In the IS-LM model, a fiscal expansion shifts the –
(A) LM curve right
(B) IS curve right
(C) LM curve left
(D) IS curve left
Answer: (B)

Taylor Rule is used to determine –
(A) Tax rates
(B) Government spending
(C) Optimal interest rates
(D) Import duties
Answer: (C)

Bounded rationality refers to –
(A) Full information decision-making
(B) Rational behavior under limited information and time
(C) Irrational consumer behavior
(D) Automated pricing
Answer: (B)

A public good is –
(A) Excludable and rival
(B) Excludable and non-rival
(C) Non-excludable and non-rival
(D) Non-excludable and rival
Answer: (C)

In input-output analysis, the coefficient matrix represents –
(A) Trade imbalance
(B) Factor productivity
(C) Inter-industry relationships
(D) Income elasticity
Answer: (C)

A tariff imposed on imports is likely to –
(A) Lower domestic prices
(B) Increase domestic demand
(C) Protect domestic producers
(D) Boost exports
Answer: (C)

The real interest rate becomes negative when –
(A) Inflation is higher than nominal interest rate
(B) Tax rate increases
(C) GDP falls
(D) RBI raises repo rate
Answer: (A)

A regressive tax example is –
(A) Excise duty
(B) Corporate tax
(C) Income tax
(D) Wealth tax
Answer: (A)

Money illusion is the tendency to –
(A) Ignore real values and focus on nominal values
(B) Overestimate inflation
(C) Avoid currency
(D) Demand barter
Answer: (A)

Menu costs are associated with –
(A) Changing government policies
(B) Repricing products during inflation
(C) Inventory shortage
(D) Public finance
Answer: (B)

A moral hazard occurs when –
(A) Agents take more risks after being insured
(B) Interest rates rise
(C) Government defaults
(D) Subsidies are withdrawn
Answer: (A)

Veblen goods are characterized by –
(A) Demand falling as price rises
(B) Demand rising as price rises
(C) Perfect elasticity
(D) Inferior quality
Answer: (B)

The Engel curve shows the relationship between –
(A) Price and demand
(B) Income and consumption
(C) Supply and production
(D) Tax and revenue
Answer: (B)

Pareto efficiency is achieved when –
(A) Output is maximized
(B) No reallocation can improve one’s welfare without reducing another’s
(C) Government spending is zero
(D) GDP growth is constant
Answer: (B)

Cross-border externalities are best addressed by –
(A) Fiscal deficit
(B) Global institutions or treaties
(C) Local governments
(D) Free markets
Answer: (B)

Shadow economy includes –
(A) Government services
(B) Informal and unreported economic activities
(C) Agricultural subsidies
(D) Global trade
Answer: (B)

Autonomous consumption refers to –
(A) Consumption dependent on income
(B) Zero consumption
(C) Consumption when income is zero
(D) Long-term saving
Answer: (C)

The credit multiplier works on the principle of –
(A) Inflation reduction
(B) Fractional reserve banking
(C) Zero-based budgeting
(D) Full reserve system
Answer: (B)

Transaction motive of money demand is primarily driven by –
(A) Inflation
(B) Interest rates
(C) Income
(D) Investment
Answer: (C)

Phillips curve flattens when –
(A) Labor market is tight
(B) Expectations are adaptive
(C) Inflation expectations are anchored
(D) Demand rises sharply
Answer: (C)

The twin balance sheet problem involves –
(A) Households and corporates
(B) Banks and corporates
(C) Banks and households
(D) Government and public sector
Answer: (B)

Net factor income from abroad is the difference between –
(A) Domestic and foreign investment
(B) Export and import of services
(C) Income earned by nationals abroad and foreigners domestically
(D) GDP and GNP
Answer: (C)

Vertical equity in taxation implies –
(A) Equal tax treatment for all
(B) Tax proportional to income
(C) Rich should pay more
(D) Tax on foreign firms
Answer: (C)

A Lorenz curve closer to the line of equality shows –
(A) More inequality
(B) Less inequality
(C) Constant inequality
(D) Perfect inequality
Answer: (B)

Ricardo-Barro equivalence suggests that –
(A) Consumers offset government spending by saving
(B) Deficits always lead to inflation
(C) Money supply is irrelevant
(D) Taxes reduce productivity
Answer: (A)

