38 Economics/Business Economics

Macro Economics
(Determination of Income & Employment and Money & Banking)

1. If a straight line consumption function intercepts the A. MPC / APC B. MPC < APC
vertical axis at some positive value, it implies that C. MPC = APC D. MPC = 1
A. the MPC is constant and APC rises as the level of
7. The demand for money in an economy is
disposable income increases
A. positively related to the level of income but nega-
B. the MPC and APC rise as the level of disposable
tively related to rate of interest
income increases
B. positively related to rate of interest, but nega-
C. the MPC is constant and APC falls as the level of
tively related to the level of income
disposable income increases
C. positively related to both the level of income and
D. the MPC and APC fall as the level of disposable
rate of interest
income increases
D. negatively related to both the level of income and
2. The IS curve shows rate of interest
A. a positive relationship between rate of interest and
8. Given the usual shapes of LM and IS curves if there
the level of income
is an increase in the supply of money
B. a negative relationship between rate of interest
A. the LM curve will shift to the right and the rate of
and the level of income
interest will fall
C. a positive relationship between rate of interest and
B. the LM curve will shift to the right and the rate of
the level of autonomous investment.
interest will increase
D. a negative relationship between rate of interest
C. the LM curve will shift to the left and the rate of
and level of autonomous investment
interest will remain constant
3. The horizontally parallel section in the Keynesian D. the LM curve will shift to the left and the rate of
speculative demand for money indicates that interest will increase
A. there is no speculative demand for money 9. Which curve shows a positive relation between the
B. there is small but limited demand for money percentage change in wages and the rate of
C. monetary policy becomes ineffective unemployment?
D. monetary policy becomes effective A. ISO cost curve
4. According to Keynes, the transactions demand for B. ISO product curve
money is mainly a function of C. Trade indifference curve
A. rate of interest B. profits D. Phillips’s curve
C. wages D. income 10. Which of the following is not an instrument of
5. Total output and income in general will tend to monetary policy?
increase during the period in which A. Open market operation
A. Planned aggregate savings < Planned aggregate B. Bank rate
investment C. Selective credit control
B. Planned aggregate savings > Planned aggregate D. Government spending
investment 11. The theories w hich advocate a proportionate
C. Planned aggregate savings = Planned aggregate
relationship between consumption and income are
investment
A. Absolute and Permanent income theories
D. Aggregate savings = Aggregate investment
B. Absolute and Relative income theories
6. There exists a proportional relation between C. Absolute and Life-cycle theories
consumption and disposable income, if D. Relative and Permanent income theories

38
12. According to Keynes, investors prefer holding money 20. Grasham’s law relates to
rather than bonds when they expect A. money supply B. money and prices
A. interest rates to remain constant C. real output D. employment
B. interest rates to rise
C. interest rates to fall 21. According to permanent income hypothesis, all
D. bond prices to rise increases in
A. permanent income are saved
13. According to Tobbin’s asset demand for money theory, B. permanent income are consumed
an increase in current market yield C. transitory income are saved
A. has no effect on the quantity of bonds or money D. transitory income are consumed
demanded
B. increases the quantity of bonds demanded and 22. Given the supply of high power money, if the rate of
decreases the quantity of money demanded interest goes up, the value of credit-multiplier
C. decreases the quantity of bonds demanded and A. increases
increases the quantity of money demanded B. decreases
D. increases both the quantity of bonds and the quan- C. remains unchanged
tity of money demanded D. the two are unchanged

14. M 3 is defined as 23. Which of the following statements is correct?

A. Currency with the public + demand deposits with A. The LM curve shows speculative demand for
banks money
B. M 1 + Savings deposits with post-office savings B. The LM curve shows a drop in financial invest-
bank ment
C. M 2 + Time deposits with banks C. The LM curve shifts to the right when liquidity
D. M 1 + Time deposits with banks preference increases
D. The LM curve shifts to the left when money sup-
15. An increase in the supply of money will cause LM ply increases.
schedule to
A. remain unchanged B. shift to the left 24. According to Keynes, there is speculative demand for
C. shift to the right D. shift upwards money because
A. people like to speculate in the stock market
16. That, there exists a trade-off between unemployment
B. there is consideration risk in holding M 1 balances
and inflation in the short run, was first emphasized by
C. money, at times, may be a better store of value
A. A.W. Phillips B. P.A. Samuelson
than long term bonds
C. R. M. Solow D. James Tobin
D. money always provides a certain higher return
17. Who advocated the view that ‘savings and investment than long term bonds
are always equal but they are not always in
25. Which one of the following statements describe
equilibrium’?
correctly the nature of Fisher’s and Cambridge
A. Alfred Marshall B. J. M. Keynes
C. D. H. Robertson D. K. Wicksell equation ?
A. Fisher’s equation is behavioural while Cambridge
18. The average M 1, balances held for transactions is equation is mechanical
A. negatively related to the length of pay period and B. Fisher’s equation is mechanical while, Cambridge
positively related to the income level equation is behavioural
B. positively related to both length of pay period and C. Both equations are behavioural
income level. D. Both equations are mechanical
C. negatively related to both length of pay period
and income level 26. Which one of the following is not an assumption of
D. positively related to length of pay period and classical economics?
negatively to the income level. A. Supply creates its own demand
B. Mobility of factors of production
19. Fisher’s equation of exchange needs which of the C. Flexible wage rates
following assumptions for turning it into a theory of D. Income as a source of savings
money and prices?
A. Fall in the rate of interest 27. According to life cycle hypothesis, consumption is
B. Bullish capital market related to
C. Constant velocity of circulation A. current income
D. Rising aggregate demand B. post peak income
 C. expected life time income C. supply curve shifts rightward
D. price expectations over life time D. supply curve shifts leftward
28. The demand for money is 36. The Phillips curve suggests trade off between
A. positively related to income level and rate of A. economic growth and full employment
interest B. unemployment and income equality
B. negatively related to income level and positively C. the level of unemployment and price level stabil-
related to rate of interest ity
C. negatively related to income level and positively D. price level stability and income equality
related to rate of interest
D. positively related to income level and negatively 37. Say’s law of market provides the basis of
related to rate of interest A. Classical theory of full employment
B. Keynesian theory of full employment
29. Crowding out effect will occur when C. Malthusian theory of over-production
A. a decrease in money supply raises the rate of D. Marxian theory of exploitation
interest which crowd out interest sensitive private
spending 38. According to Friedman’s theory of consumption
B. a reduction in income taxes causes higher interest function the relationship between permanent
rates which crowd out private sector spending component of aggregate consumption and aggregate
C. an increase in taxes for the private sector reduces income is
disposable income and spending A. linear, but not proportional
D. a reduction in government spending causes B. quadratic
induced consumption spending to fall. C. non-linear
D. proportional
30. What are the necessary and sufficient conditions for
the savings and investment to be in equilibrium? 39. Keynesian liquidity preference theory postulates that
I. equality of savings and investment the aggregate demand for money in a economy is
II. full operation of multiplier A. inversely related to the rate of interest at the levels
III. consumption lagging behind income B. inelastic with respect to the rate of interest at
IV. incomes catching up with prices sufficiently low rates of interest
Choose your answer from the codes below C. not affected by the interest rate at all
