basic main concepts you need to know

Question 1

Which of the following factors would cause the IS curve to shift to the right?
a) An increase in interest rates
b) A decrease in government spending
c) An increase in investment
d) A reduction in the money supply

Answer 1

c) An increase in investment

Question 2

The LM curve represents equilibrium in the:
a) Goods market
b) Money market
c) Foreign exchange market
d) Labor market

Answer 2

b) Money market

Question 3

In the IS/LM model, a monetary policy contraction will:
a) Shift the LM curve to the right
b) Shift the IS curve to the right
c) Shift the LM curve to the left
d) Shift the IS curve to the left

Answer 3

c) Shift the LM curve to the left

Question 4

Which of the following would cause a movement along the IS curve?
a) An increase in government spending
b) A decrease in taxes
c) A change in the interest rate
d) A shift in the LM curve

Answer 4

c) A change in the interest rate

Question 5

In the AD/AS model, an increase in consumer confidence is likely to:
a) Shift the AD curve to the left
b) Shift the AS curve to the right
c) Shift the AD curve to the right
d) Shift the AS curve to the left

Answer 5

c) Shift the AD curve to the right

Question 6

Which of the following causes a movement along the AS curve?
a) A change in input prices
b) A change in aggregate demand
c) A change in government policy
d) An increase in the labor force

Answer 6

a) A change in input prices

Question 7

The long-run aggregate supply (LRAS) curve is:
a) Upward sloping
b) Downward sloping
c) Vertical
d) Horizontal

Answer 7

c) Vertical

Question 8

If the economy is in a recession, the AD/AS model predicts that:
a) The AS curve will shift to the right
b) The AD curve will shift to the left
c) The economy will move along the AS curve
d) The AD curve will shift to the right

Answer 8

c) The economy will move along the AS curve

Question 9

In the IS/LM/BP model, under a fixed exchange rate system, monetary policy is:
a) Highly effective
b) Not effective
c) Effective only with capital controls
d) Effective only under floating exchange rates

Answer 9

b) Not effective

Question 10

In the IS/LM/BP model, a fiscal expansion under a fixed exchange rate regime would likely:
a) Shift the IS curve to the right
b) Shift the LM curve to the right
c) Shift the BP curve to the left
d) Shift the BP curve to the right

Answer 10

a) Shift the IS curve to the right

Question 11

Under perfect capital mobility, the balance of payments (BP) line is:
a) Upward sloping
b) Downward sloping
c) Horizontal
d) Vertical

Answer 11

c) Horizontal

Question 12

Which of the following is an assumption of the IS/LM/BP model?
a) Perfectly flexible prices
b) Fixed exchange rates
c) Perfect capital mobility
d) No government intervention

Answer 12

c) Perfect capital mobility

Question 13

In macroeconomics, which of the following is considered an automatic stabilizer?
a) Government spending
b) Interest rates
c) Taxes
d) Fiscal deficits

Answer 13

c) Taxes

Question 14

An exogenous variable is one that:
a) Is determined within the model
b) Is controlled by the model
c) Is determined outside the model
d) Has no effect on the model

Answer 14

a) Is determined within the model

Question 15

The multiplier effect refers to:
a) The way a change in interest rates affects aggregate demand
b) The impact of a change in autonomous spending on national income
c) The response of the AS curve to changes in aggregate demand
d) The change in money supply affecting inflation rates

Answer 15

b) The impact of a change in autonomous spending on national income

Question 16

Which of the following describes Keynesian economic theory?
a) Markets are always clear and reach equilibrium quickly
b) Economic fluctuations are driven by changes in aggregate demand
c) Long-term economic output is determined solely by supply factors
d) Prices are always flexible and adjust instantly

Answer 16

b) Economic fluctuations are driven by changes in aggregate demand

Question 17

Crowding out occurs when:
a) Increased government spending leads to a reduction in private investment
b) Higher taxes increase private consumption
c) Expansionary fiscal policy boosts private investment
d) The money supply increases faster than inflation

Answer 17

a) Increased government spending leads to a reduction in private investment

Question 18

The primary goal of monetary policy is typically to:
a) Influence government spending
b) Control the money supply and interest rates
c) Directly control investment levels
d) Regulate foreign exchange rates

Answer 18

b) Control the money supply and interest rates

Question 19

In the IS/LM model, a decrease in taxes will generally:
a) Shift the IS curve to the left
b) Shift the LM curve to the right
c) Shift the IS curve to the right
d) Have no effect on the IS curve

Answer 19

c) Shift the IS curve to the right

Question 20

Which of the following is true regarding the short-run aggregate supply (SRAS) curve?
a) It is vertical in the short run
b) It is horizontal in the long run
c) It is upward sloping
d) It does not change with changes in the price level

Answer 20

c) It is upward sloping