Question 1

When investment is negatively related to the rate of interest, equilibrium output in the goods market:&#10;A)Is unrelated to the rate of interest&#10;B)Is inversely related to the rate of interest&#10;C)Is positively related to the rate of interest&#10;D)Falls as the rate of interest decreases

Accepted Answer

When investment is negatively related to the rate of interest, a higher rate of interest leads to lower investment, reducing aggregate demand and thus lowering equilibrium output in the goods market. Conversely, a lower rate of interest increases investment, raising aggregate demand and equilibrium output, indicating an inverse relationship between the rate of interest and equilibrium output in the goods market.

Question 2

Simultaneous equilibrium in the money (LM) and goods (IS) market exists:&#10;A)At an unlimited number of output levels and rates of interest&#10;B)At only one output level and rate of interest&#10;C)At an unlimited number of output levels and only one rate of interest&#10;D)At only one output level and an unlimited number of rates of interest

Accepted Answer

Simultaneous equilibrium in the money (LM) and goods (IS) market exists at only one output level and rate of interest, where the IS curve intersects the LM curve.

Question 3

In which of the following situations will an increase in the money supply have no effect upon output?&#10;A)LM is steeply sloped and IS is steeply sloped&#10;B)LM is vertical and IS is steeply sloped&#10;C)LM is steeply sloped and IS is vertical&#10;D)LM is relatively flat as is IS

Accepted Answer

LM is steeply sloped and IS is vertical&#10;

Question 4

Policy Neutrality is the main proposition of:&#10;A)Supply Side Economics.&#10;B)Keynesian Economics&#10;C)Monetarism&#10;D)Rational expectations hypothesis

Accepted Answer

The Rational Expectations Hypothesis posits that individuals form forecasts about the future based on all available information, including the anticipated effects of policy changes. Therefore, it suggests that systematic monetary or fiscal policy cannot systematically influence real economic variables like output and employment, because people will adjust their behavior in anticipation of these policies, rendering them neutral in their effects on the economy.

Question 5

Who invented the General Equilibrium analysis?&#10;A)L. Walras.&#10;B)W. Leontief&#10;C)J.M.Keynes.&#10;D)None of these.

Accepted Answer

L. Walras is credited with the development of General Equilibrium analysis, which is a comprehensive way of looking at various markets and their interactions simultaneously.

Question 6

Employment equilibrium in the Classical theory is achieved through:&#10;A)Wage-Price flexibility.&#10;B)Changes in aggregate demand&#10;C)Changes in aggregate supply&#10;D)None of these.

Accepted Answer

In Classical theory, employment equilibrium is achieved through wage-price flexibility. This theory posits that the labor market will always clear, meaning supply equals demand, due to adjustments in wages and prices. If there is unemployment, wages will fall until everyone who wants to work at the new, lower wage can find employment. This adjustment mechanism ensures that the economy operates at full employment.

Question 7

Market does not clear is a proposition of:&#10;A)Neoclassical theory.&#10;B)Keynesian Economics&#10;C)Monetarism&#10;D)Rational expectations

Accepted Answer

Keynesian Economics posits that markets, particularly labor markets, do not always clear, meaning supply does not always equal demand, leading to unemployment. This contrasts with Neoclassical theory, which assumes markets always clear through price adjustments.

Question 8

The interest rate paid on bonds is known as:&#10;A)Call rate&#10;B)Coupon rate&#10;C)Repo rate&#10;D)Bank rate

Accepted Answer

The interest rate paid on bonds is referred to as the coupon rate. This rate determines the periodic interest payments made to bondholders.

Question 9

The monetary policy is completely ineffective when the LM curve is:&#10;A)Vertical .&#10;B)Horizontal.&#10;C)Upward sloping.&#10;D)Downward sloping

Accepted Answer

The LM curve represents the relationship between liquidity preference and money supply in the economy. When the LM curve is horizontal, it implies that the demand for money is perfectly elastic. In this scenario, changes in the interest rate have no effect on the quantity of money demanded, rendering monetary policy ineffective. This is because any increase in the money supply can be absorbed without changing the interest rate, meaning that monetary policy cannot influence the economy through interest rate adjustments.

Question 10

Changes in the subjective or objective factors&#10;A)Never affect consumption function&#10;B)Always cause downward shift in consumption function&#10;C)Always cause upward shift in consumption function&#10;D)They cause upward or downward shifts in consumption function

Accepted Answer

Changes in subjective or objective factors can affect consumer confidence, income expectations, wealth, interest rates, and other variables, leading to either an increase or decrease in consumption at various levels of income. This variability means the consumption function can shift both upward or downward depending on the nature of the change.

Question 11

In a closed economy, the value of multiplier , when MPC is 0.90&#10;A)25&#10;B)90&#10;C)10&#10;D)9

Accepted Answer

The answer of In a closed economy, the value of...

Question 12

Income is a ------- variable&#10;A)Flow&#10;B)Discontinuous&#10;C)Stock&#10;D)None of the above

Accepted Answer

The answer of Income is a ------- variable&#10;A)Flow&#10;B)Discontinuous&#10;C)Stock&#10;D)None of the...

Question 13

Ratio of consumption expenditure to any particular level of income&#10;A)MPS&#10;B)APS&#10;C)APC&#10;D)MPC

Accepted Answer

The answer of Ratio of consumption expenditure to any particular...

Question 14

When MPS = 0.2, MPC will be&#10;A)0.8&#10;B)0.2&#10;C)1.2&#10;D)20

Accepted Answer

The answer of When MPS = 0.2, MPC will be&#10;A)0.8&#10;B)0.2&#10;C)1.2&#10;D)20...

Question 15

According to Keynes, rising aggregate income is always associated with&#10;A)Higher saving rate&#10;B)Higher import&#10;C)Lower export&#10;D)Low production

Accepted Answer

The answer of According to Keynes, rising aggregate income is...

Deck 6: Macroeconomic Equilibrium and Concepts