Macro Economics MCQ (GK Set-1) with Answers

76) "It is better for an economy to have a 5% rate of inflation over a 5% rate of unemployment." Without getting into a debate on the relative costs of unemployment and inflation yet, why do we know this statement is not helpful for policy makers, even if th

The economy is dichotomized in the short-run because of the Taylor rule

Wage-negotiations are subject to money illusion so that real wages would fall to an unsustainable level

Even if we could reduce unemployment to 0% today at a cost of an increase in inflation of 5%, there is no guarantee that underlying inflation in the economy would remain unchanged

The battle of the mark-ups determines wages and prices only so long as there is no supply shock

Answer is:

Even if we could reduce unemployment to 0% today at a cost of an increase in inflation of 5%, there is no guarantee that underlying inflation in the economy would remain unchanged

77) Which of the following events would not involve a supply shock that would shift the aggregate supply curve?

Answer is:

Financial crisis results in a freezing of interbank lending

78) The above figure represents a short-run equilibrium of a small economy in a fixed exchange rate regime. The reason that the long-run aggregate demand curve is horizontal at the rate of inflation of the rest of the world ?* is

Answer is:

.that the marginal propensity to import is assumed to be a constant fraction of GDP

79) The AD curve is downward sloping for a small economy in a fixed exchange rate system because (A) weakens the country’s external competitiveness, which (B) __ for domestic goods

Answer is:

(A) rising domestic inflation; (B) reduces domestic and foreign demand

80) For a small economy in a fixed exchange rate system in the long run, the domestic underlying rate of inflation must equal the foreign rate of inflation because:

Answer is:

76) "It is better for an economy to have a 5% rate of inflation over a 5% rate of unemployment." Without getting into a debate on the relative costs of unemployment and inflation yet, why do we know this statement is not helpful for policy makers, even if th

Even if we could reduce unemployment to 0% today at a cost of an increase in inflation of 5%, there is no guarantee that underlying inflation in the economy would remain unchanged

77) Which of the following events would not involve a supply shock that would shift the aggregate supply curve?

Financial crisis results in a freezing of interbank lending

78) The above figure represents a short-run equilibrium of a small economy in a fixed exchange rate regime. The reason that the long-run aggregate demand curve is horizontal at the rate of inflation of the rest of the world ?* is

.that the marginal propensity to import is assumed to be a constant fraction of GDP

79) The AD curve is downward sloping for a small economy in a fixed exchange rate system because (A) __________ weakens the country’s external competitiveness, which (B) ____________ for domestic goods

(A) rising domestic inflation; (B) reduces domestic and foreign demand

80) For a small economy in a fixed exchange rate system in the long run, the domestic underlying rate of inflation must equal the foreign rate of inflation because:

Each must equal the domestic rate of inflation so that AS does not shift and the relative competitiveness of domestic goods does not change

79) The AD curve is downward sloping for a small economy in a fixed exchange rate system because (A) weakens the country’s external competitiveness, which (B) __ for domestic goods