ECO403 Midterm MCQs Updated by VU Topper RM

Q1. Vu-Topper RM (1 marks)

Which of the following is measured in real or physical units?

1. Relative prices
2. Wage in dollars per hour of work
3. General price level
4. Nominal interest rate

Correct answer: Relative prices

Q2. Vu-Topper RM (1 marks)

The costs of reducing money balances to avoid inflation tax is called: A. The inconvenience of adjusting prices frequently B. The cost of printing new catalogs

C. Shoe leather cost

D. Menu costs

Q3. Vu-Topper RM (1 marks)

When a fiscal expansion takes place at home, then national savings and equilibrium real exchange rate affected in a way that: A. National saving decreases and real exchange rate falls B. National saving increases and real exchange rate falls C. National saving increases and real exchange rate rises

D. National saving decreases and real exchange rate rises

Q4. Vu-Topper RM (1 marks)

Which of the following is true about equilibrium in the money market?

1. Money demand equals money supply
2. Money demand equals the inflation rate
3. Money supply equals real income
4. Money supply equals nominal interest rate

Correct answer: Money demand equals money supply

Q5. Vu-Topper RM (1 marks)

The opportunity cost of holding money, instead of bonds or other assets, is represented by which rate?

1. Expected inflation rate (πe)
2. Actual inflation rate (π)
3. Real interest rate (r)
4. Nominal interest rate (i)

Correct answer: Nominal interest rate (i)

Q6. Vu-Topper RM (1 marks)

What does the money demand function d(M/P) = L(i, Y) suggest about the relationship between real money demand and the nominal interest rate (i)?

1. Money demand is positively related to nominal interest rate
2. Money demand is independent of nominal interest rate
3. Money demand is inversely related to nominal interest rate
4. Money demand is inversely related to income

Correct answer: Money demand is inversely related to nominal interest rate

Q7. Vu-Topper RM (1 marks)

All of the followings are the costs of expected inflation EXCEPT: A. Menu costs B. Relative price distortions

C. Arbitrary income re-distribution between individuals

D. Shoe leather cost

Q8. Vu-Topper RM (1 marks)

The average rate of unemployment around which the economy fluctuates is known as:

A. Natural rate of unemployment

B. The minimum achievable unemployment rate C. Frictional unemployment D. Structural unemployment

Q9. Vu-Topper RM (1 marks)

According to the quantity theory of money, what happens if the velocity of money (V) is constant?

1. Changes in money supply directly affect inflation
2. The money supply has no effect on the economy
3. Inflation is unrelated to money supply growth
4. Money supply growth has no effect on inflation

Correct answer: Changes in money supply directly affect inflation

Q10. Vu-Topper RM (1 marks)

The term ‘G’ in the National Income Accounts Identity (Y = C + I + G + NX) represents:

A. Government spending

B. Global income C. Gross national product D. Government income

Q11. Vu-Topper RM (1 marks)

Which one of the following is correct?

1. M × V = P/ Y
2. M × V = P + Y
3. M × V = P × Y
4. M + V = P - Y

Correct answer: M × V = P × Y

Q12. Vu-Topper RM (1 marks)

Which one of the following is correct?

1. Real exchange rate = (Nominal exchange rate - domestic price level) /