10F45 20F45 30F45 40F45 SOF45 Roll No.: [21b080023] Marks: 1.0/1.0 Question 1. A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely 1. 1. increased. 2. 3: decreased. stayed the same. may have increased, decreased, or stayed the same.10F45 20F45 30F45 40F45 SOF45 Roll No.: [21b080023] Marks: 1.0/1.0 Question 2. The substitution bias in the consumer price index refers to the 1. 1. substitution by consumers toward new goods and away from old goods. 1. 1. substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low- quality goods. 1. 1. substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive. 1. 1. substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.10F45 20F45 | 30F45 40F45 SOF45 Roll No.: [21b080023] Marks: 1.0/1.0 Question 3. Which of the following would a macroeconomist consider as investment? 1. Saurav purchases a bond issued by Proctor and Gamble Corp. 1. Anita purchases stock issued by Reliance Itd. 1. Amar builds a new coffee shop. 1. All are correct.20F45 30F45 | 40F45 SOF45 60F45 Roll No.: [21b080023] Marks: 1.0/1.0 Question 4. For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components? 1. consumption. 2. 3. national saving government purchases. net exports30F45 40F45 SOF45 60F45 70F45 Roll No.: [21b080023] Marks: 1.0/1.0 Question 5. The slope of the supply of loanable funds curve represents the 1. positive relation between the real interest rate and investment. 1. positive relation between the real interest rate and saving. 1. negative relation between the real interest rate and investment. 1. negative relation between the real interest rate and saving.40F45 50F45 60F45 70F45 80OF45 Roll No.: [21b080023] Marks: 1.0/1.0 Question 6. Suppose the Indian government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same? 1. The government reduces the amount that people may put into savings accounts on which the interest is tax exempt. 1. Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital. Consumers decide to decrease consumption and work more. 1. All of the options could explain why the interest rate would be unchanged.5OF45 60F45 | 7OF45 80F45 90F45 Roll No.: [21b080023] Marks: 1.0/1.0 Question 7. Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have 1. increased both interest rates and investment. 1. increased interest rates and decreased investment. 1. decreased interest rates and increased investment. 1. decreased both interest rates and investment.60F45 70F45 80F45 90F45 100F 45 Roll No.: [21b080023] Marks: 0.0/1.0 Question 8. Which of the following events could explain an increase in interest rates together with an increase in investment? 1. The government runs a larger deficit. 1. The government institutes a tax credit for higher investment. 1. The government replaces the income tax with a consumption tax. 1. None of the options is correct. Correct Answer - B70F45 80F45 90F45 100F45 = 110F 4! Roll No.: [21b080023] Marks: 1.0/1.0 Question 9. US President Obama ran for re-election against Mitt Romney in 2012. Suppose Obama had proclaimed that more people are working now than when he took office. Romney said that the unemployment rate is higher now than when Obama took office. You conclude that 1. one of them must be lying. both of them could be telling the truth if the labor force, and employment grew at the exact same rate 1. both of them could be telling the truth if the labor force grew slower than employment. 1. both of them could be telling the truth if the labor force grew faster than employment.80F45 90F45 100F45 110F45 120F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 10. Suppose a small Caribbean Island country had an adult population of about 25 million, a labor-force participation rate of 60 percent, and an unemployment rate of 6 percent. How many people there were employed? 1.0.9 million 1. 14.1 million 1.15 million 1. 23.5 million90F45 100F45 110F45 120F45 130F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 11. Suppose that some people in the village of Gangdhahi report themselves as unemployed, while in fact, they are informally employed in the local sugar factory. If these persons were counted as employed, then 1. both the unemployment rate and labor-force participation rate would be higher. 1. both the unemployment rate and labor-force participation rate would be lower. 1.the unemployment rate would be higher, and the labor-force participation rate would be higher. 1.the unemployment rate would be lower, and the labor-force participation rate would’ be unaffected.QOOF45 110F45 120F45 130F45 140F4 Roll No.: [21b080023] Marks: 0.0/1.0 Question 12. Andaleeb is looking for a job in marketing. He has had some offers and his prospects are promising, but he has not yet accepted a job. Sri lost her job working for Jumping Bicycles corporation because many customers decided they prefer Ultimate Bicycles instead. Who is frictionally unemployed? 