(6.) Economics Hl. Macroeconomics, Definitions.
IB Economics HL. Definitions QUIZ. Section 3. Macroeconomics. National income, aggregate demand and aggregate supply.
Questions and Answers
- 1.
"Foregoing current consumption to allow for consumption in the future" What is being defined?
- A.
Leakage
- B.
Injection
- C.
Saving
Correct Answer
C. SavingExplanation
The given correct answer for this question is "Saving". The explanation for this answer is that saving refers to the act of foregoing current consumption in order to have consumption or use of resources in the future. It involves setting aside money or resources for future needs or goals. Saving is a financial practice that allows individuals or businesses to accumulate wealth over time and provides a safety net for unexpected expenses or future investments.Rate this question:
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- 2.
Output method: "Method measuring national income by taking the value of all the goods and services [1] in an economy" Income method: "Method measuring national income by taking the value of all the [2] earned in an economy" Expenditure method: "Method measuring national income by taking the value of all [3] on goods and services in the economy"
- A.
[1] = Sold, [2] = Incomes, [3] = Spending
- B.
[1] = Sold, [2] = Incomes, [3] = Taxes
- C.
[1] = Produced, [2] = Incomes, [3] = Spending
Correct Answer
C. [1] = Produced, [2] = Incomes, [3] = SpendingExplanation
The correct answer is [1] = Produced, [2] = Incomes, [3] = Spending. This answer accurately describes the three different methods of measuring national income. The output method measures national income by taking the value of all the goods and services produced in an economy. The income method measures national income by taking the value of all the incomes earned in an economy. The expenditure method measures national income by taking the value of all the spending on goods and services in the economy.Rate this question:
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- 3.
GDP per capita is GDP divided by ...
- A.
GNP
- B.
The size of the population
- C.
The size of the labor force
- D.
Twenty-five
Correct Answer
B. The size of the populationExplanation
GDP per capita is calculated by dividing the GDP (Gross Domestic Product) by the size of the population. This measure helps to determine the average economic output per person in a country. By dividing the total GDP by the population, it provides a more accurate representation of the economic well-being and standard of living of the individuals in a country, as it takes into account the size of the population.Rate this question:
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- 4.
Nominal GDP is the value of GDP at [...] prices
Correct Answer
currentExplanation
Nominal GDP is the value of GDP at current prices. This means that it reflects the current market prices of goods and services produced within a specific time period. It does not take into account inflation or changes in the purchasing power of money. Nominal GDP is useful for measuring the total economic output of a country and comparing it to previous years or other countries. However, it may not accurately reflect changes in real economic growth when inflation is high.Rate this question:
- 5.
Is GDP at ___[ ] prices Real GDP?
Correct Answer
constantExplanation
The GDP at constant prices refers to the measurement of GDP after adjusting for inflation. It is a more accurate representation of the real value of goods and services produced in an economy over time. By using constant prices, the effects of price changes are eliminated, allowing for a clearer understanding of the changes in the actual output of the economy. Therefore, GDP at constant prices is considered to be a measure of Real GDP.Rate this question:
- 6.
Real GDP can also be defined as the nominal GDP adjusted for [...]
Correct Answer
inflationExplanation
Real GDP, or Gross Domestic Product, is a measure of a country's economic output adjusted for inflation. Inflation refers to the increase in prices of goods and services over time, which reduces the purchasing power of money. By adjusting nominal GDP, which is the total value of goods and services produced in a country without considering inflation, for inflation, we can obtain the real GDP. This allows us to compare economic performance over time and across countries on a more accurate basis, as it accounts for changes in prices.Rate this question:
- 7.
"The total of all economic activity in a country" What is being defined?
- A.
GNP
- B.
GDP
- C.
Nominal GDP
- D.
Deflationary gap
Correct Answer
B. GDPExplanation
Gross Domestic Product (GDP) is being defined in this question. GDP refers to the total value of all goods and services produced within a country's borders in a specific time period. It is a measure of the overall economic activity and is used to assess the size and growth of an economy.Rate this question:
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- 8.
NNP is the GNI minus capital consumption or "[...]"
