,1. Multiple Choice: Which of the following is not a
component of the Aggregate Demand (AD) curve?
a) Consumer Spending
b) Investment Spending
c) Net Exports
d) Stock Market Index
Correct Answer: d) Stock Market Index
Rationale: The AD curve represents the total spending on
a nation's goods and services at various price levels and
does not directly include the stock market index.
2. Fill-in-the-Blank: The __________ model is used to
analyze the economy's equilibrium without the influence of
government policy or international transactions.
Correct Answer: Classical
Rationale: The classical model assumes a closed
economy and no government intervention, focusing on long-
term economic outcomes.
3. True/False: In the Keynesian framework, total spending
is always equal to total output.
Correct Answer: False
Rationale: According to Keynesian economics, there can
be periods where aggregate demand does not meet the
total output, leading to unemployment and underutilized
resources.
, b) Government intervention can smooth out business
cycles.
c) The economy is always in equilibrium.
d) Individual agents are rational and have perfect
foresight.
Correct Answers: a), c), d)
Rationale: Real Business Cycle theory attributes
economic fluctuations to real (not monetary) shocks like
technology changes and assumes that even during cycles,
the economy is in a state of equilibrium with rational agents.
5. Multiple Choice: The concept of 'hysteresis' in economics
refers to:
a) The delayed effects of monetary policy
b) The persistence of economic events over time
c) The immediate impact of fiscal stimulus
d) The cyclical nature of consumer confidence
Correct Answer: b) The persistence of economic events
over time
Rationale: Hysteresis describes situations where effects
persist after the initial causes are removed, such as
unemployment rates remaining high after a recession has
ended.
6. Fill-in-the-Blank: __________ inflation occurs when
prices increase because the cost of production increases.
Correct Answer: Cost-push
Rationale: Cost-push inflation is driven by increases in the
cost of inputs like labor or raw materials, leading to higher
prices for consumers.
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