UGC ECONOMICS PAPER III UNIT II MCQS

Unit-II

Keynesian and post-Keynesian approaches to theory of output and employment; concept of investment multiplier; consumption hypotheses Theories of investment and accelerator
Theories of demand for money – Keynesian and post-Keynesian
Different approaches to money supply; money supply; components and determinants;
money multiplier
Output – price determination (aggregate supply and aggregate demand curve analysis)
Flerning-Mundell open economy model

1. The aggregate demand curve:

            A)  is upsloping because a higher price level is necessary to make production profitable as production costs rise.

            B)  is downsloping because production costs decline as real output increases.

            C)  shows the amount of expenditures required to induce the production of each possible level of real output.

            D)  shows the amount of real output that will be purchased at each possible price level.

Answer: D

2. The aggregate demand curve is:

            A)  vertical if full employment exists.

            B)  horizontal when there is considerable unemployment in the economy.

            C)  downsloping because of the interest-rate, real-balances, and foreign purchases effects.

            D)  downsloping because production costs decrease as real output rises.

Answer: C

3. The interest-rate effect suggests that:

            A)  a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending.

            B)  an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending.

            C)  an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

            D)  an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

Answer: C

4. A rational consumer choosing between uncertain events will make a choice on thebasis of:
(A) expected monetary benefits

(B) expected utility
(C) expected prices

(D) expected incomes in future
 

Ans. d

5.Assertion (A): People's desire for transactions balances in creases with increases in income.

Reason (R): People spend on increasing proportion of their income on consumption.

a.Both A and R are true and R is the correct explanation of A

b.Both a and R are true but R is NOT the correct explanation of A

c.A is true but R is false

d.A is false but r is true

Ans. c

6. The real-balances effect indicates that:

            A)  an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending.

            B)  a lower price level will decrease the real value of many financial assets and therefore reduce spending.

            C)  a higher price level will increase the real value of many financial assets and therefore increase spending.

            D)  a higher price level will decrease the real value of many financial assets and therefore reduce spending.

Answer: D

           

 7. Assertion (A): Reserve Bank of India raises money supply through purchase of securities in the money market.

Reason (R): Increase in money supply may result in the expansion of investment and employment.

a.Both A and R are true and R is the correct explanation of A

b.Both a and R are true but R is NOT the correct explanation of A

c.A is true but R is false

d. A is false but r is true

Ans. a

8. The interest-rate and real-balances effects are important because they help explain:

            A)  rightward and leftward shifts of the aggregate demand curve.

            B)  why fiscal policy cannot be used effectively to curb inflation.

            C)  the shape of the aggregate demand curve.

            D)  the shape of the aggregate supply curve.

Answer: C

9. Assertion (A): The Ricardian theory of comparative costs s based on the labour theory of value. Reason (R): Labour theory of value holds good in domestic trade, but breaks down when applied in international trade.

a.  Both A and R are true and R is the correct explanation of A

b. Both a and R are true but R is NOT the correct explanation of A

c. A is true but R is false

d. A is false but r is true

Ans. b

10.Assertion (A): Neoclassical economics always insists on stability of economic growth in an advance economy.

Reason (R): In neoclassical economic factor substitutability assumption always leads to steady growth. A. a. Both A and R are true and R is the correct explanation of A

b. Both A and R are true but R is NOT a correct explanation of A

c.  a is true but r is false

d. A is false but R is true

Ans. c

11. The foreign purchases effect:

            A)  shifts the aggregate demand curve rightward.

            B)  shifts the aggregate demand curve leftward.

            C)  shifts the aggregate supply curve rightward.

            D)  moves the economy along a fixed aggregate demand curve.

Answer: D

12. The real-balances, interest-rate, and foreign purchases effects all help explain:

            A)  why the aggregate demand curve is downsloping.

            B)  why the aggregate supply curve is upsloping.

            C)  shifts in the aggregate demand curve.

            D)  shifts in the aggregate supply curve.

Answer: A

13. Assertion (A): The income gap between the rich and he poor countries keeps widening even when the rates of growth of incomes poor countries are higher than those of rich countries.

