Intermediate Macroeconomics Practice Exam

Intermediate Macroeconomics Practice Exam

 

Which of the following best describes the key focus of macroeconomics?

A) The behavior of individual households and firms
B) The allocation of resources in specific markets
C) The determination of the overall level of output, employment, and prices in an economy
D) The study of government regulations

 

What does the aggregate demand curve show?

A) The relationship between the price level and the quantity of real GDP demanded
B) The relationship between interest rates and the quantity of goods demanded
C) The total output of goods and services an economy can produce
D) The relationship between inflation and employment

 

If the central bank decreases interest rates, what is likely to happen to aggregate demand?

A) It will decrease
B) It will increase
C) It will remain unchanged
D) It will fluctuate randomly

 

Which of the following is a tool of monetary policy?

A) Government spending
B) Taxation
C) Open market operations
D) Budget deficit management

 

The natural rate of unemployment is best described as:

A) The unemployment rate during a recession
B) The rate of unemployment when the economy is at full employment
C) The number of people unemployed at any given time
D) The unemployment rate due to technological changes

 

The short-run aggregate supply curve is typically:

A) Vertical
B) Horizontal
C) Upward sloping
D) Downward sloping

 

Which of the following fiscal policies would likely reduce inflationary pressure in an economy?

A) Increasing government spending
B) Lowering taxes
C) Increasing government spending while cutting taxes
D) Increasing taxes

 

What happens when the government increases taxes and decreases spending?

A) The aggregate demand curve shifts to the left
B) The aggregate supply curve shifts to the right
C) Inflation increases
D) The economy reaches full employment faster

 

The Phillips curve shows the relationship between:

A) Inflation and unemployment
B) Government spending and the national debt
C) Real GDP and the price level
D) Fiscal policy and aggregate demand

 

In the long run, what is the relationship between inflation and unemployment according to the Phillips curve?

A) There is no trade-off between inflation and unemployment
B) Higher inflation leads to lower unemployment
C) Lower inflation causes higher unemployment
D) Inflation has no effect on the unemployment rate

 

The crowding-out effect occurs when:

A) Government spending reduces private sector spending due to higher interest rates
B) Increased private investment leads to higher government debt
C) Lower taxes lead to an increase in savings
D) Increased government spending causes a reduction in exports

 

Which of the following is a characteristic of the long-run aggregate supply curve?

A) It is downward sloping
B) It is vertical at the full-employment level of output
C) It is upward sloping
D) It shifts based on changes in the price level

 

Which of the following factors would cause a shift in the long-run aggregate supply curve?

A) Changes in government spending
B) A change in the price level
C) A change in the capital stock or technology
D) A change in consumer confidence

 

A decrease in government spending will lead to:

A) A rightward shift of the aggregate demand curve
B) A leftward shift of the aggregate demand curve
C) An increase in the price level
D) A decrease in inflation expectations

 

What is the primary objective of monetary policy?

A) To control inflation
B) To reduce unemployment
C) To regulate government spending
D) To increase wages

 

Which of the following would cause the aggregate demand curve to shift to the right?

A) An increase in interest rates
B) A decrease in government spending
C) A tax cut
D) A rise in the price level

 

What is the effect of an increase in investment on aggregate demand?

A) It causes the aggregate demand curve to shift to the left
B) It causes the aggregate demand curve to shift to the right
C) It causes a reduction in the price level
D) It causes unemployment to increase

 

If the economy is in a recession, which of the following fiscal policies would be most effective in stimulating economic activity?

A) Increase taxes and reduce government spending
B) Decrease taxes and increase government spending
C) Decrease taxes and reduce government spending
D) Increase interest rates and reduce government spending

 

The formula for calculating GDP using the expenditure approach is:

A) GDP = Consumption + Investment + Government Spending + Net Exports
B) GDP = Wages + Rent + Interest + Profits
C) GDP = Consumption + Taxes + Exports
D) GDP = Investment + Savings + Consumption

 

What is the effect of an increase in the price level on the real money supply?

A) The real money supply increases
B) The real money supply decreases
C) The real money supply stays unchanged
D) The real money supply increases only if interest rates rise

 

Which of the following is the most likely effect of an increase in wages on the short-run aggregate supply?

A) A shift of the short-run aggregate supply curve to the right
B) A shift of the short-run aggregate supply curve to the left
C) A decrease in the overall price level
D) An increase in unemployment

 

If an economy’s actual output exceeds its potential output, what is most likely to happen?

A) Inflationary pressures will rise
B) Unemployment will increase
C) The aggregate demand curve will shift to the left
D) Long-run economic growth will slow down

 

The Keynesian cross model emphasizes the role of which of the following in determining national income?

A) Consumer expectations
B) Aggregate supply
C) Aggregate demand
D) Government regulation

 

A reduction in the marginal propensity to consume will likely result in:

A) An increase in the multiplier effect
B) A decrease in the size of the multiplier effect
C) A shift of the aggregate supply curve to the left
D) A shift of the aggregate demand curve to the right

 

What is the effect of an increase in foreign income on a country’s net exports?

A) Net exports will decrease
B) Net exports will increase
C) Net exports will remain unchanged
D) The effect depends on exchange rates

 

The liquidity preference theory of interest rates suggests that:

A) Interest rates are determined by the supply and demand for money
B) Interest rates are primarily determined by government policy
C) Interest rates remain stable over time
D) Interest rates are not affected by monetary policy

 

What is the primary effect of a decrease in the money supply?

A) It increases interest rates
B) It decreases interest rates
C) It increases the money supply
D) It increases inflation

 

Which of the following is likely to shift the aggregate supply curve to the left?

A) A decrease in the cost of raw materials
B) A decrease in labor productivity
C) An increase in consumer confidence
D) A decrease in taxes

 

Which of the following describes a situation of demand-pull inflation?

A) Inflation due to a decrease in supply
B) Inflation caused by an increase in aggregate demand
C) Inflation caused by a decrease in the money supply
D) Inflation caused by a reduction in taxes

 

Which of the following factors can cause a shift in the long-run aggregate supply curve?

A) A change in the price level
B) A change in the overall price level of inputs
C) A change in technology or capital stock
D) A change in government spending

 

 

Which of the following is a characteristic of a Keynesian cross model?

A) The economy always operates at full employment
B) The level of output is determined by aggregate demand
C) The economy adjusts automatically to full employment
D) The government has no role in stabilizing the economy

 

The multiplier effect refers to the:

A) Change in national income resulting from an initial change in spending
B) Increase in the money supply due to an increase in government spending
C) Reduction in investment as a result of higher taxes
D) Increase in exports as a result of lower interest rates

 

In the IS-LM model, the LM curve represents the relationship between:

A) Interest rates and output in the goods market
B) Interest rates and output in the money market
C) Investment and savings
D) Government spending and national income

 

A decrease in the price level, all else equal, will lead to:

A) A decrease in the quantity of real money balances
B) An increase in the quantity of real money balances
C) A decrease in real GDP
D) An increase in interest rates

 

According to the classical model, in the long run, the economy will:

A) Always experience inflation
B) Adjust to full employment automatically
C) Be influenced by government policy
D) Operate below its potential output

 

Which of the following is most likely to occur if the government increases taxes?

A) The aggregate supply curve shifts to the right
B) The aggregate demand curve shifts to the left
C) The unemployment rate decreases
D) Real GDP increases

 

What effect does an increase in government spending typically have on the short-run economy?

A) It increases aggregate demand
B) It decreases aggregate supply
C) It reduces the price level
D) It increases interest rates

 

The long-run Phillips curve suggests that:

A) There is a trade-off between inflation and unemployment in the long run
B) The natural rate of unemployment is constant
C) Inflation and unemployment are inversely related
D) Policymakers can reduce unemployment without causing inflation in the long run

 

An increase in the foreign exchange value of the domestic currency is likely to:

A) Increase the demand for exports
B) Decrease the demand for imports
C) Increase the demand for imports
D) Have no effect on the balance of payments

 

A government budget deficit is the result of:

A) Government spending exceeding tax revenue
B) The economy operating at full employment
C) High levels of investment in public infrastructure
D) Low levels of private sector investment

 

The short-run aggregate supply curve will shift to the left when:

A) Input prices decrease
B) There is an increase in productivity
C) There is a negative supply shock
D) Government spending increases

 

Which of the following would most likely increase investment in an economy?

A) A decrease in business taxes
B) An increase in government borrowing
C) A decrease in consumer demand
D) A rise in interest rates

 

The crowding-out effect is a situation where:

A) Government spending leads to increased private sector spending
B) An increase in government spending leads to a decrease in private investment
C) A decrease in interest rates increases private investment
D) Private savings lead to lower government borrowing

 

Which of the following is a primary objective of expansionary fiscal policy?

A) To decrease inflation
B) To reduce the government debt
C) To stimulate economic activity during a recession
D) To reduce the money supply

 

What does the term “stagflation” refer to?

A) High inflation and low unemployment
B) Low inflation and high unemployment
C) High inflation and high unemployment
D) Low inflation and low unemployment

 

If a central bank increases the money supply, it is likely to:

A) Decrease the inflation rate
B) Decrease interest rates
C) Increase the interest rate
D) Increase the unemployment rate

 

According to the Ricardian equivalence theorem, government borrowing:

A) Does not affect national savings
B) Will always lead to higher national income
C) Will result in higher interest rates in the long run
D) Increases private sector spending

 

If the marginal propensity to consume (MPC) is 0.8, the value of the spending multiplier is:

A) 1.0
B) 1.25
C) 4.0
D) 5.0

 

In an open economy, what is the relationship between net exports and exchange rates?

A) A higher exchange rate leads to higher exports
B) A lower exchange rate makes exports cheaper for foreign buyers
C) Exchange rates do not affect net exports
D) Higher exchange rates stimulate imports

 

The term “liquidity trap” refers to a situation where:

A) The central bank is unable to lower interest rates any further
B) Interest rates rise despite an increase in the money supply
C) Consumers and firms stop spending due to uncertainty
D) The money supply is not growing fast enough

 

The income-expenditure model of Keynesian economics suggests that:

A) National income is determined by aggregate demand
B) Savings always equal investment in the economy
C) Government intervention is unnecessary in a fully functioning market
D) The economy automatically adjusts to full employment

 

What is the primary purpose of the central bank’s open market operations?

