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Questions and Answers
Microeconomics studies the performance of national economies and policies used by governments.
Microeconomics studies the performance of national economies and policies used by governments.
False
In a demand curve, when price increases, quantity decreases.
In a demand curve, when price increases, quantity decreases.
True
The demand curve shifts left when demand increases.
The demand curve shifts left when demand increases.
False
The supply curve slopes downwards.
The supply curve slopes downwards.
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Equilibrium price is the price where supply and demand curves intersect.
Equilibrium price is the price where supply and demand curves intersect.
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Supply and demand are always independent and never interconnected.
Supply and demand are always independent and never interconnected.
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The 'other things held constant' assumption is not likely to hold when the goods represent a large percentage of the entire economy.
The 'other things held constant' assumption is not likely to hold when the goods represent a large percentage of the entire economy.
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A tax on each item sold, collected by the supplier, is known as an excise tax.
A tax on each item sold, collected by the supplier, is known as an excise tax.
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An increase in demand results in an increase in both equilibrium price and quantity.
An increase in demand results in an increase in both equilibrium price and quantity.
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A decrease in demand leads to a decrease in both equilibrium price and quantity.
A decrease in demand leads to a decrease in both equilibrium price and quantity.
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An increase in supply causes a decrease in equilibrium price and an increase in quantity.
An increase in supply causes a decrease in equilibrium price and an increase in quantity.
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A decrease in supply leads to an increase in equilibrium price and a decrease in quantity.
A decrease in supply leads to an increase in equilibrium price and a decrease in quantity.
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A price ceiling is the maximum legal charged price in a market.
A price ceiling is the maximum legal charged price in a market.
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A price floor is the minimum legal charged price in a market.
A price floor is the minimum legal charged price in a market.
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Price ceilings below equilibrium create shortages.
Price ceilings below equilibrium create shortages.
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Price floors above equilibrium create excess supply (surplus).
Price floors above equilibrium create excess supply (surplus).
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An excise tax is imposed on a specific good.
An excise tax is imposed on a specific good.
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A tariff is an excise tax on an imported good.
A tariff is an excise tax on an imported good.
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Constant returns to scale occur when doubling all inputs doubles the output.
Constant returns to scale occur when doubling all inputs doubles the output.
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Value of a product increases as the number of users increases in network economies.
Value of a product increases as the number of users increases in network economies.
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Debt allows immediate spending of the person’s earnings.
Debt allows immediate spending of the person’s earnings.
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Central banks control credit with interest rates and printing money.
Central banks control credit with interest rates and printing money.
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Short-term debt cycle typically lasts 75-100 years.
Short-term debt cycle typically lasts 75-100 years.
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Spending increases and prices fall leads to deflation.
Spending increases and prices fall leads to deflation.
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Debt burden to assess health of economy is calculated by $rac{ ext{debt}}{ ext{income}}$.
Debt burden to assess health of economy is calculated by $rac{ ext{debt}}{ ext{income}}$.
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Deleveraging involves reducing debt through defaults and restructuring.
Deleveraging involves reducing debt through defaults and restructuring.
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Bank runs occur when creditors don’t pay, leading to a shrinking banking system.
Bank runs occur when creditors don’t pay, leading to a shrinking banking system.
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Decrease in activity leads to an increase in government income from taxes.
Decrease in activity leads to an increase in government income from taxes.
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Print money by central banks is considered indirect stimulus.
Print money by central banks is considered indirect stimulus.
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Interest rates too low may lead to central bank printing money.
Interest rates too low may lead to central bank printing money.
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Beautiful deleveraging requires moderate inflation.
Beautiful deleveraging requires moderate inflation.
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Germany is afraid that QE by ECB will finance excessive spending by peripheral countries.
Germany is afraid that QE by ECB will finance excessive spending by peripheral countries.
