Macroeconomics in Keynesia
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Added on 2021-02-20
Macroeconomics in Keynesia
Added on 2021-02-20
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Macroeconomics
Table of ContentsMAIN BODY.......................................................................................................................................3Part 1.....................................................................................................................................................3Part 2.....................................................................................................................................................71. The economy of “Keynesia” has the following economic structure:...............................................71. What is the equilibrium level of output in Keynesia?..................................................................82. Calculation of new level of output if Government spendings increased by increasing the Fiscalspendings to reduce the unemployment in the country....................................................................8C. Size of spending multiplier in Keynesia and net change in the new and original level of output.........................................................................................................................................................9D. Calculation when savings have declined to 10% and Government spending increased from 20 to 30.................................................................................................................................................92. Using the IS-LM model, analyzing the following:.........................................................................10A. Impact of Demonetisation and why does it matter for India?...................................................10B. How Fiscal Policies boosts output and their impact on interest rates?.....................................10C. Circumstances which not let an expansionary fiscal policy to result in higher interest rates?.10D. Interest rates are affected only by monetary policies or there are some other factors?............103. Using the AD-AS model, analyzing the following:........................................................................11A. Meaning of Deflation along with the respective causes of a benign deflation and malign deflation?........................................................................................................................................11B. Defining Phillips curve..............................................................................................................11C. Unemployment rate fallen faster or slower in the absence of monetary and fiscal policy easing.............................................................................................................................................11D. Defining the drivers of inflation...............................................................................................12REFERENCES...................................................................................................................................13
MAIN BODYPart 1 1.Which of the following is false regarding GDP?A.GDP can be measured in three ways: production, income and expenditureB.If measured correctly, all three ways of measuring GDP are equivalentC.The production method aggregates total production across all industriesD.The income method aggregates income accruing to all factors of production, i.e., labor,capital and landE.The expenditure method aggregates spending in the economy, which consists ofconsumption, investment, government spending and net exportAnswer - If measured correctly, all three ways of measuring GDP are equivalent2.Short- to medium term fluctuations in the economy (i.e., business cycles) are primarily drivenby changes (or shocks) to:A.Underlying trend growthB.Aggregate supplyC.Inflation expectationsD.All of the aboveE.None of the aboveAnswer - Aggregate supply3.An economy has a negative output gap when:A.Actual GDP is lower than potential GDPB.Actual GDP growth is lower than potential GDP growthC.Potential GDP is lower than actual GDPD.Potential GDP growth is lower than actual GDP growthE.None of the aboveAnswer - Actual GDP is lower than potential GDP4.In the Keynesian multiplier model, a rise in the marginal propensity to save (MPS) results in:A.A steeper AD curve and higher equilibrium outputB.A steeper AD curve a lower equilibrium output
C.A flatter AD curve and higher equilibrium outputD.A flatter AD curve and lower equilibrium outputE.An upward shift in the AD curve and higher equilibrium outputAnswer - A flatter AD curve and lower equilibrium output5.Empirical evidence suggest that the fiscal multiplier is:A.Smaller when there is a negative output gap B.Larger when there is a negative output gapC.Smaller when there is a positive output gapD.Larger when there is a positive output gapE.B. and C.Answer - Smaller when there is a negative output gap 6.If investment becomes less responsive to changes in the interest rate, then:A.The IS curve will become flatterB.The LM curve will become flatterC.The IS curve will become steeperD.The LM curve will become steeperE.Both the IS curve and LM curve will become flatterAnswer - The IS curve will become steeper7.Monetary policy tends to be more effective when:A.Money demand is not sensitive to interest rateB.Investment sensitive to interest rateC.The economy is not in a liquidity trapD.The IS curve is flatE.All of the aboveAnswer - Investment sensitive to interest rate8.Fiscal policy tends to be more effective when:A.Money demand is not sensitive to interest rateB.Investment is sensitive to interest rateC.The LM curve is steepD.All of the aboveE.None of the aboveAnswer - Money demand is not sensitive to interest rate
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