1. Andaleeb but not Sri 1. Sri but not Andaleeb 1. both Andaleeb and Sri 1. neither Sri nor Andaleeb Correct Answer - C10F45 120F45 | 130F45 140F45 150F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 13. Suppose that in a town, carpenters and landscape workers are not unionized. If carpenters unionize, then the wages of: 1. carpenters will rise, and the wages of landscape workers will fall. 1. carpenters will fall, and the wages of landscape workers will rise. 1. both carpenters and landscape workers will rise. 1. both carpenters and landscape workers will fall.20F45 130F45 140F45 150F45 160F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 14. Imagine an economy in which: (1) pieces of paper called dollars are the only thing that buyers give to sellers when they buy goods and services, so it would be common to use, say, 50 dollars to buy a pair of shoes; (2) prices are posted in terms of yardsticks, so you might walk into a grocery store and see that, today, an apple is worth 2 yardsticks; and (3) yardsticks disintegrate overnight, so no yardstick has any value for more than 24 hours. In this economy, 1. the yardstick is a medium of exchange but it cannot serve as a unit of account. 1. the yardstick is a unit of account but it cannot serve as a store of value. 1. the yardstick is a medium of exchange but it cannot serve as a store of value, and the dollars is a unit of account. 1. the dollars is a unit of account, but it is not a medium of exchange and it is not a liquid asset.30F45 140F45 | 150F45 160F45 170F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 15. In December 1999, in the US, people feared that there might be computer problems at banks as the century changed. Consequently, people wanted to hold relatively more in currency and relatively less in deposits. In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors' demands. These actions by the public 1. would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. 1. would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds. 1. would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. 1. would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds.4AOF45 150F45 | 160F45 170F45 180F4 Roll No.: [21b080023] Marks: 0.0/1.0 Question 16. Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $625. Assume also that no banks hold excess reserves, and that the entire money supply consists of bank deposits. If, at a point in time, reserves for all banks amount to $500, then at that same point in time, loans for all banks amount to $2,625. 1. False 1. Cannot say True Correct Answer - CSOF45 160F45 | 170F45 180F45 190F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 17. A central bank's control of the money supply is not precise because 1. The government can also make changes to the money supply. 1. there are not always government bonds available for purchase when the central bank wants to perform open-market operations. 1. the central bank does not know where all currency is located. 1. the amount of money in the economy depends in part on the behavior of depositors and bankers.60F45 170F45 | 180F45 190F45 200F4 Roll No.: [21b080023] Marks: 0.0/1.0 Question 18. Suppose that the Indian banking system currently has Rs. 200 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 4 percent. If the RBI raises the reserve requirement to 10 percent and at the same time buys Rs. 50 billion worth of bonds, then by how much does the money supply change? 1. It rises by Rs. 600 billion. 1. It rises by Rs. 125 billion. 1. It falls by Rs. 2,500 billion. 1. None of the options is correct. Correct Answer - C70F45 180F45 | 190F45 200F45 210F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 19. The imaginary region, Gotham, has 100 percent-reserve banking. In this case, the money multiplier is: 1. 1 and banks create money. 1. 1 and banks do not create money. 1. 2 and banks create money 1. 2 and banks do not create money.80F45 190F45 | 200F45 210F45 220F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 20. If the reserve ratio is 4 percent, then $81,250 of new money can be generated by 1. $325 of new reserves. 1. $3,250 of new reserves. 1. $20,312.50 of new reserves. 1. $2,031,250 of new reserves.90F45 200F45 210F45 220F45 230F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 21. When the Reserve Bank of India decreases the repo rates, banks will 1. borrow more from the RBI and lend more to the public. The money supply increases. . borrow more from the RBI and lend less to the public. The money supply decreases. . borrow less from the RBI and lend more to the public. The money supply increases. . borrow less from the RBI and lend less to the public. The money supply decreases.QOF45 210F45 220F45 230F45 240F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 22. In a fractional-reserve banking system, an increase in reserve requirements 1. increases both the money multiplier and the money supply. 1. decreases both the money multiplier and the money supply. 1. increases the money multiplier, but decreases the money supply. 1. decreases the money multiplier, but increases the money supply.10F45 220F45 | 230F45 240F45 250F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 23. When the money market is drawn with the value of money on the vertical axis, if money supply and money demand both shift to the right 1. the price level must have risen 1. the price level must have fallen. 1. the price level rises if money supply shifts farther than money demand. 