Reason (R): The differences in the base levels of incomes of the we group wo groups of countries are very wide.

 a. Both A and R are true and R is the correct explanation of A

b. Both A and R are true but R is NOT a correct explanation of A

c. a is true but r is false

d. A is false but R is true

Ans. a

14.       Match.ListI(Typ s of Investments) with List II (Nature of Investment) and select the correct answer using the code given below the lists:

A.         Direct foreign investment                   1.         Purchase  of  the  country's  stocks,

B.         Foreign portfolio investment Loans    2.         Investments  in           productive assets                                                                                                       and currencies by foreigners                                     

C.        Commercial Bonds                             3.         Raising            loans from foreign financial institutions         

D.        Foreign Institutional assistance

of the country by foreigners               4.         Provision of financial by          assistance a  foreign  government/institution

            A          B          C         D                    

 (a)       4          1          3          2         

(b)        2          3          I           4

(c)        2          1          3          4         

(d)        4          3          1          2

Ans. c

15.       Consider the following statements:

According to the life-cycle hypothesis, assuming a linear consumption function, other things remaining the same, an increase in life expectancy will

I.          increase the marginal propensity to consume.

2.         decrease the marginal propensity to consume.

3.         leave the marginal propensity to consume unchanged

4.         decrease the average propensity to consume.

Which of the statements given above is/are correct?

(a)        1 and 4           

(b)        2 and 4

 (c)       3 and 4                       

(d)        3 only 

Ans. b

16.  According  to  Milton  Friedman,  an  inc  e  se  in  the  growth  rate  of  money          

stock will                                                                    

(a)        Only lower the nominal interest          ate                                          

(b)        Only raise the nominal interest           ate                                          

(c)        At first lower the no  inal rate of interest, but eventually raise the rate of     

            inflation and the nomin l r  te of interest, never affecting the growth rate of  

            output                                                             

(d) At first lower the nomin  l r  te of interest and raise the rate of inflation and        

            the rate of growth of output, but eventually only raise the rate of inflation and         

            the nominal rate of interest    

Ans. c

17.       Which of the following does not give rise to transaction demand for money?

(a)        Households to purchase food

(b)        Firms to pay wages

(c)        Firms to pay purchase raw materials

(d)        Subsistence producers who consume their entire output

Ans. c

18.       Match List I (Curve) with List II (Equilibrium) and select the correct answer using the code given below:

List I                                        List II                                      

A.  LM curve                           1.         Equilibrium in labour and money markets

B.  AD curve                           2.         Equilibrium in money market 

C.  AS curve                           3.         Equilibrium in labour market  

D.  IS curve                             4.         Equilibrium in goods and money market

                                                5.         Equilibrium in goods market  

           

A          B          C         D                                

(a)        5          4          3          2                     

(b)        2          3          I           5

(c)        5          3          I           2                     

(d)        2          4          3          5

Ans. c

19.       In which of the following situations would an easy money policy be more effective than an expansionary fiscal policy during a recession?

1.         The demand for money is highly interest elastic.

2.         The demand for money is interest inelastic.

3.         The investment dem  nd is interest elastic.

4.         The investment demand is interest inelastic.

Ans. a

20.       According.toKeynes theory of income determination, other things remaining same, when is the effect of a given injection in demand on income higher?

(a)        If the ratio of total tax collection to GDP is higher

(b)        If the ratio of total tax collection to GDP is lower

(c)        If the ratio of incremental tax collection to incremental GDP is higher

(d)        If the ratio of incremental tax collection to incremental GDP is lower

Ans. b

21. Keynesian economics lays more emphasis on :
(A) monetary policy

 (B) fiscal policy
(C) interest-rate determination

(D) free market mechanism

Ans.b

22. (i) Inventory Theoretic Approach
(ii) Restatement of the Quantity Theory of Money
(iii) Fisher's Equation of Exchange
(iv) Tableau Economique
Codes :
(A) (i) (iii) (ii) (iv)
(B) (iii) (ii) (i) (iv)
(C) (iv) (iii) (i) (ii)
(D) (ii) (i) (iv) (iii)

Ans. c

23. ( i) General theory of employment, interest and money:
(ii) Affluent society
(iii) Wealth of Nations
(iv) Principles of Economics
Codes:
(A) (iii), (iv), (i), (ii)
(B) (i), (ii), (iii), (iv)
(C) (i), (ii), (iii), (iv)
(D) (iii), (ii), (i), (iv)

