MCQ covering topics Flashcards
What is the likely effect on the Aggregate Demand (AD) and Aggregate Supply (AS) curves if the central bank increases the money supply?
a) AD curve shifts left, and AS curve shifts right.
b) AD curve shifts right, and AS curve shifts left.
c) AD curve shifts right, and AS curve remains unchanged.
d) AS curve shifts right, and AD curve remains unchanged.
c) AD curve shifts right, and AS curve remains unchanged.
In the IS/LM model, what happens to the equilibrium output and interest rates when the government increases spending?
a) Equilibrium output decreases, and interest rates increase.
b) Equilibrium output increases, and interest rates decrease.
c) Equilibrium output increases, and interest rates increase.
d) Equilibrium output decreases, and interest rates decrease.
c) Equilibrium output increases, and interest rates increase.
ccording to Keynesian economics, what is the primary role of government intervention during a recession?
a) To increase interest rates to reduce inflation.
b) To decrease government spending to reduce budget deficits.
c) To increase government spending to stimulate aggregate demand.
d) To implement policies that favor deregulation and tax cuts.
c) To increase government spending to stimulate aggregate demand.
ccording to Classical economics, how should the government address inflation?
a) By increasing government spending and cutting taxes.
b) By decreasing the money supply and reducing government spending.
c) By increasing subsidies to businesses.
d) By implementing price controls on goods and services.
b) By decreasing the money supply and reducing government spending.
What is the likely impact of a contractionary monetary policy on the LM curve?
a) The LM curve shifts to the right.
b) The LM curve shifts to the left.
c) The LM curve becomes steeper.
d) The LM curve becomes flatter.
b) The LM curve shifts to the left.
What effect does an increase in taxes have on the IS curve in the IS/LM model?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve becomes steeper.
d) The IS curve becomes flatter.
b) The IS curve shifts to the left.
According to the Mundell-Fleming model, which of the following combinations is impossible to achieve simultaneously?
a) Fixed exchange rates, free capital mobility, and an independent monetary policy.
b) Floating exchange rates, free capital mobility, and an independent monetary policy.
c) Fixed exchange rates, restricted capital mobility, and an independent monetary policy.
d) Floating exchange rates, restricted capital mobility, and a fixed monetary policy.
a) Fixed exchange rates, free capital mobility, and an independent monetary policy.
If there is an adverse supply shock, such as a sharp increase in oil prices, what is the expected effect on the AD/AS model?
a) The AD curve shifts left, and the AS curve shifts left.
b) The AD curve shifts right, and the AS curve shifts left.
c) The AD curve shifts left, and the AS curve shifts right.
d) Both the AD and AS curves shift to the right.
b) The AD curve shifts right, and the AS curve shifts left.
1.1 Which of the following is an assumption of the IS/LM model?
a. Prices are flexible and adjust to changes in demand.
b. The interest rate and output are determined simultaneously in the goods and money markets.
c. The money supply is fixed, and does not change with monetary policy.
d. The model assumes a perfectly competitive labor market with full employment.
b. The interest rate and output are determined simultaneously in the goods and money markets.
Which of the following is not an assumption of the IS/LM model?
a. Fixed price level in the short run.
b. The money market is independent of the goods market.
c. Interest rates and output are interdependent.
d. The model includes both government spending and monetary policy.
b. The money market is independent of the goods market.
- Assumption of the IS/LM model is that the money market and goods market are interdependent
How does the IS/LM model differ from the simple Keynesian income-spending model?
a. The IS/LM model includes only the goods market while the Keynesian model includes both the goods and money markets.
b. The IS/LM model assumes interest rates are constant, while the Keynesian model allows interest rates to change.
c. The IS/LM model incorporates the money market, while the simple Keynesian model focuses on the goods market only.
d. The IS/LM model is used for long-run analysis, while the Keynesian model is used for short-run analysis.
c. The IS/LM model incorporates the money market, while the simple Keynesian model focuses on the goods market only.
In the IS/LM model, a fall in government expenditure will lead to:
a. A rightward shift of the IS curve, resulting in higher interest rates and higher income.
b. A leftward shift of the IS curve, resulting in lower interest rates and lower income.
c. A rightward shift of the LM curve, resulting in lower interest rates and higher income.
d. A leftward shift of the LM curve, resulting in higher interest rates and lower income.
b. A leftward shift of the IS curve, resulting in lower interest rates and lower income.
A decrease in the money supply in the IS/LM model will:
a. Shift the LM curve to the right, leading to lower interest rates and higher income.
b. Shift the IS curve to the left, leading to lower interest rates and lower income.
c. Shift the LM curve to the left, leading to higher interest rates and lower income.
d. Have no effect on the LM curve or interest rates.
c. Shift the LM curve to the left, leading to higher interest rates and lower income.
Monetary accommodation of fiscal expansion involves:
a. Increasing government spending while keeping the money supply constant.
b. Increasing government spending and simultaneously increasing the money supply to offset interest rate changes.
c. Decreasing government spending while decreasing the money supply.
d. Keeping government spending constant and decreasing the money supply.
b. Increasing government spending and simultaneously increasing the money supply to offset interest rate changes
What is ‘crowding out’?
a. The reduction in private investment due to increased government spending and higher interest rates.
b. The increase in private savings resulting from government tax cuts.
c. The increase in consumer spending due to lower interest rates.
d. The decrease in government borrowing due to higher private sector investment.
a. The reduction in private investment due to increased government spending and higher interest rates.