A. I only B. I and II D. directly proportional to the rate of interest
C. II and II D. I and IV 40. Money is
31. If the MPC is 0.6, the investment multiplier will be A. a liability
A. 1.67 B. 2.5 B. a claim
C. 6.0 D. 4.0 C. somebody’s claim and somebody else’s liability
D. None of the above
32. Actual saving always equal to 41. Which of the following is not a function of money?
A. ex-ante investment A. Medium of exchange
B. planned investment B. Unit of amount
C. ex-post investment C. Standard of deferred payments
D. planned less unintended investment D. Store of metal
33. The transactions demand for money is most closely 42. People tend to demand money for the so called
related to money functioning as a precautionary motive because
A. standard of value B. store of value A. they bear a severe fall in the rate of interest
C. medium of exchange D. unit of account B. they wish to make some provision against unfore-
34. The value of money varies seen contingencies
A. directly with the interest rate C. they wish to keep cash for their day-to-day
B. directly with the price level purchases
C. directly with the volume of employment D. they believe that the price of bonds may rise
D. inversely with the price level suddenly

35. Cost-push inflation occurs when the aggregate 43. Value of money
A. demand curve shifts rightward A. is inversely related to the price level
B. demand curve shifts leftward B. is directly related to the price level
 C. is independently of the price level 53. The term V in the equation of exchange measures
D. None of the above A. the value of money as determined by its gold
backing
44. Irving Fisher believed the price of money to be B. the number of a times a unit of money enters into
determined by the circulation per unit of time
A. level of investment B. elasticity of demand C. the value of money in circulation
C. quantity of money D. velocity of money D. the value of credit instruments in circulation
45. ‘Fiat money’ is that which is 54. Money measure M 2 comprises
A. accepted by overseas banks only A. M 1 plus time deposits of all banks
B. decreased as money by the government B. M 2 plus saving deposits with Post Office Saving
C. accepted temporarily in lieu of gold banks
D. backed by gold or silver C. M 1 plus national saving certificates
46. “Money is anything which is widely accepted in D. M1 plus time deposits of the banks as well as sav-
payment for goods; or in discharge of the other kinds ing deposits with post offices
of business obligation.” Who has given this definition 55. In the given diagram, the Quantity Theory of money
of Money? in its most rigid form applies to
A. Sir Robertson B. Marshall
C. J.S. Mill D. Keynes
47. Which of the following would not be considered a
near money?
A. saving and loan shares
B. time deposits
C. treasury deposits
D. demand deposits A. Region AB B. Region BC
C. Region CD D. Region AB and BC
48. Which of the following is an instance of quasi-money?
A. Demand deposits B. Coins 56. Which of the following components of demand for
C. Bills of exchange D. Furniture money marks a complete break from the classical
theory?
49. ‘High Powered Money’ consists of
A. Transactions B. Precautionary
A. currency, reserves and other obligations of the
C. Speculative D. None of these
Central Bank
B. all the liabilities of the commercial banks 57. Money measure M 3 is
C. currency and demand deposits A. Wider than M 1 B. More liquid than M 1
D. demand and time deposits liabilities only C. Narrower than M 1 D. None of these
50. Gresham’s law states that 58. The velocity of money is
A. good money drives bad money out of circulation A. The average turnover of money in a period,
B. bad money drives good money out of circulation relative to the period’s national income
C. good money promotes bad money in the system B. The ratio of money demand to income
D. bad money promotes good money in the system C. The ratio of money supply to income
D. The ratio of money demand to money supply
51. Which of the following conditions should be fulfilled,
so that a coin can be called token money? 59. A large speculative demand for money is likely to
A. When its intrinsic (metallic) value is greater than exist when
its face value A. people wish to borrow money in order to speculate
B. When its intrinsic value is less than its face value on the stock exchange
C. When its intrinsic value is equal to its face value B. the current rate of interest is high
D. When its intrinsic value is equal to or greater than C. the current rate of interest is lower than people
its face value expect it to be in the near future
D. people expect the prices of goods and services to
52. Fisher’s quantity theory is explained by his famous
rise
equation of exchange given as
A. MV = PT B. MP = VT 60. The neoclassical Cambridge approach viewed the
C. MT = PV D. None of these amount of money demanded as a function of
(2715) Eco./Business Eco.—6
 A. money income B. interest rate 69. Which of the following are motives for holding money,
C. both A and B D. neither A nor B according to Keynes
61. Friedman’s demand function is 1. Transaction 2. Precaution
PR 3. Speculation
A. VY = A. 1 only B. 2 only
M
C. 3 only D. 1, 2 and 3
PT
B. V = 70. In a period of prosperity, credit creation is
M
1 dp A. small B. heavy
C. M = F (P, Y , r , r , w, u) C. unchanged D. None of these
P dt b e
M 71. Increase in bank rates generally is followed by
D. P = A. an increase in market rate of interest
IXT
B. a fall in market rates of interest
62. The main distinguishing feature between money C. a rise in the deposits rates but not the lending rates
market and capital market is based on the D. a rise only in the lending rates
A. cost of credit B. term of credit
C. use of credit D. user of credit 72. The “Unit banking” system is prevalent in
A. U.S.A B. England
63. Commercial banks are regarded as creators of money
C. Canada D. Australia
because
A. they buy securities from the Central Bank 73. Essentially, the money market is a market for
B. their loans create deposits A. long term loans
C. they are bound to honour their obligations B. short term loans
D. None of the above C. second hand securities
D. overseas government securities
64. Which one of the following is not an asset of the
commercial banks, but in fact a liability? 74. Which of the following is a legal tender in a modern
A. Cash in hand B. Money at call economy?
C. Paid up capital D. Investments A. Currency notes B. Bank cheques
65. Moral suasion is C. Bills of exchange D. Promissory notes
A. a term descriptive of the corrupt practices of many 75. In a multi-bank system
banks A. one bank alone multiplies deposits
B. a term applied to banks that are conservative in B. some banks multiply deposits
their banking practices C. all banks together multiply deposits
C. persuasion of banks to adhere to Central Bank D. None of these
desires
D. None of the above 76. The ‘bank deposit multiplier’ shows
A. an inverse relationship between the reserve ratio
66. The following are the assets of a commercial bank and the total amount of deposits
1. Advances 2. Bills discounted B. an inverse relationship between the volume of
3. Special deposits 4. Money at call
currency and the volume of deposits
5. Cash 6. Investment
C. a complicated relationship between the rate of
The order of these assets as regards profitability is
interest and money supply
A. 1, 6, 2, 3, 4, 5 B. 1, 2, 3, 4, 6, 5
D. reserve ratio has nothing to do with the volume of
C. 5, 2, 4, 1, 6, 3 D. 5, 4, 2, 6, 1, 3
deposits
67. Banks create credit
77. Maintaining a cash reserve ratio of 20% with primary
A. out of nothing
B. on the basis of their securities deposits of ` 1000, the total derivative deposits
C. on the basis of their toal assets created by banks would be
D. on the basis of their cash deposits A. ` 5000 B. ` 1000
C. ` 4000 D. None of the above
68. Maintaining a cash reserve ratio of 1/5, with primary
deposits of ` 100, the total derivative deposits created 78. An initial deposit of ` 10,000 is multiplied to
by banks would be ` 1,00,000 if the value of the deposit multiplier is
A. ` 100 B. ` 250 A. 10 B. 9
C. ` 400 D. None of the above C. 8 D. 5
79. The gilt-edge market deals in 89. The item “money at call and short notice” in a bank’s
A. Worn and torn currency notes assets represents the bank’s loans to
B. Bullion A. industry and commerce
C. Government securities B. overseas central banks
D. Corporate bonds C. the capital market
D. the money market
80. Keynes term as ‘active balances’ the money held for
A. the speculative motive only 90. A Central Bank differs from a commercial bank is that
B. the transactions and precautionary motives A. it has no branches
C. the transactions motive only B. it is the banker of the state
D. the precautionary motive only C. it has administrative control over other banks
D. None of the above
81. Which of the following is not related to the selective
controls of the central banks? 91. Of the following which is a cause of ‘cost-push’
A. Margin requirement on security purchases inflation?
B. Maximum period of repaying consumer loans A. Increased consumption expenditure
C. Minimum down payments on particular types of B. A reduction in taxation
loans C. Increase in demand
D. Maximum down payments on consumer loans D. Increase in wages and salaries
82. The ‘bull speculators expect that in future the bond 92. A demand pull inflation is caused by
prices will A. increase in interest rates
A. fall B. rise B. Reduction in bank credit
C. remain constant D. fluctuate C. increased consumption expenditure
D. reduction in wages
83. One of the major qualitative control measures is
A. bank rate policy 93. Inflation benefits
B. open market operations 1. Salary-earners 2. Pensioners
C. reserve ratio requirements 3. Equity-holders 4. Debtors
D. margin requirements Select the right answer using the codes given below:
A. 1, 2 and 3 only B. 1 and 2 only
84. When the central bank sells securities, as a result C. 1, 3 and 4 only D. 3 and 4 only
A. the cash resources at the disposal of the commer-
cial banks increase 94. Deflation benefits
B. the cash resources at the disposal of the commer- 1. Salary-earners 2. Pensioners
cial banks get diminished 3. Equity holders 4. Debtors
C. the cash resources of the commercial banks remain Select the right answer using the codes given below:
unchanged A. 1 and 2 only B. 1 and 4 only
D. None of the above C. 1, 2 and 3 only D. 2, 3 and 4 only
85. The treasury bill market deals in the bills issued by 95. During “inflation”, the real income of wage earners
A. Firms B. Banks A. Increases immediately
C. Government D. All of these B. Decreases immediately
C. Increases after a time
86. Under the liquidity trap condition D. None of the above
A. all the asset holders turn bulls
B. all the asset holders turn bears 96. “Inflation is unjust and deflation is expedient of the
C. some turn bulls while some turn bears two, deflation is worse”. This is the view of
D. many turn bulls while some turn bears A. J. M. Keynes B. J.R. Hicks
C. Marshall D. A.C. Pigou
87. Bond prices and bonds yields
A. vary inversely 97. LM curve expenses the relation of
B. are not related A. higher interest and higher level of real income
C. vary directly B. lower interest and higher level of real income
D. are related in the long run but not in the short run C. higher interest and lower level of real income
D. both (B) and (C)
88. Credit incurs
A. no cost B. some cost 98. In which of the following situation, fiscal policy is
C. heavy cost D. None of these must effective?
 A. The IS schedule has a zero slope and LM schedule A. 1 B. 1 and 4
has a slope greater than zero C. 2 and 3 D 1, 2, 3 and 4
B. The IS schedule has a zero slope and LM schedule
has an infinite slope 103. If the supply of money exceeds the demand for money
C. The IS and LM schedules have slope greater than by 5%, then by how much does the rate of interest
zero have to fall to restore market equilibrium, assuming
D. The IS schedule has a slope greater than zero and interest elasticity of the demand for money to be –
the LM schedule has a zero slope 0.5% and other things remaining unchanged?
A. 2.5% B. 5%
99. Match the following column A to B : C. 10% D. 15%
Column A Column B
(a) Relationship between 1. Kuznets curve 104. As regards changes in interest rates, the most sensitive
unemployment and money-market is the
inflation. A. bill market
(b) Tax revenue and tax rate 2. Phillips curve B. un-organised money market
(c) Relationship between C. call money market
growth rate and 3. Laffer curve D. collateral loan market
unemployment
(d) Income and inequality 4. Okun’s curve 105. In a multi-bank system, with 20% cash reserve ratio,
(a) (b) (c) (d) on a receipt of cash deposits of ` 100 crores, the
A. 1 2 3 4 banking system as a whole can create deposits to the
B. 4 1 2 3 extent of
C. 1 3 4 2 A. ` 80 crore B. ` 100 crore
D. 4 2 1 3 C. ` 320 crore D. ` 400 crore

100. The item chosen to serve as the medium of exchange 106. The theory of open market operations assumes that
should be A. the velocities of both bank deposits and legal
1. recognizable as money tender money have no relationship
2. portable B. the legal tender money has a higher velocity than
3. durable bank deposits
4. homogeneous C. the bank deposits have a higher velocity than
Of the above statements legal tender money
A. 1, 2 and 3 are correct D. the circulation of bank deposits and legal tender
B. 1, 2 and 4 are correct money has constant velocity
C. none is correct
D. all are correct 107. Consider the following statements:
The success of a policy of variable reserve requirement
101. Demand deposits with banks are considered as money depends on the
because they are 1. maintenance of a fixed reserve ratio by the
A. generally acceptable as a means of payment commercial banks
B. more liquid than cash 2. maintenance of little or no excess reserves by the
C. held by the government commercial banks
D. managed efficiently by bank managers 3. presence of a developed money market
102. On which (one or more) of the following statement(s) Of the above statements
is Friedman’s re-statement of the quantity theory of A. 2 and 3 are correct B. 1 and 2 are correct
money based? C. 3 alone is correct D. 1 and 3 are correct
1. An equi-proportionate change in all prices will
108. The theory of open market operations assumes that
change the demand for nominal money balances
A. the velocities of both bank deposits and legal
in the same proportion
tender money have no relationship
2. Demand for real money balances varies propor-
B. the legal tender money has a higher velocity than
tionately with permanent real income.
3. Demand for money is perfectly interest-inelastic. bank deposits
4. Demand for money is a stable function of a small C. the bank deposits have a higher velocity than
number of variables. legal tender money
Select the correct answer using the codes given D. the circulation of bank deposits and legal tender
below money has constant velocity
109. Consider the following statements: List-I List-II
The success of a policy of variable reserve requirement (a) C = 4 + 0.6 y 1. LM function
depends on the (b) I = 80 – 5 i 2. IS function
1. maintenance of a fixed reserve ratio by the (c) 0.3y – 20 i –150 = 0 3. Consumption function
commercial banks (d) 0.3y + 20 i – 150 = 0 4. Investment function
2. maintenance of little or no excess reserves by the Codes:
commercial banks
3. presence of a developed money market (a) (b) (c) (d)
Of the above statements A. 3 4 1 2
A. 2 and 3 are correct B. 1 and 2 are correct B. 4 3 1 2
C. 3 alone is correct D. 1 and 3 are correct C. 3 4 2 1
D. 4 1 2 3
110. Assertion (A) : Money is a link between the present
and the future. 115. When income rises, the impact on the liquidity
Reason (R) : Money is a store of value. preference curve is that
A. Both A and R are true and R is the correct expla- A. it shifts to the left
nation of A B. it does not shift at all
B. Both A and R are true, but R is not a correct C. it shifts to the right
explanation of A D. there is a change in its slope
C. A is true, but R is false
D. A is false, but R is true 116. High powered money is
A. bank’s reserves at the Central Bank
111. Assertion (A) : According to Baumol, the transactions B. all loans and advances of banks
demand for cash varies with respect to the square-root C. money held by banks
of the volume of transactions.
D. currency held by public and reserves with the
Reason (R) : Transaction demand for money is a
Central Bank
function of income.
A. Both A and R are true and R is the correct expla- 117. Which one of the following pair is NOT correctly
nation of A. matched?
B. Both A and R are true, but R is not a correct A. Inflationary Gap : Keynes
explanation of A. B. Cash Balance Approach : Pigou
C. A is true, but R is false
C. Accelerator-Multiplier Analysis : Hicks
D. A is false, but R is true
D. Equation of Exchange : Marshall
112. Assertion (A) : There would be no trade- off between
118. A commercial bank holds the following types of assets:
inflation and unemployment even in the short run if
people’s expectations are rational. 1. Treasury bills
Reason (R) : Rational expectations imply forecasting 2. Loans and advances
the future correctly. 3. Cash
A. Both A and R are true and R is the correct expla- 4. Money at call and short notice
nation of A. Select the correct answer using the codes given below:
B. Both A and R are true, but R is not a correct A. 3, 4, 1, 2 B. 4, 1, 3, 2
explnation of A. C. 3, 2, 1, 4 D. 2, 4, 1, 3
C. A is true, but R is false
D. A is false, but R is true 119. Should the Reserve Bank wish to increase the cash
with commercial banks. It could
113. Assertion (A) : The major distinguishing feature of a A. release gold from its reserves
commercial bank is its ability to create money. B. buy government bonds in the open market
Reason (R) : It has a legal power to do so.
C. prohibit transactions involving bills of exchange
A. Both A and R are true and R is the correct expla-
D. increase the cash reserve ratio
nation of A
B. Both A and R are true, but R is not a correct 120. Given the total investment expenditure, an increase
explanation of A in the propensity to save will lead to a
C. A is true, but R is false A. rise in income
D. A is false, but R is true B. rise in the rate of interest
114. Match List-I with List-II and select the correct answer C. fall in savings
using the codes given below the lists : D. fall in income
121. If the investment multiplier is 4, the relevant A. zero B. unity
consumption function is given by C. greater than unity D. less than unity
A. C = 28 + 0.75 Y B. C = – 28 + 0.78 Y
C. C = 28 + 0.70 Y D. C = 28 + 0.40 Y 130. According to Keynes, which one of the following
statements is correct:
122. Consider the following statements: A. MEC and RI both are independent variables.
1. Bond prices and interest rates vary directly. B. MEC and RI both are dependent variables.
2. ‘Supply creates its own demand’ is known as C. MEC is independent and RI is dependent vari-
Walra’s Law. ables.
3. The rate that equalizes the discounted cash flow D. MEC is dependent and RI is independent variable.
expected from an investment in a capital asset to [Here MEC stands for Marginal Efficiency of
its supply price is the marginal efficiency of
Capital and RI stands for Rate of Interest]
investment.
4. Disposable income varies inversely with a tax on 131. In Keynesian Economics, given the total investment
personal income. expenditure an increase in the propensity to save will
Which of the above statements are correct? lead to a
A. 3 and 4 B. 1 and 3 A. fall in the quantity of saving
C. 2 and 4 D. 1, 2 and 3 B. fall in income
123. Which of the following is consistent with the cross- C. rise in interest rate
sectional consumption function? D. rise in income
A. APC = MPC B. MPC = O 132. If the annual income velocity of money is 3, then the
C. APC > MPC D. APC = O
total stock of money in the economy will be
124. The speculative demand for money depends on A. 3 times of GNP
A. interest rate B. income B. 1/3 times of real GNP
C. profit D. output C. 1/3 times of nominal GNP
D. 1/3 of the ratio of P to real GNP
125. Consider the following statements:
Classical economists believed that unemployment in 133. Which one of the following is not a method of credit
an economy would persist because of control?
1. labour-saving technical progress. A. Bank Rate
2. deficiency in demand for goods. B. Credit Deposit Ratio
3. Government intervention in the free working of C. Cash Reserve Ratio
the economy. D. Statutory Liquidity Ratio
Which of the above statements is/are correct?
A. 1, 2 and 3 B. 1 and 2 134. Reserve money includes
C. 2 and 3 D. 3 alone A. time deposit with the banks only
126. Keyne's theory of employment is B. currency with the public and cash with banks
A. static theory C. cash with banks only
B. dynamic theory in Harrod’s sense D. cash with banks and Post Office Savings bank
C. dynamic theory discussing period analysis deposits
D. theory of comparative statics 135. “The quantity theory of money is a theory of demand
127. “Supply creates its own demand” this statement comes for money and not a theory of fluctuations of income
from and/or prices.” The view has been given by
A. James Mill B. J.B. Say A. D.H. Robertson B. I. Fisher
C. David Ricardo D. J.S. Mill C. J.M. Keynes D. M. Friedman
128. Which one of the following was the most important 136. Structural inflation arises due to
recommendation of classical economists to solve the A. increase in money supply
problem of unemployment B. market imperfections
A. reduction in population C. lack of complementary factors of production
B. a general cut in money wages D. increase in spending
C. a general cut in real wages Code : Select your answer from the codes given
D. large public expenditure
below
129. If a consumption function coincides with 45% line A. 1 and 2 B. 3 and 4
then marginal propensity to consume will be C. 2 and 3 D. 1 and 4
137. Which of the following can be regarded as near 145. If banks want to increase credit creation
money? A. they should increase interest rate to have more
A. Debit/credit Card deposits
B. Bank Overdraft B. they should reduce the rate of interest
C. Trade Credit C. they should have high cash reserves with them
D. Time deposits with banks D. they should force investors to create demand for
loans
138. Which one of the following is not a liability of a
Commercial Bank? 146. Inflation is
A. Time deposits A. always due to trade union pressure
B. Security holdings B. not a condition but a movement of price rise
C. Borrowings from the Central Bank C. always self-liquidating
D. Deposits of other banks with it D. a planned rise in price

139. According to Keynes, investors prefer to keep money 147. According to Keynes, transaction demand for money,
instead of bonds when they hope that L can be stated as (symbols have the usual meaning)
A. rate of interest will fall A. L = K (y) B. L = I (r)
B. rate of interest will rise C. L = K (y) + I (r) D. L = Y – I
C. price of bond will rise 148. Consider the following items
D. rate of interest will remain unchange 1. Currency with the public
140. Which combination represents the IS curve? 2. Cash with banks
A. High interest rate and high income level 3. Post-office savings bank deposits
B. High interest rate and low income level 4. Time deposits with the banks
C. High interest rate and low saving level Reserve money includes
D. High interest rate and high investment level A. 1, 2 and 3 B. 2, 3 and 4
C. 1 and 2 D. 1, 2, 3 and 4
141. Natural rate of unemployment is that rate of
unemployment which 149. Supply of money remaining the same, where there is
A. occurs at full employment an increase in demand for money, there will be
B. occurs because of structural changes A. a fall in the level of prices
C. generally is 6 to 8 per cent B. an increase in the rate of interest
D. all of the above C. a decrease in the rate of interest
D. an increase in the level of income and employment
142. Bank rate is the rate
A. which is reference rate in all countries for interest 150. Fisher’s equation of exchange establishes
structure. A. direct relationship between money and prices
B. at which the central bank rediscounts the first B. inverse relationship between money and prices
class gilt-edged securities of the banks C. direct and proportionate relationship between
C. the rate which is given to the depositors of money money and prices
with bank D. inverse and proportionate relationship between
D. the rate which is charged on loans given by banks. money and prices
151. Match the List I with List II and select the correct
143. The classical theory of money postulates that
answer using the codes given below the lists
A. more money will secure more growth.
List I List II
B. more money will secure no growth but only infla-
(a) Abstinence theory of interest 1. Knut Wicksell
tion.
(b) Time preference theory of 2. Irving Fisher
C. more money will increase the real and relative
interest
prices only.
(c) Loanable funds theory of 3. N.W. Senior
D. during deflation a reduced velocity will end defla-
interest
tion
(d) Liquidity preference theory 4. J.M. Keynes
144. Statutory liquidity ratio of commercial banks means of interest
A. the percentage of cash that banks keep with them Codes:
under rules (a) (b) (c) (d)
B. the bank rate which is reference rate also A. 2 3 1 4
C. the ratio of government and other gilt-edged secu- B. 3 2 1 4
rities to liquid liabilities C. 3 2 4 1
D. the “reserve money” D. 2 3 4 1
152. Which of the following account for the limited nature 156. Consider the following factors
and scope of monetary policy in under-developed 1. Cash withdrawal from the banking system by the
countries? public.
1. The money market is unorganised and hence the 2. Cash reserve ratio to be maintained by commercial
monetary management of the central bank is not banks
wide. 3. Supply of currency notes by the central bank.
2. The governments always resort to deficit financing 4. Willingness of the borrowers to take loans from
as their budgetary policy for development commercial banks
3. Money supply consists mainly of currency in Credit creation capacity of commercial bank is
circulation but the bank deposits from only a small determined by
portion of total money supply A. 1, 3 and 4 B. 2, 3 and 4
4. Change in the bank rate and other monetary C. 1, 2 and 4 D. 1, 2 and 3
initiatives remain ineffective because of a large
non-monetised sector. 157. In order to control inflation, the central bank should
Select the correct answer using the codes given below A. sell government securities and lower the bank rate
A. 1, 3 and 4 B. 1, 2 and 3 B. sell goverment securities and raise the bank rate
C. 1, 2 and 4 D. 2, 3 and 4 C. purchase government securities and raise the bank
rate
153. Match the List I with List II and select the correct D. purchase government securities and lower the
answer using the codes given below the lists bank rate
List I List II
158. Assuming that
(a) A continuous increase in 1. Hyper Inflation
Change in investment  I = 20
general price level
marginal propensity to save (MPS) = 0.5
(b) Raising prices deliberately 2. Disinflation
marginal propensity to investment (MPI) = 0
to relieve depression
the change in income  Y will be equal to
(c) Fall in prices without a 3. Stagflation
A. 25 B. 50
decline in the existing
C. 100 D. 200
level of employment,
output and income 159. In the given diagram, LK represents
(d) Recession accompanied 4. Reflation
by inflation 5. Inflation
Codes:
(a) (b) (c) (d)
A. 5 1 2 4
B. 1 3 2 5
C. 1 4 5 3
D. 5 4 2 3 A. deficiency of demand
154. Consider the following statements: B. excess demand
1. A rise in the general level of prices may be caused C. deficiency of supply
by D. excess supply
2. A decrease in the aggregate level of output. 160. Given the total investment expenditure increase in
3. On increase in the effective demand the propensity to save will lead to a
Of these statements A. fall in the rate of interest
A. 1 alone is correct B. 1 and 2 are correct B. fall in income
C. 2 and 3 are correct D. 1, 2 and 3 are correct C. rise in interest rate
155. Consider the following types of assets held by a D. rise in income
commercial bank 161. Investment multiplier can be obtained from (symbols
1. Money at call and short notice have the usual meaning)
2. Government securities 1 1
3. Advances A. B.
C C
4. Cash 1– 1–
The correct DECREASING order (highest to lowest) of S Y
liquidity of the given assets is 1 1
C. D.
A. 4, 1, 3, 2 B. 1, 4, 3, 2 C C
1 1
C. 1, 4, 3, 2 D. 4, 1, 2, 3 S Y
162. If there is an expectation of a rise in the price level, B. may exceed unity when dissaving occurs
investment will be encouraged because C. can never exceed the average propensity to con-
A. there will be an increase in the production of sume
capital goods D. is the reciprocal of the marginal propensity to save
B. there will be a rise in the prospective return from
capital 168. Super multiplier refers to
C. people will save more and the interest rate will fall A. interaction of the Multiplier and the Accelerator
D. the cost of production of capital goods will fall B. reciprocal of the marginal propensity to consume
C. capital output ratio
163. The aggregate demand curve slopes downwards D. budget multiplier
because an increase in price level leads to
A. reduction in real balances and increase in interest 169. In the liquidity preference theory of interest of Keynes,
rate money acts as a link between the present and the
B. increase in the interest rate and reduction in the future in the case of
aggregate spending A. transactions demand for money
C. reduction in real balances alone B. precautionary demand for money
D. reduction in real balances, increase in interest rate C. business demand for money
and reduction in aggregate spending D. speculative demand for money

164. According to permanent income hypothesis, the 170. Consider the following
A. long-run aggregate APC equals the long-run ag- 1. Money supply M 2.
gregate MPC 2. Saving deposits with Post Office saving banks
B. long-run aggregate APC is greater than the long 3. Net time deposits of banks.
run aggregate MPC 4. Total deposits of the Post Office saving banks
C. long-run aggregate APC is less than the long-run excluding NSC.
aggregate MPC The measure of Money Supply M 3 would include
D. APC of ever individual is equal irrespective of A. 1, 2, and 3 B. 1 and 3
different levels of income of families. C. 1 and 4 D. 3 and 4

165. If there is an expectation of a rise in the price level, 171. Which of the following measures would result in an
investment will be encouraged because increase in the money supply in the economy?
A. there will be an increased production of capital 1. Purchase of government securities from the public
goods by the Central Bank.
B. there will be a rise in the prospective return from 2. Deposit of currency in commercial banks by the
capital public.
C. the people will save more and the interest rate will 3. Borrowing by the government from the Central
fall Bank.
D. the cost of production of capital goods will fall 4. Sale of government securities to the public by the
Central Bank.
166. In the given diagram, speculative demand for money
5. Minting of more money by the Central Bank for
curve l (r) has four regions R 1, R2, R3 and R4. Liquidity
circulation.
trap is indicated by the regions
Codes:
A. 1,2 and 3 B. 2, 3 and 4
C. 1, 3 and 5 D. 2, 4 and 5
172. In the IS-LM frame work of analysis, an increase in
money supply in an expansionary, monetary policy
would lead to a
A. rightward shift of the IS curve
B. rightward shift to the LM curve
A. R1 alone B. R1 and R4 C. leftward shift of the IS curve
C. R3 and R4 D. R4 alone D. leftward shift of the LM curve
167. According to Keynes, marginal propensity consume 173. The balance sheet of a particular commercial bank is
A. can never exceed unity shown in the following table
(2715) Eco./Business Eco.—7
 Liabilities and net worth 178. The time-preference theory of interest is mainly
Assets in (`) associated with
(in `)
A. J.M. Keynes B. I. Fisher
Reserves 30,000 Capital stock 200000
C. K. Wicksell D. M. Friedman
Property 200000 Demand 120000
deposits 179. In respect of the diagram given on next page, consider
Loans 50000 the following statements
Securities 40000 1. Saving (S) is autonomous.
Total 320000 Total 320000 2. Investment (I) is autonomous.
3. Saving is determined by income (Y).
Given that the cash reserve ratio is 20%, the excess
reserve of this particular bank will be 4. Investment (I) is not autonomous.
A. ` 5000 B. ` 6000 Which of these statements are correct?
C. ` 8000 D. ` 12000
174. Assertion (A) : It is possible to control either the
money supply or the rate of interest but not both.
Reason (R) : Other things remaining the same, the
demand for money depends inversely on the rate of
interest.
A. Both A and R are true and R is the correct expla-
nation of A.
B. Both A and R are true, but R is not a correct A. 2 and 3 B. 3 and 4
explanation of A. C. 1 and 4 D. 1 and 2
C. A is true, but R is false
D. A is false, but R is true 180. Assume consumption function of an economy to be
C = ` 30 crore + 0.80Y. Investment is ` 40 crore.
