Macro Economics MCQ (GK Set-1) with Answers

Macro Economics MCQ (GK Set-1) with Answers

81) For a small economy in a fixed exchange rate system that begins in period 0 at the long-run equilibrium point A, the government cuts net taxes. The aggregate demand curve moves from its initial position AD to AD’, so that the economy is in short-run

Answer is:

The new long-run equilibrium will have higher inflation and higher unemployment (i.e. stagflation)

82) For a small economy under flexible exchange rates that is initially in a long-run equilibrium, a higher rate of inflation in the short run will be followed by: The central bank responding with (A) which will result in a (B)______

Answer is:

(A) contractionary monetary policy; (B) real exchange rate appreciation

83) Consider a small economy under flexible exchanges which is initially in a long-run equilibrium at point A. (A)_ shifts the TR schedule down to TR’. In the short run, the IS schedule shifts to IS’ because (B)___.

Answer is:

(A) An increase in the target inflation rate; (B) the real exchange rate depreciates

84) In the period in which it occurs, an adverse supply shock simultaneously (A) and increases (B) __

Answer is:

(A) lowers output ; (B) actual inflation

85) The concept of financial market efficiency implies

Answer is:

all opportunities for easy arbitrage profit have been exhausted

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