Question

1) Which of the following statement regarding macroeconomics is True?

A) A country is said to be experiencing deflation when prices of most goods and services are rising over time.

B) An economy that does not interact economically with the rest of the world is called an open economy.

C) A country has a trade deficit when imports exceed exports.

D) The unemployment rate is the number of employed divided by the number of unemployed.

2) Which of the following best describes the two approaches (Keynesian and Classical) in macroeconomic studies?

A) Classical economists argue that the government should have an active role in the economy.

B) Keynesian economists believed in the idea of the invisible hand.

C) Keynes believed that monetary policy was more important to solve the high levels of unemployment that occurred during the Great Depression.

D) Keynes proposed to have the government increase its demand for goods and services.

Answer 1

1. C. A country has a trade deficit when import exceeds exports. It is an amount in which the rate of import is higher than the rate of export. Trade deficit is also known as negative balance of trade. It helps to measure international trade.Trade deficit can be calculated by substracting total exports from total imports. The main reason why trade deficit happens is that the country is not producing enough products which they needed and they are buying more things from other countries. Trade deficit will also happens when a country produce commodities in other countries. Trade deficits have some benafits also. It will help to reduce the problem of inflation, because the price of goods is lower. It will increase the standard of living of the people. Because they will get variety of goods from other countries through exporting. Like that trade deficit also helps to increase the employment opportunities ie, out sourcing. people will work in foreign countries.

2. C. Keynes beleived that monetary policy was more important to solve the high levels of unemployment that occured during the Great Depression.Keynes proposed that for making the budget deficit, government will spend more money and and cut taxes, which would icrease the consumer demand in the economy.It will leads to an increase in overall economic activities and will reduce the rate of unemployment. When economic activities increases in the economy, the employment opportunities will also increases. More activities like business, trade etc will increase in the market.Through monetary policy when interest rate decreases, the cost of borrowing will also decreases. When the borrowing cost is low peple will have enough money in their hands. So people will spent more money and invest money more. This increase in demand and GDP will help to reduce the unemployment rate.