440+ Micro Economics 1 Solved MCQs

101.

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» D. Full employment
102.

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» A. Double
103.

Pigou’s version of Cambridge equation is:

A. M = KP/Y
B. P= KR/M
C. MV = PT
D. MV = MI VI
Answer» B. P= KR/M
104.

The quantity theory of money was restated by:

A. Alfred Marshall
B. Milton Friedman
C. Irving Fisher
D. J.M. .Keynes
Answer» B. Milton Friedman
105.

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
Answer» B. Say’s law of market
106.

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
Answer» B. Keynesian economics
107.

Classicals treated money as a:

A. Medium of exchange
B. Store of value
C. Both
D. None
Answer» A. Medium of exchange
108.

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

A. Leftward
B. Rightward
C. No shift
D. None
Answer» B. Rightward
109.

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

A. Variables
B. Phenomena
C. Development
D. None of these
Answer» A. Variables
110.

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

A. Goods market
B. Product market
C. Money market
D. None of these
Answer» C. Money market
111.

Supply creates its own demand is the Basis of:

A. Classical economics
B. Keynesian economics
C. Monetarism
D. None of these
Answer» A. Classical economics
112.

The simplest ISLM model consists of:

A. Two markets
B. Three markets
C. Four markets
D. Five markets
Answer» A. Two markets
113.

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

A. IS
B. LM
C. Demand
D. Supply curve
Answer» A. IS
114.

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

A. Positive
B. Negative
C. Zero
D. None of these
Answer» B. Negative
115.

The LM curve has a ----- slope

A. Positive
B. Negative
C. Zero
D. None of these
Answer» A. Positive
116.

ISLM model was developed by:

A. Hicks
B. Keynes
C. Friedman
D. None of these
Answer» A. Hicks
117.

The perfectly elastic segment of the LM curve is:

A. Keynesian range
B. Classical range
C. Intermediate range
D. None of these
Answer» A. Keynesian range
118.

Which policy is effective in the Classical range?

A. Monetary policy
B. Fiscal policy
C. Incomes policy
D. None of these
Answer» A. Monetary policy
119.

Which policy is effective in the Keynesian range?

A. Monetary policy
B. Fiscal policy
C. Incomes policy
D. None of these
Answer» B. Fiscal policy
120.

Which policy is effective in the intermediate range?

A. Monetary policy
B. Fiscal policy
C. Both policies
D. None of these
Answer» C. Both policies
121.

IS-LM model was developed by:

A. Keynes
B. Walras
C. J.R.Hicks
D. Don-Patinkin
Answer» C. J.R.Hicks
122.

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
Answer» B. Because it takes time to find a job when one is first entering the labour force
123.

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
Answer» A. Frictionally and structurally unemployed
124.

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
Answer» B. Decreases when there is an adverse supply shock, ceteris paribus
125.

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
Answer» B. Output should decrease
126.

When output exceeds spending:

A. There is unsold output, and level of output will fall
B. There is unsold output, and level of output will rise
C. There is unsold output, and level of spending will rise
D. There is no unsold output since the level of spending will rise
Answer» A. There is unsold output, and level of output will fall
127.

When investment is negatively related to the rate of interest, equilibrium output in the goods market:

A. Is unrelated to the rate of interest
B. Is inversely related to the rate of interest
C. Is positively related to the rate of interest
D. Falls as the rate of interest decreases
Answer» B. Is inversely related to the rate of interest
128.

Simultaneous equilibrium in the money (LM) and goods (IS) market exists:

A. At an unlimited number of output levels and rates of interest
B. At only one output level and rate of interest
C. At an unlimited number of output levels and only one rate of interest
D. At only one output level and an unlimited number of rates of interest
Answer» B. At only one output level and rate of interest
129.

In which of the following situations will an increase in the money supply have no effect upon output?

A. LM is steeply sloped and IS is steeply sloped
B. LM is vertical and IS is steeply sloped
C. LM is steeply sloped and IS is vertical
D. LM is relatively flat as is IS
Answer» C. LM is steeply sloped and IS is vertical
130.

