Question

1. The following is true: A) NX = X + M     B) Y = SP     C) C + I = G + NX     D) GDP = Y
2. The US will remain in recession until: A) spending substantially increases B) savings substantially increases  C) the stock market gains more than 10% in value  D) we balance our budget deficit
3. Expansionary Fiscal policy means: A) Increasing government spending and raising taxes     B) lowering taxes and lowering government spending     C) lowering interest rates   D) none of the above are correct
4. Keynes believed that: A) Wages could be sticky    B) Economies gets stuck in undesirable equilibria     C) Government can make up for a shortfall in consumer and investment spending D) All the above
5. Investment spending depends mainly on: A) interest rates and return on invested funds B) Income and Savings     C) foreign exchange rates and tastes and preferences     D) imports and unemployment

Answer 1

Question 1

GDP is sum total of expenditure on final good and services within an economy during a year.

Y is sum total of factor income generated in the economy during a year.

The sum total of expenditure on final goods and services with in an economy during a year is equal to sum total of factor income generated in the economy during a year.

So,

GDP = Y

Hence, the correct answer is the option (D).

Question 2

An economy generally goes into recession due to lack of demand.

An increase in aggregate demand can eliminate the recession.

Increase in spending leads to increase in aggregate demand and thereby can eliminate the recession.

So,

The US will remain in recession until spending substantially increases.

Hence, the correct answer is the option (A).

Question 3

Fiscal policy is related to change in government spending and tax policy.

An increase in government spending and a decrease in taxes is referred to as expansionary fiscal policy.

Hence, the correct answer is the option (D).

Question 4

Keynes stated that, in the short-run, price and wages are sticky.

In short-run, the equilibrium real GDP can be less than the potential real GDP.

In short-run, if equilibrium real GDP is less than the poptential real GDP then, in that case, government can intervene and can bring the economy to full employment by increasing its spending.

Hence, the correct answer is the option (D).

Question 5

'The two main factors that induce investment are as follows -

1. Interest rate or cost of borrowing.

2. Returns to be earned on invested fuds or marginal efficiency capital.

Hence, the correct answer is the option (A).