A) To regulate inflation
B) To control the supply of money and interest rates
C) To stabilize government spending
D) To increase tax revenues

 

If a country’s exchange rate appreciates, what is most likely to happen to its exports?

A) Exports will increase
B) Exports will decrease
C) Exports will remain the same
D) Exports will become more competitive

 

In the Keynesian model, the economy will automatically adjust to full employment:

A) Only if there is no government intervention
B) With active government intervention through fiscal policy
C) When the supply of money increases
D) In the long run, through price adjustments

 

The term “fiscal policy” refers to:

A) The manipulation of the money supply by the central bank
B) The government’s use of taxation and spending to influence the economy
C) The actions of private banks in managing money supply
D) The regulation of financial institutions by government agencies

 

Which of the following can result from an increase in the money supply?

A) A decrease in inflation
B) A decrease in real GDP
C) A decrease in interest rates
D) A decrease in employment

 

The equation of exchange (MV = PQ) implies that:

A) An increase in the money supply will lead to higher prices in the long run
B) Money supply changes have no effect on output
C) Prices are unaffected by changes in the money supply
D) Real GDP is determined by the money supply

 

What is the most likely result of a reduction in personal income taxes?

A) A decrease in consumer spending
B) A reduction in government debt
C) An increase in disposable income and consumption
D) A decrease in inflation

 

What is a potential consequence of a long-run increase in government debt?

A) Higher future taxes to pay off the debt
B) A lower interest rate due to reduced demand for loans
C) A decrease in inflation rates
D) A stronger domestic currency

 

Which of the following describes a supply-side economic policy?

A) Increasing government spending to boost demand
B) Reducing taxes to encourage investment and production
C) Raising interest rates to decrease consumer spending
D) Implementing trade tariffs to protect domestic industries

 

 

In the IS-LM model, an increase in government spending will result in:

A) A movement along the IS curve
B) A shift of the IS curve to the right
C) A shift of the LM curve to the right
D) A shift of the IS curve to the left

 

The real business cycle theory suggests that:

A) Business cycles are caused by changes in fiscal policy
B) Technological shocks are the primary driver of business cycles
C) Changes in the money supply are the main cause of business cycles
D) Business cycles are primarily caused by changes in government spending

 

The “liquidity preference” theory of interest rates suggests that:

A) The demand for money increases as income increases
B) Interest rates are set by central banks
C) The supply of money is unaffected by changes in interest rates
D) The demand for money is inversely related to income levels

 

According to the classical model of the economy, in the long run:

A) Output is determined by aggregate demand
B) Prices are sticky and adjust slowly
C) The economy always returns to full employment
D) Government intervention is necessary to restore full employment

 

Which of the following would be most likely to reduce aggregate demand?

A) An increase in government spending
B) A decrease in interest rates
C) A decrease in taxes
D) A decrease in consumer confidence

 

The aggregate demand curve typically slopes downward because:

A) A decrease in the price level leads to higher consumption and investment
B) Higher wages reduce production costs
C) Higher wages increase the demand for goods and services
D) An increase in interest rates leads to more investment

 

What is the impact of an increase in the money supply on the short-run economy?

A) It leads to lower output and lower interest rates
B) It leads to higher output and lower interest rates
C) It leads to higher output and higher interest rates
D) It has no effect on output

 

In the Keynesian framework, which of the following would increase national income?

A) A reduction in government spending
B) An increase in the marginal propensity to consume
C) An increase in interest rates
D) An increase in net exports

 

If the economy is experiencing high unemployment and low inflation, which of the following policies would be most appropriate?

A) Expansionary fiscal policy
B) Contractionary fiscal policy
C) Expansionary monetary policy
D) Both A and C

 

The crowding-out effect is more likely to occur when:

A) The government increases its spending
B) The government decreases its spending
C) The central bank increases the money supply
D) The economy is at full employment

 

The marginal propensity to save (MPS) is:

A) The fraction of total income that is saved
B) The fraction of total income that is consumed
C) Equal to one minus the marginal propensity to consume
D) The increase in savings as a result of an increase in income

 

In the classical model, a rise in the price level leads to:

A) An increase in real money balances and output
B) A decrease in real money balances and output
C) An increase in interest rates and output
D) An increase in real money balances and a decrease in output

 

According to the Ricardian equivalence proposition, a government’s decision to increase its budget deficit:

A) Will have no effect on national savings
B) Will lead to a rise in national savings
C) Will reduce private sector savings
D) Will lead to an increase in private sector consumption

 

The Keynesian cross model assumes that:

A) Investment is autonomous and does not depend on income
B) The economy is always at full employment
C) The economy adjusts quickly to changes in demand
D) Government intervention is unnecessary to restore equilibrium

 

Which of the following is an example of contractionary fiscal policy?

A) Increasing government spending
B) Cutting taxes
C) Reducing government spending
D) Lowering interest rates

 

In the long run, a sustained increase in the money supply will:

A) Increase output and employment
B) Increase prices but not output
C) Decrease prices and output
D) Increase both output and the money supply

 

The long-run aggregate supply curve is:

A) Vertical at the level of potential output
B) Upward sloping
C) Horizontal
D) Downward sloping

 

Which of the following would lead to an increase in the equilibrium level of output?

A) A decrease in government spending
B) An increase in the interest rate
C) An increase in consumer confidence
D) A decrease in exports

 

The natural rate of unemployment is:

A) The rate of unemployment that can be reduced by government intervention
B) The rate of unemployment when the economy is in a short-run equilibrium
C) The rate of unemployment that exists even when the economy is at full employment
D) The rate of unemployment that occurs during a recession

 

In an open economy, a rise in foreign income will:

A) Increase domestic imports
B) Decrease domestic exports
C) Increase domestic exports
D) Have no effect on the domestic economy

 

A decrease in interest rates will lead to:

A) An increase in investment
B) A decrease in investment
C) A decrease in consumer spending
D) An increase in consumer saving

 

The term “sticky wages” refers to the idea that:

A) Wages adjust quickly to changes in the economy
B) Wages are slow to adjust to changes in market conditions
C) Wages increase at a constant rate every year
D) Wages are always flexible and market-driven

 

In the short-run, an increase in government spending will most likely:

A) Decrease output and increase inflation
B) Increase output and decrease inflation
C) Increase both output and inflation
D) Increase output with no effect on inflation

 

The concept of “sticky prices” means that:

A) Prices adjust quickly to changes in supply and demand
B) Prices are fixed by government policy
C) Prices are slow to adjust to changes in demand and supply
D) Prices are always flexible in competitive markets

 

In the classical model, an increase in the money supply will:

A) Increase real GDP
B) Increase the price level
C) Decrease the interest rate
D) Have no effect on the price level

 

The term “investment” in macroeconomics refers to:

A) The purchase of stocks and bonds by households
B) The purchase of machinery, equipment, and infrastructure by businesses
C) The purchase of goods and services by the government
D) The saving of income by individuals

 

Which of the following is true under the rational expectations theory?

A) Economic agents base their decisions on past data and trends
B) Economic agents make predictions based on current policies and expectations of future policies
C) Economic agents are unable to predict future economic conditions
D) Government policies always succeed in stabilizing the economy

 

If the central bank decreases the money supply, it will most likely result in:

A) An increase in interest rates and a decrease in output
B) A decrease in interest rates and an increase in output
C) A decrease in interest rates and a decrease in output
D) An increase in interest rates and an increase in output

 

Which of the following is true about the short-run aggregate supply curve?

A) It is vertical in the long run
B) It is upward sloping due to sticky prices and wages
C) It slopes downward due to the effects of monetary policy
D) It is horizontal due to market clearing

 

In the IS-LM model, a decrease in investment would lead to:

A) A movement down along the IS curve
B) A shift to the left of the IS curve
C) A shift to the right of the LM curve
D) A shift to the left of the LM curve

 

 

The Keynesian cross model assumes that:

A) The economy always operates at full employment
B) Investment depends on the level of income
C) The government does not intervene in the economy
D) The price level is fixed in the short run

 

In the long run, an increase in the money supply leads to:

A) Higher output and lower prices
B) Lower output and higher prices
C) Higher prices but no effect on output
D) No effect on output or prices

 

According to the IS-LM model, an increase in government spending:

A) Shifts the LM curve to the right
B) Shifts the IS curve to the right
C) Shifts the IS curve to the left
D) Shifts both the IS and LM curves to the right

 

Which of the following best describes the Philips curve in the short run?

A) There is no trade-off between inflation and unemployment
B) There is an inverse relationship between inflation and unemployment
C) There is a direct relationship between inflation and unemployment
D) It is vertical at the natural rate of unemployment

 

In an open economy, an increase in domestic interest rates will:

A) Increase exports
B) Decrease imports
C) Increase capital inflows
D) Decrease the value of the domestic currency

 

Which of the following policies is most likely to reduce inflation in the short run?

A) An increase in government spending
B) A decrease in taxes
C) A decrease in the money supply
D) A decrease in interest rates

 

The “liquidity trap” occurs when:

A) Interest rates are very high, reducing investment
B) Money demand becomes perfectly elastic at low interest rates
C) The central bank cannot lower interest rates further to stimulate the economy
D) Both B and C

 

In the context of the Solow growth model, the steady state level of capital per worker is:

A) Determined by the level of government spending
B) Achieved when savings equals depreciation
C) Dependent on the level of consumption
D) Unaffected by changes in population growth

 

The Keynesian cross model demonstrates that:

A) Aggregate demand and output are independent of the price level
B) Increases in government spending lead to a larger increase in output than in investment
C) Investment and consumption depend on the interest rate
D) The economy will always return to full employment without government intervention

 

According to the theory of rational expectations:

A) People make decisions based on past trends only
B) People make decisions based on the best available information and anticipate government policies
C) Economic agents are generally unaware of future economic conditions
D) Government intervention always leads to market inefficiencies

 

The term “stagflation” refers to:

A) High unemployment and low inflation
B) Low unemployment and high inflation
C) High unemployment and high inflation
D) Low unemployment and low inflation

 

Which of the following is an example of an automatic stabilizer?

