Deck 3: Economic Models,Concepts and Theories: Part B

Question 1

According to Classical what bring full employment in an economy?

A)flexible wage and rigid price
B)a rigid wage and flexible price
C)wage price flexibility
D)wage price rigidity

Answer 1

wage price flexibility

Question 2

What is the effect of monetary policy in a situation of "Liquidity trap"?

A)expansionary monetary policy
B)contractionary monetary policy
C)both expansionary and contractionary monetary policy effective
D)monetary policy ineffective

Answer 2

monetary policy ineffective

Question 3

In which of the following market Keynes effect operates?

A)goods market
B)labour market
C)money market
D)all of the above markets

Answer 3

money market

Question 4

In which of the following market Pigou effect operates?

A)goods market
B)labour market
C)money market
D)all of the above markets

Question 5

Real balance effect is equal to -

A)pigou effect divided by keynes effect
B)pigou effect into keynes effect
C)pigou effect + keynes effect
D)pigou effect - keynes effect

Question 6

Under perfect competition firm hire labour until-

A)money wage rate > general price level
B)money wage rate < general price level
C)money wage rate = general price level
D)both a and c

Question 7

Classical dichotomy is based on -

A)neutrality of money
B)velocity of money
C)medium of exchange of money
D)both a and b

Question 8

Cambridge K is related to -

A)restatement theory of money
B)cash balance approach
C)liquidity preference theory
D)transaction version of quantity theory of money

Question 9

Assertion (A) : In liquidity trap, the demand for money is perfectly interest elastic. Reason (R) : Because in this situation, all the investors expect the market rate of interest to rise towards the natural rate of interest. Codes :

A)(a) & (r) both are correct and (r) is the correct explanation of (a)
B)(a) & (r) both are correct, but (r) is not the correct explanation of (a)
C)(a) is correct, but (r) is incorrect.
D)both (a) and (r) are incorrect.

Question 10

Which of the following is not specifically mentioned as a determinant of the demand formoney ?

A)wealth
B)nominal yield on alternative assets
C)inflation rate
D)real rate of interest

Question 11

In the Keynesian system speculative demand for money arises because of
1 : uncertainty of future interest rate.
2 : unexpected expenditures.
3 : To bridge the gap between income and eventual expenditures.
4 : Relationship between changes in the interest rates and bond price.
Codes :

A)1 & 3 are correct
B)1 & 4 are correct
C)2 & 3 are correct
D)3 & 4 are correct

Question 12

The classical economists focused on the role of money as,

A)medium of exchange
B)medium of distribution
C)wealth
D)link between present and future

Question 13

Identify the correct chronological order of the following classical economists.

A)adam smith, malthus, ricardo, mill
B)adam smith, ricardo, malthus, mill
C)adam smith, mill, ricardo, malthus
D)adam smith, malthus, mill, ricardo

Question 14

Liquidity trap is a situation when,

A)all potential investors expect the rate of interest to rise in future.
B)all potential investors expect the rate of interest to fall in future.
C)natural rate of interest is above the critical rate of interest.
D)none of these

Question 15

Which of the following statements does not hold true in case of the Keynesian economics?

A)velocity of money is an unstable function of its determinant
B)labor is subject to money illusion
C)as function tends to become flat at levels of output well below full employment and to become steeper ad full capacity is reached
D)as schedule is vertical, and output, and employment are completely supply determined.

Question 16

In whose economic theories, Malthus theories are in the base?

A)adam smith
B)ricardo
C)keynes
D)robin's

Question 17

The equation of exchange is

A)m*p=v*y
B)m+v=p+y
C)m+y=v+p
D)m*v=p*t

Question 18

Liquidity trap sets a loop:

A)below which the discount rate cannot fall
B)above which discount rate cannot rise
C)below which the market rate of interest cannot fall
D)above which market rate of interest cannot rise

Question 19

If the Keynesian consumption function is C=10+0.8Yd then, if disposable income is 1000, what is amount of total consumption ?

A)0.8
B)800
C)810
D)0.81

Question 20

Why does a temporary decrease in government purchases decrease labour supply in the classical model?

A)people prefer to work less when government is doing less for them.
B)decreased government purchases make people worse off, so they work less hours.
C)the decrease in current or future taxes needed to pay for the decrease in government purchases increases people wealth
D)the fall in government spending decreases labour demand, decreasing the real wage, and sopeople decreases their labour supply.

Question 21

As the economy nears full employment the aggregate supply curve tend to

A)become flatter
B)become sleeper
C)shift to the left
D)shift to the right

Question 22

"In a closed economy with no government; s=100+0.2y investment increases by 100, what is the increase in consumption?

A)100
B)200
C)300
D)400

Question 23

Using Keynesian multiplier, MPC= 0.8 and government spending increased by 40 billion dollars. How much will GDP increased?

A)100 billion dollars
B)200 billion dollars
C)300 billion dollars
D)500 billion dollars

Question 24

According to Keynesian analysis, the great depression was caused by:

A)a lack of spending
B)a sharp rise in the mpc
C)too much investment
D)too much foreign influence on the economy