1. the price level falls if money supply shifts farther than money demand.20F45 230F45 240F45 250F45 260F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 24. According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also: 1. either a rise in output or a rise in velocity. 1. either a rise in output or a fall in velocity. = . either a fall in output or a rise in velocity. = . either a fall in output or a fall in velocity.30F45 240F45 | 250F45 260F45 270F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 25. Suppose that monetary neutrality and the Fisher effect both hold, and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with 1. both higher inflation and higher nominal interest rates. 1. a higher inflation rate, but not higher nominal interest rates. 1. a higher nominal interest rate, but not higher inflation. 1. neither a higher inflation rate nor a higher nominal interest rate.4O0F45 250F45 260F45 270F45 280F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 26. In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households 1. increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate- demand curve. 1. decreases and as a result consumption spending increases. This effect contributes to the upward slope of the aggregate- supply curve. 1. increases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the downward slope of the aggregate-demand curve. 1. decreases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributesSOF45 260F45 270F45 280F45 290F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 27. In which case can we be sure aggregate demand shifts left overall? 1. people want to save more for retirement and the Fed increases the money supply. 1. people want to save more for retirement and the Fed decreases the money supply. 1. people want to save less for retirement and the Fed increases the money supply. = . people want to save less for retirement and the Fed decreases the money supply.60F45 270F45 280F45 290F45 300F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 28. The long-run aggregate supply curve shifts right if 1. either immigration from abroad increases or technology improves. 1. immigration from abroad increases, but not if technology improves. 1. technology improves, but not if immigration from abroad increases. 1. None of the options are correct.70F45 280F45 290F45 300F45 310F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 29. According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to 1. decreases in both the price level and real GDP. 1. an increase in real GDP and an increase in the price level. 1. a decrease in the price level but does not change real GDP. 1. an increase in the price level but does not change real GDP.80F45 290F45 | 300F45 310F45 320F4 Roll No.: [21b080023] Marks: 0.0/1.0 Question 30. Since the end of World War Il, the U.S. has almost always had rising prices and an upward trend in real GDP. To explain this 1. it is only necessary that long-run aggregate supply shifts right over time. 1. itis only necessary that aggregate demand shifts right over time. 1. both aggregate demand and long- run aggregate supply must be shifting right and aggregate demand must be shifting farther. 1. None of the cases would produce rising prices and growing real GDP over time. Correct Answer - C90F45 300F45 310F45 320F45 330F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 31. Which of the following is correct? 1. The amount of unemployment that a country typically experiences is a determinant of that country's standard of living, and some degree of unemployment is inevitable in a complex economy. 1. The amount of unemployment that a country typically experiences is a determinant of that country's standard of living, and a complex economy can achieve zero unemployment. 1. The amount of unemployment that a country typically experiences is not a determinant of that country's standard of living, and a complex economy can achieve zero unemployment. 1. The amount of unemployment that a country typically experiences is not a determinant of that country's standard of living, and some degree of unemployment is inevitable in a complex economy.QOOF45 310F45 320F45 330F45 340F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 32. The designation "natural" implies that the natural rate of unemployment 1. is desirable. 1. is constant over time. 1. is impervious to economic policy. 1. does not go away on its own even in the long run.10F45 320F45 330F45 340F45 350F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 33. In the aggregate demand and aggregate supply model, sticky wages, sticky prices, and misperceptions about relative prices 1. have temporary effects. 1. explain why the short run aggregate supply curve might shift. 1. explain why the aggregate demand curve is downward sloping. 1. explain monetary neutrality.20F45 330F45 | 340F45 350F45 360F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 34. The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% and people were expecting it to rise by 2%, then firms have 1. higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. 1. higher than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied. 1. lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. 