Ans. a

24. (i) Milton Friedman's Approach
(ii) Fishers Approach
(iii) Stock Balance Approach
(iv) Keynes Approach
Codes:
(A) (ii), (iii), (iv), (i)
(B) (i), (ii), (iii), (iv)
(C) (iii), (i), (ii), (iv)
(D) (iv), (iii), (i), (ii)

Ans.a

25 (i) Inventory Theoretic Approach
(ii) Restatement of the Quantity Theory of Money
(iii) Fisher's Equation of Exchange
(iv) Tableau Economique
Codes :

(i) (iii) (ii) (iv)

(iii) (ii) (i) (iv)

(iv) (iii) (i) (ii)

(ii) (i) (iv) (iii)

Ans. a

26(i) Introduction of Rolling Plan
(ii) The movement from Planning to Market mechanism
(iii) Feldman-Mahalanobis Model
(iv) Declaration of Plan holiday
Codes :

a. (i) (iii) (iv) (ii)

b. (ii) (iv) (i) (iii)

c. (iii) (iv) (i) (ii)

d. (i) (iii) (ii) (iv)

Ans. a

27 (i) Milton Friedman's Approach
(ii) Fishers Approach
(iii) Stock Balance Approach
(iv) Keynes Approach
Codes :
(A) (ii), (iii), (iv), (i)
(B) (i), (ii), (iii), (iv)
(C) (iii), (i), (ii), (iv)
(D) (iv), (iii), (i), (ii

Ans. c

28.       An increase in aggregate expenditures resulting from some factor other than a change in the price level is equivalent to:

            A)        a rightward shift of the aggregate demand curve in the AD-AS model.

            B)        a leftward shift of the aggregate demand curve in the AD-AS model.

            C)        a movement downward along a fixed aggregate demand curve in the AD-AS model.

            D)        a decrease in aggregate supply in the AD-AS model.

Answer: A

29 C E S Production function is associated with the name of one of the following :
(A) Joan Robinson
(B) B. S. Minhas
(C) Manmohan Singh
(D) A. K. Sen

Ans. b

30. Psychological law of consumption is given by :

(A) Milton Friedman
(B) Pigou
(C) Tobin
(D) Keynes

Ans. d

31. When interest elasticity of demand for money is zero the L - M curve is :
(A) Vertical Parallel to Y-axis
(B) Horizontal Parallel to X-axis
(C) Positive Sloping straight line
(D) Negative Sloping straight line

Ans. b

32. Natural rate of unemployment is the rate of unemployment at which :

(A) Rate of inflation is stable
(B) Rate of inflation is unstable
(C) Rate of inflation is falling
(D) Rate of inflation is rising

Ans. a

33. Assertion (A) : Under oligopoly, all firms are aware of their inter-dependence.Reason (R) : Personal rivalries do not exist among firms under oligopoly.

(A) Both (A) and (R) are false

(B) Both (A) and (R) are true but (R) is not the explanation of (A)

(C) (A) is true, but (R) is false

(D) (A) is false, but (R) is true

Ans. c

34. Assertion (A) : Duesenberry hypothesised that consumption - income relationship is

irreversible.

Reason (R) : Consumption depends not only on current income but also on previous peak income.

(A) Both (A) and (R) are true, but (R) is not the correct explanation of (A)

(B) Both (A) and (R) are true, and (R) is the correct explanation of (A)

(C) (A) is true, but (R) is false

(D) Both (A) and (R) are false

Ans. b

35.       An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a:

            A)        rightward shift of the aggregate demand curve.

            B)        leftward shift of the aggregate demand curve.

            C)        movement downward along a fixed aggregate demand curve.

            D)        decrease in aggregate supply.

Answer: C

36.       The aggregate expenditures model and the aggregate demand curve can be reconciled because, other things equal, in the aggregate expenditures model:

            A)        changes in the price level have no effect on the equilibrium level of GDP.

            B)        an increase in the price level increases the real value of wealth.

            C)        the level of aggregate expenditures and therefore the level of real GDP vary inversely with the price level.

            D)        the level of aggregate expenditures and therefore the level of real GDP vary directly with the price level.

Answer: C

37.       The fear of unwanted price wars may explain why many firms are reluctant to:

            A)        reduce wages when a decline in aggregate demand occurs.

            B)        reduce prices when a decline in aggregate demand occurs.

