Here is a 120-question multiple-choice exam based on the provided course outline, with answers at

the end. The questions aim to be tricky and hard, requiring a solid understanding of the concepts.

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**Multiple Choice Examination: Macroeconomics**

**Instructions:** Choose the best answer for each question.

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**Topic 1: Measuring Macroeconomic Performance (Questions 1-20)**

1. Which of the following is NOT typically considered a main macroeconomic

objective?

A. Full employment

B. Price stability

C. Economic growth

D. Equitable distribution of income

E. Individual firm profitability

2. If nominal GDP increases by 5% and the GDP deflator increases by 2%, then real
GDP has

approximately:

A. Increased by 7%

B. Increased by 3%

C. Decreased by 3%

D. Decreased by 7%
 E. Remained constant

3. The expenditure approach to measuring GDP includes all of the following EXCEPT:

A. Government purchases of goods and services

B. Net exports

C. Investment spending

D. Transfer payments

E. Household consumption

4. Which of the following would be included in Eswatini's GDP? A. Income earned

by a Swazi citizen working in South Africa.

B. The value of illegal drug sales within Eswatini.

C. The value of a new car produced in Eswatini by a foreign-owned company.

D. The resale value of a used house.

E. The value of household chores performed by a family member.

5. The primary difference between GDP and GNI (Gross National Income) is that GNI:

A. Excludes depreciation.

B. Includes net primary income from the rest of the world.

C. Is measured at market prices, while GDP is at basic prices.

D. Only accounts for goods, not services.

E. Is always larger than GDP.

6. An increase in the unemployment rate typically indicates: A. An increase in the

labor force participation rate.

B. A decrease in the number of discouraged workers.

C. A decline in the overall health of the economy.

D. An increase in inflationary pressures.

 E. A shift from cyclical to structural unemployment.

7. Which of the following individuals would be considered frictionally unemployed?

A. A construction worker laid off due to a recession.

B. A recent university graduate searching for their first job.

C. A textile worker who lost their job because the factory moved overseas.

D. A person who chooses not to work because they are independently wealthy.

E. Someone who is retired and no longer seeking employment.

8. The Consumer Price Index (CPI) measures:

A. The average price of all goods and services produced in an economy.

B. The cost of a fixed basket of goods and services consumed by a typical urban household.

C. The prices of raw materials purchased by producers.

D. The change in the value of the domestic currency against foreign currencies.

E. The general level of prices in the wholesale market.

9. If the CPI was 120 in year 1 and 126 in year 2, the inflation rate between year 1 and
year 2 was:

A. 5%

B. 6%

C. 0.5%

D. 26%

E. 20%

10. A current account deficit in the Balance of Payments (BoP) implies that: A. The

country is exporting more goods and services than it is importing.

B. There is a net outflow of capital from the country.

C. The country's foreign liabilities are increasing.

 D. Foreign direct investment into the country is exceptionally high.

E. The central bank is accumulating foreign reserves.

11. The financial account of the BoP records: A. Exports and imports of goods.

B. Income from foreign investments.

C. Transfers like foreign aid.

D. Purchases and sales of financial assets.

E. Changes in the official foreign reserves.

12. The Lorenz curve illustrates:

A. The relationship between inflation and unemployment.

B. The distribution of income or wealth within an economy.

C. The cyclical fluctuations in economic activity.

D. The impact of government spending on GDP.

E. The trade-off between economic growth and environmental degradation.

13. A Gini coefficient of 0 indicates: A. Perfect income inequality.

B. Perfect income equality.

C. A highly unequal distribution of income.

D. No economic growth.

E. That the economy is in recession.

14. Which of the following would cause the Lorenz curve to shift closer to the line of
perfect equality?

A. A regressive tax system.

B. An increase in executive salaries.

C. More progressive income tax policies.

D. A decrease in social welfare programs.

 E. Increased unemployment among low-skilled workers.

15. When measuring economic activity, "value added" refers to: A. The total revenue

of a firm.