A sunk cost is –
(A) A cost that can be recovered
(B) A future cost
(C) An irrecoverable past cost
(D) A variable cost
Answer: (C)

The coase theorem deals with –
(A) Tax incentives
(B) Optimal pricing
(C) Private solutions to externalities
(D) Monopoly regulation
Answer: (C)

The LM curve becomes vertical when –
(A) Liquidity preference is high
(B) Interest elasticity of money demand is zero
(C) Investment is insensitive to interest rates
(D) Tax rates rise
Answer: (B)

Real business cycle theory attributes fluctuations to –
(A) Monetary shocks
(B) Government policy
(C) Technology shocks
(D) Interest rate changes
Answer: (C)

Revealed preference theory was developed by –
(A) Alfred Marshall
(B) Paul Samuelson
(C) Amartya Sen
(D) Adam Smith
Answer: (B)

Triffin dilemma is a conflict between –
(A) Domestic monetary policy and global reserve currency role
(B) Trade and fiscal policy
(C) Growth and environment
(D) Taxation and productivity
Answer: (A)

Backward bending supply of labor indicates –
(A) Negative wage elasticity
(B) High unemployment
(C) Full employment
(D) Sticky wages
Answer: (A)

Involuntary unemployment exists when –
(A) People choose not to work
(B) Jobs exceed labor supply
(C) Willing workers can’t find jobs at prevailing wage
(D) All workers are temporary
Answer: (C)

A unit tax causes a parallel shift in –
(A) Demand curve
(B) Supply curve
(C) Marginal cost curve
(D) Budget line
Answer: (B)

Nominal rigidity refers to –
(A) Sticky prices and wages
(B) Supply side shocks
(C) Inflation expectations
(D) Fixed exchange rates
Answer: (A)

A public debt trap occurs when –
(A) Borrowing is used for capital formation
(B) Debt servicing exceeds new borrowings
(C) Exports fall sharply
(D) Budget surplus rises
Answer: (B)

The recessionary gap is when –
(A) Actual GDP exceeds potential GDP
(B) Full employment is reached
(C) Actual GDP is below potential GDP
(D) Exports exceed imports
Answer: (C)

Barter system fails due to –
(A) Lack of trust
(B) Double coincidence of wants
(C) High taxation
(D) Informal labor
Answer: (B)

Stagflation combines –
(A) Inflation and stagnation
(B) Growth and deflation
(C) Deflation and unemployment
(D) Investment and saving
Answer: (A)

Inflation targeting in India is managed by –
(A) Ministry of Finance
(B) RBI under Monetary Policy Framework
(C) NITI Aayog
(D) SEBI
Answer: (B)

Expenditure switching policy aims to –
(A) Reduce tax burden
(B) Encourage savings
(C) Shift consumption from foreign to domestic goods
(D) Control inflation
Answer: (C)

Lump-sum tax is –
(A) Proportional to income
(B) Varies with consumption
(C) Fixed amount regardless of income
(D) Based on imports
Answer: (C)

The Monetary Policy Framework Agreement (MPFA) was signed between –
(A) RBI and SEBI
(B) RBI and IMF
(C) RBI and Government of India
(D) NITI Aayog and Finance Commission
Answer: (C)

Capital account convertibility refers to –
(A) Free trade in goods
(B) Free movement of capital across borders
(C) Open fiscal deficit
(D) Floating interest rates
Answer: (B)

Ceteris paribus is a Latin phrase meaning –
(A) Demand is constant
(B) All other things being equal
(C) Price elasticity
(D) Only output varies
Answer: (B)

Tax buoyancy measures –
(A) Growth of tax revenue in relation to GDP
(B) Elasticity of tax to price
(C) Tax collection efficiency
(D) Deficit reduction
Answer: (A)

A higher Gini coefficient implies –
(A) Lower inflation
(B) Greater income inequality
(C) More exports
(D) Efficient taxation
Answer: (B)

Real wage is calculated as –
(A) Nominal wage × price index
(B) Nominal wage / price index
(C) GDP / wage
(D) Wage × inflation
Answer: (B)

Import quota is a –
(A) Price control
(B) Non-tariff barrier
(C) Direct tax
(D) Monetary instrument
Answer: (B)

A deflationary gap can be closed by –
(A) Increasing taxes
(B) Reducing government expenditure
(C) Expansionary fiscal policy
(D) Raising interest rates
Answer: (C)