The Cobb-Douglas production function assumes – (A) Constant marginal returns (B) Diminishing marginal returns (C) Increasing returns to scale (D) Substitutability between inputs Answer: (D)
Ricardian equivalence theory suggests that – (A) Tax cuts boost demand (B) Government debt does not affect overall demand (C) Fiscal deficits raise interest rates (D) Taxation always reduces investment Answer: (B)
Okun’s Law shows the relationship between – (A) Inflation and GDP (B) Unemployment and GDP (C) Fiscal deficit and interest rates (D) Exchange rate and trade deficit Answer: (B)
A price floor set above the equilibrium price will result in – (A) Shortage (B) Surplus (C) Equilibrium (D) Inflation Answer: (B)
The Herfindahl-Hirschman Index (HHI) is used to measure – (A) Inflation (B) Market concentration (C) Income inequality (D) Fiscal deficit Answer: (B)
The LM curve shifts when there is a change in – (A) Government expenditure (B) Money supply (C) Investment demand (D) Savings rate Answer: (B)
A kinked demand curve is typical in – (A) Perfect competition (B) Monopoly (C) Oligopoly (D) Monopsony Answer: (C)
The Slutsky equation in microeconomics explains – (A) Wage-price spiral (B) Substitution and income effects (C) Investment multiplier (D) Trade deficit Answer: (B)
GDP deflator includes – (A) All goods and services (B) Only final goods (C) Exports only (D) Government expenditure Answer: (A)
The Pigovian tax is intended to – (A) Raise revenue (B) Control public borrowing (C) Internalize externalities (D) Reduce fiscal deficit Answer: (C)
The J-curve effect is seen in – (A) Fiscal policy (B) Trade balance after currency devaluation (C) Budget deficit reduction (D) Inflation targeting Answer: (B)
Permanent income hypothesis is associated with – (A) Milton Friedman (B) Paul Samuelson (C) John Hicks (D) Keynes Answer: (A)
A backward bending supply curve of labor shows that – (A) Wage and labor supplied are always positively related (B) At higher wages, people may choose to work less (C) Labor supply is fixed (D) Unemployment rises with wage Answer: (B)
Time inconsistency in economic policy refers to – (A) Lack of planning (B) Government’s inability to commit to long-term policies (C) Price rigidity (D) Sticky wages Answer: (B)
The non-accelerating inflation rate of unemployment (NAIRU) implies – (A) Structural unemployment (B) The natural rate below which inflation rises (C) Constant unemployment rate (D) Rate that causes deflation Answer: (B)
A Giffen good violates – (A) Law of diminishing marginal utility (B) Law of supply (C) Law of demand (D) Engel’s Law Answer: (C)
Tragedy of the commons refers to – (A) Inefficient public finance (B) Overuse of shared resources (C) Rising tax burden (D) Wage inequality Answer: (B)
The coefficient of price elasticity of demand is zero when – (A) Demand is highly responsive (B) Demand doesn’t change with price (C) Perfect substitutes exist (D) Total revenue increases Answer: (B)
Marshall’s Scissors refers to – (A) Intersection of IS-LM (B) Demand and supply determining price (C) Fiscal and monetary policy (D) Labor and capital efficiency Answer: (B)
The real exchange rate adjusts for – (A) Tax effects (B) Inflation differences (C) Trade surplus (D) Government borrowing Answer: (B)
Stolper-Samuelson theorem links – (A) Trade and income distribution (B) Savings and investment (C) Exchange rate and exports (D) Money and inflation Answer: (A)
Sen’s capability approach emphasizes – (A) Freedom and human development (B) GDP growth (C) Industrial efficiency (D) Tax equity Answer: (A)
In a closed economy, GDP = (A) C + I + G + X – M (B) C + I + G (C) C + I (D) C + I + NX Answer: (B)
Liquidity trap is a situation where – (A) Inflation rises sharply (B) Interest rate is high (C) Interest rate is near zero and monetary policy is ineffective (D) Banks have no reserves Answer: (C)
The Harrod-Domar model focuses on – (A) Short-run fiscal policy (B) Long-term employment (C) Capital accumulation and growth (D) Income redistribution Answer: (C)
General equilibrium analysis studies – (A) One market in isolation (B) All markets simultaneously (C) Trade policy (D) Fiscal policy impact Answer: (B)
Ramsey Rule in public finance deals with – (A) Intergenerational equity (B) Optimal taxation (C) Fiscal federalism (D) Pricing of public goods Answer: (B)
Sustainable development involves – (A) GDP growth only (B) Resource use without harming future generations (C) Consumption maximization (D) Financial independence Answer: (B)
Backward induction is a technique used in – (A) Monopoly pricing (B) Game theory (C) Input-output analysis (D) Fiscal planning Answer: (B)
The income elasticity of demand for inferior goods is – (A) Zero (B) Positive (C) Negative (D) Greater than 1 Answer: (C)
Edgeworth Box is a tool for analyzing – (A) Monopoly (B) Efficiency in exchange (C) Government spending (D) Trade policy Answer: (B)
Lorenz curve and Gini coefficient both measure – (A) Government efficiency (B) Inflation (C) Income inequality (D) Trade performance Answer: (C)
The Samuelson condition applies to – (A) Public good provision (B) Tax elasticity (C) Supply chain management (D) Unemployment Answer: (A)
Euler’s theorem in production theory implies – (A) Returns to scale (B) Factor pricing exhausts total product (C) Law of diminishing returns (D) Income elasticity Answer: (B)
Hotelling’s rule is used for – (A) Pricing under monopoly (B) Resource extraction over time (C) Inflation adjustment (D) Taxation policy Answer: (B)
Pareto optimality means – (A) Equal distribution (B) No one can be made better off without making someone worse off (C) Free market equilibrium (D) Efficient taxation Answer: (B)
In the Solow growth model, long-run growth is driven by – (A) Capital accumulation (B) Technological progress (C) Population growth (D) Fiscal policy Answer: (B)
Rational expectations theory assumes that – (A) Agents act randomly (B) Expectations are always wrong (C) Agents use all information efficiently (D) Government policy is always effective Answer: (C)
A second-degree price discrimination involves – (A) Charging different prices for different groups (B) Price based on quantity purchased (C) Bargaining-based pricing (D) Pricing based on income Answer: (B)
Inflation targeting as a policy was first adopted by – (A) USA (B) New Zealand (C) UK (D) India Answer: (B)
Heckscher-Ohlin theory predicts trade based on – (A) Currency values (B) Technology (C) Relative factor endowments (D) Consumer tastes Answer: (C)
Public choice theory studies – (A) Government budgeting (B) Political decision-making using economic tools (C) Market selection (D) Tax structure Answer: (B)
Deadweight loss arises due to – (A) Efficient pricing (B) Taxes and subsidies (C) Market clearing (D) Optimal allocation Answer: (B)
Crowding out happens when – (A) Private investment rises with public spending (B) Government borrowing reduces private investment (C) Tax cuts increase revenue (D) Public debt lowers inflation Answer: (B)
A natural monopoly arises due to – (A) High competition (B) Government policy (C) Economies of scale (D) Legal restrictions Answer: (C)
The income effect of a price change leads to – (A) Increase in real income (B) Change in quantity demanded due to price change (C) Increase in supply (D) Lower average cost Answer: (B)