Macroeconomic Policy Tools(Economics ) Questions and Answers

Question 1. Which of the following is an automatic stabilizer ?
  1.    Spending on public schools
  2.    Military spending
  3.    All of these answers are automatic stabilizers
  4.    spending on the space shuttle
  5.    Unemployment benefits
Explanation:-
Answer: Option E. -> Unemployment benefits
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 2. An increase in the marginal propensity to consumer (MPC) ?
  1.    raises the value of the multiplier
  2.    has no impact on the value of the multiplier?
  3.    rarely occurs because the MPC is set by congressional legislation
  4.    lowers the value of the multiplier
Explanation:-
Answer: Option A. -> raises the value of the multiplier
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 3. The initial effect of an increase in the money supply is to ?
  1.    increase the interest rate
  2.    increase the price level
  3.    decrease the price level
  4.    decrease the interest rate
Explanation:-
Answer: Option B. -> increase the price level
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 4. The initial impact of an increase in government spending is to shift ?
  1.    aggregate demand to the right
  2.    aggregate demand to the left
  3.    aggregate supply to the right
  4.    aggregate supply to the left
Explanation:-
Answer: Option A. -> aggregate demand to the right
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 5. Suppose the government increases its purchases by Rs16 billion. If the multiplier effect exceeds the crowding out effect, then ?
  1.    The aggregate supply curve shifts to the right by more than Rs 16 billion
  2.    The aggregate demand curve shifts to the left by more than Rs 16 billion
  3.    The aggregate demand curve shifts to the right by more than Rs 16 billion
  4.    the aggregate supply curve shifts to the left by more than Rs 16 billion
Explanation:-
Answer: Option C. -> The aggregate demand curve shifts to the right by more than Rs 16 billion
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 6. When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis an increase in the interest rate ?
  1.    None of these answers
  2.    decrease the quantity demanded of money
  3.    increase the quantity demanded of money
  4.    decreases the demand for money
  5.    increases the demand for money
Explanation:-
Answer: Option B. -> decrease the quantity demanded of money
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 7. For the Eurozone countries, the most important source of the downward slope of the aggregate demand curve is probably ?
  1.    The wealth effect
  2.    None of these answers
  3.    The exchange-rate effect
  4.    The fiscal effect
  5.    The interest-rate effect
Explanation:-
Answer: Option E. -> The interest-rate effect
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 8. When an increase in government purchases raises incomes shifts money demand to the right raises the interest rate, and lowers investment we have seen a demonstration of ?
  1.    supply-side economics
  2.    None of these answers
  3.    The crowding-out effect
  4.    The multiplier effects
Explanation:-
Answer: Option C. -> The crowding-out effect
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 9. Which of the following best describes how an increase in the money supply shift the aggregate demand curve ?
  1.    The money supply shifts right prices fall spending increases and the aggregate demand curve shifts right
  2.    The money supply shifts right the interest rate rises investment decreases and the aggregate demand curve shifts left
  3.    The money supply shifts right the interest rate falls, investment increases, and the aggregate demand curve shifts right
  4.    The money supply shifts right, prices rise, demand curve shifts left
Explanation:-
Answer: Option C. -> The money supply shifts right the interest rate falls, investment increases, and the aggregate demand curve shifts right
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 10. Which of the following statements about stabilization policy is not true ?
  1.    Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than activist stabilization policy
  2.    None of these answers are true
  3.    Long lags enhance the ability of policy makers to fine tune the economy
  4.    When policy makers implement activist stabilization policies there is a significant risk that their policies may actually have a destabilizing effect
Explanation:-
Answer: Option C. -> Long lags enhance the ability of policy makers to fine tune the economy
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
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