Macroeconomics Practice Quiz Questions And Answers

1. Diffrence between Real and Nominal GDP is:

Measured by excluding some of the sectors

That real GDP is always smaller than Nominal GDP.

Change in price level from base year to current year.

None of the above.

The correct answer is "Change in price level from base year to current year." This is because the difference between Real and Nominal GDP is determined by the change in the overall price level from a base year to the current year. Real GDP adjusts for inflation by using constant prices from a base year, while Nominal GDP does not adjust for inflation and uses current prices. Therefore, the difference between Real and Nominal GDP reflects the impact of changing prices over time.

Explanation

The correct answer is "Change in price level from base year to current year." This is because the difference between Real and Nominal GDP is determined by the change in the overall price level from a base year to the current year. Real GDP adjusts for inflation by using constant prices from a base year, while Nominal GDP does not adjust for inflation and uses current prices. Therefore, the difference between Real and Nominal GDP reflects the impact of changing prices over time.

2. When comparing a nation's economic position with another, one should see its:

GDP

Per Capita GDP.

Currency in circulation.

None of the above.

When comparing a nation's economic position with another, it is important to consider its per capita GDP. This metric takes into account the total GDP of a country divided by its population, providing a more accurate representation of the average income and living standards of its citizens. GDP alone does not account for population size, so per capita GDP allows for a fairer comparison between countries. Currency in circulation is not relevant in this context as it does not provide information about the overall economic position of a nation.

Explanation

When comparing a nation's economic position with another, it is important to consider its per capita GDP. This metric takes into account the total GDP of a country divided by its population, providing a more accurate representation of the average income and living standards of its citizens. GDP alone does not account for population size, so per capita GDP allows for a fairer comparison between countries. Currency in circulation is not relevant in this context as it does not provide information about the overall economic position of a nation.

3. The negative relationship between inflation and unemployment is characterized by ___________ in macroeconomics.

The Engle curve

The indifference curve

Okun’s law

The Phillips curve

The Phillips curve is a concept in macroeconomics that explains the negative relationship between inflation and unemployment. It suggests that as unemployment decreases, inflation increases, and vice versa. This curve was developed by economist A.W. Phillips in the 1950s and has since been widely used to understand the trade-off between inflation and unemployment in an economy.

Explanation

The Phillips curve is a concept in macroeconomics that explains the negative relationship between inflation and unemployment. It suggests that as unemployment decreases, inflation increases, and vice versa. This curve was developed by economist A.W. Phillips in the 1950s and has since been widely used to understand the trade-off between inflation and unemployment in an economy.

4. GDP is the market value of all the final goods:

Produced domestically.

Produced by domestic factors of production.

Produced by all factors of production.

All of the above.

The correct answer is "Produced domestically." This means that GDP only includes the market value of final goods that are produced within a country's borders. It does not include goods that are produced by domestic factors of production in other countries, or goods that are produced by factors of production from other countries within the domestic country.

Explanation

The correct answer is "Produced domestically." This means that GDP only includes the market value of final goods that are produced within a country's borders. It does not include goods that are produced by domestic factors of production in other countries, or goods that are produced by factors of production from other countries within the domestic country.

5. If investment is exogenous to the Income determination model it can be shown as

Verticle line.

Horizontal line.

All of the above.

None of the above.

If investment is exogenous to the income determination model, it means that it is not affected by changes in income. In other words, investment does not depend on the level of income in the economy. This can be represented by a horizontal line because regardless of the level of income, investment remains constant.

Explanation

If investment is exogenous to the income determination model, it means that it is not affected by changes in income. In other words, investment does not depend on the level of income in the economy. This can be represented by a horizontal line because regardless of the level of income, investment remains constant.

6. In Keynesian Framework, Income is measured along:

45 degree line

Verticle axis.

Horizontal axis.

All are correct.

