Macroeconomics Flashcards
7 cards from real CBE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Macroeconomics flashcards as text
Under a fixed exchange rate regime, a country experiencing a balance of payments deficit must:
Answer: Use foreign reserves to defend the peg
To maintain a fixed rate when demand for the currency falls, the central bank must sell foreign reserves to buy its own currency and support the peg.
The Solow growth model predicts that, holding other factors constant, poorer countries will grow faster than richer ones. This is called:
Answer: Absolute convergence
Absolute (unconditional) convergence predicts that all economies converge to the same steady state due to diminishing returns to capital, so poorer nations grow faster.
Which of the following best describes 'crowding out' in fiscal policy?
Answer: Government deficits reduce private investment by raising interest rates
Crowding out occurs when government borrowing raises real interest rates, making private investment more expensive and thus reducing it.
The velocity of money in the quantity theory equation (MV = PQ) represents:
Answer: The average number of times a dollar is spent in a period
Velocity (V) measures how frequently the average dollar changes hands in transactions within a given time period.
If a country's current account is in deficit, which must be true by definition?
Answer: The capital and financial account is in surplus
By the balance of payments accounting identity, a current account deficit must be exactly offset by a capital and financial account surplus.
The concept of 'rational expectations' in macroeconomics implies that:
Answer: Agents use all available information efficiently when forming expectations
Rational expectations theory holds that agents use all available information optimally, not that they are perfect forecasters—they just don't make systematic errors.
Which of the following scenarios would shift the aggregate supply curve to the right?
Answer: Technological improvement increasing productivity
Technological progress lowers production costs and expands productive capacity, shifting the long-run and short-run aggregate supply curves rightward.