1economics 4th Sem

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ECONOMICS OBJ. TYPE QUESTIONS

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Economics -4th sem
IS – LM Analysis
1. Which of the following is not exogenous is the IS-LM Model?
(a) The price level
(b) The interest level
(c) Government Expenditure
(d) Taxes
Ans:-Government expenditure
2. The relationship between interest rates and the level of income that
arises in the market for goods and services is called the
(a) Is curve
(b) Aggregate supply curve
(c) LM curve
(d) Aggregate demand curve
Ans:-IS-curve
3. The IS-LM model predicts that an increase in the price level will:
(a)Decrease the interest rate and increase income
(b) Increase the interest rate and increase income
(c) Decrease the interest rate and decrease income.
(d) Increase the interest rate and decrease income

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Ans:-Increase the interest rate and decrease income
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4. If interest rates are expected to rise sharply wise investors will prefer
to hold:
(a) Treasury bonds
(b) Treasury notes
(c) Treasury bills
(d) None of the above
Ans:- Treasury bills
5. IS-LM model has been formulated by:
(a) J.R Hicks
(b) F. Modigliani
(c) J.M Keynes
(d) P.A Samuelson
Ans:- J.R Hicks
6. The slope of the IS curve depends on:
(a) The level of government expenditures
(b) The sensitivity of the demand for the real money balances to the interest
rate.
(c) The sensitivity of investment to the interest rate
Ans:- The sensitivity of investment to the interest rate
7. If the expected path of 1 year interest rates over the next five years is
2, 2, 4, 3 and 1% the expectations theory predicts that the bond with the
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highest interest rate today is the one with a maturity of:

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(a) 4 years
(b) 1 years
(c) 5 years
(d) 3 years
Ans:- 4 years
8. The money hypothesis explaining the great depression stipulates that

the depression was caused by a contraction shift in the LM curve. Which
of the following facts supported this hypothesis?
(a) Then nominal money supply contracted and the price level fell
dramatically.
(b) The stock market crash of 1929 reduced real wealth
(c) Real balances did not fall
(d) The interest rate did not rise
Ans:- the nominal money supply Contracted and the price level fell
dramatically
9. According To the expectations theory, Expected inflation should make

the yield curve?
(a) Horizontal
(b) Flatter
(c) Downward sloping
(d) Steeper
Ans:- Steeper
10. The Is curve shows those combinations of income and rate of interest
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at which:
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(a) Aggregate saving= Aggregate investment
(b) Aggregate income= aggregate expenditure
(c) Aggregate demand= Aggregate expenditure
Ans:- Aggregate saving= Aggregate investment
11. According to the IS-LM model, if the central bank increases the
money supply, then the interest rate:
(a) Falls and income rises
(b) Rises and income rises
(c) Falls and income falls
(d) Rises and income falls
Ans:- falls and income rises
12. Which one of the following is represented by the intersection of the

IS curve and the LM curve?
(a) A stock-cum flow equilibrium
(b) Only a flow equilibrium
(c) Moving away from equilibrium
(d) Only a stock equilibrium
Ans:-A stock cum flow equilibrium
13. Concerning treasury securities which of the following patterns of the

“term structure of interest rates” tend to occur most frequently:
(a) Humped yield curve

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(b) Ascending yield curve

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(c) Descending yield curve
(d) Flat yield curve
Ans:- Ascending yield curve
14. An increase in the money supply results in:
(a) No change In LM curve
(b) A change in the slope of LM curve
(c) Leftward shift of the LM curve
(d) Rightward shift of the LM curve
Ans:- Rightward shift of the LM curve
15. If investment becomes less sensitive to the interest rate, then the:
(a) LM curve becomes flatter
(b) IS Curve becomes steeper
(c) IS curve becomes flatter
(d) LM Curve becomes steeper
Ans:- Is curve becomes steeper
16. If the marginal propensity to consume is large, than the:
(a) LM curve is relatively flat
(b) IS curve is relatively flat
(c) LM Curve is relatively steep
(d) Is curve is relatively steep
Ans:- IS curve is relatively flat

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17. The Lm curve is drawn for a given:

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(a) Nominal income
(b) Interest rate
(c) Real income
(d) Money supply
Ans-Money supply
18. The relationship between the interest rate and the level of income
that arises in the market of money balances is called the:
(a) IS curve
(b) Aggregate supply Curve
(c) LM curve
(d) Aggregate demand curve
Ans:-LM curve
19. In a two sector economy, the saving and investment functions are as
follows:
S= -10+0,2Y I=-3+0.1 Y. what will be the equilibrium level of income?
(a) 100
(b) 90
(c) 80
(d) 70
Ans:- 70
20. Increase levels of spending on imports:
(a) Shift aggregate supply to the left

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(b) Shift aggregate demand to the left

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(c) Shift aggregate supply to the right
(d) Shift aggregate demand to the right
Ans:-Shift aggregate demand to the left
21. A currency appreciation:
(a) Reduces both aggregate demand and aggregate supply
(b) Increases both aggregate demand and aggregate supply
(c) Reduced aggregate demand and increases aggregate supply
(d) Increases aggregate demand and reduces aggregate supply
Ans:- Reduced aggregate demand and increases aggregate supply
22. The quantity of money demanded increases with income, Thus, if

income increases, the opportunity cost of holding money must go up in
order to reduce money demand and re-establish equilibrium in the
money market. This relation is captured by:
(a) A downward sloping L curve
(b) The circular flow of money in the economy
(c) An upward sloping LM curve
(d) a downward sloping LM curve
Ans:- An upward sloping LM curve
23.The is curve is drawn for a given:
(a) Level of income
(b) Interest rate
(c) Monetary policy

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(d) Fiscal policy

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Ans:- Fiscal policy
24. In which of the following situations fiscal policy is most effective?
(a) The IS schedule has a zero slope and LM schedule has a slope greater than
zero
(b) The IS schedule has a zero slop and LM schedule has an infinite slope
(c) The IS schedule has a slop greater zero and the LM schedule has a zero
slope
(d) The IS and Lm schedules have slopes greater than zero
26. Suppose that the LM curve is vertical. An increase in taxes will
(a) Decrease income and leave the interest rate unchanged
(b) Increase the interest rate and leave income unchanged
(c) Decrease the interest rate and leave income unchanged
(d) Increase income and leave the interest rate unchanged
Ans:- Decrease the interest rate and leave income unchanged
25. Suppose that income is temporarily above the natural rate level> in
The IS-LM model, long-run equilibrium is achieved when the price level:
(a) Rise and the LM curve shifts inward
(b) Rises and the IS curve shifts outward
(c) Falls and the LM curve shifts outward
(d) Falls and the IS curve shifts inward
Ans:- Rises and the LM curve shifts inward
27. In drawing a yield curve, which of the following is not held constant?
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(a) Tax treatment

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(b) Marketability
(c) Default risk
(d) Length Of time to Maturity
Ans:-Length of time to maturity
28. Which of the following is correct?
(a) The Lm curve shows speculative demand for money
(b) The LM curve shows a drop in financial investment
(c) The LM curve shifts to the left when money supply increases
(d) The IM curve shifts to the right when liquidity preference increases
Ans:- The Lm curve shows speculative demand for money
29. Which of the following statements is correct?
(a) Interest rates and bond prices vary inversely
(b) Interest rates and bond during recessions
(c)Interest rates and bond prices vary indirectly
(d) Interest rates and bond prices are unrelated
Ans: Interest rates and bond prices vary inversely
30. In the standard Keynesian IS-LM model a decrease in minimum cash

reserve ratio will?
(a) Create mark up inflation in full employment
(b) Create demand-pull inflation in full-employment
(c) Create demand-pull inflation if there is unemployment