B. The profit margin of a firm.

C. The difference between the value of a firm's output and the cost of intermediate inputs.

D. The total expenditure on final goods and services.

E. The income received by factors of production.

16. Which of the following is a limitation of using GDP as a measure of welfare? A. It

includes the value of environmental degradation.

B. It does not account for the distribution of income.

C. It only measures the production of goods, not services.

D. It includes non-market activities.

E. It is always a precise measure of living standards.

17. If a country's nominal GDP doubled over a decade, but its population also doubled and
prices quadrupled, then real GDP per capita: A. Doubled.

B. Halved.

C. Quadrupled.

D. Decreased significantly.

E. Remained constant.

18. A country's terms of trade worsen if:

A. Its export prices rise faster than its import prices.

B. Its import prices rise faster than its export prices.

C. Both export and import prices fall proportionally.

 D. Its currency appreciates significantly.

E. It experiences a large balance of payments surplus.

19. The unemployment rate is calculated as:

A. (Unemployed / Total Population) * 100

B. (Unemployed / Labor Force) * 100

C. (Unemployed / (Employed + Unemployed)) * 100

D. (Unemployed / Working Age Population) * 100

E. (Labor Force / Total Population) * 100

20. What is a key difference between the GDP deflator and the CPI?

A. The GDP deflator includes imported goods, while the CPI does not.

B. The CPI measures prices of all goods and services produced, while the GDP deflator
measures a consumer basket.

C. The GDP deflator is a fixed-weight index, while the CPI is a chain-weighted index.

D. The CPI typically reflects the cost of living for households, while the GDP deflator reflects
the prices of domestically produced final goods and services.

E. They are essentially the same measure, just calculated differently.

**Topic 2: The Monetary Sector (Questions 21-40)**

21. Which of the following is NOT a primary function of money?

A. Medium of exchange

B. Store of value

C. Unit of account

D. Source of intrinsic value

E. Standard of deferred payment

22. Fiat money is defined as money that:

A. Has intrinsic value, such as gold or silver.

B. Is backed by a commodity like gold.

C. Is declared by government decree to be legal tender.

D. Is used exclusively for international transactions.

E. Can only be used for a specific purpose.

23. In Eswatini, the primary responsibility for monetary policy lies with:

A. The Ministry of Finance

B. Commercial banks

C. The Central Bank of Eswatini

D. The Parliament

E. The International Monetary Fund

24. Financial intermediaries perform the crucial role of: A. Issuing government bonds.

B. Facilitating the flow of funds between savers and borrowers.

C. Directly controlling fiscal policy.

D. Printing banknotes and minting coins.

E. Regulating international trade agreements.

25. Which of the following is a key function of the Central Bank of Eswatini? A. Setting tax

rates.

B. Managing the government's budget.

C. Acting as banker to the government.

D. Direct provision of loans to the public.

E. Establishing import tariffs.

26. The speculative demand for money is primarily influenced by: A. The level of real GDP.

B. The overall price level.

C. The interest rate.

D. The frequency of income payments.

E. The availability of credit cards.

27. According to the quantity theory of money, if the money supply grows faster than real GDP,
the result will likely be: A. Deflation

B. Hyperinflation

C. Disinflation

D. Inflation

E. Stagflation

28. Commercial banks create money primarily through: A. Printing physical currency.

B. Accepting deposits from the public.

C. Granting loans.

D. Issuing government securities.

E. Foreign exchange transactions.

29. The reserve requirement ratio refers to:

A. The proportion of a bank's assets that must be held in government bonds.

B. The minimum fraction of deposits that banks must hold as reserves.

C. The interest rate at which commercial banks can borrow from the central bank.

D. The ratio of cash to total assets held by the central bank.

E. The amount of foreign currency reserves a country holds.

30. If the Central Bank of Eswatini wants to reduce the money supply, it could: A. Decrease

the repo rate.

