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Keynesian Economics

Description: Keynesian Economics Quiz
Number of Questions: 14
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Tags: macroeconomics keynesian economics economic theory
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According to Keynesian economics, what is the primary determinant of aggregate demand?

  1. Interest rates

  2. Government spending

  3. Money supply

  4. Consumer confidence

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Correct Option: B
Explanation:

Keynesian economics emphasizes the role of government spending in stimulating aggregate demand and economic growth.

What is the term used to describe the situation where an economy is operating below its full potential output?

  1. Inflation

  2. Deflation

  3. Recession

  4. Depression

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Correct Option: C
Explanation:

A recession is a period of economic decline characterized by negative GDP growth and high unemployment.

What is the multiplier effect?

  1. The impact of government spending on aggregate demand

  2. The impact of changes in the money supply on economic growth

  3. The impact of changes in interest rates on investment

  4. The impact of changes in consumer confidence on economic activity

Show answer
Correct Option: A
Explanation:

The multiplier effect refers to the idea that an initial increase in government spending leads to a larger increase in aggregate demand due to the subsequent rounds of spending by recipients of the initial spending.

What is the liquidity trap?

  1. A situation where banks are unwilling to lend money

  2. A situation where consumers are unwilling to spend money

  3. A situation where businesses are unwilling to invest money

  4. A situation where the central bank is unable to lower interest rates

Show answer
Correct Option: D
Explanation:

The liquidity trap is a situation where monetary policy is ineffective because interest rates are already at or near zero and cannot be lowered further to stimulate economic activity.

What is the role of fiscal policy in Keynesian economics?

  1. To increase government spending and reduce taxes

  2. To decrease government spending and increase taxes

  3. To maintain a balanced budget

  4. To intervene in the foreign exchange market

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Correct Option: A
Explanation:

Keynesian economics advocates for the use of fiscal policy, particularly expansionary fiscal policy, to stimulate aggregate demand and economic growth.

What is the role of monetary policy in Keynesian economics?

  1. To increase interest rates and reduce the money supply

  2. To decrease interest rates and increase the money supply

  3. To maintain a stable exchange rate

  4. To intervene in the stock market

Show answer
Correct Option: B
Explanation:

Keynesian economics emphasizes the importance of monetary policy, particularly expansionary monetary policy, to stimulate aggregate demand and economic growth.

What is the Phillips curve?

  1. A graph showing the relationship between inflation and unemployment

  2. A graph showing the relationship between interest rates and economic growth

  3. A graph showing the relationship between government spending and tax revenue

  4. A graph showing the relationship between the exchange rate and the trade balance

Show answer
Correct Option: A
Explanation:

The Phillips curve is a graphical representation of the relationship between inflation and unemployment, suggesting a trade-off between the two.

What is the concept of effective demand?

  1. The total demand for goods and services in an economy

  2. The demand for goods and services that can be met with the available resources

  3. The demand for goods and services that is backed by money

  4. The demand for goods and services that is influenced by consumer preferences

Show answer
Correct Option: B
Explanation:

Effective demand refers to the demand for goods and services that can be met with the available resources, taking into account supply constraints and production capacity.

What is the concept of involuntary unemployment?

  1. Unemployment caused by a lack of job opportunities

  2. Unemployment caused by a lack of skills or education

  3. Unemployment caused by a lack of motivation to work

  4. Unemployment caused by a lack of job search effort

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Correct Option: A
Explanation:

Involuntary unemployment refers to unemployment that is caused by a lack of job opportunities, rather than individual factors such as skills, motivation, or job search effort.

What is the concept of the marginal efficiency of capital?

  1. The rate of return on investment

  2. The cost of capital

  3. The risk associated with investment

  4. The liquidity of an investment

Show answer
Correct Option: A
Explanation:

The marginal efficiency of capital refers to the rate of return on investment, or the additional output generated by an additional unit of capital.

What is the concept of the multiplier?

  1. The ratio of government spending to GDP

  2. The ratio of investment to GDP

  3. The ratio of exports to GDP

  4. The ratio of change in GDP to change in government spending

Show answer
Correct Option: D
Explanation:

The multiplier refers to the ratio of change in GDP to change in government spending, indicating the impact of government spending on overall economic activity.

What is the concept of the liquidity preference theory?

  1. The theory that individuals prefer to hold money rather than other assets

  2. The theory that individuals prefer to hold bonds rather than money

  3. The theory that individuals prefer to hold stocks rather than bonds

  4. The theory that individuals prefer to hold real estate rather than financial assets

Show answer
Correct Option: A
Explanation:

The liquidity preference theory suggests that individuals prefer to hold money, which is a liquid asset, rather than other assets, due to its convenience and safety.

What is the concept of the loanable funds market?

  1. The market where individuals and businesses borrow and lend money

  2. The market where stocks and bonds are traded

  3. The market where foreign currencies are traded

  4. The market where commodities are traded

Show answer
Correct Option: A
Explanation:

The loanable funds market is the market where individuals and businesses borrow and lend money, determining the equilibrium interest rate and the allocation of funds in the economy.

What is the concept of the IS-LM model?

  1. A model that analyzes the relationship between the goods market and the money market

  2. A model that analyzes the relationship between the labor market and the goods market

  3. A model that analyzes the relationship between the foreign exchange market and the goods market

  4. A model that analyzes the relationship between the stock market and the goods market

Show answer
Correct Option: A
Explanation:

The IS-LM model is a macroeconomic model that analyzes the relationship between the goods market and the money market, determining the equilibrium level of output, interest rates, and the price level.

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