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(d) Create cost-push inflation in full-employment

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Ans:- Create demand-pull inflation in full-employment
31. Which of the following statement is correct?
A fall in the money supply result in the:
(a) Leftward shift in both the LM curve and the IS curve
(b) Rightward shift in the IS curve
(c) Leftward shift in the LM Curve only
(d) Rightward shift in the LM curve
Ans:-leftward shift in the LM curve only
32. An increase in aggregate demand if aggregate supply is totally

inelastic will:
(a) Increase output and price
(b) Decrease output and price
(c) Increase output but not price
(d) Increase price but not output
Ans:-Increase price but not output
33. IS-Lm curve is represented in X-axis by:
(a) Interest rate
(b) Investment
(c) Consumption
(d) Income
Ans:-Interest rate
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34. Which of the following would decrease aggregate demand?

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(a) Increasing export revenue
(b) Increased investment
(c) Increased consumption
(d) Increased taxation revenue
Ans:- Increased taxation revenue
35. Improved training of employees would
(a) Shift aggregate demand to the right
(b) Shift aggregate supply to the right
(c) Increased consumption
Ans:- Shift aggregate supply to the right
36. If money demand became more sensitive to the level of income, the
LM curve would:
(a) Shift outward
(b) Shift ward
(c) Become flatter
(d) Become steeper
Ans:- Become steeper
37. Which of the following statements is correct? The IS functions

indicates the:
(a) Locus of the labour market equilibrium

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(b) Locus of the money market equilibrium

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(c) Locus of both money and labour market equilibrium

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(d) Locus of the commodity market equilibrium
Ans:- Locus of the commodity market equilibrium
38. IS-LM theory is:
(a) Opposed to Keynes and Classical theory
(b) Synthesis to Keynes and Classical theory
(c) Closer to Keynes theory
(d) Closer to Classical theory
Ans:- Synthesis to Keynes and Classical Theory
39. The intersection of the IS-Lm curves captures
(a) The equivalence of monetary and fiscal policy
(b) Joint equilibrium in the goods and money markets
(c) The equilibrium of the demand and supply sides of the economy
(d) All of the above
Ans:- joint equilibrium in the goods and money markets
40. Risk premiums on securities are caused by:
(a) Liquidity considerations
(b) Tax considerations
(c) Default risk
Ans:- All of the above
41. If the expected path of 1 year interest rates over the next three years
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is 4, 1 and 1% then the expectations theory predicts that today’s

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interest rate on the 3-year bond is:

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(a) 4%
(b) 3%
(c) 2%
(d) 1%
Ans:-2%
42. What is the risk premium on a 10 year corporate bond that pays 9%
interest while a 10 year Treasury bond yields 7 percent?
(a) 16 %
(b) 8%
(c) 2%
(d) 1%
Ans:-2%
43. Which of the following would increase aggregate demand?
(a) Increasing import spending
(b) Increased investment
(c) Increased saving
Ans:- Increased investment
44. Locus of those pairs of interest rate and income level at which saving
is equal to interest is called:
(a) Investment curve

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(b) LM curve
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(c) IS curve
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(d) Saving Curve
Ans:- LM curve
45. The “spending hypothesis” explaining the Great Depression

stipulates that the main cause of the Great depression was s decline in
spending. Which of the following does not support this hypothesis?
(a) Widespread bank failures occurred
(b) The stock market crash of 1929 reduced real wealth
(c) Investment in housing declined
(d) The government budget deficit rose during 1929-32
Ans:-The government budget deficit rose during 1929-32
46. If the central bank increased the supply of real money balances, then
The LM curve would.
(a) Become fallter
(b) Shift inward
(c) Shift ward
(d) Become steeper
Ans:- Shift outward
47. Increases unemployment benefits and less incentive to work would:
(a) Shift aggregate demand to the right
(b) Shift aggregate supply to the right
(c) Shift aggregate demand to the left
(d) Shift aggregate supply to the left

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Ans:- Shift aggregate supply to the left

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48. Suppose, MPC falls. The is curve shifts to the left. Then what happens
ceteris paribus?
(a) There is no change in Equilibrium
(b) Only the rate of interest becomes lower
(c) The level of equilibrium becomes lower
(d) The level of equilibrium becomes higher
Ans:- The level of equilibrium becomes lower
49. When the default risk on corporate bonds increase other things
equal, the demand curve for corporate bonds shifts to the__and the
demand curve for Treasury bonds shifts to the____?
(a) Left : left
(b) Left : right
(c) Right : Right
(d) Right : Left
Ans:- Left : Right
50. Difference between planned investment and actual investment is

called:
(a) Inventory
(b) Export
(c) Import
(d) Realized investment
Ans:- Inventory
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51. When the money market is in equilibrium:

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(a) The interest rate is neither increasing nor decreasing
(b) Bond prices are stable
(c) The quantity of money demanded equals the quantity of money supplied
Ans;- All of the above
52. In a closed economy with output fixed, an increase in government

spending matched by an equal increase in taxes will:
(a) Increase the interest rate
(b) Increase investment
(c) Increase consumption
(d) Leave all other variables unchanged
Ans:- Increase the interest rate
53. The concept of “interdependence of Markets” can refer to the

interdependence between?
(a) Goods markets
(b) Two or more factors markets
(c) Goods and factors markets
54. Which of the following is neither a determinant of the slope of the IS

curve nor a determinant of the slope of the LM curve?
(a) The sensitivity of money demand to income

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(b) The sensitivity of income investment

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(c) The sensitivity of interest rates to investment
(d) The sensitivity of money demand to interest rates
Ans:-The sensitivity of interest to investment.
55. When the interest rate on a bond is ____ the equilibrium interest rate,
in the bond market there is excess___ and the price of bonds will____?
(a) Above : Demand : fall
(b) Above : Supply : Rise
(c) Below: demand: Rise
(d) Below : Supply : Fall
Ans:- below : Supply : Fall
56. Consider the following LM and IS function:
LM :Y =75+10i
IS : Y = 135-20i
Which of the following are the equilibrium income and interest rate
respectively?
(a) 90 and 2
(b) 95 and 2
(c) 100 and 3
(d) 110 and 3
Ans:- 95 and 2
57. Which of the following is not a supply side measure?

