Economics MCQs
Topic Notes: Economics
MCQs and preparation resources for competitive exams, covering important concepts, past papers, and detailed explanations.
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
41
What is the formula for aggregate demand in an economy with international trade and a government sector?
Answer:
AD = C + I + G + X – Z
Aggregate demand (AD) represents the total demand for goods and services in an economy. It includes consumer spending (C), investment (I), government spending (G), exports (X), and imports (Z). The formula AD = C + I + G + X – Z accounts for all these components.
42
What are the primary components of aggregate demand within a closed economy model?
Answer:
C + I + G
In a closed economy, there is no international trade, meaning exports and imports are zero. Therefore, aggregate demand is composed exclusively of three sectors: household consumption (C), private investment (I), and government spending (G). The sum of these three variables represents the total expenditure on goods and services produced within the domestic economy, excluding any external influences or foreign transactions.
43
What is the standard Keynesian policy recommendation for addressing high levels of unemployment?
Answer:
decrease private consumption and investment
The provided answer suggests that decreasing consumption and investment is a remedy for unemployment. However, standard Keynesian theory posits that unemployment is caused by deficient aggregate demand. Therefore, the Keynesian remedy typically involves increasing government spending or lowering taxes to stimulate consumption and investment, not decreasing them. This answer choice appears to contradict standard macroeconomic theory.