A) A decrease in interest rates
B) An increase in government spending during a recession
C) Unemployment benefits
D) A decrease in taxes during a boom

 

In the Solow growth model, technological progress affects output by:

A) Increasing the capital accumulation rate
B) Increasing the growth rate of the labor force
C) Increasing the productivity of labor
D) Reducing the savings rate

 

The supply-side economics theory primarily suggests that:

A) Tax cuts and deregulation will lead to increased production and employment
B) The government should increase spending to stimulate demand
C) High taxes are necessary to support government programs
D) The central bank should focus on controlling inflation

 

In an economy with a fixed exchange rate, if the central bank increases the money supply, this will:

A) Increase the value of the domestic currency
B) Decrease the value of the domestic currency
C) Have no effect on the currency value
D) Lead to an increase in interest rates

 

A decrease in taxes will likely:

A) Shift the IS curve to the left
B) Increase aggregate demand
C) Shift the LM curve to the right
D) Reduce the level of national income

 

In the IS-LM model, a higher interest rate leads to:

A) A decrease in investment, shifting the IS curve to the left
B) An increase in investment, shifting the IS curve to the right
C) A decrease in consumption, shifting the LM curve to the right
D) An increase in consumption, shifting the LM curve to the left

 

In the short run, a negative demand shock typically leads to:

A) Higher inflation and lower output
B) Lower inflation and higher output
C) Lower inflation and lower output
D) Higher inflation and higher output

 

The natural rate of unemployment is:

A) The rate of unemployment during a recession
B) The rate of unemployment at full employment
C) Always zero in the long run
D) Only influenced by the level of government spending

 

The Laffer curve suggests that:

A) Higher tax rates will always increase government revenue
B) Lower tax rates always decrease government revenue
C) There is an optimal tax rate that maximizes government revenue
D) Tax rates have no effect on government revenue

 

According to the Phillips curve, there is:

A) A direct relationship between inflation and unemployment
B) A trade-off between inflation and unemployment in the short run
C) No relationship between inflation and unemployment
D) A permanent inverse relationship between inflation and unemployment

 

Which of the following is an example of an open market operation?

A) The central bank buying or selling government bonds
B) The central bank setting interest rates
C) The government adjusting tax rates
D) The central bank adjusting reserve requirements for banks

 

According to the Monetarist school, inflation is primarily caused by:

A) Excessive government spending
B) Changes in aggregate demand
C) An increase in the money supply
D) A decrease in wages

 

The long-run aggregate supply curve is vertical because:

A) Prices adjust to shifts in aggregate demand
B) All markets clear and the economy is at full employment
C) The level of output is determined by aggregate demand
D) Wages and prices are sticky in the long run

 

If the economy is experiencing a negative output gap, which of the following would most likely be recommended?

A) An increase in taxes
B) An increase in government spending
C) A decrease in the money supply
D) A reduction in interest rates

 

In the Solow model, sustained growth in per capita income is primarily driven by:

A) Increases in capital accumulation
B) Increases in technological progress
C) Increases in the labor force
D) Increases in government spending

 

A recessionary gap occurs when:

A) Actual output is greater than potential output
B) The economy is at full employment
C) Actual output is less than potential output
D) There is no government intervention in the economy

 

In the context of the IS-LM model, the LM curve represents:

A) The relationship between the interest rate and output, given the level of money supply
B) The relationship between investment and output
C) The relationship between government spending and output
D) The relationship between taxes and investment

 

If the economy is in a recession, which of the following would be an appropriate fiscal policy?

A) Decrease government spending
B) Increase taxes
C) Increase government spending
D) Decrease interest rates

 

The “crowding-out effect” occurs when:

A) Government spending reduces private investment
B) Increased government spending increases private consumption
C) Higher taxes increase private investment
D) Private investment increases government revenue

 

 

Which of the following will shift the aggregate supply curve to the left?

A) A decrease in wages
B) An increase in government spending
C) An increase in the price of oil
D) A decrease in taxes

 

According to the classical model, the economy is always:

A) In a recession
B) At full employment in the long run
C) Subject to short-run fluctuations
D) Unable to reach long-run equilibrium without government intervention

 

The Keynesian view of aggregate supply suggests that:

A) Wages and prices are always flexible in the short run
B) Aggregate supply is vertical in the short run
C) Output is determined by aggregate demand in the short run
D) The economy is always at full employment

 

In the IS-LM model, an increase in the money supply leads to:

A) A rightward shift of the IS curve
B) A leftward shift of the LM curve
C) A rightward shift of the LM curve
D) A rightward shift of the aggregate supply curve

 

Which of the following is a tool of monetary policy?

A) Government spending
B) Taxes
C) Open market operations
D) Tariffs

 

The marginal propensity to consume (MPC) is:

A) The amount by which consumption changes as income changes
B) The total consumption in the economy
C) The portion of income saved
D) The level of investment in the economy

 

In the long run, the economy tends to move toward:

A) Equilibrium in the labor market
B) A recessionary gap
C) A constantly increasing inflation rate
D) Short-run disequilibrium

 

According to the quantity theory of money, an increase in the money supply leads to:

A) A permanent increase in real output
B) An increase in prices in the long run
C) An increase in real income in the short run
D) A decrease in the velocity of money

 

Which of the following best describes the relationship between the interest rate and investment in the IS-LM model?

A) A higher interest rate decreases investment
B) A higher interest rate increases investment
C) There is no relationship between the interest rate and investment
D) Investment is always equal to government spending

 

In the Keynesian cross model, if aggregate demand exceeds output, firms will:

A) Increase investment to meet demand
B) Decrease investment to reduce excess demand
C) Increase output to meet demand
D) Decrease output to avoid inflation

 

The marginal tax rate refers to:

A) The total amount of taxes paid divided by income
B) The tax rate on the last dollar of income
C) The average tax rate for all individuals
D) The amount of taxes paid on investments

 

In an open economy, the balance of payments includes:

A) Only domestic savings
B) Only government spending
C) The current account and the capital account
D) Only exports and imports

 

In the Solow growth model, an increase in the savings rate will lead to:

A) A higher level of output per worker in the steady state
B) A permanent increase in the growth rate of output
C) A reduction in the level of capital per worker in the steady state
D) No change in output per worker

 

A supply-side economist would argue that:

A) The government should increase taxes to reduce inflation
B) Higher taxes on corporations will lead to more investment
C) Reducing government regulation will increase the economy’s productive capacity
D) Lower interest rates will stimulate investment

 

If the central bank raises interest rates, this will likely:

A) Increase aggregate demand
B) Decrease the value of the currency
C) Decrease investment
D) Increase investment

 

In an economy, the government reduces taxes and increases government spending. The impact of this on aggregate demand will likely:

A) Decrease aggregate demand
B) Have no effect on aggregate demand
C) Increase aggregate demand
D) Increase the price level but not aggregate demand

 

The central bank’s primary tool for controlling inflation is:

A) The budget deficit
B) The money supply
C) Government spending
D) The level of taxation

 

If the economy is in an inflationary gap, the government may:

A) Increase government spending to stimulate the economy
B) Reduce taxes to increase disposable income
C) Increase taxes to reduce inflationary pressures
D) Decrease the money supply to reduce inflation

 

In the Solow model, if population growth increases, the steady-state level of capital per worker:

A) Increases
B) Decreases
C) Remains unchanged
D) Can either increase or decrease depending on savings rates

 

The opportunity cost of holding money refers to:

A) The amount of income that could have been earned by investing the money
B) The cost of producing money
C) The interest rate that must be paid on money borrowed
D) The value of goods that could have been purchased with the money

 

The IS-LM model illustrates the relationship between:

A) Inflation and interest rates
B) Aggregate supply and aggregate demand
C) Interest rates and output in the goods and money markets
D) Consumption and investment

 

Which of the following is most likely to increase aggregate demand?

A) An increase in taxes
B) A decrease in government spending
C) An increase in the money supply
D) A decrease in investment

 

The crowding-out effect refers to the idea that:

A) Government spending increases private investment
B) Higher taxes reduce private consumption
C) Government borrowing leads to higher interest rates, reducing private investment
D) Government spending decreases private consumption

 

The quantity theory of money assumes that:

A) The velocity of money is constant
B) The money supply and output are unrelated
C) Prices are rigid in the short run
D) The demand for money is a function of the interest rate

 

In the long run, an increase in the money supply results in:

A) A higher level of output
B) Higher wages and lower prices
C) Higher prices but no change in output
D) A permanent increase in employment

 

In the Keynesian cross model, the equilibrium level of output occurs when:

A) Investment equals consumption
B) Aggregate supply equals aggregate demand
C) The government budget is balanced
D) Output equals planned spending

 

The natural rate hypothesis suggests that:

A) Unemployment is always zero in the long run
B) There is a trade-off between inflation and unemployment in the long run
C) The economy will always return to the natural rate of unemployment in the long run
D) Inflation is not influenced by unemployment

 

A contractionary monetary policy typically involves:

A) Lowering interest rates
B) Raising interest rates
C) Increasing government spending
D) Decreasing taxes

 

If the government increases its spending in an economy, the multiplier effect means that:

A) The economy will experience a decrease in output
B) The increase in output will be less than the initial increase in government spending
C) The economy will experience an increase in output greater than the initial increase in government spending
D) The economy will experience no change in output

 

The long-run aggregate supply curve is vertical because:

A) The economy is always in equilibrium in the long run
B) Output is determined by factors like technology and resources, not the price level
C) Price levels determine the level of aggregate output in the long run
D) Wages and prices are sticky in the long run

 

 

Which of the following is most likely to cause a decrease in the aggregate supply?