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(a) Helping individual to move location to find work

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(b) Increased training

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(c) Increasing spending on existing industries
(d) Providing more information
Ans:- Increasing spending on existing industries
58. According to the model of aggregate supply and aggregate demand,

in the long run an increase in the money supply should cause:
(a) Both prices and output to fall
(b) Both prices and output to rise
(c) Prices to rise and output to remain unchanged
(d) Prices to fall and output to remain unchanged
Ans:- Prices to rise and output to remain unchanged.
59. The term “structure of interest rates” involves the relationship

between:
(a) Risk and yield
(b) Time to maturity and yield
(c) Marketability and yield
(d) Tax treatment and yield
Ans:- rime to Maturity and yield
60. Which one of the following is represented by the intersection of the

IS curve and the LM curve?
(a) Only a flow equilibrium
(b) Only a stock equilibrium
(c) Stock- cum flow equilibrium

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(d) Moving away from equilibrium

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Ans:- stock-cum flow equilibrium
61. The investment function and the IS curve slope:
(a) Downward because higher interest rates induce less investment.
(b) Downward because higher interest rates induce more investment
(c) Upward because higher interest rates induce more investment.
(d) Upward because higher interest rates induce less investment
Ans:- Downward because higher interest rates induce less

investment
62. Increased levels of consumption:
(a) Shift aggregate demand to the left
(b) Shift aggregate supply top the right
(c) Shift aggregate supply to the left
(d) Shift aggregate demand to the right
Ans:- Shift aggregate demand to the right
63. The interest rate on municipal bonds rises relative to the interest
rate on corporate bonds when;
(a) It integrated money interest and income into a general equilibrium model
of product and money market
(b) Investment and interest are two important variables in the model
(c) The theory is propounded by J: R Hicks
(d) Is represent the money market equilibrium and LM represents the

products market equilibrium
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Ans:- There is a major default in the municipal bond market.

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64. When one of the following is not correct in the context of IS and LM
framework of the theory of interest?
(a) It integrated money interest and income into a general equilibrium model
of product and money market
(b) Investment and interest are two important variables in the model
(c) The theory is propounded by J. R Hicks
(d) Is represents the money market equilibrium and LM represents the

products market equilibrium
Ans:-Is represent the money market equilibrium and LM Represent

the product market equilibrium
65. In the standard Keynesian IS-LM model a decrease:
(a) Create demand-Pull inflation in full-employment
(b) Create cost-push inflation in full-employment
(c) Create mark-up inflation in full-employment
(d) Create demand-pull inflation if there is employment
Ans:-create demand pull-inflation in full-employment
66. When the corporate bond market because less liquid , other things
equal, the demand curve for corporate bonds shifts to the_____ and the
demand curve for treasury bonds shifts to the______.
(a) Left: Right
(b) Left : Left
(c) Right : left
(d) Right : Right

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Ans:- Left : Left

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67. In the money market, when the interest rate is below the equilibrium
interest rate, there is an excess_____ for of money. People will try to sell
bonds, and the interest rate will____?
(a) Supply: Rise
(b) Supply: Fall
(c) Demand: Fall
(d) Demand: Rise
Ans:-Demand :Rise
68. In the diagram, which one of the following is indicated by the point A
lying below the is curve?
(a) Excess supply in the money market
(b) Equilibrium income and interest
(c) Excess demand in the commodity market
(d) Excess supply in the commodity market
Ans:- Excess demand in the commodity market
69.
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In the graph given above, what does the pint B indicate?
(a) Excess supply in both and money market
(b) Excess supply in the goods market and excess demand in the money
market
(c) Excess demand in both goods and money market
(d) Excess demand in the goods market and excess supply in the money
market
Ans:- Excess demand in the goods market and excess supply in the
money market.
PHILLIPS CURVE AND STAGFLATION

1. The Phillips curve shows the relationship between inflation and what?
(a) Unemployment
(b) The balance of trade
(c) The rate of growth in an economy
(d) The rate of price increases
Ans:-Demand : rise
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2. The traditional Philips curve shows the:

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(a) Inverse, relationship between the nominal and real wage.
(b) Trade –off between the short run and long run
(c) Inverse relationship between the rate of inflation and employment rate
(d) Direct relationship between unemployment and demand pull inflation
Ans:- Inverse relationship between the rate of inflation and

unemployment rate
3. According to the Phillips curve Unemployment will return to the

natural rate when?
(a) Real wages are back at equilibrium level
(b) Inflation is higher than the growth of nominal wages
(c) Nominal wages are equal to expected wages
(d) Nominal wages are growing faster than inflation
Ans:- ) Real wages are back at equilibrium level
4. Which one of the following is shown by the Phillips curve?
(a) Inverse relationship between real and nominal wages
(b) Inverse relationship between the rate of inflation and rate of

unemployment
(c) Positive relationship between nominal wages and the rate of employment
Ans:- Inverse relationship between the rate of inflation and rate of

unemployment
5. For many macroeconomic policymakers, the Phillips curve initially:

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(a) Implied that frictional unemployment can be lowered by expansionary

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monetary policy
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(b) Was a way to gain more support for unpopular actions needed to decrease
inflation
(c) Gave hope that economic stabilization policy will always work if applied
correctly
(d) Implied a trade-off between lowering unemployment at the cost of higher

inflation or lowering inflation at the cost of higher unemployment
Ans: Implied a trade-off between lowering unemployment at the

cost of higher inflation or lowering inflation at the cost of higher
unemployment
6. An increase in aggregate demand is more likely to lead to demand pull

inflation if:
(a) Aggregate supply
(b) Aggregate supply is perfectly elastic
(c) Aggregate supply is relatively elastic
(d) Aggregate supply is perfectly inelastic
Ans:- Aggregate supply is perfectly inelastic
7. The Fisher equation states that a one percent rise in the rate of
Inflation causes a one percent rise in the:
(a) Number of transactions
(b) Money supply
(c) Real interest rate
(d) Nominal interest rate
Ans:-Real interest rate

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8. Which of the following is most likely to benefit a debtor?

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(a) Anticipated deflation
(b) Anticipated inflation
(c) Unanticipated inflation
(d) Unanticipated inflation
Ans:- Unanticipated inflation
9. Anticipation of an increase in the rate of inflation will:
(a) Cause the rate of inflation to slowdown, other things remaining constant
(b) Cause an increase in the real rate of interest
(c) Reduce the normal rate of unemployment in the long-run
(d) Cause the short-run Philips curve to shift upward to the right
Ans:- Cause an increase in the real rate of interest
10. Inflation
(a) Reduces the purchasing power of the rupee and increases one’s real
income
(b) Increase the purchasing power of the rupee and reduces one’s real income
(c) Reduces both the purchasing power of the rupee and one’s real income
(d) Reduces the purchasing power of the rupee but may have no impact on
one’s real income
Ans:- Reduces the purchasing power of the rupee but may have no
impact on one’s real income
12. The expected rate of inflation does not influence the:
(a) Ex-post real interest rate

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(b) Current price level

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(c) Demand for real money balances
(d) Nominal interest rate.
Ans:-ex post real interest rate
13. In terms of the loan able funds market, an increase in the expected
rate inflation shifts:
(a) Demand for funds right, supply of funds right, and interest rates rise
(b) Supply of funds left demand for funds left and interest rates rise
(c) Demand for funds right, supply of funds left and interest rates rise
(d) Demand for funds left, supply of funds right, and interest rates fall.
Ans:- Demand for funds right, supply of funds left and interest
rates rise
14. When there is an increase in the natural rate of unemployment then:
(a) The Phillips curve will shift to the right
(b) The Phillips curve will become steeper
(c) The Philips curve will become flatter
(d) The Phillips curve will shift to the left
Ans: The Phillips curve will shift to the right
15. Cost-push inflation is caused by:
(a) Abolition of resale price maintenance
(b) An increase in propensity to save
(c) World scarcity of basic raw materials

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(d) Increase in investment

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Ans:- World scarcity of basic raw materials

