Macroeconomics Quiz

Microeconomics studies the performance of national economies and policies used by governments.

In a demand curve, when price increases, quantity decreases.

The demand curve shifts left when demand increases.

The supply curve slopes downwards.

Equilibrium price is the price where supply and demand curves intersect.

Supply and demand are always independent and never interconnected.

The 'other things held constant' assumption is not likely to hold when the goods represent a large percentage of the entire economy.

A tax on each item sold, collected by the supplier, is known as an excise tax.

An increase in demand results in an increase in both equilibrium price and quantity.

A decrease in demand leads to a decrease in both equilibrium price and quantity.

An increase in supply causes a decrease in equilibrium price and an increase in quantity.

A decrease in supply leads to an increase in equilibrium price and a decrease in quantity.

A price ceiling is the maximum legal charged price in a market.

A price floor is the minimum legal charged price in a market.

Price ceilings below equilibrium create shortages.

Price floors above equilibrium create excess supply (surplus).

An excise tax is imposed on a specific good.

A tariff is an excise tax on an imported good.

Constant returns to scale occur when doubling all inputs doubles the output.

Value of a product increases as the number of users increases in network economies.

Debt allows immediate spending of the person’s earnings.

Central banks control credit with interest rates and printing money.

Short-term debt cycle typically lasts 75-100 years.

Spending increases and prices fall leads to deflation.

Debt burden to assess health of economy is calculated by $rac{ ext{debt}}{ ext{income}}$.

Deleveraging involves reducing debt through defaults and restructuring.

Bank runs occur when creditors don’t pay, leading to a shrinking banking system.

Decrease in activity leads to an increase in government income from taxes.

Print money by central banks is considered indirect stimulus.

Interest rates too low may lead to central bank printing money.

Beautiful deleveraging requires moderate inflation.

Germany is afraid that QE by ECB will finance excessive spending by peripheral countries.

Expansionary fiscal policy involves decreasing government spending or increasing taxes

Budget balance is calculated as total public revenue minus total public expenditure

Public debt is the total amount owed by the government at a given time

The formula for budget balance is $Budget balance = ext{total public revenue} - ext{total public expenditure}$

Fiscal policy indicators include the ratios $rac{ ext{spending}}{ ext{GDP}}$ and $rac{ ext{debt}}{ ext{GDP}}$

Borrowing in a foreign currency presents no currency risk for the borrowing country

A country that fails to pay public debt may find it difficult and expensive to borrow again

Fiscal policy is conducted by technical experts rather than political professionals

Monetary policy is responsible for controlling the money supply and acting on currency

The GDP GAP is the difference between Actual and Natural GDP

Unemployment GAP is the difference between Actual and Natural unemployment rate

Total spending (GDP) is critical in understanding business cycles

Fractional-reserve banking allows banks to lend out all the money deposited by customers

The money multiplier formula is given by $\frac{1}{reserve\ ratio\ %}$

Increasing reserve ratios encourages banks to lend more money

The reserve requirement is the minimum amount of reserves that commercial banks are required to hold by the central bank

Bank assets include cash and loans, while liabilities include deposits and equity capital

Financial intermediaries like banks engage in risk diversification to protect savers from potential losses

A high solvency and low liquidity situation occurs when equity capital is greater than cash and loans exceed deposits

Deposit insurance protects depositors from bankruptcy and bank runs without any limit

The majority of money in circulation is created by central banks

Quantitative Easing (QE) involves the central bank buying bonds to stimulate the economy and lower interest rates

The value of a currency is solely determined by supply and demand in a free market

The foreign exchange market involves trading currencies against each other in financial centers such as London, New York, Tokyo, Frankfurt, and Singapore

The consumption function is represented by the equation $C = C0 + MPC \times (Y - T)$

Disposable income is calculated as total income minus total taxes, i.e., $Y - T$

The marginal propensity to consume (MPC) measures the increase in consumption caused by a one-unit increase in disposable income

Investment (I) includes business fixed investment, residential fixed investment, and inventory investment

Government spending (G) and net exports (NX) are components of the national income identity in an open economy

Inflation is a continuous rise in the price level measured with price indexes and can be caused by supply and demand factors

The consumer price index (CPI) measures the overall price level and is used to calculate inflation

Different types of inflation include demand-pull, cost-push, structural, and hyperinflation

Unemployment is categorized into frictional, structural, and cyclical, with the natural rate of unemployment being the average rate around the economy

Fiscal policy involves government decisions about public spending and revenue to stabilize the economy and eliminate output gaps

GDP does not address inequality within the country and rises with non-market output and the destruction of the environment

Aspects of wellbeing that rise with GDP include education, health, infrastructures, and basic citizen services