A) A reduction in interest rates
B) An increase in labor productivity
C) A rise in the price of raw materials
D) An improvement in technology

 

In the Keynesian model, which of the following is true in the short run?

A) Prices and wages are flexible
B) The economy is always at full employment
C) Output is determined by aggregate demand
D) The economy is at the natural rate of unemployment

 

The LM curve represents:

A) The relationship between inflation and interest rates
B) The equilibrium in the goods market
C) The relationship between output and interest rates in the money market
D) The relationship between government spending and output

 

A reduction in the required reserve ratio by the central bank would likely:

A) Decrease the money supply
B) Increase the money supply
C) Have no effect on the money supply
D) Increase the interest rate

 

The long-run aggregate supply curve is vertical because:

A) It is determined by the money supply
B) Output is determined by technology, resources, and institutions, not the price level
C) It depends on the level of aggregate demand
D) It reflects short-run equilibrium

 

In the short run, an increase in government spending will most likely:

A) Decrease aggregate demand
B) Increase the price level without affecting output
C) Increase output and increase the price level
D) Decrease output and the price level

 

In the IS-LM model, if the central bank lowers the money supply, it will:

A) Increase the interest rate and decrease output
B) Decrease the interest rate and increase output
C) Increase both output and interest rates
D) Decrease the interest rate and decrease output

 

The real business cycle theory emphasizes:

A) Government intervention to stabilize the economy
B) The role of monetary policy in influencing output
C) Technology shocks and productivity changes as the main sources of economic fluctuations
D) The importance of fiscal policy in stabilizing economic activity

 

If the price level increases, in the short run, the LM curve will:

A) Shift to the right
B) Shift to the left
C) Remain unchanged
D) Become steeper

 

The crowding-out effect refers to:

A) A reduction in government spending when the economy is at full employment
B) A reduction in private investment due to increased government borrowing
C) An increase in private investment as a result of lower interest rates
D) The positive impact of government spending on private consumption

 

In the Solow growth model, the steady-state level of output per worker depends on:

A) The savings rate, population growth rate, and technology
B) Government policies alone
C) The level of government spending
D) The money supply

 

Which of the following best explains the downward slope of the aggregate demand curve?

A) The interest rate effect
B) The wealth effect
C) The exchange rate effect
D) All of the above

 

The government reduces its spending, and as a result, output falls. This illustrates:

A) The crowding-in effect
B) The crowding-out effect
C) The multiplier effect
D) The income-expenditure effect

 

In an economy with a fixed exchange rate, an increase in the money supply will:

A) Lead to depreciation of the currency
B) Lead to an increase in interest rates
C) Increase net exports
D) Lead to an increase in the money supply in the rest of the world

 

A decrease in taxes will most likely:

A) Increase government revenue
B) Decrease aggregate demand
C) Increase investment and consumption
D) Have no effect on the economy

 

Which of the following is the main assumption behind the classical model of economics?

A) Prices and wages are flexible
B) The government should intervene to stabilize the economy
C) The economy is subject to frequent shocks
D) The government should control the money supply

 

According to the Phillips curve, there is a trade-off between:

A) Unemployment and inflation in the short run
B) Government spending and inflation
C) Real output and inflation
D) Interest rates and unemployment

 

In the Solow model, technological progress leads to:

A) A higher rate of return on capital
B) An increase in output per worker in the long run
C) A decrease in the capital-to-labor ratio
D) A decrease in the savings rate

 

A movement along the aggregate demand curve is caused by:

A) Changes in the price level
B) Changes in government spending
C) Changes in the money supply
D) Changes in consumer preferences

 

The concept of the natural rate of unemployment refers to:

A) The unemployment rate at which inflation is at its lowest
B) The unemployment rate when the economy is at full employment
C) The unemployment rate during a recession
D) The unemployment rate when the labor market is at equilibrium

 

The interest rate effect explains why:

A) Aggregate demand increases as the price level rises
B) Investment decreases when interest rates rise
C) Aggregate demand increases as real income rises
D) The money supply decreases when interest rates rise

 

The Keynesian cross model assumes that:

A) Prices are flexible in the short run
B) Output is determined by aggregate supply
C) The economy is always in equilibrium
D) Investment is sensitive to changes in income

 

The Phillips curve in the long run is:

A) Horizontal
B) Vertical
C) Upward sloping
D) Downward sloping

 

In the IS-LM model, the LM curve shows:

A) The relationship between output and inflation
B) The relationship between interest rates and output in the goods market
C) The equilibrium in the money market
D) The effects of fiscal policy on aggregate demand

 

In the long run, an increase in government spending will:

A) Permanently increase output
B) Lead to a permanent increase in inflation
C) Lead to a temporary increase in output
D) Have no effect on output

 

The rational expectations theory suggests that:

A) People will form expectations based only on past information
B) Economic agents will adjust their behavior based on the information they have, and expectations will often be correct
C) The economy will always experience random fluctuations
D) Government intervention is necessary to stabilize the economy

 

The Keynesian cross model assumes that:

A) Prices adjust to bring the economy into equilibrium
B) Output is determined by the level of aggregate demand
C) Wages and prices are flexible in the short run
D) The economy is always at full employment

 

The short-run aggregate supply curve is upward sloping because:

A) Higher prices lead to higher wages
B) An increase in the price level leads to an increase in output
C) Prices are sticky in the short run
D) Wages are flexible in the short run

 

The concept of “sticky prices” suggests that:

A) Prices adjust immediately to changes in demand and supply
B) Prices are slow to adjust in the short run
C) Only wages are sticky in the short run
D) Prices adjust only when aggregate demand changes

 

In the Solow model, steady-state growth can occur through:

A) A higher rate of government spending
B) A higher rate of population growth
C) A decrease in the savings rate
D) Technological progress

 

 

The long-run aggregate supply curve is determined by:

A) The level of government spending
B) The price level
C) The supply of factors of production and technology
D) Aggregate demand

 

A decrease in the reserve requirement will lead to:

A) A decrease in the money supply
B) An increase in interest rates
C) A decrease in the interest rate
D) A reduction in bank reserves

 

Which of the following is an assumption of the classical model of economics?

A) The economy is always in equilibrium
B) Prices and wages are sticky in the short run
C) The government should intervene to stabilize the economy
D) Output is determined by aggregate demand

 

In the IS-LM model, a decrease in government spending will result in:

A) A rightward shift in the IS curve
B) A leftward shift in the LM curve
C) A leftward shift in the IS curve
D) A rightward shift in the LM curve

 

According to the theory of rational expectations, people:

A) Will always have incorrect expectations about the future
B) Will adjust their expectations based on all available information
C) Are unaware of future economic changes
D) Will only react to past economic conditions

 

In the short run, an increase in the money supply will:

A) Increase interest rates and decrease output
B) Decrease interest rates and increase output
C) Increase output and inflation without affecting interest rates
D) Decrease inflation and decrease output

 

Which of the following would shift the aggregate demand curve to the right?

A) A decrease in taxes
B) An increase in the price level
C) An increase in the interest rate
D) A decrease in government spending

 

The long-run effects of a permanent increase in government spending will most likely result in:

A) A permanent increase in output
B) A temporary increase in output, followed by a return to the natural rate of output
C) A permanent decrease in inflation
D) A decrease in interest rates

 

According to the liquidity preference theory, an increase in income will lead to:

A) An increase in the interest rate
B) A decrease in the interest rate
C) No change in the interest rate
D) A decrease in money demand

 

The crowding-out effect suggests that an increase in government spending will:

A) Increase private investment
B) Decrease private investment
C) Have no effect on private investment
D) Increase the money supply

 

According to the Solow growth model, sustained economic growth in the long run can only come from:

A) Increased savings
B) Technological progress
C) Increased government spending
D) Increased investment in human capital

 

The multiplier effect explains how:

A) Government spending can increase overall demand in the economy
B) An increase in the money supply increases investment
C) Lower taxes increase private consumption
D) A reduction in the reserve requirement increases the money supply

 

A recessionary gap exists when:

A) The actual output is greater than the potential output
B) The potential output exceeds actual output
C) The aggregate demand curve shifts rightward
D) The economy is experiencing high inflation

 

In the Keynesian model, the investment function is:

A) Independent of the interest rate
B) A function of interest rates and income
C) A function of only income
D) Unaffected by government policies

 

Which of the following will shift the aggregate supply curve to the left?

A) A decrease in resource prices
B) An increase in labor productivity
C) An increase in wages
D) An increase in technological innovation

 

According to the Phillips curve, if the government seeks to reduce inflation in the short run, it will likely:

A) Reduce government spending and increase unemployment
B) Increase government spending and increase employment
C) Lower interest rates and increase inflation
D) Increase taxes and reduce inflation without affecting unemployment

 

In the Solow model, the steady-state level of output per worker is:

A) Dependent only on the savings rate
B) A function of population growth and technological progress
C) Unaffected by technological progress
D) Determined by the interest rate

 

Which of the following is an example of automatic stabilizers?

