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
The Mundell-Fleming model predicts that under a floating exchange rate regime, fiscal policy is:
Answer: Ineffective because currency appreciation crowds out net exports
Under floating rates with perfect capital mobility, fiscal expansion raises interest rates, attracts capital, appreciates the currency, and reduces net exports—fully crowding out fiscal stimulus.
Which of the following is an example of a supply-side economic policy?
Answer: Reducing personal income tax rates to boost labor supply
Supply-side policies aim to increase productive capacity; cutting marginal tax rates to incentivize work and investment is a textbook supply-side measure.
If the economy's actual output exceeds its potential output, the output gap is:
Answer: Positive, indicating inflationary pressure
A positive output gap means the economy is running above capacity, putting upward pressure on wages and prices.
Which of the following would INCREASE the money multiplier in the banking system?
Answer: A decrease in the required reserve ratio
The money multiplier is approximately 1/reserve ratio; lowering the required reserve ratio allows banks to lend more of each deposit, expanding the multiplier.
In the context of sovereign debt, 'debt monetization' refers to:
Answer: The central bank purchasing government bonds to finance deficits, expanding the money supply
Debt monetization occurs when the central bank buys government debt, effectively 'printing money' to finance deficits, which can be inflationary.
The J-curve effect in international trade suggests that after a currency depreciation:
Answer: The trade balance initially worsens before eventually improving
The J-curve occurs because import/export contracts are fixed short-term, so the trade deficit widens before quantities adjust and the balance improves.
Which institutional factor is most associated with sustained long-run economic growth according to modern growth theory?
Answer: Strong property rights and rule of law
Modern institutional economics (Acemoglu, North) emphasizes that secure property rights and rule of law are the deepest determinants of sustained growth by enabling investment and innovation.