175. Fisher’s quantity theory of money has mainly been
criticised because Then, the equilibrium level of income is
A. it does not tell us as to how the changes in the A. 700 crore B. 350 crore
quantity of money influence the price level C. 560 crore D. 140 crore
B. it overemphasises the demand for money by
181. The norms of behaviour which satisfy the requirements
assuming supply of money as being constant
C. it analyses short term variations in the value of of social rationality of economic activity are
money established by
D. it emphasises too much on the price level A. Positive economics
B. Normative economics
176. Grasham’s law explains that C. Business economics
A. two grams of silver is equal to half gram gold for
D. Mathematical economics
conversion
B. good money chases bad money out 182. M 2, money supply measure in India, constitutes
C. velocity of circulation of money fluctuates rapidly A. M 1 + all post-office deposits
D. bad money drives good money out of circulation B. M 1 + time deposits of commercial banks
177. Match List I (Economists) with List II (concepts) and C. M 1 + all post-office saving deposits
select the correct answer using the codes given below D. M 3 + all post-office deposits
the lists
183. Stagflation refers to
List I List II
(Economists) (Concepts) A. high inflation in periods of high unemployment
(a) Keynes 1. Money illusion B. deflation in periods of stagnant employment
(b) Modigliani 2. IS-curve C. deflation in periods of high unemployment
(c) Hicks 3. Life cycle hypothesis D. high inflation in periods of full employment
(d) Pigou 4. Liquidity trap
Codes: 184. According to the quantity theory of money, the price
level rises if
(a) (b) (c) (d)
A. there is a decrease in money supply
A. 4 1 2 3
B. 2 3 4 1 B. the velocity of circulation of money rises
C. 4 3 2 1 C. the aggregate volume of transactions increases
D. 2 1 4 3 D. the real demand for money rises
(2715) Eco./Business Eco.—7-II
 –
185. Let I = 5 + 0.2Y, S = – 15 + 0.3Y and G = 5 (where 190. When investment is negatively related to the rate of
I –= Investment, Y = National Income, S = Savings and interest, the equilibrium output in the goods market
is
G = Government Spending). What is the equilibrium
A. unrelated to the rate of interest
level of Y?
B. inversely related to the rate of interest
A. 200 B. 100
C. positively related to the rate of interest
C. 250 D. 300
D. indeterminate
186. Consider the following statements
1. Absolute Income Hypothesis is associated with 191. Consider the following statements denoting the
Keynes. relationship between marginal propensity to consume
2. S = – 20 + 0.4y and C = 20 + 0.6y yield the same and value of multiplier
investment multiplier 1. Higher the marginal propensity to consume, higher
3. Investment multiplier rises whenever income tax is the multiplier
is introduced in the system 2. Higher the marginal propensity to consume lower
4. Bond Price and interest rates are directly related. is the multiplier
Which of the above statements is/are correct 3. When the marginal propensity to consume is one,
A. 1 alone B. 2 and 3 multiplier takes the value of infinity
C. 3 and 4 D. 1 and 2 Which of the above statements is/are correct?
A. 1 alone B. 2 and 3
187. Consider the following statements relating to classical C. 1, 2 and 3 D. 1 and 3
theory of employment:
1. Classical theory is based on the assumption of full 192. An increase in fiscal spending leads to
employment A. a shift of the Phillips curve to the right
2. Classical version of full employment is a situation B. a shift of the Phillips curve to the left
where involuntary unem-ployment is present C. movement along the Phillips curve such that
3. Classical version of full employment is consistent unemployment rises and inflation falls
with seasonal unemploy-ment and frictional D. movement along the Phillips curve such that
unemployment unemployment falls and inflation rises
4. Classical economists advocated wage cuts to
193. Consider the following statements
reduce the unemployment level
1. According to the accelerator model, investment
Which of the above statements are correct?
demand is proportional to the change in GNP.
A. 1, 2 and 3 B. 2, 3 and 4
2. The real rate of interest is the nominal rate of
C. 1, 3 and 4 D. 1 and 2
interest plus the inflation rate.
188. Which one of the following saving functions 3. The higher the real interest rate, the higher is the
corresponds to the investment multiplier of 5? rental cost of capital.
A. S = – 28 + 0.25 Y 4. Investment is a stock concept
B. S = – 40 + 0.75 Y Which of the above statements are correct?
C. S = – 60 + 0.20 Y A. 2 and 3 B. 1 and 2
D. S = – 75 + 0.60 Y C. 1 and 3 D. 1, 2, 3 and 4
189. Consider the following statements relating to classical 194. ‘The propensity to consume of an individual with
theory of employment respect to his disposable income and wealth depends
1. Classical theory is based on the assumption of full on his age? The statement refers to the
employment A. relative income hypothesis
2. Classical version of full employment is a situation B. permanent income hypothesis
where involuntary unemployment is present
C. life-cycle hypothesis
3. Classical version of full employment is consistent
D. absolute income hypothesis
with seasonal unemployment and frictional
unemployment 195. When income falls, what happens to the liquidity
4. Classical economists advocated wage cuts to preference curve?
reduce the unemployment level A. It does not shift
Which of the above statements are correct? B. It shifts to the left
A. 1, 2 and 3 B. 2, 3 and 4 C. It shifts to the right
C. 1, 3 and 4 D. 1 and 2 D. It becomes parallel to the vertical axis
196. Consider the following statements: 203. A significant decrease in the demand for loans will
1. If government expenditure increases the IS curve force banks to
shifts to the right A. adjust their portfolios
2. If the taxes increase the IS curve shifts to the right B. sell securities to the Central Bank
3. If the price level increases the LM curve shifts to C. resort to borrowings
the left D. raise the prime lending rate
4. The more interest elastic the investment function,
the more interest elastic will the IS curve 204. Which one of the following factors affects velocity of
Which of the above statements are correct? circulation?
A. 2, 3 and 4 B. 1, 3 and 4 A. Time unit of income receipts
C. 1 and 2 D. 2 alone B. Frequency of transaction
C. Liquidity preference
197. The most liquid asset, next to cash, which the banks D. All of the above
possess is
A. Advances to customers 205. Which one of the following statements is correct in
B. Money at call respect of equation of exchange MV = PT?
C. Treasury bills A. If M is doubled, leaving V and T unaffected, then
D. Inland bills P must double.
B. If M is doubled, leaving V unaffected then P will
198. Bank rate refers to the
be halved.
A. interest rate at which Commercial Banks accept
C. If M and T are doubled, leaving V unaffected, then
deposits from the public
P will be halved
B. rate at which Central Bank rediscounts bills of ex-
D. If M is doubled, V is halved, leaving T unaffected,
change of Commercial Banks
then P gets multiplied 3 times
C. prime lending rate of Commercial Banks
D. interest rate at which Commercial Banks lend to 206. Match List-I (Name of the Economist) with List-II
the customers (concept/theory) and select the correct answer using
199. The elasticity in respect of speculative demand for the codes given below the lists:
money, under the liquidity trap condition is List I List II
A. zero B. one (a) A.W. Phillips 1. Central Bank
C. greater than one D. infinite (b) Findlay Shirras 2. Trade-off between wage
and unemployment rate
200. When the intrinsic value of money and its face value
(c) J.M. Keynes 3. Theory of profit
are equal, it is called
(d) R.S. Sayers 4. Taxable capacity
A. token money
5. Liquidity trap
B. full-bodied money
Codes:
C. quasi-money
D. fiat money (a) (b) (c) (d)
A. 5 4 1 2
201. Which one of the following is NOT an instrument of B. 2 3 5 1
monetary policy? C. 5 3 1 2
A. Tariffs D. 2 4 5 1
B. Moral suasion
C. Open market operations 207. The Central Bank can decrease the bank credit
D. Credit rationing component of the money supply by
A. lowering the cash reserve requirements
202. Which one of the following according to Milton B. increasing the bank rate
Friedman is NOT a key determinant of the demand for C. lowering the bank rate
money D. buying of government securities by the Central
A. Aggregate wealth Bank
B. Precautionary motive
C. Relative rates of return obtainable on different 208. Which one of the following can be called as an
forms of assets instrument of selective credit control?
