📄 MACROECONOMICS — MOCK TEST

(100 Marks | 3 Hours)

SECTION A — MCQs (20 marks | 1 mark each)

1. In IS–LM model, an increase in government expenditure shifts:

a) IS left

b) IS right

c) LM right

d) LM left

2. Velocity of money in Quantity Theory is assumed to be:

a) Constant

b) Increasing

c) Zero

d) Cyclical

3. Phillips Curve shows relationship between:

a) Inflation & unemployment

b) GDP & interest rate

c) Money supply & fiscal deficit

d) Wage & productivity

4. In Solow model, long-run growth is driven by:

a) Capital alone

b) Labour alone

c) Technology

d) Savings only

5. Liquidity Trap implies LM curve is:

a) Vertical

b) Upward sloping

c) Horizontal

d) Backward bending

6. Stagflation means:

a) Rising inflation + rising output

b) Rising unemployment + rising output

c) Rising inflation + rising unemployment

d) None

7. 'Crowding out' effect occurs due to:

a) Monetary expansion

b) High government borrowing

c) Exchange rate depreciation

d) Increase in exports

8. In open economy Mundell–Fleming model, under flexible exchange rate, monetary policy is:

a) Ineffective

b) Strongly effective

c) Weak

d) Neutral

9. If MPC=0.8, the simple expenditure multiplier is:

a) 2

b) 4

c) 5

d) 10

10. Real Business Cycle models emphasise shocks in:

a) Monetary policy

b) Technology

c) Consumption

d) International trade

SECTION B — Short Questions (30 marks | 5 marks each)

1. Explain the derivation of IS curve.

2. Distinguish between demand-pull and cost-push inflation.

3. Write short notes on NAIRU.

4. Explain money multiplier mechanism.

5. What is crowding-out effect? Why does it occur?

6. Compare Solow growth model with endogenous growth model.

SECTION C — Numerical / Analytical Problems (25 marks | 12.5 marks each)

1. In a closed economy:

C = 100 + 0.75Y

I = 50

G = 40

Find equilibrium income and multiplier.

2. Using Solow model:

Production: Y = K^0.3L^0.7

Saving rate = 25%, Depreciation = 5%, n = 2%

Derive steady-state capital per worker.

SECTION D — Long Questions (25 marks | attempt any one)

1. Derive IS–LM equilibrium. Evaluate monetary vs fiscal policy effectiveness under liquidity trap and classical range.

OR

2. Explain business cycle phases using both Keynesian and RBC perspectives. Discuss whether output fluctuations are demand-driven or technology-driven.

End of Mock Test