Economics · Banking Financial Awareness

Macroeconomics and Policy

2,833 Questions

Macroeconomics and policy questions assess the understanding of broad economic indicators, government fiscal strategies, and banking regulations. Topics include inflation causes, currency exchange rates, monetary policy tools, and historical economic systems. These are highly tested in banking and civil services examinations.

Inflation FactorsMonetary PolicyExchange RatesFiscal PolicyEconomic IndicatorsBretton Woods System

Macroeconomics and Policy Questions

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Which of the following is true for 'dirty float'?

  1. It is a purely fixed exchange rate system

  2. It is compromise between fixed and floating exchange rate systems

  3. Central banks sometimes intervene in the forex market to curb sharp changes.

  4. Both (B) and (C) above

  5. All of (A), (B) and (C) above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In order to reduce the inefficiencies in the foreign exchange market central banks generally intervene in the currency markets to smoothen the fluctuations. Though officially the exchange rate may be floating, in reality the central bank  may intervene regularly in the currency market,unofficially keeping it fixed. Such a system is referred to as a 'managed float' or a 'dirty float'.

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

Which of the following is not the reason for excess demand?

  1. Fall in the propensity to consume

  2. Reduction in taxes

  3. Increase in investments

  4. Deficit Financing
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Propensity to consume refers to the proportion of income used as consumption expenditure. The fall in the propensity to consume is not responsible for creating excess demand in an economy.

Multiple choice commercial applications marketing mix - 4 p's meaning and objectives of pricing pricing strategies pricing

Defraction is a situation where:

  1. prices are falling

  2. value of money is rising

  3. output is falling

  4. all of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Deflation is a general decline in prices for goods and services. It typically correlates with a rise in the purchasing power of money and often occurs during economic contractions where output falls.

Multiple choice business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

 ______ refers to the situation when aggregate supply falls short of aggregate demand corresponding to full employment level of output in the economy.

  1. Deficient Demand

  2. Excess Demand

  3. Inflationary Gap

  4. Deflationary gap
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Inflationary gap is the excess of aggregate demand over and above its level required to maintain full employment equilibrium in the economy. It implies two things-
1) Planned aggregate demand in the economy happens to exceed its full employment level.
2) The level of aggregate demand surpasses the level of aggregate supply even when the available factors are fully utilized.

Multiple choice business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

Devaluation of currency means ____________________.

  1. Reduction in the value of domestic currency by the market forces

  2. Reduction in the value of domestic currency by the government

  3. Both (a) and (b)

  4. Neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Devaluation of currency mainly occurs in countries with fixed exchange rate. It refers to the reduction in the value of domestic currency by the government.

Multiple choice business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

A rise in supply of a currency would lead to its appreciation, assuming no change in other factors. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A rise in the supply of a currency, while demand remains constant, leads to a decrease in its value, which is known as depreciation, not appreciation.

Multiple choice business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

Under managed floating rate system, central bank maintains reserves of foreign exchange. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In a managed floating system, the central bank intervenes in the foreign exchange market to stabilize the currency by buying or selling foreign exchange reserves.

Multiple choice business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

Devaluation and depreciation of currency are one and the same thing. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Devaluation is reduction in value of domestic currency by the government under fixed exchange rate system.It is a deliberate effort. On the other hand,
Depreciation is decrease in value of domestic currency due to market forces of demand and supply under flexible exchange rate system. 

Multiple choice business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

Huge international reserves are required to be maintained by the government in fixed and flexible exchange rate system. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Fixed exchange rate system is always supported with huge reserves of gold because foreign currencies are convertible to gold.
But flexible rate of exchange is the rate which is determined by the supply-demand forces in the foreign exchange market. It is also called 'free exchange rate' as it is determined by the free play of supply and demand forces in the international money market.
Multiple choice business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

Increase in foreign exchange rate leads to rise in supply of foreign exchange. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The foreign exchange rate and supply of foreign exchange is positively related and it is upward sloping curve as because the components of supply of foreign exchange rise as foreign exchange rate rises. For example, exports rise as the foreign exchange rate rises.

Multiple choice business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

Flexible exchange rate is determined by the government. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Flexible rate of  exchange is the rate which is determined by the supply-demand forces in the foreign exchange market. It is also called 'free exchange rate' as it is determined by the free play of supply and demand forces in the international money market.

Multiple choice business economics and quantitative methods balance of payments exchange rate balance of payments and exchange rate balance of trade and balance of payments

_________ refers to a system in which foreign exchange rate is determined by market forces and central bank influences the exchange rate through intervention.

  1. Flexible exchange rate system

  2. Managed floating rate system

  3. Floating exchange rate

  4. Fixed exchange rate system
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Managed floating is a tool employed by the Central bank to restore the value of the country's currency in relation to other countries within the desired limits, even when the exchange rate is determined by the market forces of demand and supply.