Question 1

Employment equilibrium in the Classical theory is achievedthrough:
A)wage-price flexibility.
B)changes in aggregate demand
C)changes in aggregate supply
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.

Question 2

Market does not clear is a proposition of:
A)neoclassical theory.
B)keynesian economics
C)monetarism
D)rational expectations

Accepted Answer

Keynesian economics posits that markets, particularly labor markets, do not always clear, which can lead to prolonged periods of high unemployment. This contrasts with neoclassical theory, which assumes markets always clear through price adjustments.

Question 3

The interest rate paid on bonds is known as:
A)call rate
B)coupon rate
C)repo rate
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 4

The monetary policy is completely ineffective when the LM curve is:
A)vertical .
B)horizontal.
C)upward sloping.
D)downward sloping

Accepted Answer

When the LM curve is vertical, it means that the demand for money is perfectly inelastic with respect to the interest rate. This means that no matter how much the central bank changes the interest rate, the quantity of money demanded will not change. As a result, monetary policy is completely ineffective in influencing the economy.

Question 5

Monetarism is associated with:
A)keynesian school
B)chicago school
C)cambridge school.
D)neo-classical school.

Accepted Answer

Monetarism is most closely associated with the Chicago School of economics, particularly with the work of Milton Friedman, who argued that the government's primary economic role should be to control the money supply to manage inflation and economic growth.

Question 6

Changes in the subjective or objective factors
A)never affect consumption function
B)always cause downward shift in consumption function
C)always cause upward shift in consumption function
D)they cause upward or downward shifts in consumption function

Accepted Answer

Changes in subjective or objective factors can either increase or decrease consumer confidence and spending, leading to upward or downward shifts in the consumption function.

Question 7

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

Accepted Answer

The multiplier in a closed economy is calculated as 1/(1-MPC). With an MPC of 0.90, the multiplier is 1/(1-0.90) = 1/0.10 = 10.

Question 8

Income is a ------- variable
A)flow
B)discontinuous
C)stock
D)none of the above

Accepted Answer

Income is considered a flow variable because it is measured over a period of time, such as monthly or yearly income, indicating how much money is received or earned during that timeframe.

Question 9

Ratio of consumption expenditure to any particular level ofincome
A)mps
B)aps
C)apc
D)mpc

Accepted Answer

The ratio of consumption expenditure to any particular level of income is referred to as the Average Propensity to Consume (APC).

Question 10

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

Accepted Answer

MPC + MPS = 1, so if MPS = 0.2, then MPC = 1 - 0.2 = 0.8.

Question 11

According to Keynes, rising aggregate income is always associated with
A)higher saving rate
B)higher import
C)lower export
D)low production

Accepted Answer

According to Keynes, rising aggregate income is always associated with a higher saving rate. This is because as income rises, people tend to save a larger proportion of their income.

Question 12

Who postulated the law Supply creates its own demand
A)keynes
B)j b say
C)marshall
D)pigou

Accepted Answer

The law that "supply creates its own demand" is known as Say's Law, which was postulated by the French economist Jean-Baptiste Say.

Question 13

Autonomousinvestment is
A)income inelastic
B)instable
C)interest elastic
D)incomeelastic

Accepted Answer

Autonomous investment is considered income inelastic because it does not directly respond to changes in income levels. It is typically driven by factors other than current income, such as technological changes or policy decisions.

Question 14

MEC for a capital good was found out to be 10% and the market rate of interest is 9%, then the investment is
A)not profitable
B)profitable
C)breakeven
D)cannot say

Accepted Answer

The Marginal Efficiency of Capital (MEC) is higher than the market rate of interest, indicating that the return on investment exceeds the cost of borrowing, making the investment profitable.

Question 15

In the Keynesian two sector economy, AD>AS, then
A)s=i
B)s>i
C)s<i
D)s=0

Accepted Answer

When AD (Aggregate Demand) is greater than AS (Aggregate Supply), it implies that the economy is in a situation where demand exceeds supply, leading to a decrease in inventories. In a Keynesian framework, this scenario suggests that investment (I) is greater than savings (S), as the excess demand is likely financed by drawing down savings or increasing investment in response to the anticipated higher demand. Hence, S < I.

Quiz 3: Macro Economics Terminology and Concepts

Employment equilibrium in the Classical theory is achievedthrough:

Market does not clear is a proposition of:

The interest rate paid on bonds is known as:

The monetary policy is completely ineffective when the LM curve is:

Monetarism is associated with:

Changes in the subjective or objective factors

In a closed economy, the value of multiplier , when MPC is 0.90

Income is a ------- variable

Ratio of consumption expenditure to any particular level ofincome

When MPS = 0.2, MPC will be

According to Keynes, rising aggregate income is always associated with

Who postulated the law Supply creates its own demand

Autonomousinvestment is

MEC for a capital good was found out to be 10% and the market rate of interest is 9%, then the investment is

In the Keynesian two sector economy, AD>AS, then