1.

Prices of finished imported goods are - included in the CPI

2. Assume you built a new house, bought a used car, and bought some government bonds.
Which of the following statements is true of the components of aggregate demand? - investment
went up since you built a new house

3. Which of the following statements is FALSE? - inventory and residential investment are
relatively volatile but business fixed investment tends to be a fairly constant fraction of GDP

4. A Metal Company produces screws that it sells to an automobile firm, which uses the screws
as a component of its cars. In the national income accounts (GDP measurement), the screws are
classified as - intermediate goods

5. Crowding out occurs when - Government borrowing to finance its spending decreases
private sector investment

6. Assume that GDP = 8,100, consumption = 5,400, gross private domestic investment = 1,200,
and government purchases = 1,600. Which of the following is true? - imports exceed exports by 100

7. In an IS-LM model, if the government enacts restrictive fiscal policy through a tax increase or
a cut in government purchases - both income and the interest rate will decrease

8. Monetary policy becomes less effective as - the interest sensitivity of investment decreases

9. In 2018 six students of IIMU purchased six laptops at Rs. 30,000 each. Four of them
exchanged their old laptops which they bought in 2015 at Rs. 32,000 each. Due to the exchange each
of the four students paid only Rs. 10,000. The net increase in GDP of these transactions in 2018 was -
1,80,000,

10. The difference between ____ is known as the trade balance - exports and imports

11. Real GDP is nominal GDP adjusted for - changes in price levels

12. If autonomous investment increases by 100 and government purchases decrease by 100,
which of the following is true? - income will not change

13. Which of the following will be included in the calculation of GDP using the expenditure
method? - A domestic producer's export of clothes

14. 10% of the total food grains produced in a country during a year got damaged due to poor
storage. Which of the following will happen in this case? - GDP will remain unchanged

15. A decrease in the income tax rate (in the Keynesian multiplier) would imply the following -
an increase in the expenditure multiplier

16. In a normal IS LM framework, crowding out may be avoided if - the central bank increases
the money supply to accommodate fiscal expansion

17. If the Government of India increases Social Security payments by Rs. 2 crore – GDP remains
the same

18. Which of the following is likely to happen if a German company opens a production unit in
Mumbai? – Germany’s GNP will increase

19. Investment spending – all of the above

20. Suppose the economy is currently operating on both the LM curve and the IS curve. Which
of the following is true for this economy? - all of the above

21. If we have a downward sloping IS curve but a horizontal LM curve - fiscal policy is the most
effective way to reduce unemployment

22. If the consumption function is of the form C = 400 + (0.9)Yd, what is the MPS (marginal
propensity to save)? – none of the above

23. Which of the following does not shift the IS curve? – fall in the interest rate

24. A consumption function of the form C = C0 + cYd has a positive vertical intercept C0, which
indicates that - some consumption is unaffected by changes in disposable income

25. If nominal GDP of an economy is 1800 million and the GDP-deflator is 120, then the real GDP
in that year is – 1500 million

26. The price of a given basket of goods in Year 1 was Rs. 1,300. The price of the same basket of
goods in Year 2 was Rs. 1,560. What is the consumer price index for Year 2 taking Year 1 as the base
year? – none of the above

27. In a simple Keynesian model with no government or foreign sector, the change in unplanned
inventory at equilibrium is – zero

28. Which of the following statements is true? – NDP cannot be greater than GDP

29. Jane stitched a prom dress which she could have bought for Rs. 500 from a store. Which of
the following will happen if she keeps the dress for herself? - The GDP of her country will remain
unchanged,

30. Which of the following policy actions will result in a parallel shift of the IS curve to the left? -
a decrease in government purchases

31. Mr. X, a citizen of U.S., imported a watch from Switzerland. This transaction leads to a(n) –
increase in the GDP of Switzerland

32. Adani Ltd. drills for oil, which it sells for Rs. 200 million to Reliance Ltd. to be made into gas.
The Reliance gas is sold for a total of Rs 600 million. What is the total contribution to the country's
GDP from both the companies? – 600 million

33. If an Indian gun manufacturer raises the price of rifles it sells to the Indian Army, its price
hikes will increase – the GDP deflator but not the CPI

34. An increase in business inventories is counted as – an increase in investment

35. The GDP-deflator and the consumer price index (CPI) differ since - the CPI measures a fixed
market basket but the GDP-deflator doesn't

36. Which of the following is a period of decreasing output that is severe and long lasting?-
depression

37. The consumer price index (CPI) and the wholesale price index (WPI) differ from each other
since – the composition of their baskets is different
38. The GDP deflator of a country in the base year was 100 and it is 130 in the current year. This
implies that the prices of final goods and services produced in the country in the current year have
increased by – 30%

39. The (Keynesian) expenditure multiplier is used to calculate the change in - equilibrium
income caused by a change in autonomous spending

40. The existence of liquidity trap implies - ineffectiveness of monetary policy

41. When the LM curve is vertical - monetary policy has the maximum effect but fiscal policy has
no effect on income.

In the IS-LM model liquidity preference is brought in making the demand for money
inter alia a function of the rate of interest. – True

In the IS-LM Model with expansionary fiscal policies the income level would not change
but the interest rate would change in a situation of "liquidity trap". – False

Investment for the IS-LM model is behaviourally modelled as a function of money in the
system. – False

All along the IS curve the goods and services markets are in equilibrium. – True

Lowering tax rate is a kind of expansionary monetary policy. – False

If the LM curve is vertical it means that the demand for money is not a function of the
rate of interest. – True

If the economy is in a 'liquidity trap' the LM curve is vertical. – False

Fiscal policies have an effect on the LM curve. – False

The quantity theory of money would give rise to a horizontal LM curve. – False

In the IS-LM model, in the case of the “liquidity trap” changes in the tax rate would help
to change the income level of the economy. – True

In the IS-LM Model if the LM Curve is horizontal there is crowding out of investment
expenditure when the government expenditure is increased. – False

The overall demand for money can be expected to be an increasing function of the rate
of interest. - False