Question 1

Which of the following best describes the difference between Real GDP and Nominal GDP?

Accepted Answer

Real GDP is adjusted for inflation, while Nominal GDP is not.

Question 2

Suppose the marginal propensity to consume (MPC) is 0.8. What is the value of the spending multiplier?

Accepted Answer

The multiplier is $$ \frac{1}{1 - 0.8} = 5 $$

Question 3

Which of the following is NOT considered a function of money?

Accepted Answer

Source of government revenue

Question 4

If the central bank conducts open market operations by selling government securities, what is the likely effect on the money supply and interest rates?

Accepted Answer

Money supply decreases and interest rates increase.

Question 5

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

Accepted Answer

An increase in government spending

Question 6

Which type of unemployment is most likely to increase during a recession?

Accepted Answer

Cyclical unemployment

Question 7

If the reserve requirement is 10%, what is the maximum potential money multiplier?

Accepted Answer

$$ \frac{1}{0.1} = 10 $$

Question 8

Which of the following is an example of a fiscal policy tool?

Accepted Answer

Government spending on infrastructure

Question 9

According to Keynesian economics, what is the primary reason for persistent unemployment during a recession?

Accepted Answer

Aggregate demand is insufficient to purchase all output.

Question 10

Country A can produce either 10 cars or 20 computers in a day. Country B can produce either 5 cars or 15 computers in a day. Which country has the comparative advantage in producing computers?

Accepted Answer

Country B, because it has a lower opportunity cost for computers.

Question 11

If the marginal propensity to save (MPS) is 0.25, what is the value of the multiplier?

Accepted Answer

$$ \frac{1}{0.25} = 4 $$

Question 12

Which of the following would be included in the calculation of GDP?

Accepted Answer

The production of new computers by a domestic company

Question 13

Which monetary policy tool is most frequently used by central banks to influence the money supply?

Accepted Answer

Open market operations

Question 14

If a country has a current account deficit, what does this imply about its international transactions?

Accepted Answer

It is importing more goods and services than it is exporting.

Question 15

Which of the following would cause the short-run aggregate supply (SRAS) curve to shift to the left?

Accepted Answer

An increase in wages

Question 16

If the government increases taxes and decreases spending simultaneously, what is the likely effect on aggregate demand?

Accepted Answer

Aggregate demand will decrease.

Question 17

Which of the following is a cost of unemployment?

Accepted Answer

Loss of potential output and increased social problems

Question 18

If the central bank wants to combat inflation, which monetary policy action should it take?

Accepted Answer

Sell government securities

Question 19

Which of the following best explains the concept of 'floating currency'?

Accepted Answer

A currency whose value is determined by supply and demand in the foreign exchange market.

Question 20

Suppose the government implements an expansionary fiscal policy during a recession. Which of the following is the most likely outcome according to the aggregate expenditures model?

Accepted Answer

Aggregate demand will increase, leading to higher output and employment.

Macroeconomics Study Guide: Key Topics and Concepts

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