            C)        expand production capacity when an increase in aggregate demand occurs.

            D)        provide wage increases when labor productivity rises.

Answer: B

38.       Menu costs:

            A)        increase during recession.

            B)        decrease during recession.

            C)        are the costs to firms of changing prices and communicating them to customers.

            D)        are sunk costs and therefore should be disregarded.

Answer: C

39.       When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may:

            A)        not be possible due to the minimum wage law.        

B)        reduce the demands for their products.

            C)        increase the cost of raising money capital.   

D)        may set off a price war.

Answer: A

40.       When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may:

            A)        reduce per unit production costs.

            B)        reduce worker morale and work effort, and thus lower productivity.

            C)        increase the firms' cost of raising financial capital.

            D)        reduce the demands for their products.

Answer: B

41.       Prices and wages tend to be:

            A)        flexible both upward and downward.

B)        flexible downward, but inflexible upward.

            C)        inflexible both upward and downward.          

D)        flexible upward, but inflexible downward.

Answer: D

42.       Which of the following is a true statement?

            A)        firms and resource suppliers generally find it easier to reduce prices than to raise them.

            B)        as the price level increases, interest rates will rise and therefore consumption and investment spending will also rise.

            C)        an initial increase in aggregate demand may cause a further increase in aggregate demand because higher prices mean higher incomes.

            D)        a decline in aggregate demand will primarily affect real output and employment if prices are inflexible downward.

Answer: D

           

43.       In which of the following sets of circumstances can we confidently expect inflation?

            A)        aggregate supply and aggregate demand both increase

            B)        aggregate supply and aggregate demand both decrease

            C)        aggregate supply decreases and aggregate demand increases

            D)        aggregate supply increases and aggregate demand decreases

Answer: C

44.       An increase in input productivity will:

            A)        shift the aggregate supply curve leftward.

            B)        reduce the equilibrium price level, assuming downward flexible prices.

            C)        reduce the equilibrium real output.

            D)        reduce aggregate demand.

Answer: B

45.       If aggregate demand increases and aggregate supply decreases, the price level:

            A)        will decrease, but real output may either increase or decrease.

            B)        will increase, but real output may either increase or decrease.

            C)        and real output will both increase.

            D)        and real output will both decrease.

Answer: B

46.       A decrease in aggregate demand will cause a greater decline in real output the:

            A)        less flexible is the economy's price level.

            B)        more flexible is the economy's price level.

            C)        steeper is the economy's AS curve.

            D)        larger is the economy's marginal propensity to save.

Answer: A

47.       Graphically, demand-pull inflation is shown as a:

            A)        rightward shift of the AD curve along an upsloping AS curve.

            B)        leftward shift of the AS curve along a downsloping AD curve.

            C)        leftward shift of AS curve along an upsloping AD curve.

            D)        rightward shift of the AD curve along a downsloping AS curve.

Answer: A

48.       The equilibrium price level and level of real output occur where:

            A)        real output is at its highest possible level.

            B)        export equal imports.

            C)        the price level is at its lowest level.

            D)        the aggregate demand and supply curves intersect.

Answer: D

49.       Productivity measures:

            A)        real output per unit of input.

            B)        per unit production costs.

            C)        the changes in real wealth caused by price level changes.

            D)        the amount of capital goods used per worker.

Answer: A

50.       The determinants of aggregate supply:

            A)        are consumption, investment, government, and net export spending.

            B)        explain why real domestic output and the price level are directly related.

            C)        explain the three distinct ranges of the aggregate supply curve.

            D)        include resource prices and resource productivity.

Answer: D

51.       Shifts in the aggregate supply curve are caused by changes in:

            A)        consumption spending.

            B)        the quantity of real output demanded.

            C)        the quantity of real output supplied.

            D)        one or more of the determinants of aggregate supply.

Answer: D

52.       Other things equal, an improvement in productivity will:

            A)        shift the aggregate demand curve to the left.

B)        shift the aggregate supply curve to the right.

            C)        shift the aggregate supply curve to the left.  

D)        increase the price level.

Answer: B

53.       The aggregate supply curve (short-run):

            A)        graphs as a horizontal line.

            B)        is steeper above the full-employment output than below it.

            C)        slopes downward and to the right.

            D)        presumes that changes in wages and other resource prices match changes in the price level.