In the Keynesian Framework, income is measured along the horizontal axis. This is because the horizontal axis represents the level of income or output in an economy. The vertical axis, on the other hand, represents the level of aggregate expenditure. The 45-degree line represents the equilibrium level of income where aggregate expenditure equals income. Therefore, the correct answer is the horizontal axis, as it is the axis that measures income in the Keynesian Framework.

Explanation

In the Keynesian Framework, income is measured along the horizontal axis. This is because the horizontal axis represents the level of income or output in an economy. The vertical axis, on the other hand, represents the level of aggregate expenditure. The 45-degree line represents the equilibrium level of income where aggregate expenditure equals income. Therefore, the correct answer is the horizontal axis, as it is the axis that measures income in the Keynesian Framework.

7. In the model Y=C+I+G and C=a+by, Where b=0.8, the expenditure multiplier is

1

4

5

None of the above

The expenditure multiplier is a measure of the change in output that results from a change in autonomous spending. In this model, the expenditure multiplier can be calculated as 1/(1-b), where b is the marginal propensity to consume. In this case, b is given as 0.8, so the expenditure multiplier is 1/(1-0.8) = 1/0.2 = 5. This means that for every unit increase in autonomous spending, output will increase by 5 units.

Explanation

The expenditure multiplier is a measure of the change in output that results from a change in autonomous spending. In this model, the expenditure multiplier can be calculated as 1/(1-b), where b is the marginal propensity to consume. In this case, b is given as 0.8, so the expenditure multiplier is 1/(1-0.8) = 1/0.2 = 5. This means that for every unit increase in autonomous spending, output will increase by 5 units.

8. In consumption function, c = a+by

B is intercept

Slope of the function

MPC

A & C

The correct answer is a & C. In the consumption function, c = a + by, a represents the intercept, which is the value of consumption when there is no income. It is the constant term in the equation. On the other hand, C represents the autonomous consumption, which is the consumption that does not depend on income. Therefore, both a and C are important components of the consumption function.

Explanation

The correct answer is a & C. In the consumption function, c = a + by, a represents the intercept, which is the value of consumption when there is no income. It is the constant term in the equation. On the other hand, C represents the autonomous consumption, which is the consumption that does not depend on income. Therefore, both a and C are important components of the consumption function.

9. Verticle intercept of consumption function indicates:

Average propensity to consume.

Consumption at zero level of income.

Both of the above.

None of the above.

The vertical intercept of the consumption function represents the level of consumption when the income level is zero. This indicates that even when there is no income, individuals still have some level of consumption. Additionally, the vertical intercept can also be used to calculate the average propensity to consume, which is the proportion of income that is spent on consumption. Therefore, the correct answer is that the vertical intercept of the consumption function indicates both the consumption at zero level of income and the average propensity to consume.

Explanation

The vertical intercept of the consumption function represents the level of consumption when the income level is zero. This indicates that even when there is no income, individuals still have some level of consumption. Additionally, the vertical intercept can also be used to calculate the average propensity to consume, which is the proportion of income that is spent on consumption. Therefore, the correct answer is that the vertical intercept of the consumption function indicates both the consumption at zero level of income and the average propensity to consume.

10. In closed economy GDP equals

C+I+X-N

C+I

C+I+G

All of the above.

In a closed economy, there are no exports (X) or imports (N). The formula for calculating Gross Domestic Product (GDP) in a closed economy is:

GDP = C + I + G

where:

C represents consumption,

I represents investment, and

G represents government spending.

Since there are no net exports (exports minus imports), the term X - N is not included. Therefore, the correct formula for GDP in a closed economy is C + I + G.

Explanation

In a closed economy, there are no exports (X) or imports (N). The formula for calculating Gross Domestic Product (GDP) in a closed economy is:

GDP = C + I + G

where:

C represents consumption,

I represents investment, and

G represents government spending.

Since there are no net exports (exports minus imports), the term X - N is not included. Therefore, the correct formula for GDP in a closed economy is C + I + G.