tutotial 5 question

Question 1

Which of the following is not a component of GDP according to the expenditure approach?
a) Consumption
b) Investment
c) Net Exports
d) Taxes

Answer 1

d) Taxes

Question 2

Countercyclical fiscal policy refers to:
a) Increasing taxes and reducing spending during a recession
b) Reducing taxes and increasing spending during an expansion
c) Reducing taxes and increasing spending during a recession
d) Keeping taxes and spending constant regardless of the business cycle

Answer 2

c) Reducing taxes and increasing spending during a recession

Question 3

In the IS/LM model, which factor affects the effectiveness of monetary policy?
a) Sensitivity of investment to interest rates
b) Marginal propensity to save
c) Government spending levels
d) Tax rates

Answer 3

a) Sensitivity of investment to interest rates

Question 4

Points above the LM curve represent:
a) Excess supply of goods
b) Excess demand for money
c) Equilibrium in the money market
d) Excess supply of money

Answer 4

b) Excess demand for money

Question 5

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 5

c) Is determined outside the model

Question 6

Which of the following is considered an automatic stabilizer?
a) Discretionary government spending
b) Central bank interest rate changes
c) Progressive income taxes
d) One-time stimulus checks

Answer 6

c) Progressive income taxes

Question 7

The Classical school of economics primarily believes in:
a) Active government intervention in the economy
b) Self-correcting markets
c) The necessity of fiscal stimulus
d) Demand-driven business cycles

Answer 7

b) Self-correcting markets

Question 8

Keynesian economics suggests that investment expenditure is primarily influenced by:
a) Government regulations
b) Interest rates and expectations
c) The level of exports
d) The money supply

Answer 8

b) Interest rates and expectations

Question 9

In the Keynesian income-spending model, investment is treated as:
a) An endogenous variable
b) A fixed component of aggregate demand
c) An exogenous variable
d) A fluctuating variable dependent on interest rates

Answer 9

c) An exogenous variable

Question 10

The IS/LM model is used to analyze the relationship between:
a) Prices and unemployment
b) Investment and savings
c) Interest rates and output
d) Consumption and investment

Answer 10

c) Interest rates and output

Question 11

Which of the following is an endogenous variable in the IS/LM model?
a) Government spending
b) Money supply
c) Interest rate
d) Tax rates

Answer 11

c) Interest rate

Question 12

A rise in public spending in the IS/LM model will typically:
a) Shift the LM curve to the right
b) Shift the IS curve to the left
c) Shift the IS curve to the right
d) Shift the LM curve to the left

Answer 12

c) Shift the IS curve to the right

Question 13

An increase in the supply of money in the IS/LM model will:
a) Shift the IS curve to the right
b) Shift the LM curve to the right
c) Shift the IS curve to the left
d) Have no effect on the LM curve

Answer 13

b) Shift the LM curve to the right

Question 14

An increase in taxes in the IS/LM model will likely:
a) Shift the LM curve to the left
b) Shift the IS curve to the left
c) Shift the LM curve to the right
d) Have no effect on the IS curve

Answer 14

b) Shift the IS curve to the left

Question 15

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 15

c) Perfect capital mobility

Question 16

In the IS/LM/BP model, a monetary contraction under a fixed exchange rate regime will:
a) Shift the LM curve to the right
b) Shift the IS curve to the right
c) Shift the BP curve to the left
d) Raise interest rates and potentially lead to capital inflows

Answer 16

d) Raise interest rates and potentially lead to capital inflows

Question 17

According to the Mundell-Fleming IS/LM/BP model, under a flexible exchange rate regime, monetary policy is:
a) Highly ineffective
b) More effective than fiscal policy
c) Equally effective as fiscal policy
d) Completely ineffective

Answer 17

b) More effective than fiscal policy

Question 18

Which school of thought emphasizes that unemployment is a result of insufficient aggregate demand?
a) Classical economics
b) Keynesian economics
c) Monetarist school
d) Supply-side economics

Answer 18

b) Keynesian economics

Question 19

In the Keynesian model, what happens when investment spending increases?
a) The aggregate supply curve shifts to the right
b) Aggregate demand increases, raising output and employment
c) Interest rates fall, reducing savings
d) The economy automatically returns to full employment

Answer 19

b) Aggregate demand increases, raising output and employment

Question 20

The LM curve is derived from:
a) The money market equilibrium
b) The goods market equilibrium
c) The balance of payments equilibrium
d) The labor market equilibrium

Answer 20

a) The money market equilibrium

Question 21

In the IS/LM model, a decrease in government spending results in:
a) A rightward shift of the IS curve
b) A leftward shift of the IS curve
c) A rightward shift of the LM curve
d) No shift in the IS curve

Answer 21

b) A leftward shift of the IS curve

Question 22

The balance of payments line in the IS/LM/BP model typically represents:
a) Equilibrium in the goods market
b) Equilibrium in the money market
c) Equilibrium in the foreign exchange market
d) The equilibrium level of employment

Answer 22

c) Equilibrium in the foreign exchange market

Question 23

In the context of the Keynesian model, the term “investment expenditure” refers to:
a) The purchase of government bonds
b) Spending on capital goods by businesses
c) Household spending on durable goods
d) All expenditures by the government

Answer 23

b) Spending on capital goods by businesses

Question 24

A key difference between Classical and Keynesian economics is that:
a) Classical economics supports demand-side management, while Keynesian does not
b) Keynesian economics supports the idea of sticky prices, while Classical economics assumes price flexibility
c) Classical economics believes in government intervention, while Keynesian economics does not
d) Keynesian economics assumes full employment, while Classical economics does not

Answer 24

b) Keynesian economics supports the idea of sticky prices, while Classical economics assumes price flexibility

Question 25

Which of the following is an implication of crowding out in the IS/LM model?
a) Expansionary fiscal policy leads to lower interest rates
b) Expansionary fiscal policy is less effective in raising output due to higher interest rates
c) Expansionary fiscal policy always raises the level of private investment
d) Crowding out does not occur when there is perfect capital mobility

Answer 25

b) Expansionary fiscal policy is less effective in raising output due to higher interest rates