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ME - Tutorial 5

1 . Which of these is an economic activity 7. Which of the following actions is an example of


(a) A father teaching his son at home instead of sending to expansionary fiscal policy?
any coaching centre (a) a decrease in welfare payments
(b) A hair dresser doing hair cut designing on payment (b) a purchase of government securities in the open market
(c) A housewife mending her family cloths on her own (c) a decrease in the Bank rate
(d) A singer giving a show on his sons wedding anniversary (d) a decrease in the corporate profits tax rates

2. If the number of people classified as unemployed is 8. Macroeconomics is concerned with


20,000 and the number of people classified as employed is a) Only long-run trends in economic activity.
230,000, what is the unemployment rate? b) Only short-run fluctuations in the business cycle.
(a) 8% c) Both long-run trends and short-term fluctuations in
(b) 8.7% economic activity.
(c) 9.2% d) Only with changes in the overall price level.
(d) 11.5%
9. The difference between Gross National Product (GNP) and
3. It is often true that as the economy begins to recover Gross Domestic Product GDP) is
from a recession, the unemployment rate rises. Which of the (a) Excess of subsidies over indirect taxes ;
following statements would be the best explanation for this? (b) Depreciation ;
(a) The unemployment rate would rise because as the (c) Net foreign income from abroad
economy initially recovers from a recession the demand for (d) Excess of indirect taxes over subsidies
goods and services falls, so the demand for workers falls.
(b) As the economy begins to recover from a recession, 10. When the economy is facing high inflation, the government
workers who were previously discouraged about their should
chances of finding a job begin to look for work again. a) Increase spending and taxation
(c) The unemployment rate seems to rise as the economy b) Reduce spending and taxation
begins to recover from a recession because of errors in the c) Increase spending and reduce taxation
way the data are collected. d) Reduce spending and increase taxation
(d) As the economy initially recovers from a recession, firms
11. Profits earned in India by foreign-owned companies are
do not immediately increase the number of workers they
included in its
hire. Firms wait to hire more individuals until they are
a) Both GDP and GNP
convinced that the recovery is strong.
b) Neither GDP nor GNP
4. Banks can create money c) GNP but not GDP
(a) only by illegally printing additional dollar bills. d) GDP but not GNP
(b) by paying interest to their depositors.
12. A reasonable measure of the standard of living in a
(c) by making loans that result in additional deposits.
country is:
(d) by offering financial services, such as stick market
a) Real GDP per person.
brokerage.
b) Real GDP
5. When economists refer to "tight" monetary policy, they c) Nominal GDP per person
mean that the Reserve Bank of India is taking actions that d) The growth rate of nominal GDP per person.
will
13. Which of the following is a better measure of
(a) increase the demand for money.
economic development?
(b) decrease the demand for money
a. National income
(c) expand the supply of money
b. Rural consumption
(d) contract the supply of money
c. Size of exports
6. An increase in total production (real GDP) causes the d. Employment
demand for money to _____ and the interest rate to ____.
14. RBI check inflation by
(a) increase; increase
(a) Increasing bank rate ;
(b) increase; decrease
(b) Increasing CRR ;
(c) decrease; decrease
(c) Both ;
(d) decrease; increase
(d) None.
(c) Combine phenomena of demand pull and cost-push
15. If RBI wants to decrease the money supply in order to inflation. ;
check inflation it will (d) Increase in Price of precious metal
(a) Sell bonds ;
(b) Increase CRR ; 19. Cost push inflation arises due to
(c) Hike bank rate ; (a) Persistent rise in factor cost ;
(d) All or any of the above three (b) Mismatch between demand and supply of commodities
(c) Combine phenomena of demand pull and cost-push
16. If the country is passing through recession, the RBI would inflation. ;
(a) Buy bonds ; (d) Increase in price of precious metal
(b) Reduce CRR ;
(c) Ease out bank rate ; 20. The sale of government securities by the Reserve Bank of
(d) All or any of the above three India is predicted to
a. decrease reserves of the commercial banks, and eventually
17. Which of these would lead to fall in demand for money?
lead to an expansion of the money supply.
(a) Inflation ;
b. decrease reserves of the commercial banks, and eventually
(b) Increase in real income ;
cause a contraction of the money supply.
(c) Increase in real rate of interest ;
c. increase reserves of the commercial banks, and eventually
(d) Increase in wealth
cause a contraction of the money supply.
18. Demand pull inflation rises due to d. increase reserves of the commercial banks, and eventually
(a) Persistent rise in factor cost ; cause an expansion of the money supply.
(b) Mismatch between demand and supply of commodities
Solutions
1b
2a
3b
4c
5d
6a
7d
8c
9c
10 d
11 d
12 a
13 a
14 c
15 d
16 d
17 c
18 b
19 a
20 b