Intermediate Macroeconomics MCQs

Question. What method is used by the Bank to read code on cheque?
a) MICR
b) OCR
c) OMR
d) None of the options

Answer: A

Question. High‐powered money is also known as
a) Base money
b) Reserve money
c) Narrow money
d) All of the options

Answer: D

Question. Which indicators change before the economy itself changes
a) Lagging
b) Coincident
c) Leading
d) Concurrent

Answer: C

Question. During depression, government expenditure on public works will function as
a) An anti‐deflationary tonic
b) A pump‐priming
c) Compensatory action
d) None of the options

Answer: B

Question. When the cause of business cycles is attributed to some factor outside the economic system, it is called
a) A periodical theory
b) An innovation theory
c) An exogenous theory
d) None of the options

Answer: C

Question. Barter system has the defect of
a) Goods exchanged are of inferior quality
b) Goods cannot be exchanged for services
c) Lack of common measure of value
d) None of the options

Answer: C

Question. Reserve Bank of India (RBI) was established on
a) 1st April,1925
b) 1st April 1935
c) 1st April 1945
d) 1st April 1955

Answer: B

Question. In India, coins are minted at four places, which among the following is one of them
a) New Delhi
b) Chennai
c) Hyderabad
d) All of the options

Answer: C

Question. Fisher’s equation of exchange considers money as
a) A medium of exchange
b) A store of value
c) Measures of value
d) All of the options

Answer: A

Question. Value of money means
a) Gold purchased by money
b) General Purchasing power of money
c) Importance of money
d) Demand for money

Answer: B

Question. The cash balance equation M = KPY was given by
a) Keynes
b) Pigou
c) Robertson
d) Marshall

Answer: D

Question. According to the Quantity Theory of Money, the value of money depends upon
a) Quantity theory of money in circulation
b) Purchasing power of money
c) Demand for money
d) Price level

Answer: A

Question. In the Fisher’s extended equation of exchange MIVI represents
a) Credit money
b) Primary money
c) Both primary and credit money
d) General Price level

Answer: A

Question. Equation of exchange is converted into the quantity theory of money by assuming the following variables as constants
a) V and T
b) M and V
c) M and P
d) V and P

Answer: A

Question. During the phase of recovery
a) Aggregate demand remains constant
b) Aggregate demand increases
c) Aggregate demand decreases
d) None of the options

Answer: B

Question. Which of the following is referred to the top or the highest point of business cycle
a) Expansion
b) Peak
c) Expansion and Peak
d) None of the options

Answer: B

Question. In July 1969, 14 major Indian Scheduled Banks were nationalized and 6 more banks were nationalized in
a) April 1980
b) May 1980
c) April 1981
d) May 1981

Answer: A

Question. When the Central Bank intends to expand the credit, it should
a) Raise the margin requirements
b) Raise the variable reserve ratio
c) Lower the bank rate
d) Purchase government securities in the open market

Answer: D

Question. Fisher’s cash transaction equation is expressed as
a) P = MV/T
b) P = M/PT
c) P = I/K
d) P = MVp/KT

Answer: A

Question. Robertson’s equation of exchange considers money as
a) A medium of exchange
b) A store of value
c) Measures of value
d) All of the options

Answer: B

Question. Which among the following is considered to be the most liquid asset?
a) Gold
b) Money
c) Land
d) Treasury bonds

Answer: B

Question. In the equation MV = PY, M represents
a) Money supply
b) Money demand
c) Maximum output
d) Minimum output

Answer: A

Question. Barter system means
a) Purchase of commodity with money
b) Sale of commodity with money
c) Purchase and sale of commodity with commodity
d) None of the options

Answer: C

Question. The trough of a business cycle is referred to as
a) Expansion
b) Boom
c) Trough
d) Peak

Answer: C

Question. To attain long‐term economic stability, the government can introduce
a) Compensatory action
b) Monetary measures
c) Pumb‐priming
d) An anti‐deflationary tonic

Answer: A

Question. Which of the following is a monetary measure to control inflation in an economy?
a) Increase in money supply
b) Demonetization of currency
c) Increase in government expenditure
d) All of the options

Answer: B

Question. The securities and bonds which a commercial bank holds is also known as
a) Cash reserve ratio
b) Derivative deposits of the banks
c) Secondary deposits of the bank
d) All of the options

Answer: C

Question. Who stated, “Money is what money does”?
a) Milton Friedman
b) Walker
c) Irving Fisher
d) Thomas Gresham

Answer: B

Question. Legal money is called so because
a) The buyer must pay in that money
b) Can be converted into gold
c) Sellers do not accept any other money
d) It is official medium of exchange

Answer: D

Question. The number of times a unit of money exchanges hands during a unit period of time is known as
a) Velocity of the circulation of money
b) Speed of circulation of money
c) Momentum of circulation of money
d) Count of circulation of money

Answer: A

Question. Trade cycles are caused by
a) Fiscal factors
b) Monetary factors
c) Both monetary and non‐monetary factors
d) None of the options

