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Test: Theory of Inflation- 3 - B Com MCQ


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10 Questions MCQ Test Macro Economics - Test: Theory of Inflation- 3

Test: Theory of Inflation- 3 for B Com 2024 is part of Macro Economics preparation. The Test: Theory of Inflation- 3 questions and answers have been prepared according to the B Com exam syllabus.The Test: Theory of Inflation- 3 MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Theory of Inflation- 3 below.
Solutions of Test: Theory of Inflation- 3 questions in English are available as part of our Macro Economics for B Com & Test: Theory of Inflation- 3 solutions in Hindi for Macro Economics course. Download more important topics, notes, lectures and mock test series for B Com Exam by signing up for free. Attempt Test: Theory of Inflation- 3 | 10 questions in 10 minutes | Mock test for B Com preparation | Free important questions MCQ to study Macro Economics for B Com Exam | Download free PDF with solutions
Test: Theory of Inflation- 3 - Question 1
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What is the primary focus of Schumpeter's theory of innovation in explaining business cycles?

Detailed Solution for Test: Theory of Inflation- 3 - Question 1
Schumpeter's theory of innovation emphasizes that business cycles are primarily driven by changes in industrial and commercial organization brought about by innovations. These innovations include changes in production methods, new products, new markets, and alterations in the way industries operate. According to Schumpeter, these innovations create fluctuations in economic activities, leading to the occurrence of business cycles.
Test: Theory of Inflation- 3 - Question 2
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Which policy tool is used by the MPC of the Bank of England to maintain low inflation in the UK?

Detailed Solution for Test: Theory of Inflation- 3 - Question 2
The MPC (Monetary Policy Committee) of the Bank of England uses monetary policy to maintain low inflation in the UK. This involves setting interest rates to influence aggregate demand in the economy. By increasing or decreasing interest rates, the MPC aims to achieve the government's inflation target and stabilize the economy.
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Test: Theory of Inflation- 3 - Question 3
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In the context of business cycles, what does the "accelerator" concept refer to?

Detailed Solution for Test: Theory of Inflation- 3 - Question 3
In the context of business cycles, the "accelerator" concept refers to the relationship between investment and consumer demand. When consumer demand increases, it stimulates investment in capital goods industries to meet the rising demand. This interaction between consumer demand and investment leads to cyclical fluctuations in economic activities.
Test: Theory of Inflation- 3 - Question 4
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In Samuelson's model of multiplier-accelerator interaction, what is the role of the multiplier concept?
Detailed Solution for Test: Theory of Inflation- 3 - Question 4
In Samuelson's model, the multiplier concept plays a crucial role in amplifying the effects of changes in income on investment and economic activities. When autonomous investment increases income, the multiplier effect causes consumer demand to increase, leading to a derived increase in investment. This interaction between the multiplier and accelerator creates cyclical fluctuations in the economy.
Test: Theory of Inflation- 3 - Question 5
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What is the primary goal of supply-side policies in reducing inflation?
Detailed Solution for Test: Theory of Inflation- 3 - Question 5
Supply-side policies are aimed at improving the long-term competitiveness and productivity of an economy. These policies focus on factors such as deregulation, privatization, labor market reforms, and innovation to make firms more efficient and competitive. While these policies can contribute to reducing inflationary pressures over the long term, they are not effective in addressing sudden increases in inflation.
Test: Theory of Inflation- 3 - Question 6
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Which concept does Keynes emphasize in his theory of business cycles?
Detailed Solution for Test: Theory of Inflation- 3 - Question 6
Keynes's theory of business cycles highlights the importance of total demand in determining economic fluctuations. According to Keynes, changes in total demand, which includes both consumer and capital goods demand, lead to changes in income, employment, and output. This emphasis on demand-side factors differentiates Keynesian theory from other theories that focus more on supply-side or monetary factors.
Test: Theory of Inflation- 3 - Question 7
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What was the main policy measure used during the UK's ERM membership in the late 1980s to control inflation?
Detailed Solution for Test: Theory of Inflation- 3 - Question 7
During the UK's membership in the ERM (Exchange Rate Mechanism), the main policy measure used to control inflation was monetary policy adjustments. The UK aimed to maintain a strong exchange rate by raising interest rates to attract foreign capital and prevent excessive inflation. However, this policy led to high-interest rates and contributed to a recession.
Test: Theory of Inflation- 3 - Question 8
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What was a major criticism of the pure monetary theory of business cycles?
Detailed Solution for Test: Theory of Inflation- 3 - Question 8
One major criticism of the pure monetary theory of business cycles is that it oversimplifies the relationship between changes in the flow of money and economic changes. This theory attributes fluctuations solely to changes in money supply and credit, neglecting other important non-monetary factors that can influence economic activities, such as new investment demands and expectations of businessmen.
Test: Theory of Inflation- 3 - Question 9
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In which stage of Schumpeter's theory of innovation does derived investment play a significant role?
Detailed Solution for Test: Theory of Inflation- 3 - Question 9
Derived investment plays a significant role in the "First Approximation" stage of Schumpeter's theory of innovation. This stage involves the initial impact of innovations on an economy. As autonomous investment increases income, the multiplier effect leads to derived investment, which is influenced by increased consumer demand. This derived investment initiates the acceleration process, which is a key factor in explaining business cycles according to Schumpeter's theory.
Test: Theory of Inflation- 3 - Question 10
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Which type of inflation is harder to control and may require allowing temporary inflation factors to come to an end?
Detailed Solution for Test: Theory of Inflation- 3 - Question 10
Cost-push inflation, caused by factors such as rising input costs or external shocks, is harder to control through monetary policy alone. In cases of cost-push inflation, allowing temporary inflation factors to come to an end might be a more suitable approach, as reducing aggregate demand could worsen economic conditions. Cost-push inflation often requires addressing the underlying factors causing cost increases.
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