The General Theory of Employment, Interest and Money

1. What is the 'liquidity preference' theory?

A) Preference for real estate investment
B) Preference for foreign currency
C) Demand for money based on interest rates
D) Desire to invest in stocks

2. What does the term 'multiplier effect' refer to?

A) Interest rate changes
B) The reduction of taxes
C) The impact of spending on national income
D) Inflationary pressures

3. In Keynesian economics, what role do expectations play?

A) They do not affect supply
B) They are only relevant to financial markets
C) They influence consumption and investment decisions
D) They are irrelevant to the economy

4. Keynes believes that the economy is predominantly driven by which factor?

A) Inflationary trends
B) Government interventions
C) Aggregate demand fluctuations
D) Long-term supply growth

5. What is 'animal spirits' according to Keynes?

A) The instincts that drive investment decisions
B) Economic indicators
C) A type of consumer product
D) Government regulations

6. Keynes argued that during a liquidity trap, what should the government do?

A) Decrease tax rates
B) Increase fiscal spending
C) Focus on inflation control
D) Tighten monetary policy

7. Which of the following is a critique of Keynesian economics?

A) It does not consider aggregate demand
B) It neglects long-term growth
C) It can lead to budget deficits
D) It ignores the role of banks

8. What does Keynes propose regarding interest rates?

A) A fixed interest rate for all loans
B) Lower interest rates to stimulate investment
C) Variable interest rates for risk management
D) Higher interest rates to control inflation

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