B. Buy government securities in the open market.

C. Decrease the reserve requirement.

D. Sell government securities in the open market.

E. Encourage commercial banks to lend more.

31. Open market operations involve the central bank: A. Changing the exchange rate.

B. Buying or selling government securities in the financial markets.

C. Directly controlling consumer lending rates.

D. Regulating the stock market.

E. Supervising commercial bank branches.

32. Which of the following would lead to an increase in the demand for money for transactions
purposes?

A. A decrease in the general price level.

B. A decrease in real GDP.

C. An increase in the frequency of income payments.

D. An increase in the general price level.

E. A decrease in interest rates.

33. The discount rate (or repo rate in many contexts) is the interest rate at which: A.

Commercial banks lend to each other.

B. Commercial banks lend to the public.

C. The central bank lends to commercial banks.

D. The government borrows from the public.

E. International banks lend to each other.

34. Bank supervision aims to:

A. Control the government's budget deficit.

B. Ensure the stability and soundness of the financial system.

C. Determine the level of interest rates for consumers.

D. Manage the country's foreign exchange reserves.

E. Influence the balance of payments.

35. A "bank run" occurs when:

A. Interest rates increase suddenly.

B. A large number of depositors simultaneously attempt to withdraw their funds.

C. A central bank intervenes in the foreign exchange market.

D. The stock market experiences a significant downturn.

E. Government bonds lose their value.

36. The concept of "money multiplier" suggests that:

A. Every unit of currency printed by the central bank directly increases the money supply by
the same amount.

B. A change in the reserve requirement ratio has no impact on the money supply.

C. An initial change in bank reserves can lead to a larger change in the overall money supply.

D. Commercial banks have no role in the creation of money.

E. The money supply is solely determined by the central bank's actions.

37. If the reserve requirement is 10% and a bank receives a new deposit of E1000, it can initially
lend out:

A. E1000

B. E100

C. E900

D. E0
 E. E1100

38. Quantitative easing (QE) is an unconventional monetary policy tool where a central bank:

A. Raises interest rates significantly.

B. Sells large quantities of government bonds.

C. Buys large quantities of government bonds and other financial assets to increase the
money supply.

D. Implements strict regulations on commercial banks.

E. Focuses solely on maintaining price stability.

39. The main reason the Central Bank of Eswatini is largely independent from the government is

to: A. Ensure that monetary policy decisions are made free from short-term political

pressures.

B. Allow the government to print money without restraint.

C. Facilitate closer ties with international financial institutions.

D. Reduce the influence of commercial banks.

E. Directly control the fiscal budget.

40. Which of the following represents the narrowest definition of money (M1)? A. Currency in

circulation + demand deposits.

B. M1 + savings deposits.

C. M1 + short-term fixed deposits.

D. M1 + all liquid assets.

E. All forms of financial assets.

**Topic 3: The Government Sector (Questions 41-60)**

41. Which of the following is a common justification for government intervention in the
economy?
 A. Perfect competition

B. Market efficiency

C. Market failure

D. Consumer sovereignty

E. Absence of externalities

42. A public good is characterized by: A. Excludability and rivalry.

B. Excludability and non-rivalry.

C. Non-excludability and rivalry.

D. Non-excludability and non-rivalry.

E. High production costs.

43. An example of a negative externality is: A. A beautifully maintained garden.

B. The pollution from a factory impacting a nearby river.

C. The benefits of public education.

D. The sale of a new car.

E. A street light illuminating a road.

44. Government intervention through taxation is primarily intended to: A. Provide public

goods.

B. Redistribute income.

C. Correct market failures.

D. Influence economic activity.

E. All of the above.

45. "Government failure" refers to:

A. Instances where government intervention leads to a less efficient or equitable outcome

than if the market operated freely.
 B. The inability of the government to collect taxes.

C. A situation where the government budget is always in surplus.

D. The complete absence of government in the economy.

E. When government policies are always perfectly successful.

46. Nationalisation is the process of:

A. Selling government-owned assets to the private sector.

B. Transferring private assets or industries to public ownership.

C. Reducing government regulation.

D. Increasing foreign direct investment.

E. Implementing a free trade agreement.

47. Fiscal policy involves the government's use of: A. Interest rates and the money supply.

B. Spending and taxation.

C. Exchange rates and trade barriers.

D. Reserve requirements and open market operations.

E. Price controls and subsidies.

48. A progressive tax system is one where: A. Everyone pays the same tax rate.

B. Lower-income earners pay a higher percentage of their income in taxes.

C. Higher-income earners pay a higher percentage of their income in taxes.

D. Taxes are levied on consumption only.

E. Taxes are constant regardless of income.

49. When government spending exceeds government revenue, it results in a: A. Budget

surplus.