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16. The war in Iraq sent oil prices spiraling upwards resulting in an
increase in the overall price level. This is an example of which type of
inflation:
(a) Demand-Push
(b) Demand-Pull
(c) Cost-Push
(d) Cost-Pull
Ans:- Cost-push
17. Which school of economic thought suggested that one possible cause
of inflation was a push from the cost side?
(a) Marxists
(b) New Classical economists
(c) Keynesians
(d) Monetarists
Ans:- Keynesians
18. Which one of the following is not a component of demand-pull

inflation?
(a) A rise in the money wage rate
(b) An increase in government expenditure with no change in tax rate.
(c) An upward shift of investment function
(d) A downward shift savings function
Ans:- A rise in the money wage rate

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19. Suppose that the real interest rate remains constant at 3 per cent
while expected inflation increases from 4 % to 6%. Then the nominal
interest rate:
(a) Increases from 7 % to 9 %
(b) Increases from 1% to 3 %
(c) Increases from 4 %to 6 %
(d) Does none of the above
Ans- Increases from 7 % to 9 %
20. Creeping inflation is a situation in which the rate at which price level
rises is:
(a) Very high
(b) High
(c) Moderately high
(d) Slow
Ans:-Slow
21. An increase in injections into economy may lead to:
(a) An outward shift of aggregate demand and cost push inflation
(b) An outward shift of aggregate supply and cost push inflation
(c) An outward shift of aggregate demand and demand pull inflation
(d) An outward shift of aggregate supply and demand pull inflation
Ans:- An outward shift of aggregate demand and demand pull

inflation
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22. Higher expected inflation should

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(a) Decrease the nominal interest rate and increase the real interest rate
(b) Increase the nominal interest rate, but its effect on the real interest rate in
unclear
(c) Decrease the nominal interest rate and decrease the real interest rate
(d) Increase the nominal interest rate decrease the real interest rate
Ans:- Increase the nominal interest rate, but its effect on the real
interest rate in unclear
23. The co-ordination approach to the Phillips curve focuses on then fact
that:
(a) Workers have imperfect information about their real wages
(b) Firms are unsure about their competitors’ behavior and are therefore
reluctant to change wages and prices following a change in aggregate demand
(c)Long term labor contracts tend to expire at different times and thus firms
cannot co-ordinate their hiring
(d) Unemployed workers are not organized enough to influence wage

negotiations
Ans:- Firms are unsure about their competitors behavior and are
therefore reluctant to change wages and price following a change in
aggregate demand
25. What is the empirically fitted relationship between the rate of

change of money wages and rate of Unemployment, known as:
(a) Keynesian model
(b) Phillips curve
(c) Baumal’s Hypothesis

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(d) Friedman’s Model

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Ans:-Phillips’s curve
24. The predominant factor driving the long run behavior of interest
rates has been:
(a) Business cycles
(b) Exchange rate behavior
(c) Budget deficits
(d) Expected inflation
Ans:-Expected inflation
26. Which one of the following situations occurs during the period when
borrowers and lenders expect inflation?
(a) Nominal and real rates of interest become zero
(b) The nominal rate of interest exceeds real rate of interest
(c) The real rate of interest exceeds the nominal rate of interest
(d) The nominal rate of interest equal s the real rate of interest
Ans:- The nominal rate interest equal the real rate of interest
27. In the long run aggregate demand curve will be vertical at the natural
rate of unemployment if:
(a) The long run aggregate demand curve is vertical at potential GDP
(b) The long run aggregate supply curve is vertical at e potential
(c) The long run supply curve is horizontal at the natural rate of inflation
(d) The Long-run aggregate demand curve is horizontal at the natural rate of
inflation
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Ans:-The long-run aggregate supply curve is vertical at potential

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GDP
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28. The Phillips curve posits that inflation rate depends on three forces:
(a) Supply Shocks
(b) Cyclical unemployment
(c) Expected inflation
(d) all of the above
29. If inflationary expectation increases, the short run Philips curve will:
(a) Shift to the right
(b) Become vertical
(c) Shift to the left
(d) Become up warding sloping
Ans:-Shift to the right
30. Demand pull inflation may be caused by:
(a) A reduction in interest rate
(b) An outward shift in aggregate supply
(c) An increase in costs
(d) A reduction in government spending
Ans:- A reduction in interest rate
31. The real interest rate is equal to the nominal interest rate minus?
(a) Taxes
(b) Accounting profits

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(c) Inflation
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(d) Economic Profit
Ans:- Inflation
32. The difference between the nominal interest rate and real interest
rate is:
(a) Hyperinflation
(b) Seignorages
(c) Taxes
(d) Inflation
Ans: Inflation
33. The Modern augmented Phillips curve is augmented by:
(a) Money illusion
(b) Core inflation and supply shocks
(c) Cyclical demand pressure
(d) Output gaps
Ans:- Core inflation and supply shocks
34. Which of the following statements is false?
(a) If the nominal interest rate is higher than the real interest rate, then
inflation must be positive
(b) If inflation is higher than the real interest rate, then the nominal interest
rate must be negative
(c) If the nominal interest rate is higher than inflation, then the real interest
rate mist be positive
33
(d) If inflation is higher than the nominal interest rate, then the real interest
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rate must be negative

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Ans:- If inflation is higher than the real interest rate, then the
nominal interest rate must be negative
35. Which one of the following statements is correct?
Creeping inflation is a situation in which the rate at which price level rises is:
(a) Moderately high
(b) Slow
(c) High
(d) Very high
Ans:- Moderately high
36. If input prices adjusted very slowly to output prices, the Phillips
curve would be:
(a) Upward sloping
(b) Horizontal or nearly horizontal
(c) Downward sloping
(d) Vertical or nearly vertical
Ans:- Horizontal or nearly horizontal
37. If the prices of all inputs seem to be rising, can you b absolutely sure
that it is cost-push inflation?
(a) No, because such a situation can also be caused by particular demand
pressures in the economy
(b) No, because cost-push inflation is caused by an increase in the cost of only
input
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(c) Yes, because this is exactly what happens in stagflation

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(d) Yes, because that is exactly the definition of cost-push inflation

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Ans:- No because such a situation can also be caused by particular

demand pressures in the country.
Direction Question no 38. Is of multiple statement type. Choose the

correct answer from the codes given below:
38 Which of the following group are adversely affected by inflation?
1. Wage earners in the informal sector
2. Profit earners
3. Salary earners with salaries indexed to inflation
5. Pensioners with fixed pensions.
Codes:
(a) 1 and 2
(b) 3 and 4
(c) 1 and 4
(d) 2 and 3
Ans:-1 and 4
Business cycles
1. The length of a business cycle would be measured form:
(a) Trough to peak
(b) The slump to the expansion
(c) Peak to trough
(d) Peak to peak