D. Physical non-human capital goods and human A. Fixing statutory liquidity requirements
capital B. Variation of bank reserve ratio
 C. Fixing of margins for lending against specific 214. Consider the following statements
securities 1. Points to the left of the IS curve indicate excess
D. Altering discount rate supply of goods.
2. Points to the right of the LM curve indicate excess
209. Which one of the following represents capital demand for money.
adequacy ratio for Commercial Banks? 3. Points to the right of the IS curve indicate excess
A. Ratio of capital to risk-weighted assets supply of money.
B. Ratio of capital to short-term deposits 4. Points to the right of the IS curve indicate excess
C. Ratio of capital to non-performing assets supply of goods.
D. Ratio of capital to advances
Of these statements
210. Derivative deposit means A. 2 and 4 are correct
A. Cash deposited in a bank by an employee of a B. 1 and 3 are correct
business firm C. 2 and 3 are correct
B. deposits created by a Commercial Bank out of its D. 1, 2 and 3 are correct
borrowings from the RBI 215. Match List-I with List-II and select the correct answer
C. cash deposited in a bank by another Commercial using the codes given below the lists:
Bank List I List II
D. deposits created by a bank out of its credit pro- (a) Life cycle Hypothesis 1. Keynes
vided to the customer of the bank (b) Permanent Income 2. Duesenberry
211. Assertion (A) : Real rate of interest is better 206 Hypothesis
indicator of returns on savings than nominal rate of (c) Absolute Income 3. Friedman
Hypothesis
interest
(d) Relative Income 4. Ando-Brumberg
Reason (R) : The real rate of interest is estimated after
Hypothesis Modigliani
removing the effect of the expected rate of inflation.
Codes:
A. Both A and R are true and R is correct explanation
of A (a) (b) (c) (d)
B. Both A and R are true, but R is not a correct A. 4 3 1 2
explanation of A B. 4 3 2 1
C. A is true, but R is false C. 3 2 1 4
D. A is false, but R is true D. 3 2 4 1

212. Match List-I with List-II and select the correct answer 216. The author of employment multiplier is
using the codes given below the lists: A. Lord Beveridge B. K.M. Keynes
List I List II C. R.F. Kahn D. J.R. Hicks
(a) C = 9 + 0.1 Y 1. IS relation 217. In a two sector economy, the saving and investment
(b) 0.25 Y – 20i – 2. Consumption relation functions are as follows
193 = 0 S = –10 + 0.2Y
(c) 0.06Y + 29i – 3. Investment relation I = –3 + 0.1Y
500 = 0 What will be the equilibrium level of income?
(d) I = 50 – 10i 4. LM function A. 70 B. 80
Codes: C. 90 D. 100
(a) (b) (c) (d)
A. 4 3 2 1 218. The IS-LM model has been formulated by
A. J.R. Hicks B. F. Modigliani
B. 4 3 1 2
C. P.A. Samuelson D. J.M. Keynes
C. 2 4 3 1
D. 2 4 1 3 219. The speculative demand for money is
A. interest determining
213. Excess of ex-ante savings over ex-ante investment
B. interest determined
means that
A. income will fall C. income determining
D. income determined
B. income will rise
C. income will remain the same 220. Which one of the following is represented by M 3?
D. price will rise and inventories will accumulate A. M 1 + post office savings bank deposits
 B. Currency with the public + demand deposits with (d) Correspondent 4. Branches of the bank
banks Banking linked together for better
C. M 1 + time deposits with bank mobilisation of deposits
D. M 2 – post office savings bank deposits 5. Banks brought under
common control by a
221. Consider the following statements:
device other than the
Unanticipated inflation is likely to benefit
holding company
1. Debtors.
Codes:
2. Life Insurance policy holders.
(a) (b) (c) (d)
3. Persons having fixed deposits with companies.
A. 1 3 4 5
4. Persons having fixed deposits with banks.
B. 2 5 4 1
Of these statements
C. 2 1 3 5
A. 1 alone is correct
D. 2 1 5 3
B. 1, and 2 are correct
C. 1, 2 and 3 are correct 225. Which one of the following methods can be used as
D. 2, 3 and 4 are correct an instrument of qualitative control of credit by the
Central Bank?
222. Consider the following statements:
A. Bank Rate Policy
Money supply in India can be increased if
B. Open Market Operations
1. RBI puts out more paper money for circulation.
C. Changes in Margin Requirements
2. the commercial banks expand their credit
D. Variations in Reserve Ratio
operations.
3. the Central Government gives more grants to the 226. Assertion (A) : Y = C + I (where Y = National Income,
states. C = Consumption, I = Investment)
4. the Government of India borrows from the RBI. Reason (R) : C and I are important determinants of
Of these statements national income
A. 1, 2 and 3 are correct A. Both A and R are true and R is the correct
B. 2, 3 and 4 are correct explanation of A.
C. 1, 3 and 4 are correct B. Both A and R are true, but R is not correct expla-
D. 1, 2 and 4 are correct nation of A
C. A is true, but R is false
223. Income velocity of money depends upon
D. A is false, but R is true
A. frequency of spending money income by the
people 227. Assertion (A) : An investor will invest in a capital
B. frequency of earning and spending of money asset.
C. the speed with which money stock moves from Reason (R) : Marginal Efficiency of Capital (MEC) 
income earners to the producers of final goods market rate of interest.
D. liquidity preference of cash by the people for the A. Both A and R are true and R is the correct
purchase of final goods. explanation of A.
B. Both A and R are true, but R is not correct expla-
224. Match List-I with List-II and select the correct answer
nation of A.
using the codes given below the lists
C. A is true, but R is false
List I List II
D. A is false, but R is true
(a) Investment Banks 1. Two or more separately
incorporated banks 228. Assertion (A) : People’s desire for transactions
brought under the control balances increases with increase in income.
of a holding company. Reason (R) : People spend an increasing proportion
(b) Group Banking 2. Provide credit on long of their income on consumption.
term basis A. Both A and R are true and R is the correct
(c) Chain Banks 3. Banks linked together explanation of A.
through deposits by B. Both A and R are true, but R is not correct expla-
smaller banks of some of nation of A.
their cash reserves with C. A is true, but R is false.
bigger banks D. A is false, but R is true.
229. Assertion (A) : Reserve Bank of India raises money What is the multiplier?
supply through purchase of securities in the money A. 0.09 B. 10.0
market. C. 0.9 D. 9.00
Reason (R) : Increase in money supply may result in
236. The Phillip’s curve is the schedule showing the
the expansion of investment and employment.
relationship between
A. Both A and R are true, and R is the correct
A. aggregate supply and demand
explanation of A.
B. total savings and investments
B. Both A and R are true, but R is not correct expla-
C. the rate of unemployment and rate of inflation
nation of A.
D. demand for and supply of loanable funds
C. A is true, but R is false.
D. A is false, but R is true. 237. Suppose that the money supply in an economy is
constant and the demand for money is a function of
230. In an economy where people always consume half of income and interest rate, then if the level of income
any additional income and save the other half, an increases there will be
additional government expenditure of ` 20,000 can A. a decrease in the quantity of money demanded
create an additional income of and an increase in the rate of interest
A. ` 10,000 B. ` 40,000 B. an increase in the quantity of money demanded
C. Zero D. ` 20,000 and an increases in the rate of interest
231. When a linear consumption function undergoes a C. a decrease in the quantity of money demanded
parallel shift downwards the investment multiplier and increase in the rate of interest
will D. an increase in the quantity of money demanded
A. fall B. rise marginally and decrease in the rate of interest
C. remain as before D. become double 238. Which one of the following is a correct and likely
232. If the consumption function passes through the origin, sequence? (M is money supply, i is nominal rate of
interest and I is investment)
then APC = MPC it must be
A. M down, i down, I down, GNP down.
A. linear without any intercept
B. M down, i down, I up, GNP up.
B. non-linear without any intercept
C. M down, i up, I down, GNP down
C. linear with a negative intercept on the income axis
D. M up, i up, I up, GNP up
D. linear with a positive intercept on the consump-
tion axis 239. If the annual income velocity of money is 3, then the
total money stock in the economy is
233. Consider the following
A. 3 times the nominal GNP
1. Investment demand.
B. 1/3 of real GNP
2. Aggregate demand. C. 1/3 of nominal GNP
3. Rate of interest. D. 1/3 of the ratio of P to real GNP
4. Money supply.
The correct sequence for the impact of change in 240. Consider the following statements
money supply visualised by Keynes is The money-supply to the economy will increase if the
A. 1, 2, 3, 4 B. 2, 1, 3, 4 Central Bank
C. 4, 3, 2, 1 D. 4, 3, 1, 2 1. supplies credit to the central government.
2. provides credit to the commercial banks.