B. Budget deficit.
 C. Balanced budget.

D. Current account surplus.

E. Trade surplus.

50. Which of the following is NOT a common criterion for a "good tax" system?

A. Equity

B. Certainty

C. Efficiency

D. Simplicity

E. High administrative costs

51. An expansionary fiscal policy would involve:

A. Increasing taxes and decreasing government spending.

B. Decreasing taxes and increasing government spending.

C. Decreasing the money supply.

D. Increasing interest rates.

E. Selling government bonds.

52. The crowding-out effect suggests that increased government borrowing to finance a deficit

may: A. Stimulate private investment.

B. Decrease interest rates.

C. Lead to higher interest rates and reduce private investment.

D. Increase the money supply.

E. Improve the balance of payments.

53. The main difference between current government spending and capital government
spending is
that:

A. Current spending is for infrastructure, while capital spending is for salaries.

B. Current spending is short-term, while capital spending is for long-term assets.

C. Current spending generates future returns, while capital spending does not.

D. Capital spending is financed by taxes, while current spending is by borrowing.

E. There is no significant difference.

54. The concept of "rent-seeking" behavior by special interest groups contributes to: A. More

efficient government.

B. Government failure.

C. Improved public good provision.

D. Reduced budget deficits.

E. Greater income equality.

55. If the government implements a policy to subsidize higher education, it is likely attempting
to address:

A. A public good problem.

B. A positive externality.

C. A negative externality.

D. A natural monopoly.

E. Information asymmetry.

56. The national debt is the: A. Annual budget deficit.

B. Total accumulation of past government budget deficits and surpluses.

C. Amount of money the central bank owes to commercial banks.

D. Sum of all private sector debt.

E. Debt owed by households to the government.

57. Privatisation is often advocated on the grounds that it can lead to: A. Increased

government control.

B. Greater efficiency and innovation.

C. Reduced competition.

D. More equitable distribution of services.

E. Higher unemployment.

58. Which of the following is an automatic stabiliser? A. Discretionary changes in government

spending.

B. Changes in the repo rate by the central bank.

C. Progressive income taxes.

D. Government subsidies for specific industries.

E. Open market operations.

59. When a government runs a budget deficit, it can finance it by: A. Increasing its official

foreign reserves.

B. Issuing new bonds.

C. Reducing public debt.

D. Increasing its tax base without changing tax rates.

E. Decreasing its spending automatically.

60. The "Laffer Curve" suggests that:

A. Increasing tax rates always increases tax revenue.

B. There is an optimal tax rate beyond which higher tax rates lead to lower tax revenue.

C. Decreasing tax rates always decreases tax revenue.

D. Tax revenue is independent of tax rates.

E. All taxes are inherently inefficient.

**Topic 4: The Foreign Sector (Questions 61-80)**

61. Globalisation refers to:

A. The increasing interconnectedness of economies worldwide.

B. The process of individual countries becoming more isolated.

C. The decline of international trade.

D. The dominance of a single global currency.

E. The complete absence of trade barriers.

62. Comparative advantage suggests that countries should specialize in producing goods for
which they have:

A. A higher absolute cost of production.

B. A lower opportunity cost of production.

C. A larger domestic market.

D. A higher exchange rate.

E. More abundant natural resources, regardless of efficiency.

63. Which of the following is an example of a trade barrier?

A. Free trade agreements

B. Subsidies to domestic producers

C. Tariffs

D. Quotas

E. All of the above (excluding A, B, C, D only)

F. C and D only

64. A tariff is a:

A. Limit on the quantity of a good that can be imported.

 B. Payment from the government to domestic producers.

C. Tax on imported goods.

D. Set of quality standards for imported goods.

E. Restriction on foreign direct investment.

65. An import quota aims to:

A. Increase the quantity of imported goods.

B. Reduce the quantity of imported goods.

C. Generate tax revenue for the government.

D. Lower the domestic price of imported goods.

E. Promote free trade.

66. If the Eswatini Lilangeni (SZL) depreciates against the US Dollar (USD), it means: A. It takes

more USD to buy one SZL.

