Deck 5: Macroeconomic Theory and Models

Question 1

In classical theory which of the following is found in the economy:

A)Unemployment
B)Involuntary unemployment
C)Less than full employment
D)Full employment

Answer 1

Full employment

Question 2

In MV=PT, if M doubles and V and T remain constant, then P will:

A)Double
B)1/2
C)1
D)4

Answer 2

Double

Question 3

Pigou's version of Cambridge equation is:

A)M = KP/Y
B)P= KR/M
C)MV = PT
D)MV = MI VI

Answer 3

P= KR/M

Question 4

The quantity theory of money was restated by:

A)Alfred Marshall
B)Milton Friedman
C)Irving Fisher
D)J.M. .Keynes

Question 5

The law which states that supply creates its own demand and overproduction is impossible is known as:

A)The law of supply
B)Say's law of market
C)Law of demand
D)Law of macro economics

Question 6

Wages and prices do not adjust quickly to restore general equilibrium is a property of

A)Classical economics
B)Keynesian economics
C)Monetary economics
D)Supply side economics

Question 7

When there is an increase in the autonomous money supply, ceteris paribus, LM shifts:

A)Leftward
B)Rightward
C)No shift
D)None

Question 8

An Economic model is a statement of relationship among economic ------

A)Variables
B)Phenomena
C)Development
D)None of these

Question 9

LM curve shows the equilibrium condition in ---------- market

A)Goods market
B)Product market
C)Money market
D)None of these

Question 10

The simplest ISLM model consists of:

A)Two markets
B)Three markets
C)Four markets
D)Five markets

Question 11

The equilibrium in the product market is represented by which curve?

A)IS
B)LM
C)Demand
D)Supply curve

Question 12

The IS curve has a ------slope

A)Positive
B)Negative
C)Zero
D)None of these

Question 13

The LM curve has a ----- slope

A)Positive
B)Negative
C)Zero
D)None of these

Question 14

ISLM model was developed by:

A)Hicks
B)Keynes
C)Friedman
D)None of these

Question 15

The perfectly elastic segment of the LM curve is:

A)Keynesian range
B)Classical range
C)Intermediate range
D)None of these

Question 16

Which policy is effective in the Classical range?

A)Monetary policy
B)Fiscal policy
C)Incomes policy
D)None of these

Question 17

Which policy is effective in the intermediate range?

A)Monetary policy
B)Fiscal policy
C)Both policies
D)None of these

Question 18

IS-LM model was developed by:

A)Keynes
B)Walras
C)J.R.Hicks
D)Don-Patinkin

Question 19

Frictional unemployment exists:

A)When there is a decrease in real GDP
B)Because it takes time to find a job when one is first entering the labour force
C)As a result of technological change
D)When an individual retires

Question 20

The natural rate of unemployment equals the sum of those who are:

A)Frictionally and structurally unemployed
B)Frictionally and cyclically unemployed
C)Structurally and cyclically unemployed
D)Frictionally structurally and cyclically unemployed

Question 21

The marginal productivity of labour:

A)Increases when the price of the good sold increases, ceteris paribus
B)Decreases when there is an adverse supply shock, ceteris paribus
C)Increase when more workers are hired, ceteris paribus
D)Decreases when there is an increase in the quantity of capital, ceteris paribus

Question 22

When saving is greater than investment in a two-sector model,

A)Output should increase
B)Output should decrease
C)Output should not change
D)None of these