234. If the rate of interest is greater than zero, it follows 3. provides credit to the state governments.
that Of these statements
A. present goods and future goods always have an A. 2 alone is correct
equal value B. 1 and 3 are correct
B. present goods are worth less than future goods C. 1 and 2 are correct
C. present consumption is worth more than future D. 1, 2 and 3 are correct
consumption
241. Which one of the following is an example of “open
D. present consumption is worth less than future market operations”?
consumption A. Sale of gold by Reserve Bank of India to goldsmith
235. Given the consumption function B. Sale of jute by Jute Corporation of India from its
C = 205 + 0.9Y stocks to jute mills
 C. Sale of government securities by the Reserve Bank Codes:
of India to commercial banks and other Financial (a) (b) (c) (d)
organisations on its own initiative A. 4 3 2 1
D. Sales of dollar by the Reserve Bank of India to B. 3 4 1 2
exchange banks at their request C. 3 4 2 1
D. 4 3 1 2
242. The objective of selective credit controls is mainly to
A. selectively allocate credit to commercial banks 250. If MPS rises then the equilibrium level of output will
B. selectively allocate credit among borrowers A. rise B. fall
C. regulate the quantity of demand deposits created C. remain constant D. be indeterminate
by commercial banks
D. regulate the quantity of credit created by 251. According to classical theory, a 10 percent increase in
commercial banks money supply will
A. increase money wage rates by 10 percent, but have
243. Portfolio theory of the demand for money assumes no effect on real wages
that the individual B. increase real wage rates by 10 per cent
A. disregards risk B. is risk neutral C. decrease real wage rates by 10 per cent
C. is risk lover D. is risk averse D. increase both money wage rates and real wage
rates by 10 per cent
244. An instrument of qualitative credit control in India is
A. open market operation 252. The equation 0.5 Y + 50i – 240 = 0 (where Y denotes
B. credit rationing national income and i the rate of interest), is that of
C. change in reserve ratio a/an
D. bank rate policy A. Consumption function
B. Investment function
245. If the Reserve Bank of India sells securities in the C. IS function
market, it will result in D. LM function
A. an immediate change in the bank rate
B. a fall in the market rate of interest 253. An increase in the money supply results in
C. an increase in loans to banks customers A. a change in the slope of the LM curve
D. a reduction in bank deposits B. rightward shift of the LM curve
C. no change in the LM curve
246. If MPC = APC for all levels of income (Y), then the D. leftward shift of the LM curve
corresponding consumption function will be
A. C = a + b Y B. C = b Y 254. According to Keynes, which one of the following is
C. C = b Y2 D. a + b Y2 the basic cause of involuntary unemployment?
A. A general deficiency in the demand for goods and
247. The accelerator theory of investment relates the current services
rate of investment to the B. The reluctance of workers to move to other parts
A. long-term rate of interest of the country where there is work
B. short-term rate of interest C. The inability to change occupations because of
C. current level of output lack of the necessary skills
D. change in the level of output D. Workers ignorance of opportunities of employment
248. If the consumption functions undergoes a parallel in other occupations and districts
shift upwards, then the investment multiplier will 255. Speculative demand for money would increase if
A. rise B. fall A. prices of securities are expected to rise
C. remain constant D. be double B. prices of goods are expected to fall
249. Match List I with List II and select the correct answer C. the interest rate is expected to be constant
using the codes given below the lists: D. the interest rate is expected to rise
List I List II 256. Consider the following liquid assets
(a) J. M. Keynes 1. Permanent income hypothesis 1. Demand deposits with the banks
(b) J. Duesenberry 2. Life cycle hypothesis 2. Time deposits with the banks
(c) M. Friedman 3. Relative income hypothesis 3. Savings deposit with the banks
(d) F. Modigliani 4. Absolute income hypothesis 4. Currency
 The correct sequence of these assets in the decreasing 259. The Bank Rate means the rate which the
order liquidity is A. Commercial banks offer on savings deposits
A. 1, 4, 3, 2 B. 2, 3, 4, 1 B. Commercial banks offer on current accounts
C. 2, 3, 1, 4 D. 4, 1, 3, 2 deposits
C. Commercial banks charge on short-term loans
257. The relationship between Fisher’s V and K in D. Central Bank charges in rediscounting first-class
Cambridge Equation Exchange is bills of exchange
1 1 260. Consider the following items included in a Balance
A. V = B. V =
k 1 k Sheet:
C. V = 1 + k D. V = 1 – k 1. Demand deposits
2. Borrowings from other banks
258. Under the ‘liquidity trap’ situation the liquidity 3. Cash kept with other banks
preference curve 4. Endorsement of bills of exchange
A. is perfectly inelastic Which of these are shown in the liability column of
B. is perfectly elastic the Balance Sheet of a commercial bank?
C. intersects the horizontal axis A. 1, 2 and 3 B. 1, 2 and 4
D. intersects the vertical axis C. 1 and 3 D. 2 and 4

ANSWERS
1 2 3 4 5 6 7 8 9 10
A B C D A C A A D D
11 12 13 14 15 16 17 18 19 20
A B B D C A B B C A
21 22 23 24 25 26 27 28 29 30
C B A A B B C D D B
31 32 33 34 35 36 37 38 39 40
B C C D D C A A A C
41 42 43 44 45 46 47 48 49 50
D B A C C A B C A B
51 52 53 54 55 56 57 58 59 60
B A B B C C A A C A
61 62 63 64 65 66 67 68 69 70
C B B C C C D C D B
71 72 73 74 75 76 77 78 79 80
A A B A C B C A C B
81 82 83 84 85 86 87 88 89 90
D B D B C B A B D B
91 92 93 94 95 96 97 98 99 100
D C D A B A A B B D
101 102 103 104 105 106 107 108 109 110
A D A C D B D B D A
111 112 113 114 115 116 117 118 119 120
B A C A C D D D B D
121 122 123 124 125 126 127 128 129 130
A A A A D B B B B B
131 132 133 134 135 136 137 138 139 140
B B B D D C A B B B
141 142 143 144 145 146 147 148 149 150
D B B C C B A A B C
151 152 153 154 155 156 157 158 159 160
B A D D D C B B B B
161 162 163 164 165 166 167 168 169 170
B B D A B D A A D B
171 172 173 174 175 176 177 178 179 180
A B B A A D C B A B
181 182 183 184 185 186 187 188 189 190
B C A B A D C C C B
191 192 193 194 195 196 197 198 199 200
D D C C B B B B D B
201 202 203 204 205 206 207 208 209 210
A B A D A D B C C D
211 212 213 214 215 216 217 218 219 220
A D A A A C A A B C
221 222 223 224 225 226 227 228 229 230
A D C C C A A A A B
231 232 233 234 235 236 237 238 239 240
C A B C B C B C B D
241 242 243 244 245 246 247 248 249 250
C B C B D B D C D B
251 252 253 254 255 256 257 258 259 260
D C B A D C A B D B

  