B. It takes fewer SZL to buy one USD.

C. It takes more SZL to buy one USD.

D. The purchasing power of the SZL has increased internationally.

E. Eswatini's exports will become more expensive to foreigners.

67. A floating exchange rate system is one where:

A. The central bank actively intervenes to fix the exchange rate.

B. The exchange rate is determined by market forces of supply and demand.

C. The exchange rate is pegged to the price of gold.

D. The government sets the exchange rate unilaterally.

E. The exchange rate only changes during periods of economic crisis.

68. An appreciation of the domestic currency tends to:

 A. Make exports cheaper and imports more expensive.

B. Make exports more expensive and imports cheaper.

C. Have no impact on export and import prices.

D. Lead to a balance of payments surplus.

E. Discourage foreign direct investment.

69. The terms of trade are defined as:

A. The difference between a country's exports and imports.

B. The ratio of a country's export prices to its import prices.

C. The total value of goods and services traded internationally.

D. The exchange rate between two currencies.

E. The impact of tariffs on international trade.

70. A deterioration in a country's terms of trade implies that: A. Its export prices have risen

relative to its import prices.

B. It can now obtain more imports for a given quantity of exports.

C. Its import prices have risen relative to its export prices.

D. Its balance of trade will improve.

E. Its currency will appreciate.

71. Protectionist policies are typically implemented to: A. Promote free trade.

B. Protect domestic industries from foreign competition.

C. Increase imports.

D. Lower domestic prices.

E. Improve international relations.

72. Dumping occurs when a country:

A. Exports goods at a price below their cost of production in the domestic market.
 B. Imposes a high tariff on imported goods.

C. Provides subsidies to its domestic industries.

D. Engages in fair trade practices.

E. Imports goods at a very low price.

73. The current account of the balance of payments includes: A. Foreign direct investment.

B. Portfolio investment.

C. Merchandise trade, services, income, and current transfers.

D. Changes in official reserves.

E. All financial transactions.

74. If Eswatini has a current account surplus, it means:

A. It is borrowing more from the rest of the world than it is lending.

B. Its exports of goods and services are less than its imports.

C. It is a net lender to the rest of the world.

D. There is a net outflow of foreign direct investment.

E. Its official reserves are decreasing.

75. A fixed exchange rate system requires the central bank to: A. Allow the currency to float

freely.

B. Intervene in the foreign exchange market to maintain the target rate.

C. Abolish all trade barriers.

D. Set interest rates independently of other countries.

E. Encourage capital outflows.

76. The "J-curve effect" describes the phenomenon where a currency depreciation initially leads
to

a:
 A. Worsening of the trade balance before it improves.

B. Improvement of the trade balance before it worsens.

C. Immediate and sustained improvement in the trade balance.

D. No change in the trade balance.

E. Significant increase in imports.

77. The Stolper-Samuelson theorem suggests that free trade will: A. Benefit all factors of

production equally.

B. Increase the real income of the relatively abundant factor and decrease the real income
of the relatively scarce factor.

C. Always lead to a decrease in overall welfare.

D. Only benefit consumers.

E. Have no impact on factor incomes.

78. Which of the following is a potential benefit of international trade? A. Decreased

competition for domestic firms.

B. Higher domestic prices for consumers.

C. Access to a wider variety of goods and services.

D. Reduced efficiency in resource allocation.

E. Increased reliance on domestic production only.

79. The demand for a country's exports is influenced by: A. The domestic interest rate.

B. The exchange rate.

C. Foreign income levels.

D. Domestic inflation.

E. All of the above (excluding A, B, C, D only)

F. B and C only
80. A multinational corporation (MNC) establishing a new production facility in Eswatini would
be recorded in the BoP as a:

A. Current account debit.

B. Current account credit.

C. Financial account debit.

D. Financial account credit.

E. Capital account debit.

**Topic 5: A Simple Keynesian Model of the Economy (Questions 81-100)**

81. In the simple Keynesian model, equilibrium income occurs when: A. Aggregate demand

equals aggregate supply.