Answer: C

Question. During the upward swing of the trade cycle, the central bank of the country will
a) Raise the cash reserve ratio
b) Raise the bank rate
c) Lower down the cash reserve ratio
d) None of the options

Answer: B

Question. The quantity theory of money was restated by
a) Alfred Marshall
b) Milton Friedman
c) Irving Fisher
d) J.M. Keynes

Answer: B

Question. Which one of the following is not the characteristic of business cycle?
a) They are recurrent
b) They are not at regular intervals
c) They have uniform causes
d) All of the options

Answer: C

Question. Economic recession is characterized by all of the following except
a) Decline in investment, employment
b) Increase in the price of inputs due to increased demand for inputs
c) Investors’ confidence is shaken
d) Demand for goods, service decline

Answer: B

Question. Who stated, “Bad money drives good money out of circulation, when both of them are full legal tender”?
a) Irving Fisher
b) Milton Friedman
c) J.M. Keynes
d) Thomas Gresham

Answer: D

Question. Which is known as the most profitable asset of the bank?
a) Loans and advance to its customers
b) The investment in government securities
c) Life insurance policies of the staff
d) None of the options

Answer: A

Question. Under normal circumstances, the velocity of circulation of money in a country is
a) 100 %
b) Negative
c) Less than 10
d) Zero

Answer: C

Question. The most important feature of money is
a) General acceptability
b) Convertibility into gold
c) Store of value
d) Medium of exchange

Answer: A

Question. At the time of Great Depression of 1930s, the global GDP fell by around
a) 12 %
b) 14 %
c) 15 %
d) 10 %

Answer: C

Question. The most probable outcome of increase in aggregate demand is
a) Expansion of economic activity
b) Contraction of economic activity
c) Stable economic activity
d) Volatile economic activity

Answer: A

Question. Robertson’s version of the Cambridge equation is
a) P = M/KT
b) P = KR/M
c) MV = PT
d) M = KP

Answer: A

Question. Derivative deposits are created during the time of –
a) Accepting demand deposits
b) Accepting drafts
c) Making loans to the customers
d) All of the options

Answer: C

Question. The value of money in Fisher’s equation is determined by
a) Demand for money
b) Supply of money
c) Demand and supply of money
d) None of the options

Answer: C

Question. Value of money is
a) Directly related to the price level
b) Inversely related to the price level
c) Proportionately related to the price level
d) All of the options

Answer: B

Question. Equation of exchange is associated with
a) Pigou
b) J.B.Say
c) Marshall
d) Irving Fisher

Answer: D

Question. Understanding business cycle is important for business managers because
a) They affect the demand for their products
b) They affect their profits
c) To frame appropriate policies and forward planning
d) All of the options

Answer: D

Question. Which of the following is not a function of commercial bank?
a) Accepting deposits
b) Advancing loans
c) Creating credit
d) Printing bank notes

Answer: D

Question. If the quantity of money increases 100%, other things remaining constant, value of money changes by
a) Increases by 100 %
b) Decreases by 100 %
c) Decreases by 200%
d) Does not change

Answer: B

Question. Convertible money means
a) It can buy goods
b) Government can give gold against it
c) Illegal money
d) Low value of money

Answer: B

Question. Value of money and supply of money are related
a) Inversely
b) Directly
c) Are not related
d) None of the options

Answer: A

Question. In Fisher’s transaction velocity model, which one of the following is not an assumption
a) Velocity of circulation of money is constant
b) The volume of transaction is constant
c) Full employment
d) P is considered as an active factor

Answer: D

Question. Peaks and troughs of the business cycle are collectively known as
a) Volatility
b) Turning points
c) Equilibrium points
d) Real business cycle events

Answer: B

Question. Which of the following public sector banks has the highest number of branches in India?
a) State Bank of India
b) Allahabad Bank
c) Bank of India
d) Punjab National Bank

Answer: A

Question. In the equation MV = PY, V represents
a) Value of money
b) Velocity of circulation of money
c) Variation of national income
d) All of the options

Answer: B

Question. According to Hayek’s overinvestment theory of trade cycle, fluctuation of investment occurs when
a) Natural rate of interest is not equal to market rate of interest
b) Natural rate of interest is equal to market rate of interest
c) Natural rate of interest is equal to the rate of inflation
d) None of the options

Answer: A

Question. If any unemployment exists during expansion phase of business cycle, it is
a) Voluntary and frictional
b) Technological and structural
c) Frictional and structural
d) Structural and involuntary

Answer: C

Question. Bank rate policy is not very effective because
a) It requires a well‐developed money market
b) It cannot operate effectively
c) All banks are not under the control of central bank
d) All of the options

Answer: A

Question. Which is not the function of money
a) Make demand and supply equal
b) Store of value
c) Medium of exchange
d) Measure of value

Answer: A

Question. The quantity demanded of money rises
a) As the interest rises
b) As the interest falls
c) As the supply of money falls
d) As the number of banks rises