A) Interest rate changes by the central bank
B) Government transfer payments like unemployment benefits
C) Tax increases during periods of economic growth
D) Cuts in defense spending during a recession

 

In an open economy, a decrease in the domestic interest rate will lead to:

A) A decrease in capital inflows
B) A decrease in net exports
C) An increase in exchange rates
D) An increase in capital inflows

 

A reduction in the capital stock will:

A) Lead to an increase in output in the long run
B) Increase the marginal product of labor
C) Shift the production function downward
D) Lead to an increase in the labor force

 

The concept of stagflation refers to:

A) A situation with rising inflation and rising unemployment
B) A situation with falling inflation and rising unemployment
C) A situation with low inflation and low unemployment
D) A situation with falling inflation and falling unemployment

 

In the IS-LM model, a decrease in the money supply will cause:

A) The IS curve to shift rightward
B) The LM curve to shift rightward
C) The LM curve to shift leftward
D) The IS curve to shift leftward

 

A shift in the aggregate supply curve to the right can result from:

A) A reduction in wages
B) An increase in government spending
C) A decrease in taxes
D) An increase in the money supply

 

According to the Keynesian cross model, an increase in autonomous spending will:

A) Have no effect on equilibrium output
B) Decrease equilibrium output
C) Increase equilibrium output by a factor greater than the increase in spending
D) Increase equilibrium output by an amount equal to the increase in spending

 

In the short run, the economy experiences a positive output gap when:

A) Actual output is greater than potential output
B) Potential output is greater than actual output
C) The unemployment rate is at the natural rate
D) The price level is falling

 

The quantity theory of money assumes that:

A) Money supply is controlled by the central bank
B) Prices are sticky in the short run
C) Velocity of money is constant
D) The government can influence the money supply

 

The trade-off between inflation and unemployment in the long run is:

A) Vertical
B) Positive
C) Negative
D) Undefined

 

According to the life-cycle hypothesis, consumption depends primarily on:

A) Current income only
B) The wealth accumulated over a lifetime
C) Future income expectations
D) Short-term changes in income

 

The Marginal Propensity to Consume (MPC) is defined as:

A) The change in consumption resulting from a change in income
B) The ratio of savings to income
C) The total amount spent by households on goods and services
D) The rate at which government spending affects output

 

The aggregate demand curve slopes downward because of:

A) The substitution effect
B) The income effect
C) The wealth effect
D) All of the above

 

 

The investment demand curve is downward sloping because:

A) Higher interest rates reduce the cost of borrowing
B) Higher interest rates increase the profitability of investments
C) Higher interest rates make borrowing more expensive
D) Higher interest rates reduce the supply of money in the economy

 

In the Keynesian model, when the economy is in a recession, the government can:

A) Increase taxes to reduce inflation
B) Increase government spending to stimulate aggregate demand
C) Decrease government spending to reduce demand-pull inflation
D) Increase interest rates to reduce aggregate demand

 

Which of the following policies would be most effective in reducing an inflationary gap?

A) Increasing taxes
B) Decreasing government spending
C) Reducing the money supply
D) All of the above

 

In the long run, an increase in the money supply will:

A) Increase real output
B) Decrease inflation
C) Only increase the price level
D) Increase both real output and price level

 

The equation of exchange in its simplest form is:

A) MV = PQR
B) MV = PQ
C) MV = Y
D) Y = C + I + G + X – M

 

Which of the following does not shift the long-run aggregate supply curve?

A) A change in the level of technology
B) A change in the quantity of capital
C) A change in the price level
D) A change in the labor force

 

In the Keynesian cross model, the equilibrium level of output occurs where:

A) Aggregate demand is equal to aggregate supply
B) Investment is equal to savings
C) Government spending equals tax revenue
D) The LM curve intersects the IS curve

 

According to the Solow growth model, if the savings rate increases, the economy will:

A) Move to a new steady-state with higher output per worker
B) Always experience higher growth rates in the long run
C) Stay at the original steady-state level of output
D) Experience a decrease in capital accumulation

 

The natural rate of unemployment is determined by:

A) The level of demand in the economy
B) The supply of labor and the efficiency of labor markets
C) The rate of inflation
D) The rate of economic growth

 

The LM curve represents the relationship between:

A) The price level and real output
B) The interest rate and the money supply
C) The interest rate and the level of income that equilibrates the money market
D) The level of income and the level of investment

 

The crowding-out effect refers to:

A) The increase in private investment due to higher government spending
B) The reduction in private investment due to higher government spending
C) The reduction in inflation caused by fiscal policy
D) The increase in interest rates due to increased investment

 

A rightward shift in the IS curve in the IS-LM model can be caused by:

A) A decrease in the money supply
B) A decrease in taxes
C) An increase in interest rates
D) A reduction in government spending

 

In an open economy, the exchange rate is determined by:

A) The demand and supply of foreign goods
B) The supply and demand for foreign currencies
C) The level of imports and exports
D) The level of government intervention in foreign exchange markets

 

In the Solow growth model, an increase in population growth leads to:

A) A higher steady-state level of output per worker
B) A higher steady-state level of output
C) A lower steady-state level of output per worker
D) No change in output levels

 

The term “stagflation” refers to:

A) High unemployment and low inflation
B) Low unemployment and low inflation
C) High inflation and high unemployment
D) Low inflation and high output

 

The trade-off between inflation and unemployment in the short run is depicted by:

A) The Solow growth model
B) The Phillips curve
C) The IS-LM model
D) The aggregate demand curve

 

A decrease in the money supply leads to:

A) A decrease in interest rates
B) An increase in interest rates
C) A decrease in the price level
D) A decrease in unemployment

 

According to the permanent income hypothesis, people base their consumption decisions on:

A) Current income only
B) Expected future income
C) The level of government spending
D) The rate of inflation

 

If the central bank adopts an expansionary monetary policy, it will:

A) Decrease the money supply and raise interest rates
B) Increase the money supply and lower interest rates
C) Decrease the money supply and lower interest rates
D) Increase taxes and reduce the budget deficit

 

The aggregate demand curve slopes downward because:

A) An increase in the price level reduces the demand for money
B) An increase in the price level reduces real wealth and consumption
C) An increase in the price level increases the supply of goods and services
D) An increase in the price level leads to a shift of the LM curve

 

The liquidity preference theory of the interest rate suggests that:

A) Interest rates are determined by the demand for and supply of money
B) Interest rates are determined by the demand for goods and services
C) Interest rates are unaffected by the money supply
D) Interest rates are always constant

 

In the IS-LM model, fiscal policy is represented by shifts in:

A) The IS curve
B) The LM curve
C) The aggregate demand curve
D) The supply curve

 

In the classical model, if the government increases its spending, it will:

A) Increase output and reduce unemployment
B) Not affect output in the long run
C) Lead to a permanent increase in real GDP
D) Shift the aggregate supply curve to the left

 

The marginal propensity to save (MPS) is:

A) The change in savings resulting from a change in income
B) The change in consumption resulting from a change in income
C) The ratio of savings to income
D) The amount of money the government saves

 

The aggregate supply curve is upward sloping in the short run because:

A) Prices of all goods and services are fixed in the short run
B) An increase in the price level leads to an increase in output in the short run
C) Wages are variable in the short run
D) An increase in the money supply leads to an increase in output

 

According to the Ricardian equivalence theorem, if the government increases deficit spending:

A) It will reduce national savings
B) It will have no effect on the economy in the long run
C) It will increase private savings
D) It will increase interest rates and reduce investment

 

The multiplier effect is larger when:

A) The marginal propensity to save is high
B) The economy is in a recession
C) The marginal propensity to consume is high
D) The government reduces taxes

 

The long-run aggregate supply curve is:

A) Horizontal
B) Vertical
C) Upward sloping
D) Downward sloping

 

A decrease in the supply of money causes:

A) An increase in the price level
B) A decrease in output and employment
C) A decrease in interest rates
D) An increase in investment

 

In the Keynesian model, when aggregate demand increases, the price level:

A) Always increases
B) Increases only in the long run
C) Remains unchanged
D) Decreases

 

 

The marginal propensity to consume (MPC) is:

A) The change in consumption resulting from a change in income
B) The change in investment resulting from a change in income
C) The ratio of income to consumption
D) The total consumption in the economy

 

According to the quantity theory of money, if the money supply increases by 10% and the velocity of money and real output remain constant, the price level will:

A) Increase by 10%
B) Decrease by 10%
C) Remain unchanged
D) Increase by more than 10%

 

The classical dichotomy suggests that in the long run, real variables (such as output and employment) are:

A) Influenced by monetary policy
B) Affected by changes in the money supply
C) Independent of nominal variables like the price level
D) Determined by aggregate demand

 

According to the IS-LM model, an increase in government spending will lead to:

A) A decrease in interest rates and an increase in income
B) A decrease in income and a decrease in interest rates
C) An increase in income and an increase in interest rates
D) No change in income or interest rates

 

In the short run, an increase in the price level will:

A) Increase the quantity of output supplied
B) Decrease the quantity of output supplied
C) Not affect output
D) Shift the aggregate supply curve to the left

 

According to the Solow growth model, an increase in the savings rate will:

A) Lead to higher growth rates in the long run
B) Increase capital per worker in the long run
C) Increase the steady-state level of output per worker
D) Decrease output per worker in the short run

 

The Phillips curve suggests that in the short run, there is a trade-off between:

A) Inflation and output
B) Unemployment and inflation
C) Unemployment and output
D) Inflation and interest rates

 

In an open economy, if a country experiences an increase in the domestic interest rate, it will likely:

A) Increase its exports
B) Decrease its imports
C) Experience an appreciation of its currency
D) Experience a depreciation of its currency

 

In the classical model, an increase in the money supply will:

A) Increase output in the long run
B) Decrease interest rates in the long run
C) Only affect the price level, not real output
D) Increase both output and price level

 

The aggregate demand curve slopes downward because of the:

A) Real balance effect, the interest rate effect, and the exchange rate effect
B) Increase in income with higher prices
C) Negative relationship between supply and demand
D) Law of diminishing returns

 

According to the real business cycle theory, economic fluctuations are primarily caused by:

A) Changes in monetary policy
B) Changes in government spending
C) Technological shocks and changes in productivity
D) Changes in aggregate demand

 

The multiplier effect is:

A) Larger when the marginal propensity to save is high
B) Larger when the marginal propensity to consume is high
C) Smaller when the marginal tax rate is high
D) Equal to one in all cases

 

In the Solow model, an increase in technological progress will lead to:

A) A higher steady-state level of output
B) A permanent increase in the growth rate of output
C) A temporary increase in output that returns to the steady state
D) No change in output in the long run

 

The Fisher equation links the nominal interest rate (i), real interest rate (r), and inflation rate (π) as follows:

A) i = r + π
B) i = r × π
C) i = r − π
D) i = r / π

 

In the Keynesian model, if investment decreases, the aggregate demand curve will:

A) Shift to the left
B) Shift to the right
C) Remain unchanged
D) Become vertical

 

The natural rate hypothesis suggests that:

A) The economy can achieve any level of unemployment through government policies
B) The economy tends to return to the natural rate of unemployment in the long run
C) Inflation will always increase as unemployment decreases
D) There is no long-run relationship between unemployment and inflation

 

According to the IS-LM model, a decrease in the money supply will:

A) Lower interest rates and increase income
B) Raise interest rates and decrease income
C) Lower interest rates and decrease income
D) Have no effect on income or interest rates

 

The “crowding-out” effect refers to:

A) The reduction in private investment due to government borrowing
B) The increase in private investment due to lower interest rates
C) The increase in consumer spending due to lower taxes
D) The reduction in government spending due to higher taxes

 

The Long Run Phillips Curve is:

A) Vertical at the natural rate of unemployment
B) Horizontal at the natural rate of unemployment
C) Downward sloping
D) Upward sloping

 

The balanced budget multiplier is:

A) Zero because government spending equals taxes
B) Greater than one due to increased private investment
C) Equal to one because changes in spending and taxes are proportionate
D) Negative because government spending reduces investment

 

A decrease in taxes will:

A) Increase government spending and reduce national savings
B) Increase aggregate demand and real GDP
C) Increase the price level without changing output
D) Decrease output in the long run

 

In the short run, an increase in wages leads to:

A) A shift of the aggregate demand curve to the right
B) A shift of the aggregate supply curve to the left
C) An increase in output
D) An increase in the price level without a change in output

 

If a country runs a trade deficit, it must be:

A) Borrowing from abroad or selling domestic assets
B) Receiving net foreign investments
C) Experiencing inflation
D) Exports exceeding imports

 

In the Keynesian cross model, an increase in investment shifts the:

A) Aggregate supply curve to the right
B) Aggregate demand curve to the right
C) IS curve to the left
D) LM curve to the left

 

The liquidity trap occurs when:

A) The money supply is too high, leading to hyperinflation
B) Interest rates are very high, and investment falls
C) The demand for money becomes perfectly interest inelastic at low interest rates
D) Aggregate demand is greater than aggregate supply

 

In the Solow growth model, the steady-state level of output per worker depends on:

A) The savings rate, population growth rate, and technological progress
B) The level of government spending and taxation
C) The price level and interest rates
D) The size of the labor force and the capital stock

 

The Fisher effect describes the relationship between:

A) Real interest rates and the money supply
B) Nominal interest rates and inflation expectations
C) Output and the interest rate
D) The natural rate of unemployment and inflation

 

The “sticky price” theory of the short-run aggregate supply curve suggests that:

A) Prices adjust immediately to changes in demand
B) Prices are slow to adjust due to menu costs or other frictions
C) The aggregate supply curve is vertical in the short run
D) Prices do not affect the quantity of output in the short run

 

In an open economy, if the domestic interest rate rises, the value of the currency is likely to:

A) Depreciate
B) Appreciate
C) Stay the same
D) Become more volatile

 

The central bank uses monetary policy to:

A) Control the money supply and stabilize prices
B) Adjust tax rates and government spending
C) Control the level of investment in the economy
D) Directly influence the level of real GDP

 

 

The aggregate demand curve shows the relationship between:

A) Interest rates and the price level
B) Output and the interest rate
C) Price level and the quantity of output demanded
D) Government spending and consumption

 

In the short run, an increase in government spending leads to:

A) An increase in income and a decrease in interest rates
B) A decrease in income and an increase in interest rates
C) An increase in income and an increase in interest rates
D) A decrease in income and no change in interest rates

 

The long-run aggregate supply curve is:

A) Downward sloping
B) Vertical at the natural level of output
C) Horizontal
D) Upward sloping

 

The central bank’s policy of increasing the money supply primarily affects:

A) The interest rate
B) The price level
C) Output and employment
D) All of the above

 

In the IS-LM model, an increase in the money supply leads to:

A) A higher interest rate
B) An increase in income
C) A decrease in income
D) A decrease in the price level

 

The concept of the “natural rate of unemployment” refers to:

A) The rate of unemployment when the economy is in a recession
B) The long-term level of unemployment that an economy experiences even in the absence of cyclical fluctuations
C) The level of unemployment when inflation is zero
D) The difference between the labor force participation rate and the unemployment rate

 

The Keynesian cross model shows that:

A) Aggregate output is determined by the intersection of aggregate demand and aggregate supply
B) The level of income depends on government spending and investment
C) The economy is always at full employment in the short run
D) Prices adjust instantly to changes in the money supply

 

According to the classical model, changes in the money supply only affect:

A) Output and unemployment
B) Real variables such as output and employment
C) Nominal variables like the price level
D) None of the above

 

A rise in the money supply will, in the short run, lead to:

A) Higher output and higher prices
B) Higher output and lower prices
C) Lower output and higher prices
D) Lower output and lower prices

 

According to the quantity theory of money, if the velocity of money is constant and the money supply increases, then:

A) Output increases proportionally
B) Prices increase proportionally
C) The interest rate decreases
D) Output decreases proportionally

 

The fiscal policy that increases government spending to stimulate the economy is known as:

A) Contractionary fiscal policy
B) Expansionary fiscal policy
C) Monetary policy
D) Supply-side fiscal policy

 

The crowding-out effect suggests that:

A) Increased government spending may reduce private sector investment
B) Increased taxes will lead to more private sector investment
C) Higher interest rates encourage private sector investment
D) Increased government spending leads to higher taxes

 

The short-run aggregate supply curve is upward sloping because:

A) Wages and prices are fixed in the short run
B) Wages and prices are flexible in the short run
C) An increase in the price level increases the incentive for firms to produce more
D) There is a negative relationship between wages and the price level

 

In an open economy, an increase in domestic interest rates typically leads to:

A) A decrease in the exchange rate
B) A decrease in the demand for imports
C) An increase in the value of the domestic currency
D) An increase in the interest rate differential with foreign countries

 

According to the Phillips curve, if unemployment falls below the natural rate, inflation tends to:

A) Stay constant
B) Fall
C) Rise
D) Become unpredictable

 

A change in which of the following will NOT shift the aggregate demand curve?

A) A change in government spending
B) A change in consumer confidence
C) A change in interest rates
D) A change in input prices

 

The “liquidity trap” occurs when:

A) Interest rates are very low, and monetary policy becomes ineffective
B) The demand for money is perfectly elastic
C) Government borrowing crowds out private investment
D) The economy is in a recessionary gap

 

In the Solow growth model, an increase in the savings rate leads to:

A) A permanent increase in the growth rate of output
B) An increase in capital per worker in the long run
C) A decrease in output per worker in the steady state
D) A higher steady-state level of consumption per worker

 

A country’s trade deficit is:

A) The difference between its imports and exports
B) The amount by which its imports exceed exports
C) The amount by which its exports exceed imports
D) The difference between its income and its expenditure

 

In the Keynesian model, a decrease in investment will lead to:

A) A decrease in the price level
B) A decrease in national income
C) An increase in national income
D) No change in national income

 

The government can reduce inflation in the short run by:

A) Increasing government spending
B) Decreasing taxes
C) Decreasing the money supply
D) Decreasing interest rates

 

The central bank can increase the money supply by:

A) Increasing government spending
B) Buying government bonds on the open market
C) Raising the discount rate
D) Decreasing the reserve requirement

 

The “crowding-in” effect occurs when:

A) Increased government spending leads to an increase in private sector investment
B) Private investment declines due to government borrowing
C) Government spending reduces the national debt
D) Government borrowing leads to an increase in interest rates

 

The “velocity of money” refers to:

A) The rate at which the money supply is growing
B) The number of times money circulates in the economy in a given time period
C) The demand for money
D) The interest rate on money held in bank accounts

 

In the IS-LM model, a rightward shift in the IS curve represents:

A) An increase in government spending
B) A decrease in interest rates
C) An increase in the money supply
D) A decrease in taxes

 

According to the real business cycle theory, economic fluctuations are caused by:

A) Changes in aggregate demand
B) Technological shocks and changes in productivity
C) Changes in the money supply
D) Government fiscal policy

 

The natural rate of output is determined by:

A) Aggregate demand
B) Aggregate supply
C) The amount of government spending
D) The level of technological progress and capital

 

A rise in the price level leads to:

A) A movement along the aggregate supply curve
B) A shift of the aggregate demand curve to the right
C) A decrease in output in the long run
D) An increase in interest rates

 

According to the Ricardian equivalence theorem, government borrowing:

A) Has no effect on national income because people save more to offset the government’s future tax liabilities
B) Increases national income in the short run
C) Increases private investment
D) Decreases savings in the economy

 

In the short run, a decrease in wages results in:

A) A decrease in the price level and an increase in output
B) An increase in the price level and a decrease in output
C) A decrease in output with no effect on prices
D) An increase in output and a decrease in the price level

 

 

An increase in government spending will, in the short run, most likely:

A) Increase national income and employment
B) Decrease national income and employment
C) Have no effect on national income or employment
D) Increase the interest rate without affecting employment

 

The LM curve represents the relationship between:

A) Output and the price level
B) Output and interest rates in the money market
C) Government spending and income
D) Inflation and unemployment

 

A decrease in taxes will lead to:

A) A decrease in aggregate demand
B) An increase in aggregate supply
C) An increase in consumption and output
D) A decrease in national income

 

In the long run, an increase in the money supply will:

A) Increase real output
B) Decrease inflation
C) Have no effect on real output
D) Increase unemployment

 

The multiplier effect occurs because:

A) An initial increase in spending causes an increase in income, leading to further increases in spending
B) A decrease in interest rates leads to higher savings, which raises aggregate demand
C) A rise in wages increases output directly
D) An increase in taxes stimulates demand in the economy

 

The aggregate supply curve in the short run is:

A) Vertical
B) Horizontal
C) Upward sloping
D) Downward sloping

 

If the economy is operating below full employment, an increase in government spending will:

A) Increase inflation without affecting output
B) Increase both output and employment
C) Have no effect on output or employment
D) Reduce output and increase unemployment

 

Which of the following best describes the Phillips curve in the short run?