Answer: B

54.       The graphical relationship between the price level and the amount of real GDP that businesses will offer for sale is known as the:

            A)        aggregate demand curve.     

B)        investment demand curve.

            C)        investment supply curve.      

D)        aggregate supply curve.

Answer: D

55.       The aggregate supply curve:

            A)        is explained by the interest rate, real-balances, and foreign purchases effects.

            B)        gets steeper as the economy moves from the top of the curve to the bottom of the curve.

            C)        shows the various amounts of real output that businesses will produce at each price level.

            D)        is downsloping because real purchasing power increases as the price level falls.

Answer: C

56.       The determinants of aggregate demand:

            A)        explain why the aggregate demand curve is downsloping.

            B)        explain shifts in the aggregate demand curve.

            C)        demonstrate why real output and the price level are inversely related.

            D)        include input prices and resource productivity.

Answer: B

57.       The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the:

            A)        real-balances, interest-rate, and foreign purchases effects.

            B)        determinants of aggregate supply.

            C)        determinants of aggregate demand.

            D)        sole determinants of the equilibrium price level and the equilibrium real output.

Answer: C

58.       Which of the following explains why the aggregate demand schedule is downward sloping:

            A)        the real-balances effect

            C)        the foreign purchases effect

            B)        the interest-rate effect

D)        all of the above

Answer: D

59. If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes:

            A)  the output effect.                                       C)   the real-balances effect.

            B)  the foreign purchases effect.                    D)   the shift-of-spending effect.

Answer: B

60. The foreign purchases effect:

            A)  shifts the aggregate demand curve rightward.

            B)  shifts the aggregate demand curve leftward.

            C)  shifts the aggregate supply curve rightward.

            D)  moves the economy along a fixed aggregate demand curve.

Answer: D

61. The interest-rate and real-balances effects are important because they help explain:

            A)  rightward and leftward shifts of the aggregate demand curve.

            B)  why fiscal policy cannot be used effectively to curb inflation.

            C)  the shape of the aggregate demand curve.

            D)  the shape of the aggregate supply curve.

Answer: C

62. The real-balances effect indicates that:

            A)  an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending.

            B)  a lower price level will decrease the real value of many financial assets and therefore reduce spending.

            C)  a higher price level will increase the real value of many financial assets and therefore increase spending.

            D)  a higher price level will decrease the real value of many financial assets and therefore reduce spending.

Answer: D

63. The interest-rate effect suggests that:

            A)  a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending.

            B)  an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending.

            C)  an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

            D)  an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

Answer: C

64. In the classical model with fixed output, the supply and demand for goods and services

are balanced by:

 A. government spending.

 B. taxes.

 C. fiscal policy.

 D. the interest rate

Ans. D

65. The interest rate effect, the real balance effect and the foreign purchases effect suggests that

the aggregate demand curve is

a. Downward sloping

b. Horizontal

c. Vertical

d. Shaped as a backward L

Ans. a

66. The Keynesian, Classical and Intermediate ranges apply to the

a. Shape of the individual market supply curve

b. The slope of the individual market demand curve

c. The shape of the aggregate supply curve

d. The slope of the aggregate demand curve

Ans. c

67. Any event that creates a "crisis in confidence" is likely to lead to

a. Higher aggregate prices

b. Lower aggregate prices

c. Higher aggregate output

d. Inflation

Ans. b

68. An increase in taxes will cause

a. AD to increase (move to the right)

b. AD to decrease (move to the left)

c. AS to increase (move to down and to the right)

d. AS to decrease (move to up and to the left)

Ans. b

69. A decrease in taxes will cause

a. AD to increase (move to the right)

b. AD to decrease (move to the left)

c. AS to increase (move to down and to the right)

d. AS to decrease (move to up and to the left)

