Question 1

An increase in investment is caused by
A)lower interest rates
B)expectations of lower national income
C)a decrease in the marginal propensity to consume
D)an increase in withdrawals

Accepted Answer

Lower interest rates reduce the cost of borrowing, encouraging businesses to invest more in capital projects.

Question 2

An increase in aggregate demand is more likely to lead to demand pull inflation
A)if aggregate supply is completely elastic
B)if aggregate supply is completely inelastic
C)if aggregate supply is unitary elastic
D)if aggregate supply is moderately elastic

Accepted Answer

When aggregate supply is completely inelastic, it means that the quantity of goods and services produced in the economy cannot increase, regardless of an increase in demand. Therefore, an increase in aggregate demand under these conditions leads to higher prices without an increase in output, resulting in demand-pull inflation.

Question 3

Which of the following is an example of fiscal policy
A)change in interest rate
B)change in tax rate
C)controlling money supply
D)manipulating bank rate

Accepted Answer

Fiscal policy involves government spending and taxation decisions, which directly impact the economy. A change in tax rate is a direct tool of fiscal policy used to influence economic activity.

Question 4

The Cambridge version of the quantity theory of money was developed by:
A)fisher
B)alfred marshall
C)pigou
D)keynes

Accepted Answer

The answer of The Cambridge version of the quantity theory...

Question 5

Investment is reckoned by which method for computingGDP:
A)income method
B)productmethod
C)expenditure method
D)value added method

Accepted Answer

The expenditure method of computing GDP accounts for investment as part of the total expenditures in an economy, alongside consumption, government spending, and net exports.

Question 6

Who argued that national income is simply equal to "net product of agriculture"?
A).mercantilists
B)physiocrats
C)classical economists
D)neo classical economists

Accepted Answer

Physiocrats, a group of 18th-century French economists, argued that the wealth of nations was derived solely from the value of "land agriculture" or the agricultural sector. They believed that agricultural products were the source of all wealth and that agricultural production generated a "net product" that was the true measure of national income.

Question 7

A period of expansion and contraction measured by real GDP is called
A)business cycle
B)expansion
C)recession
D)contraction

Accepted Answer

The business cycle refers to the fluctuations in economic activity that an economy experiences over a period, characterized by periods of expansion and contraction in real GDP.

Question 8

A tax increase shifts the IS curve to the
A)left, causing output and interest rates to fall.
B)left, causing output and interest rates to increase.
C)right, causing output and interest rates to fall.
D)right, causing output and interest rates to rise.

Accepted Answer

A tax increase reduces consumers' disposable income, leading to a decrease in consumption and investment. This results in a leftward shift of the IS curve, causing output to decrease and, typically, interest rates to fall as the demand for money decreases.

Question 9

Factors that cause the IS curve to shift include
A)changes in autonomous consumer spending.
B)changes in government spending.
C)changes in investment spending related to a change in the interest rate.
D)only (a) and (b) of the above.

Accepted Answer

The IS curve shifts due to changes in autonomous consumer spending and changes in government spending, not due to changes in investment spending related to a change in the interest rate, as this is a movement along the curve rather than a shift of the curve.

Question 10

In the long-run ISLM model, the long-run effect of a cut in government spending is to
A)increase real output and the interest rate.
B)increase real output and not affect the interest rate.
C)not affect real output and increase the interest rate.
D)not affect real output and reduce the interest rate.

Accepted Answer

In the long-run ISLM model, a cut in government spending leads to a decrease in aggregate demand, which initially reduces real output and the interest rate. However, in the long run, the economy returns to its potential output level due to price and wage adjustments, leaving real output unchanged. The reduced demand for money due to lower government spending leads to a lower interest rate.

Question 11

In the long-run ISLM model, the long-run effect of a tax cut is to
A)increase real output and the interest rate.
B)increase real output and not affect the interest rate.
C)not affect real output and increase the interest rate.
D)not affect real output and reduce the interest rate.

Accepted Answer

In the long-run ISLM model, a tax cut leads to an increase in demand, which can initially boost output. However, in the long run, output is determined by factors such as technology and resources, not by demand. Therefore, real output returns to its natural level. The increase in demand from the tax cut puts upward pressure on prices and interest rates. As the money supply is fixed in the long run, the increase in prices leads to a decrease in the real money supply, which increases interest rates. Thus, the long-run effect of a tax cut is to not affect real output but to increase the interest rate.

Question 12

In the long-run ISLM model, the long-run effect of an autonomous increase in investment is to
A)increase real output and the interest rate.
B)increase real output and not affect the interest rate.
C)not affect real output and increase the interest rate.
D)not affect real output and reduce the interest rate.

Accepted Answer

In the long-run ISLM model, an autonomous increase in investment initially increases demand, which can push up interest rates due to higher demand for funds. However, in the long run, output returns to its natural level due to price adjustments, leaving the interest rate higher but not affecting the long-run output.

Question 13

In the long-run ISLM model, the long-run effect of a fall in net exports is to
A)increase real output and the interest rate.
B)increase real output and not affect the interest rate.
C)not affect real output and increase the interest rate.
D)not affect real output and reduce the interest rate.

Accepted Answer

In the long-run ISLM model, the economy is at full employment, so a fall in net exports will not affect real output. However, it will lead to a decrease in the interest rate to maintain equilibrium in the money market.

Question 14

Who invented the General Equilibrium analysis?
A)l. walras.
B)w. leontief
C)j.m.keynes.
D)none of these.

Accepted Answer

Léon Walras is credited with the development of General Equilibrium analysis, which is a comprehensive way of looking at the economy where all markets and factors are considered simultaneously to achieve equilibrium.

Question 15

Employment equilibrium in the Classical theory is achievedthrough:
A)wage-price flexibility.
B)changes in aggregate demand
C)changes in aggregate supply
D)none of these.

Accepted Answer

Classical theory posits that employment equilibrium is achieved through wage-price flexibility, where wages adjust to match the supply and demand for labor, ensuring full employment.

Question 16

Market does not clear is a proposition of:
A)neoclassical theory.
B)keynesian economics
C)monetarism
D)rational expectations

Accepted Answer

Keynesian economics posits that markets may not always clear, leading to periods of unemployment and underutilized resources, contrary to the neoclassical view that markets always clear through price adjustments.

Question 17

The interest rate paid on bonds is known as:
A)call rate
B)coupon rate
C)repo rate
D)bank rate

Accepted Answer

The interest rate paid on bonds is referred to as the coupon rate. This rate determines the periodic interest payments made to bondholders.

Quiz 1: Economic Concepts and Theories

An increase in investment is caused by

An increase in aggregate demand is more likely to lead to demand pull inflation

Which of the following is an example of fiscal policy

The Cambridge version of the quantity theory of money was developed by:

Investment is reckoned by which method for computingGDP:

Who argued that national income is simply equal to "net product of agriculture"?

A period of expansion and contraction measured by real GDP is called

A tax increase shifts the IS curve to the

Factors that cause the IS curve to shift include

In the long-run ISLM model, the long-run effect of a cut in government spending is to

In the long-run ISLM model, the long-run effect of a tax cut is to

In the long-run ISLM model, the long-run effect of an autonomous increase in investment is to

In the long-run ISLM model, the long-run effect of a fall in net exports is to

Who invented the General Equilibrium analysis?

Employment equilibrium in the Classical theory is achievedthrough:

Market does not clear is a proposition of:

The interest rate paid on bonds is known as: