Question 1

According to Classical what bring full employment in an economy?

Accepted Answer

A)  flexible wage and rigid price
B)  a rigid wage and flexible price
C)  wage price flexibility
D)  wage price rigidity C

Question 2

The equation of exchange is

Accepted Answer

A)  m*p=v*y
B)  m+v=p+y
C)  m+y=v+p
D)  m*v=p*t D

Question 3

Identify the correct chronological order of the following classical economists.

Accepted Answer

A)  adam smith, malthus, ricardo, mill
B)  adam smith, ricardo, malthus, mill
C)  adam smith, mill, ricardo, malthus
D)  adam smith, malthus, mill, ricardo B

Question 4

Under perfect competition firm hire labour until-

Accepted Answer

A)  money wage rate > general price level
B)  money wage rate 
C)  money wage rate = general price level
D)  both a and c

Question 5

Classical dichotomy is based on -

Accepted Answer

A)  neutrality of money
B)  velocity of money
C)  medium of exchange of money
D)  both a and b

Question 6

Which of the following statements does not hold true in case of the Keynesian economics?

Accepted Answer

A)  velocity of money is an unstable function of its determinant
B)  labor is subject to money illusion
C)  as function tends to become flat at levels of output well below full employment and to become steeper ad full capacity is reached
D)  as schedule is vertical, and output, and employment are completely supply determined.

Question 7

According to Keynesian analysis, the great depression was caused by:

Accepted Answer

A)  a lack of spending
B)  a sharp rise in the mpc
C)  too much investment
D)  too much foreign influence on the economy

Question 8

Which of the following is not specifically mentioned as a determinant of the demand formoney ?

Accepted Answer

A)  wealth
B)  nominal yield on alternative assets
C)  inflation rate
D)  real rate of interest

Question 9

The classical economists focused on the role of money as,

Accepted Answer

A)  medium of exchange
B)  medium of distribution
C)  wealth
D)  link between present and future

Question 10

What is the effect of monetary policy in a situation of "Liquidity trap"?

Accepted Answer

A)  expansionary monetary policy
B)  contractionary monetary policy
C)  both expansionary and contractionary monetary policy effective
D)  monetary policy ineffective

Question 11

Real balance effect is equal to -

Accepted Answer

A)  pigou effect divided by keynes effect
B)  pigou effect into keynes effect
C)  pigou effect + keynes effect
D)  pigou effect - keynes effect

Question 12

Why does a temporary decrease in government purchases decrease labour supply in the classical model?

Accepted Answer

A)  people prefer to work less when government is doing less for them.
B)  decreased government purchases make people worse off, so they work less hours.
C)  the decrease in current or future taxes needed to pay for the decrease in government purchases increases people wealth
D)  the fall in government spending decreases labour demand, decreasing the real wage, and sopeople decreases their labour supply.

Question 13

In which of the following market Pigou effect operates?

Accepted Answer

A)  goods market
B)  labour market
C)  money market
D)  all of the above markets

Question 14

As the economy nears full employment the aggregate supply curve tend to

Accepted Answer

A)  become flatter
B)  become sleeper
C)  shift to the left
D)  shift to the right

Question 15

In which of the following market Keynes effect operates?

Accepted Answer

A)  goods market
B)  labour market
C)  money market
D)  all of the above markets

Question 16

In whose economic theories, Malthus theories are in the base?

Accepted Answer

A)  adam smith
B)  ricardo
C)  keynes
D)  robin's

Question 17

"In a closed economy with no government; s=100+0.2y investment increases by 100, what is the increase in consumption?

Accepted Answer

A)  100
B)  200
C)  300
D)  400

Question 18

Assertion (A) : In liquidity trap, the demand for money is perfectly interest elastic. Reason (R) : Because in this situation, all the investors expect the market rate of interest to rise towards the natural rate of interest. Codes :

Accepted Answer

A)  (a)  & (r)  both are correct and (r)  is the correct explanation of (a) 
B)  (a)  & (r)  both are correct, but (r)  is not the correct explanation of (a) 
C)  (a)  is correct, but (r)  is incorrect.
D)  both (a)  and (r)  are incorrect.

Question 19

Liquidity trap sets a loop:

Accepted Answer

A)  below which the discount rate cannot fall
B)  above which discount rate cannot rise
C)  below which the market rate of interest cannot fall
D)  above which market rate of interest cannot rise

Question 20

In the Keynesian system speculative demand for money arises because of
1 : uncertainty of future interest rate.
2 : unexpected expenditures.
3 : To bridge the gap between income and eventual expenditures.
4 : Relationship between changes in the interest rates and bond price.
Codes :

Accepted Answer

A)  1 & 3 are correct
B)  1 & 4 are correct
C)  2 & 3 are correct
D)  3 & 4 are correct

Exam 3: Economic Models,Concepts and Theories: Part B