Chapter # 11

Final Practice MCQ’s

1) Real interest rate is the difference between nominal interest rate and inflation.
(a) True (b) False

2) Long run Philip’s curve is vertical called Natural rate of unemployment, If

(a) Aggregate supply curve is horizontal at potential output
(b) Aggregate supply curve is vertical at potential output
(c) Aggregate demand curve is horizontal at potential output
(d) Aggregate demand curve is vertical at potential output

3) Unemployment during recessions and depressions is called________. (Select TWO)

(a) Frictional unemployment (b) Structural unemployment
(c) Cyclical unemployment (d) Demand-deficient unemployment

4) Which of the following best defines the natural rate of unemployment?

(a) It is the unemployment rate that would prevail with zero inflation.
(b) It is the rate associated with the highest possible level of GDP.
(c) It is the difference between the long-run and short-run unemployment rates.
(d) It is the amount of unemployment that the economy normally experiences.

5) The type of unemployment that includes those persons who are unemployed for an intervening
period of change over in job for better job is known as
(a) Seasonal unemployment (b) Voluntary unemployment
(c) Frictional unemployment (d) Technical unemployment

6) Unemployment due to mismatch between skill possessed and present available jobs
(a) Cyclical unemployment (b) Structural unemployment
(c) Frictional unemployment (d) Seasonal unemployment

Inflation & Unemployment

7) Rise in wages increases the disposable income of people, which therefore increases demand for
goods, increasing prices. The rising price cause greater demand for higher wages therefore
increasing disposable income and so on …….
This effect is known as
(a) Depression (b) Stagflation
(c) Wage-Price Spiral (d) Demand pull inflation

8) When rate of inflation remains less than 5% per annum, we will call it as _________.
(a) Creeping inflation (b) Trotting inflation
(c) Hyperinflation (d) Stagflation

9) Real interest rate is:

(a) Interest rate divided by prices (b) Interest rate divided by inflation
(c) Interest rate minus inflation (d) Interest rate plus inflation

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10) If GDP is low, the type of unemployment is __________.
(a) Demand-deficient unemployment (b) Structural unemployment
(c) Frictional unemployment (d) Seasonal unemployment

11) The situation that occurs when the inflation rate falls is called:
(a) Deflation (b) Disinflation (c) Stagflation (d) Inflation

12) In the long run, what effect does an increase in the money supply have on prices and
unemployment?
(a) It leaves prices and unemployment unchanged.
(b) It raises prices and unemployment.
(c) It raises prices and leaves unemployment unchanged.
(d) It leaves prices unchanged and reduces unemployment.

13) Country’s aggregate output is low along with inflation.

(a) Depression (b) Recession (c) Stagflation (d) Recovery

14) Which one is true about Phillip curve:

(a) Sloping downward with increase in rate of unemployment and lies in 4th quadrant
(b) Vertical slope
(c) Positive relation between inflation and unemployment
(d) Sloping downward with increase in rate of unemployment and lies in 3rd quadrant

15) A retire person is:

(a) Unemployed (b) employed (c) Self-employed (d) Not in labor force

16) A prolonged and deep recession is called _________.

(a) Depression (b) Recession (c) Stagflation (d) Recovery

17) If price of products in 2021 is Rs 205 and Rs 215 in 2022. Calculate CPI.

Inflation & Unemployment

(a) 7.32% (b) 4.88% (c) 2.88% (d) 5%

18) In Phillip curve, higher inflation refers to ________ unemployment.

(a) Lower (b) Higher (c) Same (d) No change

19) According to Phillip’s curve, the lower rate of inflation would result in
(a) Unfavorable balance of payment (b) Higher unemployment rate
(c) Lower level of investment (d) More unequal distribution of wealth

20) According to Milton Friedman, long run Phillip curve is________ at natural rate of
unemployment.
(a) Vertical (b) Horizontal (c) Positive (d) Negative

21) Select TWO natural rates of unemployment:

(a) Frictional unemployment (b) Cyclical unemployment
(c) Structural unemployment (d) Seasonal unemployment

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22) Real interest rate is interest rate minus expected inflation
(a) True (b) False

23) Which unemployment exists while going from expansion to recession and recession to
expansion?
(a) Demand deficient unemployment (b) Structural unemployment
(c) Frictional unemployment (d) Cyclical unemployment

24) The Short-Run Phillips Curve shifts when:

(a) Aggregate demand change (b) Aggregate supply change
(c) Inflation expectations change (d) Actual inflation change

25) Slow economic growth combined with high Unemployment is called

(a) Deflation (b) Inflation (c) Stagflation (d) Moderate inflation

26) When aggregate demand increase, Inflation _________ (Increase, Decrease, remain unchanged)
and Unemployment________ (Increase, Decrease, Remain unchanged).

27) If GDP is low, the type of unemployment is ________________.

28) Identify the type of unemployment when wages are set above equilibrium wage?
(a) Frictional (b) Cyclical (c) Structural (d) Wage-classical

29) A decrease in expected inflation shifts which of the following curves, and in what direction?
(a) It shifts the Short-Run Phillips curve right.
(b) It shifts the Short-Run Phillips curve left.
(c) It shifts the Long-Run Phillips curve right.
(d) It shifts the Long-Run Phillips curve left.

30) When prices are falling, which of the following terms do economists use?

Inflation & Unemployment

(a) Disinflation
(b) Deflation
(c) A Contraction
(d) An inverted Inflation

31) In short run Philips curve, upward shift due to (Select TWO Options)
(a) Expectation of inflation
(b) Increase in interest rate
(c) Increase in indirect tax

32) According to Philip’s curve, the lower rate of Inflation would result in
(a) Unfavorable balance of payment (b) Lower level of investment
(c) Higher unemployment rate (d) More unequal distribution of wealth

33) GDP deflator is a price index that measure in a country.

(a) Rate of inflation (b) Rate of interest (c) Rate of GDP (d) None

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 Answer Key

1 A 2 B 3 C, D 4 D 5 C
6 B 7 C 8 A 9 C 10 A
11 B 12 C 13 C 14 A 15 D
16 A 17 B 18 A 19 B 20 A
21 A,C 22 A 23 D 24 C 25 C
Increase, Cyclic
26 27 28 D 29 B 30 B
Decrease unemployment
31 A, C 32 C 33 A

Inflation & Unemployment

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