B. Investment equals consumption.

C. Government spending equals taxation.

D. Imports equal exports.

E. The economy is operating at full employment.

82. The basic assumption of the simple Keynesian model regarding prices is that they are:

A. Fully flexible.

B. Fixed or sticky in the short run.

C. Determined by the money supply.

D. Always increasing.

E. Irrelevant for equilibrium income.

83. The marginal propensity to consume (MPC) represents: A. The total amount of income

consumed.

B. The proportion of a change in income that is saved.

C. The proportion of a change in income that is consumed.

 D. The autonomous level of consumption.

E. The relationship between interest rates and consumption.

84. If the MPC is 0.75, a R100 increase in disposable income will lead to a R_________ increase
in consumption spending.

A. 100

B. 75

C. 25

D. 0

E. 175

85. Autonomous consumption refers to the consumption spending that: A. Changes with

income.

B. Is determined by interest rates.

C. Occurs even when disposable income is zero.

D. Is influenced by government policy.

E. Is always positive.

86. The main determinant of investment spending in the simple Keynesian model is typically:

A. The level of current income.

B. Business confidence and expectations.

C. The rate of inflation.

D. The amount of government spending.

E. The size of the foreign sector.

87. In a closed economy without government, the aggregate demand (AD) is equal to:

A. C + I

B. C + I + G
 C. C + I + G + (X - M)

D. Y

E. S + T

88. The multiplier effect suggests that an initial change in autonomous spending leads to: A. A

smaller change in equilibrium income.

B. An equal change in equilibrium income.

C. A larger change in equilibrium income.

D. A change in the price level.

E. No change in income.

89. If the MPC is 0.8, the simple multiplier in a closed economy without government is:

A. 0.2

B. 0.8

C. 1.25

D. 5

E. 4

90. An increase in autonomous investment will lead to: A. A decrease in equilibrium income.

B. An increase in equilibrium income by the amount of the investment.

C. An increase in equilibrium income by a multiple of the investment.

D. No change in equilibrium income.

E. A decrease in consumption.

91. Which of the following is a characteristic of the simple Keynesian model? A. Assumes

flexible prices.

B. Focuses on the long run.

 C. Emphasizes the role of aggregate demand in determining output.

D. Assumes full employment.

E. Excludes the role of expectations.

92. The paradox of thrift suggests that if households try to save more, it may lead to: A. A

decrease in aggregate saving.

B. An increase in aggregate saving.

C. No change in aggregate saving.

D. An increase in investment.

E. A decrease in unemployment.

93. The aggregate supply curve in the simple Keynesian model is typically assumed to be: A.

Upward sloping.

B. Downward sloping.

C. Perfectly horizontal up to full employment, then vertical.

D. Perfectly vertical.

E. Always shifting to the right.

94. The aggregate expenditure function shifts upward if there is an increase in: A.

Autonomous consumption.

B. The marginal propensity to save.

C. The tax rate.

D. Imports.

E. A decrease in investment.

95. In the algebraic version of the simple Keynesian model (without government or foreign
sector), if $C = c_0 + c_1 Y$ and $I = I_0$, then equilibrium income (Y) is:

A. $(c_0 + I_0) / c_1$

 B. $(c_0 + I_0) / (1 - c_1)$

C. $c_0 + I_0$

D. $c_1 Y$

E. $I_0 / (1 - c_1)$

96. If actual output is below the equilibrium level in the simple Keynesian model, then: A.

Firms will experience unintended inventory accumulation.

B. Firms will experience unintended inventory depletion.

C. There is no incentive for firms to change production.

D. Aggregate demand is less than aggregate supply.

E. The economy is at full employment.

97. An increase in the marginal propensity to save (MPS) will cause the multiplier to: A.

Increase.

B. Decrease.

C. Remain unchanged.

D. Become negative.

E. Lead to deflation.

98. The primary focus of the simple Keynesian model is to explain: A. Long-run economic

growth.

