2024 summer format 1 Flashcards
Which of the following is true about the Classical view of macroeconomics?
a. Prices and wages are sticky in the short run.
b. Government intervention is necessary to achieve full employment.
c. Say’s Law suggests that supply creates its own demand.
d. The economy is always at less than full employment.
c. Say’s Law suggests that supply creates its own demand.
The Keynesian Cross diagram illustrates the relationship between:
a. Aggregate demand and aggregate supply.
b. National income and planned expenditure.
c. Interest rates and investment.
d. Inflation and unemployment.
b. National income and planned expenditure.
In the context of national accounts, Gross National Product (GNP) differs from Gross Domestic Product (GDP) by:
a. Including only the value of goods produced within the domestic economy.
b. Excluding net income from abroad.
c. Including net income from abroad.
d. Adjusting for inflation over time.
c. Including net income from abroad.
In the IS/LM model, a decrease in government spending will:
a. Shift the IS curve to the right, lowering interest rates and increasing output.
b. Shift the IS curve to the left, raising interest rates and decreasing output.
c. Shift the IS curve to the left, lowering interest rates and decreasing output.
d. Shift the LM curve to the right, lowering interest rates and increasing output.
c. Shift the IS curve to the left, lowering interest rates and decreasing output.
The Phillips Curve shows the relationship between:
a. Inflation and unemployment.
b. Inflation and interest rates.
c. Output and unemployment.
d. Inflation and output.
a. Inflation and unemployment.
In the Mundell-Fleming model with a fixed exchange rate and perfect capital mobility, an expansionary fiscal policy will:
a. Lead to a balance of payments surplus.
b. Lead to a balance of payments deficit.
c. Have no effect on the exchange rate.
d. Increase both interest rates and output.
b. Lead to a balance of payments deficit.
Which of the following is considered a supply-side policy?
a. Increasing government spending on infrastructure.
b. Reducing the central bank’s interest rate.
c. Cutting income tax rates to increase labor supply.
d. Increasing welfare benefits to boost consumption.
c. Cutting income tax rates to increase labor supply.
The aggregate demand (AD) curve slopes downward because:
a. Higher price levels decrease the purchasing power of money.
b. Higher interest rates lead to higher investment.
c. Higher price levels increase the value of financial assets.
d. Lower price levels increase exports.
a. Higher price levels decrease the purchasing power of money.
In the AD/AS model, an increase in aggregate demand in the short run will likely result in:
a. Lower prices and higher output.
b. Higher prices and higher output.
c. Higher prices and lower output.
d. Lower prices and lower output.
b. Higher prices and higher output.
According to the liquidity preference theory, an increase in the money supply will:
a. Increase interest rates and reduce investment.
b. Decrease interest rates and increase investment.
c. Have no effect on interest rates or investment.
d. Decrease interest rates but decrease investment.
b. Decrease interest rates and increase investment.
In the IS/LM/BP model, under a flexible exchange rate system, an expansionary monetary policy will result in:
a. A decrease in the exchange rate and an increase in output.
b. An increase in the exchange rate and a decrease in output.
c. A decrease in the exchange rate and a decrease in output.
d. No change in the exchange rate or output.
a. A decrease in the exchange rate and an increase in output.
The multiplier effect refers to:
a. The relationship between interest rates and investment.
b. The proportional amount of increase in final income that results from an injection of spending.
c. The inverse relationship between price levels and the quantity of goods demanded.
d. The tendency for the economy to stabilize after a shock.
b. The proportional amount of increase in final income that results from an injection of spending.
In the short run, the Aggregate Supply (AS) curve is:
a. Vertical because output is fixed.
b. Upward sloping because of wage and price stickiness.
c. Downward sloping because higher prices reduce output.
d. Horizontal because prices are flexible.
b. Upward sloping because of wage and price stickiness.
A contractionary fiscal policy is likely to:
a. Increase aggregate demand and decrease inflation.
b. Decrease aggregate demand and decrease inflation.
c. Increase aggregate supply and increase output.
d. Decrease aggregate supply and increase inflation.
b. Decrease aggregate demand and decrease inflation.
In the Keynesian model, equilibrium is reached when:
a. Aggregate demand equals aggregate supply.
b. Planned investment equals planned savings.
c. Government spending equals tax revenue.
d. Actual investment equals savings.
a. Aggregate demand equals aggregate supply.