1. lower than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied.30F45 340F45 350F45 360F45 370F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 35. Suppose the Belgian economy is in long-run equilibrium. If there is an increase in government purchases, and at the same time there is a large increase in the price of oil, then in the short run 1. real GDP will rise and the price level might rise, fall, or stay the same. 1. real GDP will fall and the price level might rise, fall, or stay the same. 1. the price level will rise, and real GDP might rise, fall, or stay the same. 1. the price level will fall, and real GDP might rise, fall, or stay the same.40F45 350F45 | 360F45 370F45 380F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 36. The interest-rate effect 1. depends on the idea that decreases in interest rates increase the quantity of goods and services demanded. 1. depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded. 1. is responsible for the downward slope of the money-demand curve. 1. is the least important reason, in the case of the United States, for the downward slope of the aggregate- demand curve.SOF45 360F45 370F45 380F45 390F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 37. According to the theory of liquidity preference, money demand 1. and the money supply are positively related to the interest rate. 1. and the money supply are negatively related to the interest rate. 1. is negatively related to the interest rate, while the money supply is independent of the interest rate. 1. is independent of the interest rate, while money supply is negatively related to the interest rate.60F45 370F45 | 380F45 390F45 400F4 Roll No.: [21b080023] Marks: 0.0/1.0 Question 38. In which of the following cases would the quantity of money demanded be smallest? 1.r=0.06,P=1.2 1. r= 0.05, P= 1.0 1.r=0.04,P=1.2 1. r= 0.06, P= 1.0 Correct Answer - D70F45 380F45 | 390F45 400F45 410F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 39. Changes in the interest rate: 1. shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy. 1. shift aggregate demand if they are caused by changes in the price level, but not if they are caused by changes in fiscal or monetary policy. 1. shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level. 1. do not shift aggregate demand.80F45 390F45 400F45 410F45 420F4 Roll No.: [21b080023] Marks: 0.0/1.0 Question 40. If the Federal Reserve increases the money supply, then initially people want to: 1. sell bonds so the interest rate rises. 1. sell bonds so the interest rate falls. 1. buy bonds so the interest rate rises. 1. buy bonds so the interest rate falls. Correct Answer - D90F45 400F45 410F45 420F45 430F4 Roll No.: [21b080023] Marks: 1.0/1.0 Question 41. Which of the following sequences best represents the crowding-out effect? 1. government purchases t = GDP t = supply of money | 5 equilibrium interest rate t = quantity of goods and services demanded | 1. government purchases | = GDP | = demand for money | > equilibrium interest rate | = quantity of goods and services demanded 1 1. government purchases t = GDP t = demand for money 1 > equilibrium interest rate 1 > quantity of goods and services demanded | 1. taxes t = GDP! s demand for money | = equilibrium interest rate t => quantity of goods and services demanded |QOOF45 410F45 420F45 430F45 440F4 Roll No.: [21b080023] Marks: 0.0/1.0 Question 42. Suppose the MPC is 0.60. Assume there are no crowding out or multiplier effects. If the government increases expenditures by $500 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $500 billion, then by how much does aggregate demand shift to the right? 1. $300 billion and $180 billion 1. $300 billion and $300 billion 1. $500 billion and $300 billion 1. $500 billion and $500 billion Correct Answer - C10F45 420F45 | 430F45 440F45 450F4 Roll No.: [21b080023] Marks: 0.0/1.0 Question 43. In 2009 US President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller? 1. the interest rate falls and aggregate supply is relatively flat 1. the interest rate falls and aggregate supply is relatively steep 1. the interest rate rises and aggregate supply is relatively flat 1. the interest rate rises and aggregate supply is relatively steep Correct Answer -F45 420F45 430F45 440F45 450F 45 Roll No.: [21b080023] Marks: 0.0/1.0 Question 44. Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the RBI would 1. increase government spending. 1. increase the money supply. 1. decrease government spending. 1. decrease the money supply. Correct Answer - B aF45 420F45 430F45 440F45 | 450F45 Roll No.: [21b080023] Marks: 1.0/1.0 Question 45. The top economists in Kenya are of the opinion that the theory of liquidity preference explains the determination of the interest rate very well. These opinions are: 1. Keynesian in nature, and that his view is more valid for the long run than for the short run. . classical in nature, and that his view is more valid for the long run than for the short run. . Keynesian in nature, and that his view is more valid for the short run than for the long run. . classical in nature, and that his view is more valid for the short run than for the long run.