Policy Neutrality is the main proposition of:

A. Supply Side Economics.
B. Keynesian Economics
C. Monetarism
D. Rational expectations hypothesis
Answer» D. Rational expectations hypothesis
131.

Who invented the General Equilibrium analysis?

A. L. Walras.
B. W. Leontief
C. J.M.Keynes.
D. None of these.
Answer» A. L. Walras.
132.

Employment equilibrium in the Classical theory is achieved through:

A. Wage-Price flexibility.
B. Changes in aggregate demand
C. Changes in aggregate supply
D. None of these.
Answer» A. Wage-Price flexibility.
133.

Market does not clear is a proposition of:

A. Neoclassical theory.
B. Keynesian Economics
C. Monetarism
D. Rational expectations
Answer» B. Keynesian Economics
134.

The interest rate paid on bonds is known as:

A. Call rate
B. Coupon rate
C. Repo rate
D. Bank rate
Answer» B. Coupon rate
135.

The monetary policy is completely ineffective when the LM curve is:

A. Vertical .
B. Horizontal.
C. Upward sloping.
D. Downward sloping
Answer» B. Horizontal.
136.

Changes in the subjective or objective factors

A. Never affect consumption function
B. Always cause downward shift in consumption function
C. Always cause upward shift in consumption function
D. They cause upward or downward shifts in consumption function
Answer» D. They cause upward or downward shifts in consumption function
137.

Saving is a function of

A. Export
B. Import
C. Investment
D. Income
Answer» D. Income
138.

Entrepreneurs will have no tendency to expand or contract output and employment when

A. AD>AS
B. AD<AS
C. AD=AS
D. None of the above
Answer» C. AD=AS
139.

The slope of the consumption function is called

A. MPC
B. MPS
C. APC
D. APS
Answer» A. MPC
140.

The concept of effective demand is associated with the name of

A. Marshall
B. Keynes
C. Krugman
D. Say
Answer» B. Keynes
141.

In a closed economy, the value of multiplier , when MPC is 0.90

A. 25
B. 90
C. 10
D. 9
Answer» C. 10
142.

Income is a ------- variable

A. Flow
B. Discontinuous
C. Stock
D. None of the above
Answer» A. Flow
143.

Ratio of consumption expenditure to any particular level of income

A. MPS
B. APS
C. APC
D. MPC
Answer» C. APC
144.

Psychological law of consumption states that the value of MPC is lies between zero and

A. 1
B. 2
C. 3
D. 4
Answer» A. 1
145.

Net investment is also known as

A. Depreciation
B. Induced investment
C. Autonomous investment
D. Capital formation
Answer» D. Capital formation
146.

In the saving function S = -a + (1-b)Y, the term ‘b’ denotes

A. Saving
B. MPC
C. MPS
D. APS
Answer» B. MPC
147.

Who propounded Psychological law of consumption

A. Adam Smith
B. Ricardo
C. Keynes
D. Pigou
Answer» C. Keynes
148.

When MPS = 0.2, MPC will be

A. 0.8
B. 0.2
C. 1.2
D. 20
Answer» A. 0.8
149.

In the linear consumption function C = a + bY, coefficient ‘a’ denotes

A. MPC
B. APC
C. Autonomous consumption
D. Induced consumption
Answer» C. Autonomous consumption
150.

According to Keynes, rising aggregate income is always associated with

A. Higher saving rate
B. Higher import
C. Lower export
D. Low production
Answer» A. Higher saving rate
151.

When MPC = 0.5, the value of multiplier is

A. 5
B. 0.5
C. 2
D. 4
Answer» C. 2
152.

Who postulated the law Supply creates its own demand

A. Keynes
B. J B say
C. Marshall
D. Pigou
Answer» B. J B say
153.

Autonomous investment is

A. Income inelastic
B. Instable
C. Interest elastic
D. Income elastic
Answer» A. Income inelastic
154.

MEC for a capital good was found out to be 10% and the market rate of interest is 9%, then the investment is

