Test: Introduction To Macro Economics - 2

15 Questions MCQ Test Economics Class 12 | Test: Introduction To Macro Economics - 2

This mock test of Test: Introduction To Macro Economics - 2 for Commerce helps you for every Commerce entrance exam. This contains 15 Multiple Choice Questions for Commerce Test: Introduction To Macro Economics - 2 (mcq) to study with solutions a complete question bank. The solved questions answers in this Test: Introduction To Macro Economics - 2 quiz give you a good mix of easy questions and tough questions. Commerce students definitely take this Test: Introduction To Macro Economics - 2 exercise for a better result in the exam. You can find other Test: Introduction To Macro Economics - 2 extra questions, long questions & short questions for Commerce on EduRev as well by searching above.

In order to conduct an expansionary open market operation, the central bank sells bonds in the bond market.

  • An expansionary OMO aims to expand the money supply and in- duce economic activity increasing output and income.
  • When the Central Bank sells bonds it collect money in exchange which would contract the money supply not expand it.

Higher values for marginal propensity to consume suggests that output is highly responsive to changes in autonomous spending. 


Higher marginal propensity to consume means that a person consumes more of his than he saves. So, when there is a little change in output , the income will increase as a result there will be more consumption which will increase income again and again and more consumption. As a result it has a multiplier effect which is much more than the initial increase in MPC. So a little change in autonomous spending will have a greater change in output.   if MPC is higher this means the denominator of the multiplier is lower as a result multiplier effect is greater.


Along a downward sloping money demand curve, as the interest rate falls the quantity of money demanded falls.

  • Along the MD curve as the interest rate falls, money demand increases.
  • If the return on savings is low would rather keep the money for consumption.

Investment function is positively dependent on the interest rate and negatively dependent on production.

  • Investment function : I = I(Y, i) is positively associated with Y but negatively associated with i.
  • The interest rate is the cost of borrowing thus higher rates means higher cost of borrowing which would make investment more costly.  
  • Greater income and production leads to expansion of businesses and more investment. 

Price of bonds are positively associated with the interest rate.

  • Price of bonds are negatively associated with the interest rate.
  • When the interest rates go up the price of bonds go down inverse relationship.
  • Intuition: Higher interest rates suggest higher returns, thus for bonds with lower returns to compete with higher rates, the price needs to be lower.

The national income identity implies that budget deficits cause trade deficits.

  • The effect of a budget deficit on the trade deficit is uncertain. It can lead to a worse trade deficit, to an increase in saving or a decrease in investment: NX = S + (T − G) − I.

Given the expected future exchange rate and the foreign interest rate, an increase in the domestic interest rate leads to an increase in the exchange rate.

  • The Interest Parity Relation suggests that given the expected future exchange rate and the foreign interest rate, an increase in domestic interest rate should increase the exhange rate leading to an appreciation. When domestic interest rates increases, it makes domestic financial assets relatively more profitable. Investors who would like to hold more domestic assets demand domestic currency leading to an appreciation.

A real depreciation leads to an immediate improvement in the trade balance.

  • A real depreciation leads immediately to a worsening of the trade balance and an improvement in some time (ff months - 1 year).

It is possible to have a real exchange rate appreciation and a nominal exchange rate depreciation atthe same time.


Yes, a nominal exchange rate depreciation is a decrease in E. If at the same time, domestic prices are increasing much faster relative to the foreign prices, then P/P could increase to swamp the decreasein E so that ε = EP/P increases, i.e., a real exhange rate appreciation.


A decrease in government spending and a real depreciation is the right policy mix to improve the trade balance without changing the level of domestic output.


A real depreciation improves the trade balance since it makes foreign goods more expensive relative to domestic goods, leading to an increase in net exports. But such an increase in net exports implies an increase in domestic output. The government can then decrease its spending to offset the resulting increase in output. 


Workers who do not belong to unions have no bargaining power.


Bargaining power depends not only on the belonging to a union but also on the personal characteristics of the worker (skills, age...) and on the kind of work.


It may be in the best interest of employers to pay wages higher than their workers’ reservation wage.


The wage should be higher than the reservation wage according to the efficiency wage theories.


The natural rate of unemployment is una&ected by policy changes.


The natural rate of unemployment depends on z and u. An increase in unemployment benefits increases z, or a less stringent enforcement in competition law increases you. In this way, policy changes influence the natural rate of unemployment.


Equilibrium in the labor market requires that the expected real wage in wage setting be equal to the effective real wage.


This is stating the fact that we find the equilibrium level of unemployment by equating the wage-seDng equation to the price seDng equation such that expected real wage equals to the effective realwage.


A computer network administrator has more bargaining power as a worker compared to a postman.


The computer network administrator has more bargaining power than the delivery person because she is a high-skilled worker compared with a low skilled one.