Which of the following is an example of adverse supply shock?

• A) Good weather
• B) Decrease in price of capital
• C) Flood
• D) Decrease in price of labor

Investment causes the capital stock to rise while ------------ causes capital stock to fall.

• A) Deflation
• B) Inflation
• C) Discount rate
• D) Depreciation

In the IS-LM model, an increase in money supply shifts ---------

• A) LM curve to the left.
• B) LM curve to the right.
• C) IS curve to the left.
• D) IS curve to the right.

Which one of the following is correct?

• A) Change in capital stock = Investment – Saving
• B) Change in capital stock = (Investment – Depreciation) *100
• C) Change in capital stock = Investment – Depreciation
• D) Change in capital stock = Investment + Depreciation

John Maynard Keynes presented a simple theory in which the interest rate is determined by:

• A) Money supply and money demand.
• B) Money demand and rate of interest.
• C) Real balances and aggregate demand.
• D) Money supply and rate of interest.

Suppose labor force (L) = 1000 in year one and population is growing at 1% per year then what will be the labor force in year two?

• A) 10
• B) 1010
• C) 100
• D) 1110

The trade-off between inflation and unemployment is called------------curve.

• A) Keynes
• B) Phillips
• C) Classical
• D) Fisher

Permanent debt is a type of --------- term loans.

• A) Easy
• B) Long
• C) Very short
• D) Short

As the price level ----------the value of --------

• A) Decrease; ATM card increases
• B) Increases; coins increases.
• C) Decrease; currency decreases
• D) Increases; money falls.

The deviation of the -------------from the natural rate is known as cyclical unemployment.

• A) Rate of labor force
• B) Actual rate of unemployment
• C) Working rate
• D) Population

Country risk premium is ---------related with the ------------

• A) Negatively; consumption.
• B) Positively; investment.
• C) Negatively; investment.
• D) Negatively; government purchases.

Prize bond is the example of:

• A) Balanced debt.
• B) Floating debt.
• C) Unfunded debt.
• D) Permanent debt.

Market loan is the example of ----------debt.

• A) Floating
• B) Unfunded
• C) Floating and unfunded
• D) Permanent

Monetary policy is ---------on output under -------------exchange rate.

• A) More effective; real
• B) Totally ineffective; floating
• C) Totally ineffective; nominal
• D) More effective; floating

As risk premium increases, interest rate --------, money demand --------- and LM* curve shifts rightward.

• A) Decreases; decreases
• B) Increases; decreases
• C) Increases; Increases
• D) Decreases; increases

Trade policy is --------on output under-----------exchange rate.

• A) More effective; real
• B) Totally ineffective; floating
• C) More effective; floating
• D) More effective; real

People base their expectations of future inflation on recently observed inflation is known as:

• A) Expectations.
• B) Rational expectations.
• C) Adaptive expectations.
• D) Negative expectations.

When real exchange rate rises, exports will--------and imports will -----------

• A) Increase; Increase.
• B) Decrease; decrease.
• C) Decrease; increase.
• D) Increase; decrease.

Which one of the following is the reason for sticky price?

• A) Production process
• B) Location of the firm
• C) Taste of the consumer
• D) Menu cost

Which one of the following is the example of floating debt?

• A) Treasury Bills .
• B) GP Fund.
• C) Prize Bonds.
• D) Income tax bonds.