A. Not profitable
B. Profitable
C. Breakeven
D. Cannot say
Answer» B. Profitable
155.

In the Keynesian two sector economy, AD>AS, then

A. S=I
B. S>I
C. S<I
D. S=0
Answer» C. S<I
156.

Value of MPC is

A. >1
B. <1
C. 0
D. 0≤ MPC ≥1
Answer» D. 0≤ MPC ≥1
157.

Schedule that expresses relationship between rate of interest and corresponding amount of investment

A. MEI
B. MEC
C. Effective Demand
D. Aggregate Demand
Answer» A. MEI
158.

Net investment is

A. Value of gross minus subsidies
B. Investment after providing for depreciation
C. Value of gross output before providing for subsidies
D. None of the above
Answer» B. Investment after providing for depreciation
159.

MEC is directly related to

A. Prospective yield
B. Supply price
C. Rate of interest
D. All of the above
Answer» A. Prospective yield
160.

According to Keynes the most important determinant of consumption

A. Rate of interest
B. Saving
C. Income
D. Investment
Answer» C. Income
161.

In the Keynesian two sector economy, AD<AS, then

A. S=I
B. S>I
C. S<I
D. S=0
Answer» B. S>I
162.

In the equation C = 60 + 0.6 Y, MPC is

A. 60
B. 0.6
C. 0
D. 1
Answer» B. 0.6
163.

Keynes assumed the presence of --------- economy for the fundamental law of consumption

A. Capitalistic
B. Socialistic
C. Planned
D. None of the above
Answer» A. Capitalistic
164.

According to Keynes the most important determinant of investment

A. MEC
B. Effective demand
C. Aggregate demand
D. Rate of interest
Answer» A. MEC
165.

When disposable income rises from Rs 500 to Rs 600 and consumption expenditure changes from Rs 470 to Rs 560, MPC will be equal to

A. 900
B. 100
C. 0.9
D. 1
Answer» C. 0.9
166.

In a two sector economy, aggregate demand is equal to

A. C+I
B. C+S
C. S+I
D. All of the above
Answer» A. C+I
167.

In Keynesian terminology, investment means:

A. Financial investment
B. Real investment
C. Induced investment
D. None of the above
Answer» B. Real investment
168.

Rate of change in savings to change in income:

A. APS
B. APC
C. MPS
D. MPC
Answer» C. MPS
169.

Keynesian economics is also known as:

A. Supply side economics
B. Monetary economics
C. Rational expectations
D. Depression economics
Answer» D. Depression economics
170.

Which of the following can cause shifts in consumption function:

A. Psychological attitude
B. Social practices
C. Business motives
D. Changes in price level
Answer» D. Changes in price level
171.

APC is determined by the following equation:

A. C/Y
B. S/Y
C. ∆C/∆Y
D. ∆S/∆Y
Answer» A. C/Y
172.

In the Keynesian two sector model, when AD = AS, then:

A. S<I
B. S>I
C. S=I
D. I=0
Answer» C. S=I
173.

Which of the following is not correct:

A. MPC declines as income increases
B. MPC is positive but less than one
C. MPS is always positive
D. All the above
Answer» C. MPS is always positive
174.

According to Keynes, saving is:

A. Private virtue but not social virtue
B. Private and social virtue
C. Is neither private virtue nor social virtue
D. Is either social virtue or private virtue
Answer» A. Private virtue but not social virtue
175.

MEC is inversely related to:

A. Prospective yield
B. Supply price
C. Investment
D. Rate of interest
Answer» A. Prospective yield
176.

Keynes considered subjective and objective factors:

A. Important determinants of consumption
B. Unimportant determinants of consumption
C. Determinants of investment
D. Determinants of business’s willingness to pay
Answer» B. Unimportant determinants of consumption
177.

The sum of marginal propensity to consume plus marginal propensity to save must equal to:

A. 0
B. 1
C. 100
D. 1000
Answer» B. 1
178.

Keynesian economics is:

A. Macro
B. Micro
C. Both
D. None
Answer» A. Macro
179.

The MEC increases when:

A. Capital stock increases
B. Capital stock decreases
C. Capital remains constant
D. None of the above
Answer» B. Capital stock decreases
180.

