ECO403 Quiz 3

Q1. Macro-economic disequilibrium exists when aggregate supply is -------

1. not equal to aggregate demand.
2. equal to aggregate investment.
3. equal to aggregate demand.
4. not equal to aggregate investment.

Correct answer: not equal to aggregate demand.

Q2. Which of the following is an example of fiscal policy that will increase aggregate demand?

1. A tax cut.
2. An increase in discount rate.
3. A cut in government expenditure.
4. A cut in discount rate.

Correct answer: A tax cut.

Q3. If marginal propensity to consume (MPC) is 0.7, the government purchases multiplier is----------

1. 1/0.3.
2. 1/0.7.
3. 0.7/0.7.
4. 1-0.7/-0.7.

Correct answer: 1/0.3.

Q4. The important determinant of the steady state ratio of capital to labor is--------

1. Foreign aid.
2. Saving rate.
3. Output.
4. Labor force.

Correct answer: Saving rate.

Q5. Nominal exchange rate is denoted by---------------

1. E.
2. e.
3. r*.
4. P*.

Correct answer: e.

Q6. In Solow model; production functions shows labor augmenting technological progress. Y is equal to:

1. F (K+1, L+1 + E+1)
2. F (K, L + E)
3. F (K, L x E)
4. F (K+1, L + K)

Correct answer: F (K, L x E)

Q7. If marginal propensity to consume (MPC) is 0.9, the government purchases multiplier is----------

1. 1.11
2. 10
3. 5
4. 2

Correct answer: 10

Q8. Which of the following is a correct statement?

1. LM* curve is positively sloped.
2. LM* curve is vertical.
3. LM* curve is horizontal.
4. LM* curve is negatively sloped.

Correct answer: LM* curve is vertical.

Q9. In the short run equilibrium, if output is ------------------level, then prices will fall.

1. At the full employment
2. Above the natural rate of unemployment
3. Below the full employment
4. Above the unemployment

Correct answer: Below the full employment

Q10. Suppose labor force (L) = 1000 in a year and population is growing at 1% per year then change in labor force will be---------------

1. 1.
2. 10.
3. 10%.
4. 0.11.

Correct answer: 10.