Economics · Banking Financial Awareness

Macroeconomics and Policy

2,878 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 economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

Which of these is/are not a function of money?

  1. Hedges against inflation.

  2. Unit of measurement.

  3. Medium of exchanges.

  4. Measurement of value.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The primary functions of money are medium of exchange, unit of account, and store of value. Hedging against inflation is a strategy for managing assets, not a function of money itself.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

_________ affects the demand for money.

  1. Real income

  2. Price level

  3. Rate of interest

  4. All the three
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The following variables affects the demand for money: 

1. Real income: It refers to the income which is used for consumption of commodities in the market. If it is high, then the demand for money will also be high and if it is low then the demand for money will also be low. 
2. Price level: If the general price level in the economy for all the commodities are high as in the case of inflation, then demand for money will be more as now more money will be required to purchase the same set of commodities and if the general price level in the economy for all the commodities are low as in the case of deflation, then demand for money will be less  as now less money will be required to purchase the same set of commodities.
3. Rate of interest: Rate of interest is the rate charged on the loans offered by the commercial banks to the people with or without any collateral. If rate of interest is high then it will decrease the real income with the people as a result of which purchasing power would be decreased which will decrease the demand for money in the economy and if rate of interest is low then it will increase the real income with the people as a result of which purchasing power would be increased which will increase the demand for money in the economy.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

Which of the following is not a function of money?

  1. It is a medium of exchange

  2. It has general acceptability

  3. It is a standard measure of value

  4. It is hedge against inflation
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The primary functions of money are medium of exchange, unit of account, and store of value. While money can be used to hedge against inflation, this is not a fundamental definition or function of money itself.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

The speculative motive relates to the desire of the people to hold cash in order to take advantage of market movements regarding the future changes in the price of bonds and securities in the capital market.

  1. True

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

The speculative motive relates to the motive of the public to hold cash in their hand in order to take advantages of the market actions and movement in the future where they can influence the future change in the price of bonds and securities in the capital market. 

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

Which one of the following is the most important determinant of speculative demand for money?

  1. Income

  2. Interest rate

  3. Profits

  4. Prices
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The demand for money for speculative purposes in order to undertake investments for future returns is based upon the rate of interest prevailing in the economy. It is algebraically expressed in the form of a function as:  $S _{m}=f(r)$.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

By increasing repo rate, the economy may observe the following effect(s) ____________________.

  1. Rate of interest on loans and advances will be costlier.

  2. Industrial output would be affected to an extent.

  3. Banks will increase rate of interest on deposits.

  4. All of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

An increase in the repo rate makes borrowing more expensive for banks, which leads to higher interest rates for consumers and businesses, potentially slowing industrial output and increasing deposit rates.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

According to Keynes, the speculative demand for money is due to __________.

  1. money is better store of value than any other long term financial assets

  2. higher returns on speculative activities

  3. general tendency to speculate to make quick return

  4. all the three
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to J.M. Keynes, Money has speculative demand due to its function as a better store of value than any other long tern financial asset because of the following two reasons: 

(i) Money in not perishable as it does not have any age, its is not time bounded and does not gets old which makes it a better store of value. 
(ii) The rate of money does not change with time as in case of securities and bonds. The value of the currency remains intact even if there is fluctuations in the money market which makes it the best store of value. 

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

When the liquidity trap occurs the demand for money.

  1. Is perfectly interest elastic

  2. Is perfectly interest inelastic

  3. Means that an increase in money supply leads to a fall in the interest rate

  4. Means that an increase in the money supply leads to an increase in the interest rate
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A liquidity trap is an economic situation where people hoard financial capital instead of investing or spending it as the interest rates are low and savings rates are high which renders monetary policy ineffective. So, people believe that the interest rates will soon rise, which might decrease the prices of the bonds. Therefore, the demand for money depends on the rate of interest in the economy which hence makes the demand for money perfectly interest elastic. 

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

When the liquidity trap occurs the demand for money ________________.

  1. becomes perfectly interest elastic

  2. becomes perfectly interest inelastic

  3. means that an increase in money supply leads fall in the interest rate

  4. means that an increase in the money supply to an increase in the interest rate
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A liquidity trap is an economic situation where people hoard financial capital instead of investing or consuming it as the interest rates are low and savings rates are high which renders the monetary policy ineffective. So, people believe that the interest rates will soon rise which might decrease the prices of the bonds. Therefore, the demand for money depends on the rate of interest in the economy which hence makes the demand for money perfectly interest elastic. 

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

In dynamic sense, money serves the following purposes:

  1. Gives direction to economic trends.

  2. Encourages specialisation and division of labour.

  3. Ensures transformation of savings into investments.

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

In a dynamic sense, money facilitates economic growth by allowing for specialization, enabling investment through savings, and signaling economic trends through price changes.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

Money is said to be neutral when ______________.

  1. changes in money supply do not have any effect on real sector

  2. changes in money supply leads to increase in national income

  3. changes in money supply lead to decrease in national income

  4. none of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The neutrality of money theory suggests that changes in the money supply only affect nominal variables like prices, not real variables like output or employment.

Multiple choice organisation of commerce and management economics of development and planning fundamental of economic development economics of development economic mechanism

Which of the following is not true about the pre-reforms period (i.e. before 1991)?

  1. Shortage of Foreign Exchange

  2. Heavy Government Borrowings

  3. Huge Losses of Public Sector Enterprises

  4. Surplus Budget in each financial year
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In pre-reform period, that is, before the year of 1991, Surplus Budget in each financial year. Surplus Budget in each financial year introduced after the year of 1991. Budget can be defined as a statement of receipts and expenditure of an economy.

Multiple choice business economics and quantitative methods government budget and economy consumer's budget public finance indifference curve

What is that one effect which Marshall ignored but Hicks took into account?

  1. Income effect

  2. Substitution effect

  3. Price effect

  4. Output effect
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Marshall focused primarily on the substitution effect in his analysis of demand, while Hicks explicitly incorporated the income effect to provide a more complete decomposition of the price effect.

Multiple choice economics economic reconstruction economics of planning objectives of economic planning in india major economic problems

During deflation_____.

  1. the purchasing power of money increases

  2. the purchasing power of money decreases

  3. the purchasing power of money remains constant

  4. the purchasing power of money fluctuates
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

During deflation the purchasing power of money will increase. 

Deflation impacts consumers positively in the short term but negatively in the long term. In the short term, deflation essentially increases the purchasing power of consumers as prices fall. Consumers can save more money as their income increases relative to their expenses. This also alleviates debt burdens as consumers are able to deleverage.

Multiple choice economics economic reconstruction economics of planning objectives of economic planning in india major economic problems

The signs of crisis which created the need for Economic Reforms in 1991 were ________________.

  1. Low Forex Reserves

  2. Huge National Debt

  3. Inflation

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
The signs of crisis which created the need for Economic Reforms in 1991 were:
a) Low Forex Reserves
b) Huge National Debt
c) InflationDuring 1991, Indian Government adopted New Economic Policy which emphasized liberalization, privatization and globalization. During 1991, the economic crisis arose due to many economic problems as the government was facing high fiscal deficit due to rising current account deficit which acted as two spiral rate which lead to heavy inflation in the economy.