Macroeconomics Overview Quiz
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Questions and Answers

What is one potential advantage of maintaining a budget surplus?

  • Increased microeconomic issues
  • Higher government spending
  • Increased demand-side shock
  • Improved credit ratings on government bonds (correct)
  • Which of the following is a possible consequence of high taxation resulting from a budget surplus?

  • Distortion of incentives to work (correct)
  • Increase in employment opportunities
  • Higher incentives for entrepreneurship
  • Lower waiting times in healthcare
  • What is a likely impact of reducing aggregate demand due to budget surplus measures?

  • Decreased public services demand
  • Increased inflation rates
  • Lower living standards (correct)
  • Higher economic growth
  • How might a budget surplus impact government spending on public services?

    <p>Reduction in infrastructure quality</p> Signup and view all the answers

    What is one of the factors to consider when evaluating the necessity of maintaining a budget surplus?

    <p>Debt-to-GDP ratio</p> Signup and view all the answers

    Which of the following is NOT a reason for the LRAS curve to shift to the right?

    <p>Increase in inflation rates</p> Signup and view all the answers

    What is a potential downside of interventionist supply-side policies?

    <p>They can be very costly</p> Signup and view all the answers

    Which of the following is considered a market-based supply-side policy?

    <p>Lowering corporate tax rates</p> Signup and view all the answers

    What is a potential conflict when using expansionary fiscal or monetary policy for short-run growth?

    <p>Demand-pull inflation if the output gap is small</p> Signup and view all the answers

    Which of the following drawbacks is associated with market-based supply-side policies?

    <p>All of the above</p> Signup and view all the answers

    What is one reason individuals in developing countries may be reluctant to save in banks?

    <p>Lack of education on the benefits of banks</p> Signup and view all the answers

    How can low interest rates influence business investment?

    <p>By making borrowing more attractive</p> Signup and view all the answers

    Which factor is NOT a determinant of business investment?

    <p>Age structure of the population</p> Signup and view all the answers

    What effect does the presence of spare capacity have on investment decisions?

    <p>It reduces the need for additional investment</p> Signup and view all the answers

    Which type of government expenditure contributes to long-term economic growth?

    <p>Capital spending on infrastructure</p> Signup and view all the answers

    What is the accelerator effect in economics?

    <p>A rise in real GDP prompts further business investment</p> Signup and view all the answers

    Which of the following primarily shifts Aggregate Demand (AD) to the right?

    <p>Investment in public infrastructure</p> Signup and view all the answers

    Why might a government choose to increase welfare spending?

    <p>To stimulate short-term economic growth</p> Signup and view all the answers

    What situation describes a budget deficit?

    <p>When government spending is greater than tax revenue.</p> Signup and view all the answers

    Which type of budget deficit occurs during a recession?

    <p>Cyclical budget deficit</p> Signup and view all the answers

    Which of the following is a potential pro of running a budget deficit?

    <p>Higher growth and lower unemployment</p> Signup and view all the answers

    What is a common consequence of a high national debt?

    <p>Reduced government spending on social services</p> Signup and view all the answers

    What characterizes a structural budget surplus?

    <p>Surplus when the economy is at full employment</p> Signup and view all the answers

    Which of the following can occur due to the crowding out effect?

    <p>Increased demand for loanable funds</p> Signup and view all the answers

    Which factor can outweigh the benefits of a budget deficit?

    <p>High budget deficits and high debt</p> Signup and view all the answers

    What does running a budget surplus indicate?

    <p>Tax revenue exceeds government spending.</p> Signup and view all the answers

    Which policy can help reduce cyclical unemployment during a recession?

    <p>Implement expansionary fiscal policy</p> Signup and view all the answers

    What is a potential consequence of reducing minimum wages to combat real wage unemployment?

    <p>Possible increase in income inequality</p> Signup and view all the answers

    Which interventionist policy aims to address structural unemployment?

    <p>Government spending on education</p> Signup and view all the answers

    What is a likely effect of contractionary monetary policy to combat demand-pull inflation?

    <p>Decreased economic growth</p> Signup and view all the answers

    Which of the following measures is NOT effective in addressing cost-push inflation?

    <p>Increasing production costs</p> Signup and view all the answers

    What is a significant drawback of using expansionary fiscal policy?

    <p>It may simultaneously increase inflation rates</p> Signup and view all the answers

    Which option is considered a market-based solution for reducing frictional unemployment?

    <p>Reduce unemployment benefits</p> Signup and view all the answers

    Which is a common evaluation point regarding supply-side policies for inflation control?

    <p>They may have long time lags before effectiveness</p> Signup and view all the answers

    What is a primary goal of expansionary monetary policy?

    <p>Increase overall demand in the economy</p> Signup and view all the answers

    Which of the following is a consequence of contractionary monetary policy?

    <p>Reduced inflationary pressures</p> Signup and view all the answers

    How does expansionary monetary policy typically influence business investment?

    <p>It lowers interest rates on business loans.</p> Signup and view all the answers

    Which of the following is NOT a con of expansionary monetary policy?

    <p>Lower growth rates</p> Signup and view all the answers

    What does a liquidity trap indicate about interest rates?

    <p>Interest rates are ineffective when they hit the lower bound.</p> Signup and view all the answers

    Which is an effect of higher interest rates under contractionary monetary policy?

    <p>Higher unemployment rates.</p> Signup and view all the answers

    What is a potential negative impact of expansionary monetary policy on savers?

    <p>Reduced purchasing power</p> Signup and view all the answers

    What is one of the main factors influencing the effectiveness of expansionary monetary policy?

    <p>Consumer and business confidence</p> Signup and view all the answers

    Which of the following statements is true about supply-side policies?

    <p>They aim to increase the economy's productive capacity.</p> Signup and view all the answers

    Which condition is considered when evaluating the impact of an interest rate cut?

    <p>The size of the output gap</p> Signup and view all the answers

    Study Notes

    Macro Economic Objectives

    • Trade
    • Inflation
    • Growth
    • Employment
    • Redistribution of income
    • Stability
    • Stable government finances

    Circular Flow of Income

    • Households, Firms and Government
    • Government Spending (G)
    • Exports (X)
    • Investment (I)
    • Consumption (C)
    • Income (Y)
    • Taxation (T)
    • Imports (M)
    • Savings (S)

    GDP Methods

    • Output = Income = Expenditure

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    Description

    Test your knowledge on key macroeconomic concepts, including trade, inflation, growth, and employment. This quiz also covers the circular flow of income and the methods for calculating GDP. Challenge yourself and see how well you understand the fundamentals of macroeconomics!

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