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Ans:-peak to peak
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2. The decline in interest rates tends to be most pronounced in:
(a) The first half of recoveries
(b) The first half of recessions
(c) The second half of recoveries
(d) The second half recessions
Ans:- The second half recessions
3. In a boom:
(a) Demand is likely to fall
(b) Unemployment is likely to fall
(c) Imports are likely to grow
(d) Prices are likely to fall
Ans:-Unemployment is likely to fall
4. The correct sequence of the stages through which a trade cycle in an

economy passes is:
(a) Inflation, Depression, Disinflation, Reflation
(b) Relation, Disinflation, Inflation, Depression
(c) Depression, Reflation, Inflation, Disinflation
(d) Depression, Inflation, Reflation, Disinflation
Ans:- Depression, Reflation, Inflation, Disinflation
5. During a recession, consumers typically react to falling incomes by:
(a) Reducing the fraction of durables quickly before incomes fall further.
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(b) Reducing the fraction of non-durable and services more quickly than
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purchases of durables
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(c) Increasing the fraction of consumption devoted to durable goods.
(d) Reducing the worn-out durables quickly before incomes goods.
Ans:- Reducing the fraction of non-durable and services more

quickly than purchases of durables
6. The stylized link between GDP growth and changes in unemployment

over the business cycle is called:
(a) The Phillips curve
(b) The Law of supply
(c) Okun’s law
(d) The Laffer curve
Ans:- Okun’s law
7. In general, Okun’s law states that one extra percentage pint in

employment causes:
(a) The rate inflation to decline by 0.5%
(b) the rate of inflation to decline by 2 %
(c) GDP to fall by 0.5%
(d) GDP to fall by 2%
Ans:-GDP to fall by 2%
8. Which of the following is not true about business cycle?
(a) Business cycles occur periodically
(b) Business cycles are synchronic
(c) Investment and consumption of consumer durable goods are most affected
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(d) Investories of goods do not vary much during different phases of business
cycle
Ans:- Inventories of goods do not vary much during different

phases of business cycle
9. Entrepreneurial activity is performed:
(a) Who works under conditions of uncertainty
(b) By rich persons
(c) Who works under condition of certainty
(d) Who works only on the basis of past experiences
Ans:- Who works under conditions of uncertainty
10. Which of the following is included in macroeconomics?
(a) Trade cycle theory
(b) Equilibrium of the firm
(c) Price determination of L.P.G in India
(d) Price determination of a commodity
Ans:- Trade cycle theory
11. In a boom:
(a) Shortage may occur
(b) Supply will increase immediately to match demand
(c) Surpluses are likely to occur
(d) Prices are likely to fall

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Ans:-Shortage may occur

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12. Real GDP fluctuations are:

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(a) Recurrent but irregular
(b) Recurrent and regular
(c) rare and irregular
Ans:-Recurrent but irregular
13. In a recession, GDP
(a) Grows by 0%
(b) Grows negatively
(c) Grows rapidly
(d) Grows slowly
Ans:- grows negatively
14. When an economy first begins to grow more slowly
(a) Stock levels are likely to increase
(b) Investment in equipment is likely to increase
(c) GDP increase
(d) Inflation is likely to increase
Ans:- Stock levels are likely to increase
15. Short run fluctuation in real GDP occurs in the real business cycle
model when:
(a) Prices adjust gradually
(b) Shocks move short-run aggregate Supply (SAS)

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(c) Shocks move long-run aggregate supply (LAS)

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(d) Investment depends upon the GDP
Ans:- shocks move long run aggregate supply (LAS)
16. In a recession:
(a) Growth is negative
(b) Unemployment is likely to be low
(c) Growth is slow
(d) Prices are likely to increase
Ans:- Growth is negative
17. In a recession a government:
(a) Is likely to wan to stabilize demand in the economy
(b) is likely to want to increase demand in the economy
(c) Is likely to want to increase supply in the economy
(d) Is likely to want to decrease demand in the economy
Ans:- Is Likely to want increase demand in the economy
18. To offset the downswing in the business cycle the government

announces a major increase in public expenditure.
(a) Regional unemployment
(b) Technological unemployment
(c) Real wage unemployment
(d) Demand deficient unemployment
Ans:-Demand deficient unemployment

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19. Unemployment is an example of a ______indicator:

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(a) Leading
(b) Coincident
(c) Lagging
Ans:- lagging
20. If the economy is at the peak of the business cycle, aggregate demand
is likely to be ___unemployment is likely to be___ inflation is likely to be
___ and the current account of the balance of payment is likely to be
moving towards:
(a) Static : Low : Falling : Deficit
(b) Falling : Rising : Falling : Surplus
(c) Rising : Falling : Rising : Deficit
(d) Falling : Falling : Falling : surplus
Ans:- Static : Low : Falling : Deficit
21. If the economy is in the expansionary phase of the business cycle,

aggregate demand is likely to be ___unemployment is likely to be
____inflation is likely to be_____and the current account of the balance of
payments is likely to be moving towards______:
(a) Falling : Falling : Falling : surplus
(b) Rising : Falling : Rising : deficit
(c) Falling : Rising : Falling : surplus
(d) Static : Low : Rising : deficit
Ans:-Rising : Falling : Rising : Deficit

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22. In a recession, the demand for bonds tends to shift to the_____and the
supply of bonds issues by business shifts to be______:
(a) Left : Right
(b) Left : Left
(c) Right : Right
(d) Right : Left
Ans:- Left : Left
23. If the economy is approaching the trough phase of the business cycle
aggregate demand is likely to be ____unemployment is likely to be____
inflation is likely to be ______and the current account of the balance of
payment is likely to be moving towards____:
(a) Falling : Rising : Falling : Surplus
(b) Falling : Falling : Falling : Surplus
(c) Static : Low : Rising : Deficit
(d) Rising : Falling : Rising : Deficit
Ans:- Falling : Rising : Falling : Surplus
1. Fiscal policy refers to
(a) The spending an taxing policies used by the government to influence the
economy
(b) The government’s regulation of financial intermediaries
(c) The actions of the central bank in controlling the money supply

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Ans:- The spending and taxing policies used by the government to

influence the economy
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2. In Macro economics, equilibrium is defined as that pint at which:
(a) Aggregate output equals consumption minus investment
(b) Planned aggregate expenditure equals aggregate output
(c) saving equals consumption
(d) Planned aggregate expenditure equals consumption
Ans:-Planned aggregate expenditure equals aggregate output
3. Macro-economics suffers from:
(a) Deals with large quantities
(b) All theories are influenced by generalization
(c) Relates to determination of total employment and total income
(d) The Analysis employs the technique of partial analysis
Ans:- All theories are influenced by generalization
4. A politician proposes reducing business taxes, a move he says will

encourage risk-taking entrepreneurship. This proposed cut in business
taxes is intended t stimulate the economy mainly through:
(a) A decrease in aggregate supply
(b) An increase in aggregate demand
(c) an increase in aggregate supply
(d) A decrease in aggregate demand
Ans:-An increase in aggregate supply
5. The sale of government bonds by the Reserve bank to commercial

banks will:
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(a) Decrease aggregate supply

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(b) Increase aggregate demand
(c) Decrease aggregate demand
(d) Increase aggregate supply
Ans:- Decrease aggregate demand
6. Which of the following is not the objective of monetary policy?
(a) To ensure economic stability at full employment or potential level of

output
(b) To achieve price stability by controlling inflation and deflation
(c) To promote and encourage economic growth in the economy
(d) To mobilize resources for economic development
Ans:- To mobilize resources for economic development
7. Government policies that focus on increasing production rather than

demand are called:
(a) Monetary policies
(b) Supply-side policies
(c) Fiscal policies
(d) Incomes Policies
Ans:- Supply-side polices
8. If the MPS in an economy is 1 government could shift the aggregate

demand curve rightward by 40 billion by:
(a) Decreasing taxes by Rs 4 billion
(b) Increasing government spending by Rs 4 billion

