
a. The interest rate effect, the Pigou effect, and the real balance effect
b. The real balance effect, the interest rate effect, and the wealth effect
c. The Pigou effect, the real balance effect, and the wealth effect
d. The real balance effect, the interest rate effect, and the international trade effect

Answer 7

d. The real balance effect, the interest rate effect, and the international trade effect

Question 8

In the simple Keynesian model of income determination, investment is:
a. A stock concept and is volatile
b. A function of income and fluctuates with interest rates
c. The buying and selling of stocks and shares
d. Additions to the capital stock and is volatile

Answer 8

d. Additions to the capital stock and is volatile

Question 9

Using the IS/LM model, a monetary policy contraction:
a. Is less effective, the smaller the sensitivity of money demand to changes in the interest rate
b. Is less effective, the flatter the IS curve
c. Shifts the LM curve to the left, lowering interest rates and increasing national output
d. Shifts the LM curve to the right, raising interest rates and reducing national output

Answer 9

d. Shifts the LM curve to the right, raising interest rates and reducing national output

Question 10

Assuming we combine contractionary fiscal policy with expansionary monetary policy, the result of this policy mix is:
a. Higher interest rates and an indeterminate level of output
b. Lower interest rates and lower output
c. Higher interest rates and higher output
d. Lower interest rates and an indeterminate level of output

Answer 10

a. Higher interest rates and an indeterminate level of output

Question 11

The slope of the AS curve does not reflect:
a. The real balance effect, the interest rate effect, and the wealth effect
b. The goods, money, and foreign exchange markets equilibrium
c. Short-run versus long-run, wage flexibility, Classical versus Keynesian
d. The stance of fiscal, monetary, and exchange rate policies

Answer 11

a. The real balance effect, the interest rate effect, and the wealth effect

Question 12

At equilibrium in the simple Keynesian model of income determination, which of the following statements is not true?
a. The market clears and quantity demanded equals quantity supplied
b. Investment is equal to saving, and actual GDP is equal to potential GDP
c. Investment is equal to saving, and income is equal to aggregate expenditure
d. Aggregate expenditure is equal to income, and actual GDP is equal to potential GDP

Answer 12

b. Investment is equal to saving, and actual GDP is equal to potential GDP

Question 13

Which statement on the multiplier is true?
a. The higher the MPC, the lower the multiplier
b. Leakages increase the size of the multiplier
c. Keynes argued that the multiplier was relatively unstable in the short run
d. The multiplier relates spending changes to income changes

Answer 13

d. The multiplier relates spending changes to income changes

Question 14

The pre-Keynesian school was dominated by which of the following?
a. Self-correcting markets, full employment, and wage stickiness
b. Say’s Law, effective demand, and self-adjusting markets
c. Market-clearing prices, Say’s Law, and wage flexibility
d. Equilibrium processes, balanced budgets, and discretionary demand management

Answer 14

c. Market-clearing prices, Say’s Law, and wage flexibility

Question 15

Which of the following statements on the AD/AS model is true?
a. The twin issues of inflation and economic growth can be depicted on the vertical and horizontal axis, respectively
b. Equilibrium is where aggregate demand is not equal to aggregate supply
c. The AS line is always downward sloping
d. Prices and output are the exogenous variables

Answer 15

b. Equilibrium is where aggregate demand is not equal to aggregate supply

Question 16

Using the AD/AS model, a tax change shifts:
a. Both the AD curve and AS curve, depending on the economic school of thought
b. Only the AD curve, as it is a demand-side policy
c. Only the AS curve, as it is a supply-side policy
d. Neither the AD curve nor the AS curve, as it is a microeconomic policy change

Answer 16

b. Only the AD curve, as it is a demand-side policy

Question 16

The policy implications of the Keynesian income determination model are not:
a. Public works programs and pro-cyclical fiscal policy
b. Discretionary demand management and yearly balanced budgets
c. Counter-cyclical fiscal policy and balanced budgets over the cycle
d. Yearly balanced budgets and fiscal rules