Which of the following is correct?

A. 1+MPS = MPC
B. 1- MPC = MPS
C. MPC + MPS >1
D. MPC+ MPS<1
Answer» B. 1- MPC = MPS
181.

Starting point of Keynesian economics is:

A. Effective demand
B. Individual demand
C. Aggregate demand
D. Market demand
Answer» A. Effective demand
182.

Keynesian three sector model consist of:

A. Business sector, service sector, external sector
B. Households, business, government
C. Government sector, open sector, service sector
D. Government sector, private sector, open sector
Answer» B. Households, business, government
183.

A substantial increase in the rate of interest can cause:

A. Increase in savings
B. Reduce propensity to consume
C. All the above
D. None of the above
Answer» C. All the above
184.

Functional relationship between saving and disposable income is:

A. Saving function
B. Income function
C. Consumption function
D. Investment function
Answer» A. Saving function
185.

As the value of MPC increases, the value of multiplier:

A. Decreases
B. Increases
C. Constant
D. Cannot say
Answer» B. Increases
186.

Who among the following pioneered the first real estimate of national income?

A. Adam Smith
B. David Ricardo
C. William Petty
D. None of the above
Answer» C. William Petty
187.

Who argued that national income is simply equal to “net product of agriculture”?

A. Mercantilists
B. Physiocrats
C. Classical Economists
D. Neo Classical Economists
Answer» B. Physiocrats
188.

Who argued that “Everything that is produced in the course of a year, every service rendered, every fresh utility brought about is a part of the national wealth.”?

A. JS Mill
B. Stanley Jevons
C. Alfred Marshall
D. Robert Malthus
Answer» C. Alfred Marshall
189.

Who made the first major attempt to estimate national income in a somewhat comprehensive manner?

A. Robert Fisher
B. John Maynard Keynes
C. Simon Kuznets
D. Arthur Pigou
Answer» C. Simon Kuznets
190.

Consumption of capital good in the process of production is called as

A. Capital Consumption
B. Depreciation
C. Decay of Capital
D. None of the above
Answer» B. Depreciation
191.

Which one of the following is roughly equal to national income?

A. GDP
B. NNP
C. GNP
D. SDP
Answer» B. NNP
192.

Which one of the following includes ‘income of residents’?

A. GDP
B. NNP
C. SDP
D. None of the above
Answer» B. NNP
193.

Remittances made by NRIs to India in the context of national income accounting is called as

A. Remittance Income
B. NRI Income
C. Factor Payments
D. All of the above
Answer» C. Factor Payments
194.

Who first introduced the concept of circular flow of income?

A. William Petty
B. Adam Smith
C. David Ricardo
D. Fancois Quesnay
Answer» D. Fancois Quesnay
195.

Which one in the following is a stock variable?

A. Income
B. Investment
C. Capital
D. Fiscal Deficit
Answer» C. Capital
196.

Which one in the following is a flow variable?

A. Debt
B. Wealth
C. Unemployment
D. GDP
Answer» D. GDP
197.

Why do not the sale or purchase of used goods are not included in the GDP?

A. Used goods have only limited life
B. Used goods are not fresh production
C. Used goods are included in the previous GDP calculations
D. All the above
Answer» C. Used goods are included in the previous GDP calculations
198.

Inventories are unsold goods produced by a firm, then why do they are included in GDP?

A. Inventories represent value
B. Inventories add to the stock of the firm
C. They are purchases by the firm itself
D. All the above
Answer» C. They are purchases by the firm itself
199.

The value of ‘intermediate goods’ are excluded from GDP calculation because:

A. It will increase the GDP unduly
B. It results in multiple counting of same value
C. Intermediate goods are not important
D. All the above
Answer» B. It results in multiple counting of same value
200.

Value added at each stage of production means:

A. Value of output minus value of input
B. Total value added by that stage
C. Total value produced at that stage
D. All of the above
Answer» A. Value of output minus value of input
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