MCQs on Economics -9

1. The rational expectations hypothesis does not imply:
(A) People do not make systematic errors.
(B) On average the economy will be close to Long-run Average Supply (LAS) Curve.
(C) Policy makers have better information about the economy than other economic actors.
(D) Macroeconomic policy changes must came as a surprise in order to have an impact on the real economy.


2. Shadow price refers to
(A) Change in the value of the constraint per unit change in the objective function.
(B) Change in the value of objective function per unit change in any one of the constraints.
(C) The change in the value of the primal solution per unit change in the dual solution.
(D) All the above.


3. In an economy of two individuals (A & B) and two commodities (X and Y) general equilibrium of exchange is reached when
(A) MRTSXY = MRTSYX
(B) MRSXY = PX / PY
(C) (MRSXY)A = (MRSXY)B
(D) MRSXY = PY / PX


4. The order condition is
(A)  A necessary but not sufficient condition for identification.
(B) A necessary and sufficient condition for identification.
(C) A sufficient but not necessary condition for identification.
(D) A condition that is neither necessary nor sufficient for identification.


5. Match the items in List – I with items in List – II:
List – I                                                List – II
a. Residual Claimant Theory               1. Nut. K. Wicksel
b. Loanable Funds Theory                  2. Bergson-Samuelson
c. Compensation Criteria                    3. Walker
d. Social Welfare Function                 4. Kaldor- Hicks
Codes:
a          b          c          d
(A)       3          1          4          2
(B)       3          2          1          4
(C)       2          1          3          4
(D)       2          3          4          1


6. Assertion (A): An Iso Cost Line is a straight line.
Reason (R): The market rate of exchange between the two inputs is constant.
Codes:
(A) Both (A) and (R) are true and (R) is correct explanation of (A).
(B) Both (A) and (R) are true, but (R) is not correct explanation of (A).
(C) (A) is true, but (R) is false.
(D) (A) is false, but (R) is true.


7. Assertion (A): The rate of fall of MR Curve is more than twice the rate of fall of AR.
Reason (R): The MR & AR Curves are linear and negatively sloped.
Codes:
(A) Both (A) and (R) are true and (R) is correct explanation of (A).
(B) Both (A) and (R) are true, but (R) is not a correct explanation of (A).
(C) (A) is true, but (R) is false.
(D) (A) is false, but (R) is true.


8. Which of the following is true with regard to peak-load pricing?
(a) It is applicable only for electrical public utilities.
(b) It leads to substitution in consumption from the period of peak demand to the period of low demand.
(c) It leads to reduction in consumer welfare.
(d) It leads to higher consumer welfare during peak periods when demand and marginal costs are low.
Codes:
(A) (a) & (b) only.
(B) (a) & (c) only.
(C) (b) and (d) only.
(D) (b) & (c) only.


9. In the long run, the autonomous consumption will
(A) Be infinity
(B) Remains unchanged
(C) Decline but will remain positive
(D) Be zero


10. Which of the following statements is not true in case of the balanced budget multiplier?
(A) The first round contractionary effect of additional tax revenue (–b, ΔT; b = MPC) is less than the explanatory effect of additional Government expenditure (= ΔG).
(B) The value of tax multiplier for proportional taxes is – b / (1 – b + bt) (where b = MPC and t = tax rate).
(C) The value of balanced budget multiplier is unity when taxes are lump sum taxes.
(D) None of the above



11. For a small economy in a flexible exchange rate system that begins in the long-run equilibrium point, a higher rate of inflation in the short run will be followed bywww.netugc.com
(A) An increase in the exchange rate and decline in net exports.
(B) Decrease in the exchange rate and an increase in net exports.
(C) Contractionary monetary policy and real exchange rate appreciation.
(D) Explanatory monetary policy and real exchange rate depreciation.


12. Speculative demand for money is zero when market rate of interest is
(A) more than the ‘critical rate’.
(B) More than the market rate of interest but less than the critical rate (i.e. capital gains occur).
(C) less than the market rate of interest.
(D) Lowest (i.e. in liquidity trap).


13. A positively sloped aggregate supply curve indicates that
(A) An increase in aggregate demand will be associated with an increase in the price level and no change in equilibrium output.
(B) An increase in aggregate demand will be associated with an increase in both the price level and equilibrium output.
(C) An increase in aggregate demand will be associated with an increase in equilibrium output and no change in the price level.
(D) None of the above.


14. The capacity creating aspect of investment in growth theory was emphasised by
(A) R.F. Harrod
(B) E.D. Domar
(C) R.M. Solow
(D) P.A. Samuelson


15. Which of the following is not an interpretation of the golden rule of accumulation?
(A) ‘Invest your profits, consume your wages.’
(B) The share of profit in output is equal to the ratio of investment to output.
(C) Saving ratio should be equal to the elasticity of output with respect to capital.
(D) None of the above.

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