Circular Flow Model and Classical Theory Quiz
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Questions and Answers

Which of the following is the focus of the classical theory in a closed economy?

  • Applications
  • Case study
  • The model
  • The interest rate (correct)

    • Which interest rate represents the return on savings or cost of debt in terms of purchasing power?

  • The average interest rate
  • The effective interest rate
  • The nominal interest rate
  • The real interest rate (correct)

    • According to the circular flow model for a closed economy, what is the exogenous variable in the long run?

  • Applications
  • The interest rate
  • The level of output (Y) (correct)
  • The model

    • What does the nominal interest rate represent?

    <p>The return on savings or cost of debt in terms of purchasing power</p> Signup and view all the answers

    What does the real interest rate represent?

    <p>The return on savings or cost of debt in terms of purchasing power</p> Signup and view all the answers

    What are the four main components of the circular flow model for a closed economy?

    <p>The interest rate, the model, applications, and case study</p> Signup and view all the answers

    What does the nominal interest rate represent?

    <p>The nominal interest rate represents the nominal return on savings or nominal cost of debt in terms of percentage</p> Signup and view all the answers

    What does the real interest rate represent?

    <p>The real interest rate represents the real return on savings or real cost of debt in terms of percentage, i.e. the return on savings or cost of debt in terms of purchasing power</p> Signup and view all the answers

    What is the focus of the classical theory in a closed economy in the long run?

    <p>The focus of the classical theory in a closed economy in the long run is on equilibrating forces in the goods market</p> Signup and view all the answers

    What is the exogenous variable in the long run according to the circular flow model for a closed economy?

    <p>In the long run, the exogenous variable is the level of income (Y)</p> Signup and view all the answers

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