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Expansionary fiscal policy involves decreasing government spending or increasing taxes
Expansionary fiscal policy involves decreasing government spending or increasing taxes
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Budget balance is calculated as total public revenue minus total public expenditure
Budget balance is calculated as total public revenue minus total public expenditure
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Public debt is the total amount owed by the government at a given time
Public debt is the total amount owed by the government at a given time
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The formula for budget balance is $Budget balance = ext{total public revenue} - ext{total public expenditure}$
The formula for budget balance is $Budget balance = ext{total public revenue} - ext{total public expenditure}$
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Fiscal policy indicators include the ratios $rac{ ext{spending}}{ ext{GDP}}$ and $rac{ ext{debt}}{ ext{GDP}}$
Fiscal policy indicators include the ratios $rac{ ext{spending}}{ ext{GDP}}$ and $rac{ ext{debt}}{ ext{GDP}}$
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Borrowing in a foreign currency presents no currency risk for the borrowing country
Borrowing in a foreign currency presents no currency risk for the borrowing country
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A country that fails to pay public debt may find it difficult and expensive to borrow again
A country that fails to pay public debt may find it difficult and expensive to borrow again
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Fiscal policy is conducted by technical experts rather than political professionals
Fiscal policy is conducted by technical experts rather than political professionals
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Monetary policy is responsible for controlling the money supply and acting on currency
Monetary policy is responsible for controlling the money supply and acting on currency
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The GDP GAP is the difference between Actual and Natural GDP
The GDP GAP is the difference between Actual and Natural GDP
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Unemployment GAP is the difference between Actual and Natural unemployment rate
Unemployment GAP is the difference between Actual and Natural unemployment rate
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Total spending (GDP) is critical in understanding business cycles
Total spending (GDP) is critical in understanding business cycles
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Fractional-reserve banking allows banks to lend out all the money deposited by customers
Fractional-reserve banking allows banks to lend out all the money deposited by customers
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The money multiplier formula is given by $\frac{1}{reserve\ ratio\ %}$
The money multiplier formula is given by $\frac{1}{reserve\ ratio\ %}$
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Increasing reserve ratios encourages banks to lend more money
Increasing reserve ratios encourages banks to lend more money
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The reserve requirement is the minimum amount of reserves that commercial banks are required to hold by the central bank
The reserve requirement is the minimum amount of reserves that commercial banks are required to hold by the central bank
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Bank assets include cash and loans, while liabilities include deposits and equity capital
Bank assets include cash and loans, while liabilities include deposits and equity capital
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Financial intermediaries like banks engage in risk diversification to protect savers from potential losses
Financial intermediaries like banks engage in risk diversification to protect savers from potential losses
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A high solvency and low liquidity situation occurs when equity capital is greater than cash and loans exceed deposits
A high solvency and low liquidity situation occurs when equity capital is greater than cash and loans exceed deposits
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Deposit insurance protects depositors from bankruptcy and bank runs without any limit
Deposit insurance protects depositors from bankruptcy and bank runs without any limit
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The majority of money in circulation is created by central banks
The majority of money in circulation is created by central banks
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Quantitative Easing (QE) involves the central bank buying bonds to stimulate the economy and lower interest rates
Quantitative Easing (QE) involves the central bank buying bonds to stimulate the economy and lower interest rates
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The value of a currency is solely determined by supply and demand in a free market
The value of a currency is solely determined by supply and demand in a free market
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The foreign exchange market involves trading currencies against each other in financial centers such as London, New York, Tokyo, Frankfurt, and Singapore
The foreign exchange market involves trading currencies against each other in financial centers such as London, New York, Tokyo, Frankfurt, and Singapore
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The consumption function is represented by the equation $C = C0 + MPC \times (Y - T)$
The consumption function is represented by the equation $C = C0 + MPC \times (Y - T)$
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Disposable income is calculated as total income minus total taxes, i.e., $Y - T$
Disposable income is calculated as total income minus total taxes, i.e., $Y - T$
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The marginal propensity to consume (MPC) measures the increase in consumption caused by a one-unit increase in disposable income
The marginal propensity to consume (MPC) measures the increase in consumption caused by a one-unit increase in disposable income
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Investment (I) includes business fixed investment, residential fixed investment, and inventory investment
Investment (I) includes business fixed investment, residential fixed investment, and inventory investment
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Government spending (G) and net exports (NX) are components of the national income identity in an open economy
Government spending (G) and net exports (NX) are components of the national income identity in an open economy
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Inflation is a continuous rise in the price level measured with price indexes and can be caused by supply and demand factors
Inflation is a continuous rise in the price level measured with price indexes and can be caused by supply and demand factors
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The consumer price index (CPI) measures the overall price level and is used to calculate inflation
The consumer price index (CPI) measures the overall price level and is used to calculate inflation
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Different types of inflation include demand-pull, cost-push, structural, and hyperinflation
Different types of inflation include demand-pull, cost-push, structural, and hyperinflation
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Unemployment is categorized into frictional, structural, and cyclical, with the natural rate of unemployment being the average rate around the economy
Unemployment is categorized into frictional, structural, and cyclical, with the natural rate of unemployment being the average rate around the economy
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Fiscal policy involves government decisions about public spending and revenue to stabilize the economy and eliminate output gaps
Fiscal policy involves government decisions about public spending and revenue to stabilize the economy and eliminate output gaps
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GDP does not address inequality within the country and rises with non-market output and the destruction of the environment
GDP does not address inequality within the country and rises with non-market output and the destruction of the environment
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Aspects of wellbeing that rise with GDP include education, health, infrastructures, and basic citizen services
Aspects of wellbeing that rise with GDP include education, health, infrastructures, and basic citizen services
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Study Notes
Macroeconomic Concepts Summary
- Consumption function C = C0 + MPC X (Y – T)
- Disposable income = total income – total taxes Y – T
- Marginal propensity to consume (MPC) = increase in consumption caused by 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 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
- 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 destruction of the environment
- Aspects of wellbeing that rise with GDP include education, health, infrastructures, and basic citizen services
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Description
Test your understanding of macroeconomic concepts with this quiz. From consumption functions to types of inflation and fiscal policy, this quiz covers key topics such as GDP, unemployment, inflation, and government spending. Sharpen your knowledge of macroeconomics with this comprehensive summary.