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(c) Increasing taxes by Rs 4 billion

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(d) Increase government spending by Rs 40 billion
Ans:- Increasing government spending by Rs 4 billion
9. If the response to an increase in government spending the reserve

bank decides t keep interest rates constant the government purchases
multiplier is:
(a) The same as in the case where the Reserve Bank keeps the money supply
constant
(b) Larger than in the case where the Reserve Bank keeps the money supply
constant
(c) Larger or smaller than in the case where the Reserve Bank keeps money
supply constant
(d) Smaller than in the case where the Reserve Bank keeps the money supply
constant
Ans:- Larger than in the case where the Reserve bank keeps the
money supply constant
10. Which of the following is the government most likely to subsidize?
(a) Monopolies
(b) Negative externalities
(c) Oligopolies
(d) Positive externalities
Ans:- Positive externalities
11. If an economy is equilibrium at the point where plans to save and to

invest are equal. Then government expenditure must be:
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(a) Negative
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(b) Zero
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(c) Equal to government income
(d) Larger than government income
Ans:- Equal to government income
12. Which of the following is a normative statement in economics?
(a) The government should concentrate on reducing unemployment
(b) More spending by the government reduces poverty
(c) Higher taxes lead to less desire to work
Ans:-The government should concentrate on reducing

unemployment
13. Which of the following is not an instrument of tight monetary policy?
(a) Selling of government securities by RBI
(b) Raising of statutory cash reserve Ratio
(c) Decreasing statutory liquidity ratio
(d) Raising of discount rate
Ans:- Decreasing statutory liquidity ratio
14. If the income elasticity of money demand and the Keynesian

multiplier. Both increase in an economy (ceteris paribus), how will the
relative effectiveness of monetary and fiscal policy change?
(a) Fiscal policy will become relatively less effective than monetary policy
(b) Both fiscal and monetary policies will become more effective
(c) Fiscal policy will become policies will become more effective
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(d) The relative effectiveness of fiscal and monetary policy will remain
unchanged
Ans:-Fiscal policy will become relatively less effective than

monetary policy
15. If the government increase government spending then the aggregate

demand curve will:
(a) Shift to the left
(b) Become flatter
(c) Shift to the right
(d) Become steeper
Ans:- Shift to the right
16. An expansionist fiscal policy could include:
(a) Increase lending by the banks
(b) An increase in discretionary government spending
(c) Lower interest rates
(d) An increase in corporation tax
Ans:- An increase in discretionary government spending
17. If the government raises taxes and the central bank increases the
money supply, then the combined effect of these two policies would
cause income to:
(a) Rise
(b) It cannot be determined form the information given

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(c) Stay the same

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(d) Fall
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Ans:- It cannot be determined from the information given
18. With a positive externality:
(a) There is over consumption in the free market
(b) There is under-consumption in the free market
(c) Society could be made off if less was produced
(d) The government may tax to decrease production
Ans:- There is under-consumption in the free market
19. Which of the following choices is an objective of monetary policy as

opposed t being an instrument or a target?
(a) Long –term market interest rates
(b) Bank refinancing rates
(c) Price stability
(d) Exchange rates
Ans:- Price stability
20. Which one of the following pairs is called an open market operation?
(a) Selling and buying of shares by the foreign institutional investors
(b) Selling and buying of securities or bills by the central bank
(c) Selling and buying of gold in the open market by commercial banks
(d) Selling and buying of foreign exchange
Ans:- Selling and buying of securities or bills by the central bank
21. Supply side polices are most appropriate to cure?

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(a) A fall in aggregate demand

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(b) Voluntary unemployment
(c) Involuntary unemployment
(d) Cyclical unemployment
Ans:- Voluntary unemployment
22. If the government raises taxes and the central bank maintains a
policy of keeping the interest rate constant, then the combined effect
these two policies would income to:
(a) Stay the same
(b) Rise
(c) It cannot determined form the information given
(d) Fall
Ans:- Fall
23. Assume that aggregate demand in the economy is excessive, causing

demand-pull inflation. Which of the following would be most in accord
with appropriate government fiscal policy?
(a) An increase in the size of income tax exemption for each dependent
(b) An increase in soil conservation subsidies to farmers
(c) An increase in Reserve Bank income tax rates
(d) Passage of legislation providing for the construction 8,000 new post office
buildings
Ans:- An increase in Reserve Bank income tax rates
24. Which on of the following statements are correct?

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Crowding our in an economy can be avoided if

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(a) Government finances its expenditure by raising cash reserve ratio

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(b) Government finances its expenditure by buying outstanding bonds
(c) Government finances its expenditure by taxes
(d) Government finances its expenditure by new money supply
Ans:- Government finances its expenditure by buying outstanding

bonds
25. Which one of the following is a qualitative credit control methods?
(a) Bank rate
(b) Variable cash reserve ratio
(c) Moral suasion
(d) Open market operations
Ans:- Moral suasion
26. Which of the following is not target of monetary policy?
(a) Monetary aggregates (M1 M2 M3)
(b) Exchange rates
(c) Repo and discount rates
(d) Long term market interest rates
Ans:- Repo and discount rates
27. An increase in the money supply will:
(a) Increase interest rates and increase the equilibrium
(b) Increase interest rates lower the equilibrium GDP
(c) Lower interest rates increase the equilibrium GDP

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(d) Lower interest rates and increase the equilibrium GDP

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Ans:- lower interest rates and increase the equilibrium GDP
29. A shift in aggregate supply is likely to:
(a) Reduce the general price level an increase national
(b) Increase the general price level and increase national income
(c) Reduce the general price level and reduce national income
(d) Increase the general price level and reduce national income
Ans:- Reduce the general price level an increase national
28. According to the classical dichotomy, which of these magnitudes is

affected by monetary policy?
(a) The real wage
(b) The rate of growth of real GDP
(c) The price level
(d) The real interest rate
Ans:-The price level
30. Suppose that the government raises taxes. According to the IS-LM
model, what does the Reserve Bank have to do to keep income constant
and what is the subsequent effect on interest rates?
(a) The reserve Bank needs to decrease the money supply : interest rates
remain unchanged
(b) The Reserve Bank needs to decrease the money supply :interest rates go
up
(c) The Reserve Bank needs to increase the money supply : interest rates
remain unchanged
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(d) The Reserve Bank needs to increase the money supply : interest rates go
down
Ans:- The reserve Bank needs to increase the money supply :

interest rates go down
31. A group of modern economists who believe that price and wage
rigidities do not provide the only rationale for macroeconomic policy
activism are called:
(a) Keynesians
(b) The Classical school
(c) New Keynesians
(d) Monetarists
Ans:- New-Keynesians
32. Which of the following is not an instrument of fiscal policy control?
(a) Personal income tax
(b) Transfer payments
(c) Corporate income tax
(d) Bank rate
Ans:- bank rate
33. A cut in the income tax rate designed to encourage household

consumption is an example of:
(a) Concretionary demand-side policy
(b) Contractionary supply-side policy

52
(c) Expansionary demand-side policy

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(d) Expansionary demand-side policy

