1. The optimum capital stock is achieved when the user cost of capital is equal to -
(A) The interest rate
(B) The depreciation rate
(C) Tobin's Q
(D) The marginal product of capital
Ans) D
2. Non-Accelerating Inflation Rate of Unemployment (NAIRU) means :
(A) A rate of inflation which makes the rate of unemployment zero.
(B) A rate of unemployment for which change in the rate of inflation is zero.
(C) A rate of inflation for which the change in the rate of unemployment is zero.
(D) A rate of unemployment which is equal to the rate of inflation.
Ans) B
3. Which amongst the following is not correctly matched ?
(A) New Classical Economics – Robert Lucas
(B) Multiplier effect of Balanced Budget – T.H. Haavelmo
(C) New Keynesian Economics – Paul Romer
(D) Permanent Income Hypothesis – M. Friedman
Ans) C
4. The negative relationship between the gap between actual GNP and its trend and the difference between actual unemployment rate and its equilibrium value is called -
(A) The Aggregate Supply Curve
(B) Okun's Law
(C) The Natural Rate of Unemployment
(D) The Phillips Curve
Ans) B
5. Which of the following are correctly matched.
I. Transitory income - Milton Friedman
II. Absolute income - Dusenberry
III. Life cycle income - J.M. Keynes
(A) Only I is correct
(B) I and II are correct
(C) I, II and III are correct
(D) I, II and III are incorrect
Ans) A
6. National Income is most accurately represented by -
(A) GNP at factor cost
(B) NNP at market price
(C) NNP at factor cost
(D) GNP at market price
Ans) C
7. Which of the following statements is/are true?
I. The multiplier effect refers to the idea that an initial increase in investment leads to a larger overall increase in national income.
II. The accelerator effect describes how changes in national income can lead to changes in investment.
(A) Only II
(B) Both I and II
(C) Only I
(D) None of the above
Ans) B
8. The demand for money becoming infinitely elastic due to low interest rate is called -
(A) Real balance effect
(B) Backwash effect
(C) Liquidity trap
(D) Speculative demand
Ans) C
9. Autonomous investment is influenced by -
(A) The level of income
(B) The rate of interest
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Ans) D
10. Frictional unemployment exists due to -
(A) Deficiency in effective demand
(B) Lag between losing one job and finding another
(C) Depression phase of business cycle
(D) None of the above
Ans) B
11. If the money supply were reduced, then -
(A) The IS curve would shift up to the left
(B) The IS curve would shift up to the right
(C) The LM curve would shift up to the right
(D) The LM curve would shift up to the left
Ans) D
12. Which of the following are correct?
I. O < MPC < 1
II. O < MPS < 1
III. MPC > 1
IV. MPC + MPS = 1
(A) I, II, IV are correct
(B) I, II, III are correct
(C) I and III are correct
(D) I, II, III and IV are correct
Ans) A
13. There are four phases of a business cycle. Identify the correct sequence of the occurrence of these phases -
(A) Recovery, Recession, Expansion, Depression
(B) Recovery, Expansion, Depression, Recession
(C) Depression, Expansion, Recession, Recovery
(D) Recovery, Expansion, Recession, Depression
Ans) D
14. Who authored the article "The role of monetary policy" in 1968?
(A) Milton Friedman
(B) Gregory Mankiw
(C) James Tobin
(D) P.A. Samuelson
Ans) A
15. A simultaneous rise in GDP and fiscal deficit suggests -
(A) Government is reducing expenditure
(B) Government is following expansionary fiscal policy
(C) Private sector contraction
(D) Monetary tightening
Ans) B
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