Answer: B

Question. Paper money is called fiat money because
a) It is issued with authority of government
b) It is convertible into gold
c) It can be easily printed
d) It is light weight

Answer: A

Question. Which property the paper money does not possess
a) Acceptability
b) Divisibility
c) Durability
d) Portability

Answer: C

Question. Who stated that “a sudden collapse of the marginal efficiency of capital leads to crisis”
a) Keynes
b) Hawtrey
c) Hayek
d) Schumpeter

Answer: A

Question. Fisher equation of exchange states that
a) P varies directly with income
b) P varies directly with M
c) P and M are constants
d) None of the options

Answer: B

Question. The degree of relationship between the demand for and the supply of money in Fisher’s equation will be
a) Supply > demand
b) Supply = demand
c) Supply < demand
d) None of the options

Answer: B

Question. Currency notes and coins are called as
a) Flat money
b) Legal tenders
c) Fiat money
d) Both Flat money and Fiat money

Answer: D

Question. Pigou’s version of Cambridge equation is
a) P = M/KT
b) P = KR/M
c) MV = PT
d) M = KP

Answer: B

Question. According to Keynes, motives for holding money are
a) Two
b) Three
c) Four
d) Five

Answer: B

Question. According to Cambridge equation, the value of money depends upon
a) Demand for money
b) Supply of money
c) Demand for goods and services
d) All of the options

Answer: A

Fill in the Blanks :

Question. When the potential GDP is higher than the real GDP, the gap is referred to as a _______.
Answer: deflationary gap 

Question. Public borrowing should be ___________ during inflation.
Answer: increased

Question. The central bank will raise the cash reserve ratios during a ______.
Answer: boom

Question. A situation in which the value of money decreases is called _______.
Answer: inflation

Question. Industries that are most adversely affected by business cycles are __________.
Answer: capital goods and consumer durable goods sectors

Question. There is a large scale of involuntary unemployment in the _______ phase of business cycle.
Answer: contraction

Question. The concept of accelerator was developed by _______ in __________.
Answer: J.M. Clark, 1917

Question. The term ‘inflationary gap’ was coined by _________.
Answer: J.M. Keynes

Question. ________ is a situation when prices are reduced deliberately but output and employment remain unaffected.
Answer: Disinflation

Question. In Cambridge equation, the value of money depends upon _________.
Answer: demand for money

Question. When the economy is in a boom phase, the central bank should ______ the bank rate.
Answer: raise

Question. If the velocity of circulation of money increases, the supply of money will __________.
Answer: increase

Question. A prominent economist ________ stated that “the right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi‐slump; but in abolishing slumps and thus keeping us permanently in a quasi‐boom”.
Answer: J.M.Keynes

Question. When standard money or coins are made of only one metal, it is referred to ________.
Answer: monometallism

Question. Involuntary unemployment is almost zero in the __________ phase of business cycle.
Answer: prosperity

Question. Phillips curve is _______ to the origin.
Answer: convex

Question. ________ is the sum of commercial bank reserves and currency (notes and coins) held by the public.
Answer: High–powered money

Question. During depression or recession, the central bank should _____ the bank rate and interest rates of banks.
Answer: reduce

Question. A situation in which prices rise at high and unpredictable manner is called ___________.
Answer: hyper inflation

Question. During depression or recession, the central bank should _____ securities in the open market.
Answer: buy

Question. A typical trade cycle is generally divided into ________ phases.
Answer: four

Question. The central bank adopts a _______ in order to control the expansion of money supply during a boom.
Answer: dear money policy

Question. Over‐investment theory of trade cycle was propounded by ___________.
Answer: F.A. Hayek

Question. The situation in which prices rise very fast, it is known as _________.
Answer: hyper inflation

Question. In Fisherian equation, ‘P’ refers to the price level of ___________________.
Answer: both final and intermediate goods

Question. During depression, the government _________ public expenditure and _____ taxes.
Answer: increases, reduces

Question. The value of money varies __________ with the purchasing power of money.
Answer: directly

Question. The economy is said to be overheated at the _____ phase of business cycle.
Answer: peak

Question. _________ is the severe form of recession with lowest level of economic activity.
Answer: depression

Question. The government should adopt a budget deficit policy during _______.
Answer: depression

Question. A prominent economist ________ stated that “the right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi‐slump; but in abolishing slumps and thus keeping us permanently in a quasi‐boom”.
Answer: J.M. Keynes

Question. The peak or prosperity may lead the economy to _______ and to inflationary rise in prices.
Answer: over full employment

Question. If inflation is allowed to continue without any check, it is called __________.
Answer: open inflation

Question. Fall in the level of investments, production, employment, stock prices etc., are found during ________ phase of business cycle.
Answer: contraction

Question. According to Hayek, it is ______ which lead to over‐investment in capital goods industries relative to consumer goods industries that ultimately brings depression in the economy.
Answer: bank loans

Question. When prices rise in response to the rise in demand, it is known as __________.
Answer: demand‐pull inflation