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Ans:- Expansionary demand-side policy
34. To reduce cyclical unemployment the government might:
(a) Increase the balance of payments deficit
(b) Reduce government expenditure
(c) Increase the budget surplus
(d) Reduce interest rates
Ans:-Reduce interest rates
35. If a war destroys a large portion of a country’s capital stock but the
saving rate is changed, the exogenous model predicts that output will
grow and the new steady state will approach?
(a) The same output level as before
(b) The Golden Rule output level
(c) A higher output level than before
(d) A lower output level than before
Ans:- A lower output level than before
36. For equilibrium in an open four sector economy:
(a) Savings = investment
(b) Actual injections = actual withdrawals
(c) Government spending = tax revenue
(d) Planned injections = Planned withdrawals
Ans:- Planned injections = Planned withdrawals

53
37. If the Reserve Bank wants to permanently lower interest rates, then
it should raise the rate of money growth if:
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(a) There is slow adjustment of expected inflation
(b) The liquidity effect is larger than the other effects
(c) There is a fast adjustment of expected inflation
(d) The liquidity effect is smaller than he expected inflation effect
Ans:- The liquidity effect is larger than the other effects
38. The practice of using fiscal and monetary policy to stabilize the
economy is known as:
(a) Laissez faire economics
(b) Fine tuning of demand
(c) Supply side economics
(d) Monetarism
Ans:- Fine tuning of demand
39. In which of the following case monetary policy is highly effective?
(a) Classical case
(b) Liquidity trap
(c) Both A & B
Ans:- classical case
40. Which of the following would constitute sound government policy if

you subscribed to the monetarist view on unemployment?
(a) Reduce the obstacles to downward rigidity (like unions, unemployment

benefits, minimum wage, legislations etc)
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(b) Reduce the marginal income tax rate (to increase the incentive to work)
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(c) Increase aggregate demand through monetary or fiscal policy
Ans:- ) Reduce the marginal income tax rate (to increase the
incentive to work)
41. If there is cyclical unemployment in the economy the government

might?
(a) Encourage savings
(b) Reduce government spending
(c) Increase interest rates
(d) Cut rates
Ans:- Cut taxes
42. A speculative attack against a weak currency might be lessened or

eliminated by all of the following except?
(a) The taxation of foreign exchange transactions
(b) The switch from budget surplus to budget deficits
(c) The adoption of capital controls
(d) The renewal of high inflation
Ans: The renewal of high inflation
43. Suppose that the government gets serious about saving the whales
and increases spending considerably. What does the Reserve bank have
to do keep interest rates constant and what happens to the level of
income?
(a) The Reserve Bank needs to increase the money supply : income remains
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unchanged
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(b) The reserve Bank needs to increase the money supply : income goes up
(c) The Reserve bank needs to decrease the money supply : income remain
unchanged
(d) The Reserve Bank needs to decrease the money supply: income goes
down
Ans:- The reserve Bank needs to increase the money supply :

income goes up
44. To get the economy out of a slump Keynes believed that the
government should:
(a) Increase taxes and or decrease government spending
(b) Increase both taxes and government spending
(c) Decrease taxes and or increase government spending
(d) Out both taxes and government spending
Ans:- decrease taxes and or increase government spending
45. If the governments increase its spending, but this causes prices to
rise what will “eventually” happen to the equilibrium income and
interest rate?
(a) Income will go up. But effect on the interest rate go up
(b) Income will go up, but the effect on the interest rate cannot be predicted
(c) Interest rates will go down but the effect on income cannot be predicted
(d) Both income and the interest rate will remain unchanged
Ans:- Income will come down but the interest rate will go up
46. What kind of change is to be made in (i) cash Reserve ratio and (ii)
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Bank rate, to control inflation?

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(a) (i) should increase but (ii) Should decrease
(b) (ii) should increase but (ii) should decrease
(c) Both should increase
(d) Both should decrease
Ans:- both should increase
47. In case of liquidity trap, which of the following policy is highly

effective?
(a) Monetary policy
(b) Interest rate policy
(c) Fiscal policy
(d) Both B and C
Ans:- Fiscal policy
48. If a government were to fix a minimum wage for workers that was
higher than the market-clearing equilibrium wage. Economists would
predict that:
(a) There would be more unemployment
(b) Wages in general would fall as employers tried to hold down costs
(c) More workers would become employed
(d) The costs and prices of firms employing cheap labour would increase
Ans:- More workers would become employed
49. Those that hold classical view of the labour market are likely to
believe that:
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(a) Fiscal but not monetary policy will have an effect on output and
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employment
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(b) Both monetary and fiscal
(c) Monetary, but not fiscal policy will have an effect on output and
employment
(d) Neither monetary nor fiscal policy will have an effect on output and
employment
Ans:- Neither monetary nor fiscal policy will have an effect on

output and employment
50. Restrictive monetary policy will eventually affect the upward-sloping

AS curve since:
(a) Higher interest rates will reduce the capital stock, thus reducing potential
GDP
(b) Firms will start laying off workers in anticipation of a decline in aggregate
demand
(c) Real wages will decline in proportion to the change in money supply and
this will cause a change in unemployment
(d) The resulting unemployment will cause downward pressure on nominal

wages and decrease the cost of production
Ans:- the resulting unemployment will cause downward pressure

on nominal wages and decrease the cost of production.
51. When shall an increase in money supply have a small effect on

nominal Gross Domestic Product?
(a) If the Velocity is increasing
(b) If the Velocity is decreasing
(c) If the government spending is also increasing

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(d) If the velocity is unchanged

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Ans:- If the government spending is also increasing
52. A cut in the tax rate designed to reduce the cost of capital and hence
encourages business investment is an example of?
(a) Expansionary supply-side policy
(b) Contractionary supply – side policy
(c) Expansionary demand – side policy
(d) Contractionary demand – side policy
Ans:- Expansionary supply – side policy
53. There are_______major instruments of monetary policy
(a) Five
(b) Three
(c) Four
Ans:- Four
54. Assume the economy is operating at less than full employment. An

easy money policy will cause interest rates____which will _____investment
spending.
(a) Increase: Decrease
(b) Increase: Increase
(c) Decrease: Increase
(d) Decrease: Decrease
Ans:- Decrease : Increase

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55. The economy will be in equilibrium if:

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(a) I<C
(b) I<C
(c) Y<C
(d) I=S
Ans:-I=S
56 A government’s attempt to reduce its defense expenditure is an

example of, while a government effort to raise interest rates is an
example of:
(a) Fiscal policy: Monetary policy
(b) Supply –side Policy: Supply
(c) Monetary policy: Fiscal policy
(d) Incomes Policy: Incomes policy
Ans:- Fiscal policy : monetary Policy
Foreign Exchange and Balance of payment

1. The price of one currency in terms of another is known as …………. .
(A) Foreign exchange rate
(B) Trade rate
(C) Increase rate
(D) Balance of payment.

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Ans. (A) Foreign exchange rate.

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2. Market where the national currencies are traded for one another is
known
as …………. .
(A) Domestic exchange market
(B) Foreign exchange market
(C) Bazaar
(D) Shop.
Ans. (B) Foreign exchange market
3. Becoming costlier of foreign commodities is known as …………….. .
(A) Overvaluation
(B) Devaluation
(C) Inflation
(D) None of these.
Ans. (B) Devaluation.
4. Becoming cheaper the foreign commodities is known as …………….. .
(A) Overvaluation
(B) Devaluation
(C) Deflation
(D) All of these.
Ans. (A) Overvaluation.
5. What is the cause of devaluation of any country’s currency?