Correct Answer
depreciationExplanation
The correct answer is "depreciation." Depreciation refers to the decrease in value of an asset over time due to wear and tear, obsolescence, or other factors. In the context of GNI (Gross National Income), depreciation is subtracted from the total to account for the reduction in value of capital goods used in the production process. By subtracting depreciation, we get a more accurate measure of the net income generated by a country's residents or nationals.Rate this question:
- 9.
GNP can be defined as "the total income earned by a country's factors of production"
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The given statement is true. GNP stands for Gross National Product, which is the total income earned by a country's factors of production, including its citizens and businesses, both domestically and abroad. It measures the economic output of a country and is used to assess the overall health and growth of its economy.Rate this question:
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- 10.
GNP can also be defined as "the net property income from [...]"
Correct Answer
abroadExplanation
GNP can also be defined as "the net property income from abroad." This means that when calculating GNP, the income generated from property or investments owned by residents of a country in foreign countries is taken into account. This includes income from rental properties, dividends from foreign stocks, and interest earned on foreign bonds. Including net property income from abroad provides a more comprehensive measure of a country's economic output and helps to capture the income generated by its residents outside of the domestic economy.Rate this question:
- 11.
"Income measured in how much it can buy (after inflation)" is Callie's beautiful definition of ...
- A.
Disposable income
- B.
False income
- C.
Real income
Correct Answer
C. Real incomeExplanation
Callie's definition of "income measured in how much it can buy (after inflation)" aligns with the concept of real income. Real income takes into account the purchasing power of income by adjusting for inflation. It reflects the actual amount of goods and services that can be purchased with a given income. Disposable income, on the other hand, refers to the income available after taxes and other deductions, while false income is not a recognized term in economics.Rate this question:
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- 12.
Given the answer to question 11, the "household income after the deduction of taxes and addition of benefits" should be the [...]
Correct Answer
disposable incomeExplanation
The term "disposable income" refers to the amount of money that households have available to spend or save after taxes have been deducted and any government benefits or subsidies have been added. It represents the actual income that individuals can use for consumption or investment purposes. Therefore, the answer to question 11 should be "disposable income" as it accurately describes the concept of household income after the deduction of taxes and addition of benefits.Rate this question:
- 13.
The aggregate demand is the total demand for all [...] goods and services in a period time at a given price level
Correct Answer
final - 14.
"A change in aggregate spending on net exports, that results because a change in price level alters the relative prices of exports and imports" What is being defined?
- A.
Real balance effect
- B.
Net export effect
- C.
Interest rate effect
Correct Answer
B. Net export effectExplanation
The correct answer is the net export effect. This refers to the change in aggregate spending on net exports that occurs when there is a change in the price level, which in turn affects the relative prices of exports and imports.Rate this question:
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- 15.
"Consumption", when defined as a factor which determines Aggregate demand, can be defined as: "The total spending by consumers on goods and services"
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
To be on the safe side, add a "domestic" between "on" and "goods". Otherwise it may apply to spending on imports/exports and that's another factor of AD.Rate this question:
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- 16.
Investment is "the addition of capital [...] to the economy"
Correct Answer
stockExplanation
Stock refers to the shares or ownership in a company. When individuals or entities invest in stocks, they are adding capital to the economy by purchasing these shares and providing funds to the company. This investment helps the company grow and expand its operations, which in turn contributes to the overall economy.Rate this question:
- 17.
"The effect on spending of changes in the ratio of money balances to income" What is being defined?
- A.
Real balance effect
- B.
Net export effect
- C.
Interest rate effect
Correct Answer
A. Real balance effectExplanation
The given correct answer, "Real balance effect," is being defined. The real balance effect refers to the impact on spending that occurs as a result of changes in the ratio of money balances to income. When individuals or households have more money balances relative to their income, they are likely to increase their spending, leading to an overall boost in economic activity. Conversely, if the ratio of money balances to income decreases, spending may decrease as well, potentially slowing down economic growth.Rate this question:
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- 18.
"The increase in investment or spending resulting from firms or consumers taking advantage of lower interest rates" Is the proper name for this the "interest rate effect"?
- A.
Yes
- B.