Ans. a

70. Use the Aggregate Supply - Aggregate Demand model to determine which of the following

will lead to higher aggregate output

a. A tax increase

b. A cut in interest rates

c. A spike in world oil prices

d. A cut in government spending

Ans. b

72. The notion of the "interest rate effect" was one of the basic reasons behind the downward

sloping nature of the

a. Supply curve

b. Present value curve

c. Aggregate demand curve

d. Aggregate supply curve

Ans. c

73.Congress and the President have control of the tax system and government spending. As a

result their policies will directly impact

a. Aggregate supply

b.Residual demand

C. Aggregate demand

d. The demand for loanable dollars

Ans. c

74. The Federal Reserve has indirect control over short term interest rates and as a result their

ability to control economic activity is through

a. Aggregate supply

b.Residual demand

C. Aggregate demand

d. The exchange rate

Ans. c

75. An economist worrying about the economic impact of environmental regulations would

model that impact with a

A. Decrease in aggregate supply

b. Decrease in aggregate demand

c. Increase in aggregate supply

d. Increase in aggregate demand

Ans. a

76. The features of the classical system

are

 a. Monetary factors determine output and employment.

 b. Self adjusting mechanism of the economy.

 c. State action to direct development.

 d. Optimization through market in the absence of state control.

Codes :

 (A) a and b

(B) a, b, c

 (C) b and d

(D) a, b, d

Ans. c

77. Most important theory of increasing public expenditure is associated with

 a. Adolph Wagner’s hypothesis

 b. Critical limit hypothesis

 c. Administrative efficiency hypothesis

 d. Stability of income hypothesis

Codes :

 (A) a and b

(B) a and c

 (C) a

(D) c and d

Ans. a

78. Assertion (A) : In short run, the marginal cost of output is the cost of additional labour and materials

used in production.

Reason (R) : Materials and labour used in production alone vary in short run.

 Codes :

 (A) (A) is correct and (R) is incorrect.

 (B) (A) is incorrect, but (R) is correct.

 (C) Both (A) and (R) are correct and (R) is the correct explanation of (A).

 (D) Both (A) and (R) are incorrect

Ans. c

79. Assertion (A) : Investment has a demand effect.

Reason (R) : Investment augments the productivity and income in the economy.

 Codes :

(A) Both (A) and (R) are correct and (R) is the correct explanation of (A).

 (B) Both (A) and (R) are correct, but (R) is not the correct explanation of (A).

 (C) (A) is correct, and (R) is not correct

Ans. a

80. While analyzing the marginal productivity theory of distribution, Clark gave more emphasis on.

 (A) Demand for Labour

 (B) Supply of Labour

 (C) Both Demand as well as Supply of Labour

 (D) Profit Maximization

Ans. c

81. Assertion (A) : Many developing countries contend that labour standards constitute a barrier to free trade.

Reason (R) : Their competitive advantage in the global economy is cheap labour.

 (A) Both (A) and (R) are correct but (R) is not the correct explanation of (A).

 (B) Both (A) and (R) are true and (R) is the correct explanation of (A).

 (C) (A) is false but (R) is true.

 (D) (A) is true but (R) is false.

Ans. c

82. Match the items of List – I with the

items of List – II from the given code :

List – I                                                             List – II

i. Canons of Taxation                                      1. U.K. Hicks

ii. Canons of Public Expenditure                                2. Adam Smith

iii. Effective incidence of Tax                          3. Findlay Shirras

iv. Benefits received approach of Public

Expenditure                                                     4. Erik Lindahl

Codes :

 i ii iii iv

 (A) 2 3 1 4

 (B) 1 2 3 4

 (C) 2 3 4 1

 (D) 4 1 2 3

Ans. a

83. Match the statements given in Group – A with their propounders in Group – B :

Group – A (Statements)                                             Group – B (Propounders)

i. Velocity of money is a stable function

of its determinants.                                         1. Keynesians

ii. Velocity of money is an unstable function

of its determinants.                                         2. Monetarists

iii. Velocity of money is a constant, and

does not depend on income and interest rate.           3. Classicals

Choose the correct code :

Codes :

 i ii iii

 (A) 2 3 1

 (B) 1 2 3

 (C) 2 1 3

 (D) 3 2 1

Ans. b

84. Assertion (A) : Investment has a demand effect.

Reason (R) : Investment augments the productivity and income in the economy.

 Codes :

(A) Both (A) and (R) are correct and (R) is the correct explanation of (A).

 (B) Both (A) and (R) are correct, but (R) is not the correct explanation of (A).

 (C) (A) is correct, and (R) is not correct.

 (D) (A) is incorrect and (R) is correct

Ans. c

85. The features of the classical system are

 a. Monetary factors determine output and employment.

 b. Self adjusting mechanism of the economy.

 c. State action to direct development.

 d. Optimization through market in the absence of state control.

