Macroeconomics | MCQs

Explanation

The formula for the GDP Deflator is Nominal GDP / Real GDP x 100.

Explanation

The correct option that could cause the aggregate demand curve to shift to the left is "Contractionary demand management policies."

Explanation

• The period of the business cycle in which real GDP is increasing is called the "Expansion" phase.
• During an expansion, economic activity is growing, employment is typically rising, and overall economic indicators are improving.
• This phase is often characterized by increasing consumer spending, business investment, and confidence in the economy.

Explanation

• The term "crowding out" refers to the decrease in private investment that occurs when government borrowing increases.
• When the government borrows more money from the financial markets to finance its spending, it increases the demand for loanable funds, leading to higher interest rates.
• Higher interest rates make borrowing more expensive for businesses and individuals, reducing their willingness to invest and borrow for private investment projects.
• This phenomenon is known as "crowding out" because government borrowing "crowds out" private investment by competing for available funds in the financial markets.
  

Explanation

• The difference between Gross Value Added (GVA) and Net Value Added (NVA) is depreciation.
• Gross Value Added (GVA) represents the total value generated by a firm, industry, or sector, minus the value of intermediate goods used in production. It is essentially the value of output minus the value of intermediate goods.
• Net Value Added (NVA) is Gross Value Added minus depreciation. Depreciation accounts for the wear and tear of capital goods used in production, which reduces their value over time. So, NVA provides a measure of the net contribution to the economy after accounting for depreciation.

Explanation

Frictional unemployment often occurs when people first enter the labor force.

Explanation

• According to the classical money theory, money is purely nominal. That is, changes in money supply will have only affect the price levels, but not the real output. Specifically, according to the quantity theory of money, we have:
• real output * price level = money supply * money velocity
• Holding money velocity constant, a reduction in money supply will reduce the price level proportionately, but has no effect on real output.
• Quantity Theory of Money: The quantity theory of money states that the product of real output and price level is equal to the product of money supply and money velocity. This theory is based on a simple equilibrium condition for the money market.

Explanation

To find consumption spending, we can use the GDP formula:

• GDP = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (NX)

Given:

• GDP = $100 billion
• Government Spending (G) = $20 billion
• Investment (I) = $10 billion
• Net Exports (NX) = -$5 billion (negative because it's an import)

We rearrange the formula to solve for consumption:

• Consumption (C) = GDP - (Investment + Government Spending + Net Exports)
• Substituting the given values:
• Consumption (C) = $100 billion - ($10 billion + $20 billion - $5 billion)
• = $100 billion - $25 billion = $75 billion.

Explanation

• Acceleration is not typically considered a part of the business cycle.
• The parts of the business cycle are usually identified as expansion (or boom), peak, recession (or slump), trough, and recovery.
  

Explanation

Government spending is a tool of fiscal policy.

Here is tye tools of Fiscal Policy:

1. Government Spending
2. Taxation
3. Transfer Payments
4. Fiscal Expansion
5. Fiscal Contraction