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(A) Increase in the domestic inflation rate

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(B) Domestic rea; interest rates are less than foreign interest rates
(C) Much increase in the income
(D)All of the above.
Ans. (D) All of the above.
6. The operation of daily nature in the foreign exchange market is known

as:
(A) Spot market
(B) Forward market
(C) Domestic market
(D) International market.
Ans. (A) spot market.
7. The operation of future delivery in the foreign exchange market is

known
as…………. .
(A) Spot market
(B) Current market
(C) Forward market
(D) Domestic market.
Ans. (C) Forward market.
8. The rate of current transections is known as ……………. .
(A) Spot rate

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(B) Forward rate

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(C) Domestic rate

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(D) Foreign rate.
Ans. (A) Spot rate.
9. Hybrid in management of fixed and flexible exchange rate is known

as…….….
(A) Managed floating
(B) Crawling Peg
(C) Wider Bands
(D) Noneof these.
Ans. (A) Managed floating.
10. When was gold standard abandoned?
(A) 1930’s
(B) 1920’s
(C) 1940’s
(D) 1950’s
Ans. (B) 1920’s.
11. Balance of Payments includes:
A) Visible items
(B) Invisible items
(C) Both of these
(D) BOT items.
Ans. (C) Both of these

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12. Foreign exchange market operates as:

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(A) Spot market
(B) Forward market
(C) Either (A) or (B)
(D) None of these.
Ans. (C) either (A) or (B)
13. What is the principal item of current account of BOP?
(A) Goods
(B) Services
(C) Transfers (gifts & donation)
(D) All of these.
Ans. (D) All of these.
14. Current account Balance =
(A) Balance of visible trade
(B) Balance of invisible trade
(C) Balance of unilateral trade
(D) All of these.
15. Visible and invisible items of debt and credit are the part of:
(A) Import-Export policy
(B) Balance of Payments
(C) Balance of trade

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(D) Annual Budget

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Ans. (B) Balance of payments.
16. Net exports will be negative if:
(A) Exports exceed imports
(B) Exports and imports are equal
(C) Imports exceeds exports
(D) None of these
Ans. (C) Imports exceeds exports
17. Unfavourable balance of payments:
(A) R – P = 0
(B) R – P > 0
(C) R – p < 0
(D) None of these.
Ans. (C) R – P < 0
18. Balance of payments includes:
(A) Visible items
(B) Invisible items
(C) Both of these
(D) None of these
Ans. (C) Both of these
19. Favourable balance of payments:
(A) R – P = 0
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(B) R – P > 0
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(C) R – P < 0
(D) None of these
Ans. (B) R – P > 0
20. Foreign exchange market performs function of:
(A) Transfer
(B) Credit
(C) Hedging
(D) All of these
21. A cause of Inflation is:
(A) Increase in money supply
(B) Increase in money supply, fall in production
(C) Fall in production
(D) All of the above
Ans. (C) Fall in production
22. Inflation brings most benefit to which of the following?
(A) Govt. pensioners
(B) Creditors
(C) Saving Bank Account holders
(D) Debtors.
Ans. (D) Debtors.

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23. Inflation is mostly harmful to which one of the following:

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(A) Debtors
(B) Creditors
(C) Business Class
(D) Holder of Real Estate
Ans. (B) Creditors
24. Which is correct with respect to inflation?
(A)Rise in Budget deficit
(B) Rise in money supply
(C) Rise in general price index
(D) Rise in prices of consumer goods
Ans. (C) Rise in general price index
25. Increasing unemployment and inflation is a situation of :
(A) Hyper inflation
(B) Galloping inflation
(C) Stagflation
(D) Reflation
Ans. (C) Stagflation
26. Who among the following are not protected against inflation ?
(A) Salaried class
(B) Industrial Class
(C) Pensioners
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(D) Agricultural farmers

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Ans. (D) Agricultural farmers
27. The period of high inflation, low economic growth and high
unemployment is termed as:
(A) Stagnation
(B) Take of stage in economy
(C) Stagflation
(D) None of these
Ans. (C) Stagflation
28. The old view of Philips curve implies:
(A) A policy trade-off between unemployment and output
(B) A policy trade-off between unemployment and inflation
(C) A 2% drop in the unemployment rate for a 1% increase in output
(D) None
Ans. (B) A policy trade-off between unemployment and

inflation
29. In order to derive the upward sloping as curve depicted we need to

use
(A) The Phillips curve relationship
(B) The Price cost relationship
(C) Okun’s law
(D) All of the above
Ans. (D) All of the above

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30. In an AD – AS Model with an upward sloping, As curve, a decrease

in the unemployment rate combined with a price decrease is most likely
the result of
(A) An adverse supply shock
(B) An adverse supply shock followed by restrictive monetary policy
(C) A favorable supply shock
(D) A decrease in money supply
Ans. (C)a favorable supply shock
31. Unemployment is zero when
(A) Real employment rate = full employment level
(B) Real employment level > full employment level
(C) Real employment level < full employment level
(D) None
Ans. (A) Real employment rate = full employment level
22. Modern Phillips curve is originated by :
(A) Milton Friedman
(B) Admond Phelps
(C) A.W. Phillips
(D) Both A and B
Ans. (D) Both A and B

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1economics 4th Sem

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ECONOMICS OBJ. TYPE QUESTIONS

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Economics -4th sem

(a) The price level

(b) The interest level

(c) Government Expenditure

(b) Aggregate supply curve

(d) Aggregate demand curve

(a)Decrease the interest rate and increase income

(b) Increase the interest rate and increase income

(c) Decrease the interest rate and decrease income.

(d) Increase the interest rate and decrease income

Ans:-Increase the interest rate and decrease income

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(a) Treasury bonds

(b) Treasury notes

(c) Treasury bills

(d) None of the above

Ans:- Treasury bills

5. IS-LM model has been formulated by:

(a) J.R Hicks

(c) J.M Keynes

(d) P.A Samuelson

Ans:- J.R Hicks

6. The slope of the IS curve depends on:

(a) The level of government expenditures

(c) The sensitivity of investment to the interest rate

(d) None of the above

Ans:- The sensitivity of investment to the interest rate

highest interest rate today is the one with a maturity of:

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8. The money hypothesis explaining the great depression stipulates that

(b) The stock market crash of 1929 reduced real wealth

(c) Real balances did not fall

(d) The interest rate did not rise

9. According To the expectations theory, Expected inflation should make

(c) Downward sloping

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(a) Aggregate saving= Aggregate investment

(b) Aggregate income= aggregate expenditure

(c) Aggregate demand= Aggregate expenditure

(d) None of the above

Ans:- Aggregate saving= Aggregate investment

(a) Falls and income rises

(b) Rises and income rises

(c) Falls and income falls

(d) Rises and income falls

Ans:- falls and income rises

12. Which one of the following is represented by the intersection of the

(a) A stock-cum flow equilibrium

(b) Only a flow equilibrium

(c) Moving away from equilibrium

(d) Only a stock equilibrium

Ans:-A stock cum flow equilibrium

13. Concerning treasury securities which of the following patterns of the

(a) Humped yield curve

(b) Ascending yield curve

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(c) Descending yield curve

(d) Flat yield curve

Ans:- Ascending yield curve