Codes :

 (A) a and b

(B) a, b, c

 (C) b and d

(D) a, b, d

Ans. b

86. Assertion (A) : In short run, the marginal cost of output is the cost of additional labour and materials

used in production.

Reason (R) : Materials and labour used in production alone vary in short run.

Codes :

 (A) (A) is correct and (R) is incorrect.

 (B) (A) is incorrect, but (R) is correct.

 (C) Both (A) and (R) are correct and (R) is the correct explanation of (A).

 (D) Both (A) and (R) are incorrect

Ans. a

87. Marginal Revenue of a Monopoly firm is less than the price. Because :

 (A) Demand curve has a positive slope.

 (B) Demand curve has a negative slope.

 (C) Monopolist incurs losses.

 (D) Monopolist is in equilibrium

Ans. c

88. If the demand for money is perfectly interest inelastic, the LM schedule will be

 (A) Upward sloping

 (B) Downward sloping

 (C) Horizontal line

 (D) Vertical line

Ans. a

89.  Find out correct answer from the codes given below the question.

A point of ‘Kink’ in the kinked demand curve indicates

 I. Price rigidity

 II. Quantity rigidity

 III. Price flexibility

 IV. Quantity flexibility

Codes :

(A) I and II are correct.

 (B) II and III are correct.

 (C) III and IV are correct.

 (D) I and IV are correct.

Ans. c

90. The aggregate demand curve is:

            A)  vertical if full employment exists.

            B)  horizontal when there is considerable unemployment in the economy.

            C)  downsloping because of the interest-rate, real-balances, and foreign purchases effects.

            D)  downsloping because production costs decrease as real output rises.

Answer: C

91. The real-balances effect indicates that:

            A)  an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending.

            B)  a lower price level will decrease the real value of many financial assets and therefore reduce spending.

            C)  a higher price level will increase the real value of many financial assets and therefore increase spending.

            D)  a higher price level will decrease the real value of many financial assets and therefore reduce spending.

Answer: D

92. The real-balances, interest-rate, and foreign purchases effects all help explain:

            A)  why the aggregate demand curve is downsloping.

            B)  why the aggregate supply curve is upsloping.

            C)  shifts in the aggregate demand curve.

            D)  shifts in the aggregate supply curve.

Answer: A

    93.   The determinants of aggregate demand:

            A)  explain why the aggregate demand curve is downsloping.

            B)  explain shifts in the aggregate demand curve.

            C)  demonstrate why real output and the price level are inversely related.

            D)  include input prices and resource productivity.

Answer: B

94. Which one of the following would not shift the aggregate demand curve?

            A)  a change in the price level

            B)  depreciation of the international value of the dollar

            C)  a decline in the interest rate at each possible price level

            D)  an increase in personal income tax rates

Answer: A

95. Other things equal, a decrease in the real interest rate will:

            A)  expand investment and shift the AD curve to the left.

            B)  expand investment and shift the AD curve to the right.

            C)  reduce investment and shift the AD curve to the left.

            D)  reduce investment and shift the AD curve to the right.

Answer: B

96. A decline in investment will shift the AD curve to the:

            A)  left by a multiple of the change in investment.

            B)  left by the same amount as the change in investment.

            C)  right by the same amount as the change in investment.

            D)  right by a multiple of the change in investment.

Answer: A

97. The economy's long-run AS curve assumes that wages and other resource prices:

            A)  eventually rise and fall to match upward or downward changes  in the price level.

            B)  are flexible upward but inflexible downward.

            C)  rise and fall more rapidly than the price level.

            D)  are relatively inflexible both upward and downward.

Answer: A

Use the following to answer questions 25-27:

Type: G   Topic: 2   E: 198   MA: 198   Status: New  

    98.   In the above diagram, the economy's long-run aggregate supply curve is shown by line:

            A)  1.   B)  2.   C)  3.   D)  4.

Answer: A

    99.   In the above diagram, the economy's relevant aggregate demand and long-run aggregate supply curves are lines:

            A)  4 and 2.   B)  4 and 1.   C)  2 and 4.   D)  2 and 3.

Answer: B

  100.   In the above diagram, the economy's short-run AS curve is line ___ and its long-run AS curve is line ___.

            A)  1; 3.   B)  2; 4.   C)  3; 4.   D)  2; 1.

Answer: D