AA Economics Theories 2

Question 1

According to Keynesian economics, what is the primary cause of recessions?

Accepted Answer

Insufficient aggregate demand

Answer

Excessive money supply growth

Answer

Overproduction by firms

Answer

High interest rates set by central banks

Question 2

The Laffer Curve illustrates the relationship between tax rates and:

Accepted Answer

Tax revenue collected

Answer

Government spending efficiency

Answer

Income inequality

Answer

Inflation levels

Question 3

Which theory argues that wages are 'sticky downward,' making unemployment worse during downturns?

Accepted Answer

Keynesian economics

Answer

Classical economics

Answer

Monetarism

Answer

Supply-side economics

Question 4

In public choice theory, the term 'rent-seeking' refers to:

Accepted Answer

Firms lobbying government for favorable regulations

Answer

Landlords raising rents above market value

Answer

Central banks earning interest on reserves

Answer

Consumers seeking the cheapest housing

Question 5

The permanent income hypothesis, developed by Milton Friedman, predicts that consumers base spending on:

Accepted Answer

Expected long-run average income

Answer

Their current paycheck only

Answer

Government transfer payments

Answer

The interest rate on savings accounts

Question 6

Which economic school of thought holds that only unexpected changes in the money supply affect real output?

Accepted Answer

New Classical economics

Answer

Keynesian economics

Answer

Post-Keynesian economics

Answer

Institutional economics

Question 7

The Coase Theorem suggests that externalities can be resolved efficiently without government intervention when:

Accepted Answer

Property rights are well-defined and transaction costs are low

Answer

Markets are perfectly competitive

Answer

Firms internalize all social costs voluntarily

Answer

The externality affects only two parties