B. The determinants of the money supply.

C. The short-run fluctuations in economic activity and output.

D. The causes of inflation.

E. The impact of international trade.

99. An upward shift in the consumption function can be caused by: A. A decrease in

household wealth.

B. An increase in expected future income.

C. A decrease in autonomous consumption.

D. An increase in interest rates.

E. A decrease in disposable income.

100. If equilibrium income is above the full employment level, the simple Keynesian model

suggests: A. No problem, as the economy is doing well.

B. Inflationary pressures might emerge as the economy is overheating.

C. There will be widespread unemployment.

D. The government should decrease spending.

E. Investment will automatically decrease.

**Topic 6: Keynesian Models Including the Government and the Foreign Sector (Questions 101-

120)**

101. When government spending (G) is introduced into the Keynesian model, it is typically
assumed to be:

A. Dependent on income.

B. An autonomous component of aggregate demand.

C. Determined by the level of exports.

D. Always equal to taxes.

E. Negative.

102. In the Keynesian model with government, the tax multiplier for a lump-sum tax is: A.

Equal to the government spending multiplier.

B. Negative and smaller in absolute value than the government spending multiplier.
 C. Positive and larger in absolute value than the government spending multiplier.

D. Always zero.

E. Irrelevant.

103. If the government increases its spending by R500 million and the marginal propensity
to consume (MPC) is 0.75 and there is a proportional tax rate of 0.2, the total increase
in equilibrium income will be:

A. R500 million

B. Less than R500 million

C. More than R500 million

D. Cannot be determined without knowing investment.

E. Zero.

104. The introduction of a proportional income tax (t) into the Keynesian model will: A.

Increase the value of the multiplier.

B. Decrease the value of the multiplier.

C. Have no effect on the multiplier.

D. Make the aggregate expenditure curve steeper.

E. Eliminate the multiplier effect.

105. An expansionary fiscal policy in an open economy with government would involve:

A. Decreasing government spending and increasing taxes.

B. Increasing government spending and/or decreasing taxes.

C. Increasing imports.

D. Decreasing exports.

E. Increasing the money supply.

106. In the open economy Keynesian model, imports are typically assumed to be: A.

Autonomous.

B. Positively related to domestic income.

C. Negatively related to domestic income.

D. Only influenced by foreign exchange rates.

E. Always equal to exports.

107. The marginal propensity to import (MPM) measures:

A. The proportion of a change in income that is spent on domestic goods.

B. The change in imports resulting from a change in the exchange rate.

C. The change in imports resulting from a change in domestic income.

D. The total level of imports.

E. The impact of tariffs on imports.

108. An increase in exports (X) in the open economy Keynesian model will lead to: A. A

decrease in equilibrium income.

B. A direct increase in equilibrium income.

C. A multiplied increase in equilibrium income.

D. No change in equilibrium income.

E. A decrease in domestic investment.

109. If the multiplier in a closed economy with government is 2.5, and the government
implements a balanced budget increase (increase G and T by the same amount), the
impact on equilibrium income will be:

A. A decrease in income.

B. An increase in income by the amount of the balanced budget increase.

C. No change in income.

D. An increase in income by a multiple of the increase.

 E. Cannot be determined.

110. Which of the following leakages from the circular flow of income are introduced when
including the government and foreign sector?

A. Investment and government spending.

B. Exports and government spending.

C. Saving, taxes, and imports.

D. Consumption and investment.

E. Transfer payments and subsidies.

111. The introduction of exports into the Keynesian model makes the aggregate
expenditure (AE) curve:

A. Flatter.

B. Steeper.

C. Shift downwards.

D. Shift upwards.

E. Unchanged.

112. The presence of a proportional income tax and imports in the Keynesian model causes
the multiplier to be:

A. Larger than in a simple closed economy without government.

B. Smaller than in a simple closed economy without government.

C. Unchanged.

D. Negative.

E. Always equal to 1.

113. If the government aims to reduce a recessionary gap using fiscal policy, it should: A.

Decrease government spending.