Answer 16

a. Public works programs and pro-cyclical fiscal policy

Question 17

Which of the following statements in relation to monetary policy is true?
a. Monetary policy in Ireland is set by the Central Bank of Ireland
b. The objective of monetary policy by the European Central Bank is not price stability
c. The monetary transmission mechanism outlines how monetary policy changes affect output
d. Quantitative easing is not a form of money creation

Answer 17

c. The monetary transmission mechanism outlines how monetary policy changes affect output

Question 18

In terms of the AD/AS model, the Covid-19 pandemic caused:
a. A demand-side and a supply-side shock, with falls in aggregate demand and aggregate supply
b. A supply-side shock only, with a fall in aggregate supply
c. A demand-side shock only, with a fall in aggregate demand
d. No significant economic impact

Answer 18

b. A supply-side shock only, with a fall in aggregate supply

Question 19

Under a flexible exchange rate system, the three endogenous variables in the IS/LM/BP model are:
a. Prices, output, and unemployment
b. Output, interest rates, and money supply
c. Output, interest rates, and exchange rate
d. Income, output, and expenditure

Answer 19

c. Output, interest rates, and exchange rate

Question 20

The three motives for holding money in the liquidity preference theory:
a. Are used in the derivation of the upward-sloping IS curve
b. Are related negatively to income and interest rates
c. Are related to the interest rate, real balances, and international trade effects
d. Are speculative, transactionary, and precautionary

Answer 20

d. Are speculative, transactionary, and precautionary

Question 21

In the third market of the IS/LM/BP model, which of the following is true?
a. The balance of payments line is usually upward sloping as interest rates and output are positively related
b. The balance of payments line is vertical when capital is perfectly mobile
c. The balance of payments line represents the foreign exchange market
d. The balance of payments line represents the assets market in equilibrium

Answer 21

a. The balance of payments line is usually upward sloping as interest rates and output are positively related

Question 22

In our four main macroeconomic models, which of the following statements is true?
a. Output is an endogenous variable
b. Our macro models are all long-run models
c. The goods and services market is not represented in all four models
d. Output is a variable to be determined

Answer 22

a. Output is an endogenous variable

Question 23

In the IS/LM/BP model, which of the following statements is not true?
a. Fiscal policy is effective when the exchange rate is flexible
b. Under a flexible exchange rate, monetary policy is not effective
c. The IS/LM/BP model is a Keynesian-type long-run, supply-constrained model
d. Above the horizontal BP line reflects a position of a balance of payments deficit

Answer 23

b. Under a flexible exchange rate, monetary policy is not effective

Question 24

With respect to the circular flow model of national income, which of the following statements is true?
a. A rise in government spending, a fall in imports, and an increase in investment decrease economic activity
b. A rise in exports, a fall in savings, and an increase in transfer payments decrease economic activity
c. A rise in savings, an increase in exports, and a decrease in taxes decrease economic activity
d. An increase in investment, a fall in taxes, and an increase in exports increase economic activity

Answer 24

d. An increase in investment, a fall in taxes, and an increase in exports increase economic activity

Question 25

In the context of the money market and the LM curve, which of the following is not true?
a. The LM curve is steep when the sensitivity of money demand to changes in income is large
b. The slope of the LM curve is determined by the sensitivity of investment to changes in interest rates
c. Points left and above a given LM curve reflect excess supply of money
d. An increase in the money supply shifts the LM curve down to the right

Answer 25

b. The slope of the LM curve is determined by the sensitivity of investment to changes in interest rates

Question 26

In the IS/LM/BP model, which of the following is possible to attain simultaneously?

a. Effective monetary policy and a flexible exchange rate
b. A fixed exchange rate, perfect capital mobility, and an independent monetary policy
c. A fixed exchange rate and effective fiscal policy
d. Internal and external balances

Answer 26

a. Effective monetary policy and a flexible exchange rate