A) There is a trade-off between inflation and unemployment
B) There is a fixed relationship between inflation and output
C) There is no relationship between inflation and unemployment
D) Unemployment is always at the natural rate

 

The main purpose of contractionary fiscal policy is to:

A) Increase the level of investment in the economy
B) Reduce aggregate demand and control inflation
C) Lower the interest rate
D) Increase the money supply

 

A reduction in the reserve requirement by the central bank would:

A) Decrease the money supply
B) Increase the money supply
C) Have no effect on the money supply
D) Increase the interest rate

 

If the central bank raises interest rates, in the short run this will:

A) Increase investment and shift the IS curve rightward
B) Decrease investment and shift the IS curve leftward
C) Increase investment and shift the LM curve leftward
D) Decrease investment and shift the LM curve rightward

 

The “crowding-out effect” suggests that:

A) Government spending increases private investment
B) Government spending reduces private investment by increasing interest rates
C) Government spending has no effect on private investment
D) Government spending stimulates both private and public investment

 

A shift to the right in the IS curve typically represents:

A) An increase in consumer confidence or government spending
B) A decrease in consumer confidence or government spending
C) A decrease in taxes or an increase in interest rates
D) A decrease in exports

 

The classical model of aggregate supply assumes that:

A) The economy is always at full employment in the long run
B) The economy can operate below full employment indefinitely
C) The government can influence aggregate demand
D) There is no relationship between inflation and unemployment in the short run

 

The slope of the aggregate demand curve is primarily determined by:

A) The elasticity of demand for exports
B) The interest rate effect, wealth effect, and exchange rate effect
C) The money supply
D) The productivity of labor

 

The interest rate effect occurs because:

A) As the price level increases, households feel wealthier, leading to more consumption
B) As the price level rises, the demand for money increases, pushing up interest rates
C) As the interest rate rises, investments become less attractive
D) As the interest rate falls, consumption and investment both increase

 

According to the Solow growth model, in the steady state:

A) The economy grows at a constant rate
B) Output per worker is constant
C) The capital stock continues to increase without bound
D) There is no long-run economic growth

 

A decrease in the foreign exchange value of a currency typically results in:

A) A decrease in exports
B) An increase in imports
C) An increase in exports
D) No change in the trade balance

 

A rise in the price level will most likely result in:

A) A leftward shift of the aggregate demand curve
B) A rightward shift of the aggregate supply curve
C) A leftward shift of the aggregate supply curve
D) A movement along the aggregate demand curve

 

In the short run, the output gap measures:

A) The difference between the current level of output and potential output
B) The difference between actual unemployment and natural unemployment
C) The difference between real and nominal GDP
D) The difference between savings and investment

 

The effectiveness of monetary policy depends on:

A) The level of government spending
B) The responsiveness of investment and consumption to changes in interest rates
C) The size of the government deficit
D) The tax rate

 

The long-run aggregate supply curve is vertical because:

A) It reflects the economy’s full employment output
B) It is determined by the money supply
C) It depends on changes in government spending
D) It depends on changes in monetary policy

 

In the IS-LM model, an increase in government spending:

A) Shifts the LM curve to the right
B) Shifts the IS curve to the left
C) Shifts the IS curve to the right
D) Shifts the LM curve to the left

 

According to the theory of rational expectations, if people expect inflation to rise, they:

A) Will reduce consumption
B) Will increase savings
C) Will adjust their behavior in anticipation of higher prices
D) Will not change their behavior

 

A decrease in the money supply in the short run will lead to:

A) A decrease in both output and interest rates
B) An increase in both output and interest rates
C) A decrease in output and an increase in interest rates
D) An increase in output and a decrease in interest rates

 

The marginal propensity to consume (MPC) refers to:

A) The fraction of additional income that is saved
B) The fraction of additional income that is consumed
C) The fraction of national income that is consumed
D) The difference between saving and consumption

 

The exchange rate effect on aggregate demand suggests that:

A) A higher price level makes domestic goods more expensive, reducing exports
B) A higher price level makes domestic goods cheaper, increasing exports
C) A higher price level increases the money supply
D) A higher price level increases interest rates and reduces consumption

 

The central bank can reduce the money supply by:

A) Lowering taxes
B) Selling government bonds in the open market
C) Lowering the discount rate
D) Reducing government spending

 

A trade surplus occurs when:

A) Exports exceed imports
B) Imports exceed exports
C) The government budget is balanced
D) The money supply increases

 

In the short run, a decrease in the price level leads to:

A) An increase in real money balances and an increase in output
B) A decrease in real money balances and a decrease in output
C) An increase in real money balances and a decrease in output
D) A decrease in real money balances and an increase in output

 

 

The concept of “sticky prices” refers to:

A) Prices that adjust instantaneously to changes in supply and demand
B) Prices that do not change quickly in response to economic conditions
C) The fixed price level set by the government
D) The adjustment of wages to changes in unemployment

 

According to the classical model, in the long run:

A) The economy operates below full employment
B) The economy adjusts automatically to full employment
C) Government intervention is required to maintain full employment
D) Money supply changes affect real output permanently

 

The supply-side economics theory suggests that:

A) Cutting taxes on consumers will stimulate demand
B) Lower taxes and less regulation will increase production and economic growth
C) Increased government spending is the primary driver of economic growth
D) Government should increase spending to increase employment

 

Which of the following is a tool of monetary policy?

A) Tax rates
B) Government spending
C) Open market operations
D) Minimum wage laws

 

The long-run growth rate of an economy is determined by:

A) The level of government spending
B) The supply of labor and technology
C) Changes in aggregate demand
D) The inflation rate

 

If the central bank wants to reduce inflation, it will most likely:

A) Increase government spending
B) Increase the money supply
C) Increase the interest rate
D) Decrease taxes

 

The “natural rate of unemployment” refers to:

A) The rate of unemployment that occurs due to changes in technology
B) The level of unemployment that results from business cycles
C) The level of unemployment that occurs even when the economy is at full employment
D) The rate of unemployment that occurs when there is a recession

 

The consumption function shows the relationship between:

A) Government spending and national income
B) Consumption and income
C) Investment and interest rates
D) Taxes and investment

 

In the short run, a decrease in the price level will likely:

A) Increase output and employment
B) Decrease output and employment
C) Have no effect on output and employment
D) Increase the level of government spending

 

A rightward shift of the IS curve indicates:

A) An increase in government spending or investment
B) A decrease in the price level
C) A decrease in taxes
D) A decrease in government spending

 

The trade-off between inflation and unemployment in the short run is illustrated by:

A) The Phillips curve
B) The LM curve
C) The IS curve
D) The aggregate supply curve

 

In the Solow growth model, technological progress:

A) Reduces the growth rate of output
B) Increases the long-run level of output per worker
C) Has no effect on the long-run growth rate of the economy
D) Leads to higher levels of unemployment

 

In an open economy, if the exchange rate rises, this will typically:

A) Decrease exports and increase imports
B) Increase exports and decrease imports
C) Have no effect on trade balance
D) Increase both exports and imports

 

A decrease in the money supply leads to:

A) An increase in output
B) An increase in the interest rate
C) A decrease in unemployment
D) An increase in inflation

 

If the central bank raises reserve requirements for commercial banks, this will:

A) Increase the money supply
B) Decrease the money supply
C) Have no effect on the money supply
D) Decrease interest rates

 

The “liquidity trap” occurs when:

A) Interest rates are very high
B) The economy experiences hyperinflation
C) People prefer holding money over bonds, even at low interest rates
D) The money supply is very large relative to demand

 

The LM curve shows the relationship between:

A) Output and the interest rate in the goods market
B) Government spending and output
C) The money supply and interest rates
D) Interest rates and money demand in the money market

 

An increase in the marginal propensity to consume (MPC) will:

A) Reduce the value of the multiplier
B) Increase the value of the multiplier
C) Have no effect on the multiplier
D) Decrease consumption in the economy

 

In the short run, an increase in government spending:

A) Shifts the aggregate demand curve leftward
B) Shifts the aggregate demand curve rightward
C) Has no effect on the economy
D) Shifts the aggregate supply curve leftward

 

If a country has a current account deficit, it must:

A) Borrow from abroad or sell assets
B) Increase exports to balance trade
C) Decrease investment to reduce imports
D) Increase government spending

 

The labor force participation rate is defined as the:

A) Ratio of employed workers to total working-age population
B) Ratio of unemployed workers to total working-age population
C) Percentage of the working-age population that is employed or actively seeking work
D) Total number of people employed in the economy

 

The IS curve slopes downward because:

A) A higher interest rate leads to more investment and higher output
B) A higher interest rate reduces investment, leading to lower output
C) An increase in the money supply increases output
D) A decrease in taxes leads to higher output

 

In the long run, an increase in government spending financed by borrowing is likely to:

A) Increase national savings and investment
B) Increase the interest rate and crowd out private investment
C) Have no effect on aggregate output
D) Reduce the level of national income

 

The main difference between fiscal policy and monetary policy is that:

A) Fiscal policy is managed by the central bank, while monetary policy is managed by the government
B) Fiscal policy involves changes in government spending and taxes, while monetary policy involves changes in the money supply and interest rates
C) Fiscal policy can only be used during recessions, while monetary policy can only be used during inflationary periods
D) Fiscal policy targets unemployment, while monetary policy targets inflation

 

A change in which of the following would cause a shift in the IS curve?