B. Increase taxes.
 C. Increase government spending and/or decrease taxes.

D. Encourage more imports.

E. Reduce the money supply.

114. In an open economy, a decrease in the marginal propensity to import (MPM) would:

A. Decrease the multiplier.

B. Increase the multiplier.

C. Have no effect on the multiplier.

D. Lead to a decrease in exports.

E. Reduce aggregate demand.

115. A decrease in foreign income would likely lead to: A. An increase in a country's

exports.

B. A decrease in a country's exports. C. No impact on a country's exports.

D. An increase in domestic investment.

E. A decrease in the domestic interest rate.

116. The concept of "fiscal drag" refers to:

A. The slowing down of economic growth due to insufficient government spending.

B. The dampening effect on economic growth caused by progressive taxation as incomes

rise.

C. The negative impact of high interest rates on government debt.

D. The delay in implementing fiscal policy.

E. The impact of government failure on the economy.

117. If a country's marginal propensity to consume is 0.8, its proportional tax rate is 0.25, and its
marginal propensity to import is 0.1, the value of the multiplier will be approximately: A. 1.25

B. 2
 C. 2.5

D. 4

E. 5

118. Which of the following best describes the effect of a lump-sum tax increase on equilibrium
income in the Keynesian model?

A. It increases equilibrium income by a multiple of the tax increase.

B. It decreases equilibrium income by a multiple of the tax increase.

C. It has no effect on equilibrium income.

D. It only affects consumption, not income.

E. It increases the multiplier.

119. The "balanced budget multiplier" theorem states that an equal increase in government
spending and taxes will:

A. Have no effect on equilibrium income.

B. Increase equilibrium income by the amount of the spending and tax increase.

C. Decrease equilibrium income.

D. Increase equilibrium income by a multiple of the increase.

E. Lead to a budget deficit.

120. In the Keynesian model, if the aggregate expenditure (AE) curve is below the 45-degree line at a
given level of income, it implies that:

A. Planned spending exceeds actual output, leading to an increase in production.

B. Actual output exceeds planned spending, leading to an accumulation of inventories.

C. The economy is in equilibrium.

D. There is excess demand, causing prices to fall.

E. The economy is operating at full employment.

---

**Answer Key**

**Topic 1: Measuring Macroeconomic Performance**

1. E

2. B

3. D

4. C

5. B

6. C

7. B

8. B

9. A

10. C

11. D

12. B

13. B

14. C

15. C

16. B

17. D

18. B

19. B

20. D
**Topic 2: The Monetary Sector**

21. D

22. C

23. C

24. B

25. C

26. C

27. D

28. C

29. B

30. D

31. B

32. D

33. C

34. B

35. B

36. C

37. C

38. C

39. A

40. A

**Topic 3: The Government Sector**

41. C

42. D
43. B

44. E

45. A

46. B

47. B

48. C

49. B

50. E

51. B

52. C

53. B

54. B

55. B

56. B

57. B

58. C

59. B

60. B

**Topic 4: The Foreign Sector**

61. A

62. B

63. F

64. C

65. B

66. C
67. B

68. B

69. B

70. C

71. B

72. A

73. C

74. C

75. B

76. A

77. B

78. C

79. F

80. D

**Topic 5: A Simple Keynesian Model of the Economy**

81. A

82. B

83. C

84. B

85. C

86. B

87. A

88. C

89. D

90. C

91. C
92. A

93. C

94. A

95. B

96. B

97. B

98. C

99. B

100. B

**Topic 6: Keynesian Models Including the Government and the Foreign Sector**

101. B

102. B

103. C (Need to calculate the multiplier: $1 / (1 - MPC(1-t) + MPM)$)

104. B

105. B

106. B

107. C

108. C

109. B

110. C

111. D

112. B

113. C

114. B

115. B
116. B

117. B (Multiplier = $1 / (1 - 0.8(1-0.25) + 0.1) = 1 / (1 - 0.8(0.75) + 0.1) = 1 / (1 - 0.6 + 0.1) = 1 / (0.4 +

0.1) = 1 / 0.5 = 2$)

118. B

119. B

120. B