No
Correct Answer
A. YesExplanation
The given correct answer is "Yes." The proper name for the increase in investment or spending resulting from firms or consumers taking advantage of lower interest rates is indeed the "interest rate effect." This refers to the phenomenon where individuals and businesses are incentivized to borrow and spend more when interest rates are low, leading to an increase in overall economic activity.Rate this question:
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- 19.
There are two main types of investment: Replacement investment - when firms spend on capital to maintain the productivity of existing capital, and [...]
Correct Answer
induced investmentExplanation
Induced investment is when firms spend on capital to increase their output to respond to a higher demandRate this question:
- 20.
Define "government spending"
- A.
The inflation occuring when government neglect elderly citizens
- B.
The spending on goods and services by the government
- C.
The spending on goods and services by the individual consumer
Correct Answer
B. The spending on goods and services by the governmentExplanation
Government spending refers to the expenditure of funds by the government on goods and services. This includes spending on various sectors such as healthcare, education, defense, infrastructure, and social welfare programs. It is an essential component of a country's economy and plays a crucial role in stimulating economic growth and development.Rate this question:
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- 21.
In economics, the difference between export revenues and income expenditure is known as ...
- A.
Net exports
- B.
Net imports
Correct Answer
A. Net exportsExplanation
Net exports refers to the difference between a country's total exports and total imports. It represents the net flow of goods and services out of a country, indicating whether a country is a net exporter or a net importer. In this context, the question is asking for the term that describes the difference between export revenues and income expenditure, which is net exports.Rate this question:
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- 22.
Fiscal policy is the set of a government's policies relating to its ...
- A.
Money supply
- B.
Money supply and control of interest rates
- C.
Control of interest rates and taxation rates
- D.
Spending and taxation rates
Correct Answer
D. Spending and taxation ratesExplanation
Fiscal policy refers to the government's decisions and actions regarding its spending and taxation rates. It involves determining how much money the government will spend on various programs and services, as well as how much money it will collect in taxes from individuals and businesses. By adjusting these rates, the government can influence the overall level of economic activity and promote growth or stability in the economy. This is why the correct answer is "spending and taxation rates".Rate this question:
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- 23.
"The set of official policies governing the supply of money and the level of interest rates in an economy" is the government's [...]
Correct Answer
monetary policy
monetary policiesExplanation
The correct answer is "monetary policy." Monetary policy refers to the set of official policies implemented by the government to control the supply of money and regulate interest rates in an economy. It involves actions taken by the central bank, such as adjusting interest rates and buying or selling government securities, to influence the overall economic conditions, including inflation, employment, and economic growth. The term "monetary policies" is incorrect as it implies multiple sets of policies, whereas the question is asking for the singular form.Rate this question:
- 24.
"Policies used to increase the potential output of an economy by increasing quantity or quality of factors of production" Which policies are these?
- A.
Fiscal policies
- B.
Monetary policies
- C.
Supply-side policies
- D.
Demand-side policies
Correct Answer
C. Supply-side policiesExplanation
Supply-side policies are policies that aim to increase the potential output of an economy by focusing on increasing the quantity or quality of factors of production. These policies typically involve measures such as reducing taxes, deregulation, promoting entrepreneurship, improving education and training, and investing in infrastructure. By improving the factors of production, supply-side policies aim to stimulate economic growth and increase the productive capacity of the economy.Rate this question:
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- 25.
"The total amount of goods and services produced in an economy at every given price level" What is being defined
Correct Answer
AS
Aggregate supplyExplanation
The correct answer is "Aggregate supply." This refers to the total amount of goods and services that are produced in an economy at any given price level. It represents the overall level of production in an economy and is influenced by factors such as input costs, technology, and government regulations.Rate this question:
- 26.
"The sale of public, government-owned firms to the private sector" What is this known as?
- A.
Deregulation
- B.
Interventionist supply-side policies
- C.
Privatization
Correct Answer
C. PrivatizationExplanation
Privatization refers to the process of selling public or government-owned firms to the private sector. This allows private individuals or companies to take ownership and control of these previously state-owned entities. Privatization is often seen as a way to increase efficiency, competition, and innovation in industries that were previously monopolized or heavily regulated by the government. It can also generate revenue for the government and reduce the burden on public finances.Rate this question:
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- 27.