A) The money supply
B) Government spending
C) The price level
D) The demand for money

 

The long-run aggregate supply curve is:

A) Horizontal
B) Upward sloping
C) Vertical
D) Downward sloping

 

In a closed economy, saving is equal to:

A) Investment plus government spending
B) Investment plus net exports
C) Investment
D) Investment minus government spending

 

The multiplier effect is larger when:

A) The marginal propensity to save is higher
B) The marginal propensity to consume is higher
C) Taxes are increased
D) The interest rate increases

 

 

The primary goal of monetary policy is to:

A) Control inflation and stabilize the economy
B) Increase government spending
C) Control interest rates in the short run
D) Ensure full employment in the economy

 

The Keynesian cross model shows the relationship between:

A) Government spending and the money supply
B) Aggregate demand and the interest rate
C) National income and aggregate expenditure
D) National income and the money supply

 

The natural rate hypothesis suggests that:

A) There is always a trade-off between inflation and unemployment
B) The economy will always return to full employment in the long run
C) Unemployment can never fall below a certain level without causing inflation
D) Fiscal policy is ineffective in the long run

 

Which of the following is most likely to shift the aggregate demand curve to the right?

A) A decrease in government spending
B) A rise in interest rates
C) A tax cut
D) A decrease in consumer confidence

 

The Fisher equation shows the relationship between:

A) Nominal interest rates and real interest rates
B) Government spending and national income
C) Tax rates and investment
D) Unemployment and inflation

 

In the AD-AS model, an increase in aggregate demand leads to:

A) A reduction in output and a higher price level
B) A reduction in output and a lower price level
C) A higher output and a higher price level
D) A higher output and a lower price level

 

Which of the following is a factor that can shift the aggregate supply curve?

A) Changes in government spending
B) Changes in interest rates
C) Changes in input prices
D) Changes in consumer confidence

 

In the Solow model, long-run economic growth is driven by:

A) Increases in government spending
B) Increases in technology and capital accumulation
C) Increases in the labor force only
D) Increases in the money supply

 

A fiscal policy that increases taxes and reduces government spending is likely to:

A) Increase aggregate demand
B) Decrease aggregate demand
C) Increase the interest rate
D) Increase investment

 

The Laffer Curve shows the relationship between:

A) Tax rates and tax revenue
B) Interest rates and investment
C) Inflation rates and unemployment
D) Government spending and inflation

 

According to the Quantity Theory of Money, an increase in the money supply leads to:

A) A decrease in real GDP
B) An increase in the price level
C) An increase in output without affecting prices
D) A decrease in inflation

 

A decrease in the money supply will likely:

A) Increase output
B) Lower interest rates
C) Increase the price level
D) Increase the interest rate

 

Which of the following is true according to the Ricardian equivalence proposition?

A) Government spending always leads to higher aggregate demand
B) Tax cuts increase aggregate demand in the short run
C) Households will save more in anticipation of future taxes if the government cuts taxes today
D) An increase in government spending will have no effect on output

 

The crowding-out effect refers to the idea that:

A) An increase in government spending leads to a decrease in private investment
B) An increase in private investment leads to a decrease in government spending
C) The government cannot influence national income
D) An increase in taxes leads to higher private investment

 

If the central bank wants to decrease inflation, it might:

A) Decrease the money supply
B) Increase government spending
C) Lower interest rates
D) Decrease taxes

 

The marginal propensity to save (MPS) is:

A) The change in savings divided by the change in income
B) The change in consumption divided by the change in income
C) The total savings in the economy divided by income
D) The total consumption in the economy divided by income

 

In the IS-LM model, a decrease in government spending will:

A) Shift the IS curve to the right
B) Shift the IS curve to the left
C) Shift the LM curve to the right
D) Shift the LM curve to the left

 

The Phillips curve shows the relationship between:

A) Inflation and government spending
B) Unemployment and inflation
C) Interest rates and investment
D) The money supply and the price level

 

The aggregate supply curve is upward sloping in the:

A) Short run
B) Long run
C) Very short run
D) Very long run

 

According to the Keynesian cross model, an increase in autonomous spending leads to:

A) A decrease in national income
B) No change in national income
C) An increase in national income
D) A decrease in output

 

The long-run Phillips curve is:

A) Vertical
B) Horizontal
C) Upward sloping
D) Downward sloping

 

A negative supply shock, such as an increase in oil prices, will likely:

A) Increase output and lower prices
B) Increase output and increase prices
C) Decrease output and increase prices
D) Decrease output and decrease prices

 

The Keynesian multiplier is larger when:

A) The marginal propensity to consume is smaller
B) The marginal propensity to consume is larger
C) The interest rate is high
D) The interest rate is low

 

A decrease in interest rates will likely:

A) Reduce consumption and investment
B) Increase consumption and investment
C) Increase taxes
D) Increase the price level

 

The central bank can affect aggregate demand by changing:

A) The money supply
B) The level of government spending
C) The level of taxation
D) The budget deficit

 

The classical dichotomy suggests that:

A) Monetary policy affects both real and nominal variables in the short run
B) In the long run, monetary policy affects only nominal variables
C) Fiscal policy is the most effective tool for stabilizing the economy
D) Government spending has no effect on output

 

If the government increases spending by $500 billion and the marginal propensity to consume is 0.8, the total increase in GDP will be:

A) $2,500 billion
B) $2,000 billion
C) $500 billion
D) $400 billion

 

 

The aggregate demand curve is downward sloping because:

A) Higher price levels reduce the purchasing power of money
B) A higher price level leads to higher interest rates
C) An increase in government spending shifts the demand curve to the left
D) Lower price levels lead to increased output

 

In the long run, the economy will tend to:

A) Reach full employment
B) Experience higher inflation
C) Have a fixed level of output
D) Continue to experience fluctuations

 

According to the Solow growth model, the long-run economic growth rate is determined by:

A) Capital accumulation alone
B) The money supply
C) Technological progress
D) Government spending

 

The main limitation of fiscal policy in stabilizing the economy is:

A) The slow response time due to delays in legislative action
B) The effect of changes in the money supply on aggregate demand
C) The short-term nature of changes in the interest rate
D) The permanent increase in government debt

 

The effect of an increase in the money supply on the interest rate is:

A) Interest rates decrease because there is more money in circulation
B) Interest rates increase because of higher demand for loans
C) The money supply does not affect interest rates
D) Interest rates remain unchanged due to a perfect market

 

If the economy is at full employment and the government increases spending, it will most likely lead to:

A) A rightward shift of the short-run aggregate supply curve
B) An increase in both output and prices
C) A decrease in prices and an increase in output
D) A decrease in output and an increase in inflation

 

Which of the following is a characteristic of a Keynesian economics view?

A) The economy will always self-correct
B) Aggregate demand can be influenced by government policy
C) Prices and wages are flexible in the short run
D) The government should avoid intervening in the market

 

An increase in the price of oil will likely lead to:

A) A shift in the aggregate supply curve to the right
B) A shift in the aggregate supply curve to the left
C) An increase in aggregate demand
D) A decrease in the price level

 

The Taylor Rule is used to:

A) Predict the inflation rate
B) Guide monetary policy based on inflation and output deviations
C) Set tax rates
D) Determine government spending levels

 

According to the IS-LM model, an increase in taxes shifts the IS curve:

A) To the right
B) To the left
C) Downward
D) Upward

 

The long-run aggregate supply curve is vertical because:

A) Prices are fixed in the long run
B) Wages and prices are flexible in the long run
C) The economy will always return to full employment
D) The level of output does not depend on the price level

 

If the economy is operating below full employment, the central bank might:

A) Increase the money supply to stimulate aggregate demand
B) Decrease the money supply to reduce inflation
C) Increase taxes to reduce the deficit
D) Cut government spending to reduce inflation

 

The spending multiplier is greater when:

A) The marginal propensity to consume is higher
B) The interest rate is higher
C) Government spending is low
D) Investment is low

 

If the central bank buys government bonds in the open market, this will:

A) Increase the money supply and lower interest rates
B) Decrease the money supply and raise interest rates
C) Raise the money supply and raise interest rates
D) Decrease the money supply and lower interest rates

 

In the long run, fiscal policy is likely to:

A) Be effective in influencing aggregate demand
B) Have no impact on output
C) Affect the price level but not output
D) Change the natural rate of output

 

The classical view of the economy suggests that:

A) Prices are sticky in the short run
B) The economy is self-adjusting and can reach full employment without government intervention
C) Aggregate demand is always the most important determinant of output
D) Fiscal policy is essential for long-run growth

 

The quantity theory of money suggests that:

A) Money supply does not affect inflation
B) An increase in the money supply will increase the price level
C) Interest rates are unrelated to the money supply
D) The central bank has no influence on the economy

 

A decrease in the marginal propensity to consume will lead to:

A) A larger multiplier effect
B) A smaller multiplier effect
C) An increase in government spending
D) An increase in aggregate demand

 

In the short run, a decrease in government spending will:

A) Increase national income
B) Decrease national income
C) Increase the price level
D) Decrease the money supply

 

The IS curve represents the relationship between:

A) The interest rate and the level of investment
B) The interest rate and the level of output in the goods market
C) Aggregate demand and supply
D) The money supply and the price level

 

A recessionary gap occurs when:

A) Actual output exceeds potential output
B) Aggregate demand is greater than aggregate supply
C) The economy is in a period of inflation
D) Actual output is less than potential output

 

According to the real business cycle theory, economic fluctuations are primarily caused by:

A) Changes in consumer confidence
B) Changes in monetary policy
C) Technological shocks
D) Changes in government spending

 

If a country’s currency depreciates, this will likely:

A) Increase exports and decrease imports
B) Decrease exports and increase imports
C) Increase the price level
D) Have no effect on the economy

 

In the Solow model, the steady-state level of output is determined by:

A) Capital, labor, and technology
B) The level of government spending
C) The price level
D) The money supply

 

According to the liquidity preference theory, the demand for money depends on:

A) The level of output and interest rates
B) The price level only
C) The level of government spending
D) The supply of money

 

A decrease in the price level is likely to:

A) Increase the demand for money
B) Lower interest rates and increase investment
C) Decrease aggregate demand
D) Increase the money supply

 

In the long run, the economy will return to its natural level of output due to:

A) Changes in the money supply
B) The self-correcting nature of wages and prices
C) Government intervention
D) Changes in aggregate demand

$14.99 – Purchase Checkout Added to cart