Introduction to Macroeconomics
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Questions and Answers

What distinguishes classical economists from their mercantilist predecessors in terms of international trade?

  • Promoting self-sufficiency
  • Advocating free trade (correct)
  • Advocating protectionism
  • Favoring government intervention in trade

    • Which concept became one of the central ideas in classical economics?

  • Division of labour (correct)
  • State intervention in the market
  • Accumulated capital
  • Protectionism

    • What did Adam Smith's metaphor of the invisible hand illustrate?

  • Mutual interdependence in a free market economy (correct)
  • How individuals operate independently in a market
  • The importance of protectionist policies
  • The need for strict government regulations

    • According to classical economists, what role does the state have in the market?

    <p>Minimal intervention for the common good</p> Signup and view all the answers

    What is the main incentive for producers in a self-regulating market economy according to classical economics?

    <p>Social necessity</p> Signup and view all the answers

    In a free market system, what do signals from free exchanges indicate?

    <p>The value of goods and services and their market difficulty</p> Signup and view all the answers

    Which factor determines the basic remuneration per time unit or unit of output?

    <p>Wage rates</p> Signup and view all the answers

    What is the price of one country's currency in relation to another called?

    <p>Exchange rates</p> Signup and view all the answers

    What term is used for the additional income earned by a person who deposits money to a bank, considering the time value of money?

    <p>Interest expense</p> Signup and view all the answers

    Which aspect of macroeconomics focuses on the rate of growth of output, inflation rate, changing unemployment, and foreign exchange rates?

    <p>Policy oriented macroeconomics</p> Signup and view all the answers

    What term describes any activity that tries to influence or manage an economy?

    <p>Economic policy</p> Signup and view all the answers

    Which of the following is subject to economic policy by governments?

    <p>Government budgets and taxation</p> Signup and view all the answers

    What is the main reason why macroeconomics is considered 'non-experimental'?

    <p>It cannot conduct controlled scientific experiments due to ethical concerns.</p> Signup and view all the answers

    How can total output in the economy be measured?

    <p>As the sum of the values of final goods and services produced.</p> Signup and view all the answers

    What does GNP represent in an economy?

    <p>Total output plus net income received from other countries.</p> Signup and view all the answers

    How is the average level of prices of goods and services in the economy measured?

    <p>With a price index.</p> Signup and view all the answers

    What is the main characteristic of employment as highlighted in the text?

    <p>Employers must pay employees who provide services.</p> Signup and view all the answers

    Why are interest rates considered a key variable in macroeconomics?

    <p>Interest rates reflect the cost of borrowing and lending money.</p> Signup and view all the answers

    What distinguishes macroeconomics from microeconomics?

    <p>Macro focuses on the economy as a whole, while micro focuses on individual economic processes.</p> Signup and view all the answers

    Why is it challenging to describe an entire economy using microeconomic models?

    <p>It is not feasible to model every firm and individual's cross-effects.</p> Signup and view all the answers

    What kind of assumptions are typically imposed in macroeconomic models?

    <p>Assumptions that simplify aggregate behavior.</p> Signup and view all the answers

    In the context of economics, what does 'aggregate' refer to?

    <p>A multitude of economic subjects sharing common features.</p> Signup and view all the answers

    Why is it considered a macroeconomic problem when Indian households react to an increased rate of taxation?

    <p>It influences the overall behavior of the economy.</p> Signup and view all the answers

    What is the purpose of imposing simplifying assumptions in macroeconomic models?

    <p>To investigate aggregate behavior while keeping essential features intact.</p> Signup and view all the answers

    According to Keynesian economics, what is the role of government in managing the economy?

    <p>Ensuring full employment by managing demand</p> Signup and view all the answers

    What was one of the main criticisms of the invisible hand concept by critics?

    <p>Encouraging negative externalities</p> Signup and view all the answers

    What major idea did John Maynard Keynes challenge with his economic theory?

    <p>Full employment can be achieved naturally through free markets</p> Signup and view all the answers

    What distinguishes the Monetarist School's approach from Keynesian economics?

    <p>Focus on controlling money supply primarily</p> Signup and view all the answers

    What was a significant contribution of Milton Friedman to economic thought?

    <p>Emphasizing controlling money supply for economic stability</p> Signup and view all the answers

    In the context of Classical Economics, what situation did economists assume would lead to full employment?

    <p>Balancing forces acting to bring output to full-employment level</p> Signup and view all the answers

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