Market-oriented supply-side policies are policies aiming to increase potential output by government actions
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Defined here are "interventionist supply-side policies". Market-oriented supply-side policies are policies aiming to increase potential output by allowing markets to operate more freely.Rate this question:
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- 28.
[...] is a supply-side policy which involves the removal or reduction of regulations to firms in order to increase aggregate supply
Correct Answer
DeregulationExplanation
Deregulation refers to the process of removing or reducing regulations imposed on businesses, with the aim of increasing the overall supply of goods and services in the economy. By reducing the burden of regulations on firms, they are able to operate more freely and efficiently, which can lead to increased productivity, innovation, and competition. This, in turn, can result in lower prices for consumers and stimulate economic growth. Deregulation is often implemented as a supply-side policy to encourage investment, job creation, and overall economic development.Rate this question:
- 29.
The gap created when the level of AD in the economy cannot be satisfied given existing resources, is known as a(n)
Correct Answer
inflationary gapExplanation
An inflationary gap refers to the situation where the aggregate demand (AD) in an economy exceeds the available resources, leading to an increase in prices and inflation. This occurs when consumers and businesses are spending more than what can be produced, causing a shortage in supply. As a result, prices rise as demand outpaces supply. The term "inflationary gap" is used to describe this imbalance between AD and available resources, highlighting the potential for inflationary pressures in the economy.Rate this question:
- 30.
The gap created when the level of AD in the economy is not sufficient to buy up all the potential output, is known as a(n)
Correct Answer
deflationary gapExplanation
A deflationary gap occurs when the level of aggregate demand (AD) in an economy is not enough to purchase all the potential output. This leads to a gap between the actual output and the maximum potential output of the economy. The term "deflationary" suggests that this gap can lead to deflationary pressures in the economy, as businesses may reduce prices to stimulate demand. This can result in lower production and employment levels.Rate this question:
- 31.
"The periodic fluctuations in economic activity measured by changes in real GDP" What is being defined?
- A.
Depreciation
- B.
Multiplier effect
- C.
Business cycle
- D.
Accelerator theory
Correct Answer
C. Business cycleExplanation
The given answer defines the business cycle, which refers to the periodic fluctuations in economic activity as measured by changes in real GDP. These fluctuations include periods of economic expansion, peak, contraction, and trough. The business cycle is a natural occurrence in an economy and is influenced by various factors such as consumer spending, investment, government policies, and external shocks. It is important for policymakers and economists to understand and analyze the business cycle in order to make informed decisions and implement appropriate measures to stabilize the economy.Rate this question:
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- 32.
The accelerator theory is a theory suggesting that the level of induced investment is determiened by the rate of change of [...]
Correct Answer
National income
NIExplanation
The correct answer is "National income, NI." The accelerator theory states that the level of induced investment is determined by the rate of change of national income. In other words, when national income increases or decreases at a faster rate, it leads to a higher level of investment. This theory suggests that the level of investment is directly related to the overall performance of the economy, as measured by national income.Rate this question:
- 33.
"The level of real output where aggregate demand is equal to aggregate supply is known as the microeconomic equilibrium"
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
It's known as the "macroeconomic equilibrium"Rate this question:
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- 34.
Capital equipment loses its value over time. This is known as depreciation, or [...]
Correct Answer
capital consumptionExplanation
Capital equipment loses its value over time due to wear and tear, obsolescence, and technological advancements. This decrease in value is known as depreciation. As the equipment ages, its productivity and efficiency may decline, making it less valuable. This depreciation is also referred to as capital consumption, as the equipment is gradually consumed or used up in the production process.Rate this question:
- 35.
"When the increase in spending on domestic goods and services "multiplies" and results in an even larger increase in real GNP" What is being defined?
- A.
Accelerator theory
- B.
Multiplier effect
- C.
Queuing
- D.
Gini effect
Correct Answer
B. Multiplier effectExplanation
The correct answer is the multiplier effect. The explanation for this is that the term "multiplies" in the question suggests that there is a multiplication or amplification of the initial increase in spending on domestic goods and services. This concept is known as the multiplier effect, where an increase in spending leads to a larger increase in real GNP (Gross National Product).Rate this question:
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