Managerial Economics Set 4
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This set of Managerial Economics Multiple Choice Questions & Answers (MCQs) focuses on Managerial Economics Set 4
Q1 | Advocates of the public-choice view argue that voting behaviour is influenced by the
- Rate of inflation prior to an election.
- Level of economic activity.
- “Favourite son syndrome.
- Campaign issues
Q2 | According to the partisan theory,
- Politicians are viewed as working only for their own welfare.
- There are two parties with flexible goals
- Moderates and liberals often switch political goals
- Macroeconomic policy is not a key focus of most politicians
Q3 | Which of the following statements is(are) correct?
- Even the earliest political business cycle and partisan models assume that expectations were rational
- The partisan model of fiscal policy cannot be modified to be consistent with rational expectations
- The myopic, or short-sighted behaviour of voters is inconsistent with rational expectations
- The earliest political business cycle models assumed that expectations were always rational, whereas the partisan model assumed that expectations were sometimes irrational.
Q4 | When automatic fiscal stabilizers are in place, a shock that causes a fall in the kevel of economic activity automatically
- Results in a decline in the federal budget deficit that lessens the fall in income
- Results in a rise in the federal deficit that lessens the fall in income
- Requires the federal government to balance the budget
- Will lead to a permanent increase in the budget deficit
Q5 | According to the Keynesian model, the optimal fiscal policy is to
- Increase cyclical but not structural deficits during a recession
- Reduce cyclical and structural deficits during a recession
- Increase structural deficits during a recession
- Maintain a balanced budget in case of national emergency
Q6 | Which of the following are the most frequently utilized tools of fiscal policy in the United States?
- Indirect business taxes
- Corporate income taxes
- Inheritance taxes
- Personal income taxes
Q7 | Assume that the actual deficit is $150 billion with the economy well below potential output and that the level of economic activity rose to its potential level while tax revenues increased by $50 billion and transfer payments fell by $20 billion. Then, what is the structural deficit?
- $180 billion
- $120 billion
- $220 billion
- $80 billion
Q8 | The structural deficit is
- Directly attributable to the long-run behaviour of the economy
- Not directly attributable to the cyclical behaviour of the economy
- The result of permanent decisions policymakers have made about tax rates, the level of government spending, and benefit levels for transfer programs.
- Both b and c
Q9 | According to the Keynesians,
- An easy-fiscal tight-monetary policy reduces the trade deficit, such as what occurred during the 1980s
- An easy-fiscal tight-monetary policy mix affects the composition of output by encouraging imports of foreign goods and discouraging U.S. exports, as was experienced during the 1980s
- There was not a link between the rising government budgetary deficit and the rising trade deficit during the mid-1980s
- Budget deficits and trade deficits should not be a source of concern
Q10 | During the recession of 2001,
- There were a number of proposals for tax increases or spending cuts to stir the economy, but the failed due to worries about their effects on the already largedeficit
- A series of tax cuts were passed, though the only occurred in late 2001
- All the proposed tax and spending cuts were approved in order to motivate the economy and reduce the large deficit
- The cyclical deficit increased but the structural deficit remained unchanged
Q11 | Advocates of the public-choice view argue that elected officials
- Will always respond to inflation with expansionary policies but will respond to unemployment with restrictive policies
- Will actively respond to inflation with restrictive policies but are reluctant to respond to unemployment with expansionary policies
- Will always respond to both inflation and unemployment with expansionary policies
- None of the above
Q12 | Which of the following statements are(is) correct?
- Expansionary monetary policy and expansionary fiscal that leads to budget deficits create low interest rates
- High interest rates in the first half of the 1980s resulted from falls in the budget deficit under the Reagan administration
- The best monetary-fiscal policy mix to keep interest rates low would be to raise taxes and raise the money supply
- The answer depends upon the school of thought used to evaluate the effects of deficit policies
Q13 | Assuming a simultaneous deduction in income taxes and transfer payments of $50 billion, then aggregate disposable income will
- be higher than before
- be lower than before
- remain constant
- none of the above
Q14 | From the net tax function: T=t0+t1Y,where t0<0 and t1>0, it follows that, as income rises
- average taxes falls and the surplus declines
- average taxes rises and the deficit increases
- average taxes falls and the deficit declines
- average taxes and the deficit do not change
Q15 | The structural deficit is the deficit that
- Is composed by of non discretionary spending by the federal government
- Results from the economy being below is natural rate of output
- Exists when output is at its natural rate of output
- Results from temporary tax cuts
Q16 | In the IS-LM model, an easy monetary in conjunction with a tight fiscal policy
- Increases exports and decreases imports
- Decreases exports and increases imports
- Encourages foreign capital inflows to the U.S.
- Both b and c
Q17 | The cyclical deficit is that portion of the deficit
- That results form the economy being below the natural rate of output
- That would exist even if the economy were at its natural rate of output
- Is a function of the level of automatic stabilizers
- Both a & c
Q18 | Automatic stabilizers drive changes in
- The total deficit
- The cyclical deficit
- The structural deficit
- Monetary policy
Q19 | According to the concept of rational expectations
- Budget deficits are irrelevant to output in the short-run
- Higher deficits should increase output in the short run if they are expected
- Lower deficits can be used to stabilize output during expansions
- None of these
Q20 | The book ‘Asian Drama’ was written by
- A.C Pigou
- D. Ricardo
- Gunnar Myrdal
- Lionel Robbins
Q21 | The Historical school was based on
- Deductive method
- Inductive method
- Both of above
- None of these
Q22 | Physiocrats give utmost importance to
- Services
- Industry
- Agriculture
- None of these
Q23 | Feudalistic economy is dominated by
- Entrepreneur
- Worker
- Landlord
- None of these
Q24 | Adam Smith advocated
- Laissez Faire
- Division of Labour
- Both of these
- None of these
Q25 | A fall in the price of a commodity leads to
- A shift in demand
- A fall in demand
- A rise in the consumer’s real income
- A fall in the consumer’s real income