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Practice Questions

This document contains 25 practice questions related to macroeconomics for an Indian School of Business exam. The questions cover topics such as GDP, savings, unemployment, inflation, monetary and fiscal policy. They are multiple choice questions with 4 answer options for each one. The questions are testing students' understanding of key macroeconomic concepts.

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168 views4 pages

Practice Questions

This document contains 25 practice questions related to macroeconomics for an Indian School of Business exam. The questions cover topics such as GDP, savings, unemployment, inflation, monetary and fiscal policy. They are multiple choice questions with 4 answer options for each one. The questions are testing students' understanding of key macroeconomic concepts.

Uploaded by

Anyone Someone
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Practice Questions

GLEC
Indian School of Business
Term 2, 2019

1. Which of the following transactions is included in GDP in 2018? Assume all transactions take
place in Mohali.
(a) Ram purchases a used car for |5000 on June 1st, 2018.
(b) Laxman gets a haircut worth |125 on December 1st, 2018.
(c) Tata Motors buys an automobile engine worth |5000 worth on May 20th, 2018.
(d) Bharat prepares a meal worth |50 at home on July 2nd, 2018.
2. The production output of Coca-Cola’s company in India is part of . The profits of the
company which are repatriated to the US on the other hand are part of US but not US

(a) India’s GDP; GNP; GDP


(b) India’s GDP; GDP; GNP
(c) US GDP; GNP; GDP
(d) US GNP; GNP; GDP
3. Wages = |6000 and Rents = |2000. Then which of the following is consistent?
(a) GDP=|9500, Interest=|1000, Profits=|50
(b) GDP=|10500, Interest=|1500, Profits=|500
(c) GDP=|9000, Interest=|500, Profits=|500
(d) GDP=|11000, Interest=|2000, Profits=|500
4. Which of the following is NOT a potential shortcoming GDP?
(a) GDP does not count the underground economy
(b) GDP only accounts for income distribution
(c) GDP does not add value of leisure
(d) GDP does not subtract the value of bads such as pollution.
5. Which of the following is a way of measuring GDP?

I. Expenditure approach
II. Standard of living approach
III. Factor income approach
IV. Economic growth approach

(a) I only
(b) II and III
(c) I and IV
(d) I and III

6. In a closed economy with no government, which of the following will occur when the economy is
in equilibrium?

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(a) S = I
(b) C = Y
(c) S = C
(d) Y = C + I + S
7. According to the ”life cycle” theory of savings, when are people most likely to borrow?
(a) Youth
(b) Middle Age
(c) Old age
(d) It depends...
8. Consumption smoothing best describes?
(a) Why people save money for retirement
(b) The reason inflation is stable
(c) Consumers spending everything they earn
(d) Why interest rates are low
9. Which of the following about the stock market is true?

(a) Arbitrage means that returns of two equally risky assets should be the same
(b) A T-bill is a type of stock.
(c) A stock is a sophisticated IOU that documents who owns how much and when payments
come due.
(d) It is included in GDP.

10. The supply of savings curve slopes when the effect dominates the effect.

(a) downward; income; substitution


(b) upward; substitution; income
(c) Both A and B
(d) None of the above

11. In steady state, output


(a) Grows
(b) Stays the same
(c) Shrinks
(d) Not enough information
12. Marginal product of capital in the Solow growth model is subject to what?

(a) Increasing returns


(b) Diminishing returns
(c) Constant returns
(d) None of the above

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13. In the Solow Model, a decrease in the investment share the steady state level of capital
and output. A decrease in the depreciation rate the steady state level of capital and
output.
(a) increases, increases
(b) increases, decreases
(c) decreases, increases
(d) decreases, decreases
14. The Solow growth model predicts which of the following
(a) Countries grow faster when their capital stock is above the steady state level
(b) Countries grow faster when their capital stock is at the steady state level
(c) Countries grow faster when their investment equals depreciation
(d) The highest possible steady state is when a country’s savings rate equals 1.
15. Setting a minimum wage rate limit the equilibrium wage rate
(a) below; reduces unemployment
(b) below; increases unemployment
(c) above; reduces unemployment
(d) above; increases unemployment
16. The type of unemployment that arises in conjunction with the rise of the service economy?
(a) Structural Unemployment
(b) Frictional Unemployment
(c) Seasonal Unemployment
(d) Cyclical Unemployment
17. Who are included in the number of unemployed people in the India?
(a) the wife of the neighbor, who is a housewife and takes care of the children
(b) the other neighbor, a junkie who gave up looking for a job long time ago
(c) a full-time student at ISB
(d) your senior friend, who graduated from ISB and has subscribed in the local job agency
18. Suppose the only good produced in an economy is apples. If the 2018 price of apples is |500 and
the 2017 price of apples is |250, then inflation rate is
(a) -100%
(b) -50%
(c) 100%
(d) 50%
19. In a period of sustained deflation,
(a) The real interest rate will be lower than the nominal interest rate
(b) The real interest rate will be the same as the nominal interest rate
(c) The real interest rate will be higher than the nominal interest rate

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(d) Not enough information
20. According to classical monetary theory, when the money supply doubles which of the following
doubles?

(a) the price level and nominal GDP


(b) the price level and real GDP
(c) only real GDP
(d) only the price level

21. M = 5; Y = 4. Which of the following is consistent?


(a) v = 10; P = 12.5
(b) v = 10; P = 8
(c) v = 10; P = 10
(d) v = 10; P = 11
22. The money multiplier when cash balances .
(a) increases, increase
(b) decreases, increase
(c) remains unchanged, increase
(d) None of the above
23. An increase in government spending shifts
(a) The investment curve to the left
(b) The savings curve to the right
(c) The SRAS curve to the right
(d) The AD curve to the right
24. When the RBI wants to increase the money supply in the economy it can

(a) decrease the required reserve ratio or increase the discount rate
(b) decrease the required reserve ratio or decrease the discount rate
(c) increase the required reserve ratio or decrease the discount rate
(d) increase the required reserve ratio or increase the discount rate

25. In general, fiscal and monetary policy are most effective when combating shocks, and face
a significant dilemma when facing negative shocks.
(a) AD; AD
(b) AD; Real
(c) Real; AD
(d) Real; Real

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