ASRB NET and ARS / SMS / STO recruitment · India · Agricultural Scientists Recruitment Board (ICAR)
Original practice questions written to the published syllabus · not past papersHow national income, money, prices and employment are determined and how monetary and fiscal policy act on them. Heavily used in the economic and social issues papers of development-bank and central-bank officer recruitment.
In the exams: agricultural economics PhD entrance and fellowship examinations (heavy); agricultural development bank officer recruitment, economic and social issues (heavy); central bank officer recruitment economic and social issues papers (reported); agricultural master's entrance examinations, agricultural economics (present)
How our questions for ASRB NET and ARS / SMS / STO recruitment spread across the units of Macroeconomics & Policy. Difficulty: 31 easy, 40 medium, 31 hard.
| Multiplier and accelerator | 11 | |
| Dynamic models and business cycles (PhD level) | 11 | |
| IS-LM model | 10 | |
| Money, interest and income | 10 | |
| Classical theory of income determination | 9 | |
| Consumption, saving and investment functions | 9 | |
| Open-economy macro models (PhD level) | 9 | |
| Keynesian theory of income determination | 7 | |
| Inflation and unemployment | 7 | |
| Fiscal policy instruments | 7 | |
| National income concepts and measurement | 6 | |
| Monetary policy instruments | 6 |
Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.
According to Keynes, the level of output and employment in the short run is determined by
C. effective demand
Keynes's principle of effective demand holds that firms produce what they expect to sell, so aggregate demand determines short-run output. Money and prices are the quantity theory; the real wage and technology determine output in the classical long run.
Further reading: Dornbusch, Fischer and Startz, Macroeconomics; Mankiw, Macroeconomics
Keynes defined the marginal efficiency of capital as
C. the discount rate equating the present value of an asset's expected returns with its supply price
The MEC is an internal rate of return; investment proceeds while it exceeds the market interest rate. The ratio of market value to replacement cost is Tobin's q; the extra output from capital is its marginal physical product.
Further reading: Dornbusch, Fischer and Startz, Macroeconomics; Mankiw, Macroeconomics
A cold-storage unit costs 1000 today and is expected to yield a single net return of 1210 at the end of year 2, with no scrap value. What is its marginal efficiency of capital, and should it be built if the market interest rate is 8%?
B. 10%; yes, because it exceeds 8%
Solve 1000 = 1210/(1 + r)^2: (1 + r)^2 = 1.21, so r = 10%. As MEC > 8%, the investment is profitable. 21% is the undiscounted total return and 10.5% is a simple average, both of which ignore compounding. The timing of returns is already in the MEC, so it is not a reason to reject.
Further reading: Dornbusch, Fischer and Startz, Macroeconomics; Mankiw, Macroeconomics
The marginal propensity to save is 0.2. If autonomous investment rises by 50, by how much does equilibrium income rise in the simple Keynesian model?
B. 250
k = 1/MPS = 1/0.2 = 5, so dY = 50 x 5 = 250. 10 multiplies by the MPS; 62.5 divides by the MPC; 50 ignores the multiplier.
Further reading: Dornbusch, Fischer and Startz, Macroeconomics; Mankiw, Macroeconomics
The goods market is described by IS: Y = 1000 - 50r and the money market by LM: Y = 500 + 50r, where r is the interest rate in percent. What are the equilibrium interest rate and income?
D. r = 5%, Y = 750
Set 1000 - 50r = 500 + 50r, so 100r = 500 and r = 5. Then Y = 500 + 50 x 5 = 750 (the IS equation gives the same). r = 10 comes from dividing 500 by 50 only; Y = 1250 adds instead of subtracting in IS; r = 2.5 divides by 200, and IS then gives Y = 875.
Further reading: Dornbusch, Fischer and Startz, Macroeconomics; Mankiw, Macroeconomics
Using Okun's law with a coefficient of 2, if unemployment is 7% and the natural rate is 5%, what is the output gap?
D. -4%
Output gap = -2 x (u - u*) = -2 x (7 - 5) = -4%: output is 4% below potential. Forgetting the coefficient gives -2%; the sign must be negative when unemployment is above its natural rate. -1% divides by the coefficient instead of multiplying.
Further reading: Dornbusch, Fischer and Startz, Macroeconomics; Mankiw, Macroeconomics
The 'stagflation' of the 1970s was difficult to explain with the original Phillips curve because
A. inflation and unemployment rose together, contradicting a stable inverse relation
The original curve implies that higher inflation comes with lower unemployment. Supply shocks (oil prices) and rising inflation expectations shifted the short-run curve upward, producing both at once, which supported the expectations-augmented view.
Further reading: Dornbusch, Fischer and Startz, Macroeconomics; Mankiw, Macroeconomics
In the Mundell-Fleming model of a small open economy with perfect capital mobility and a floating exchange rate,
D. monetary policy is effective in changing income, while fiscal policy is ineffective
Monetary expansion puts downward pressure on the interest rate, capital flows out, the currency depreciates and net exports rise. Fiscal expansion causes appreciation that reduces net exports by as much as government spending rose. With fixed rates the results reverse.
Further reading: Dornbusch, Fischer and Startz, Macroeconomics; Mankiw, Macroeconomics
The 'impossible trinity' states that a country cannot simultaneously have
A. a fixed exchange rate, free capital mobility and an independent monetary policy
At most two of the three can be combined. Euro-area members keep fixed rates and capital mobility but give up independent monetary policy; many inflation targeters float; some countries keep a managed rate and monetary independence by limiting capital flows.
Further reading: Dornbusch, Fischer and Startz, Macroeconomics; Mankiw, Macroeconomics
In the Solow growth model without technical progress, a permanent rise in the saving rate
C. raises the steady-state level of output per worker but not its long-run growth rate
A higher saving rate raises capital per worker until diminishing returns bring investment back into line with depreciation and population growth, so output per worker rises to a higher level and then stops growing. Long-run per-capita growth requires technical progress.
Further reading: Dornbusch, Fischer and Startz, Macroeconomics; Mankiw, Macroeconomics
Ten here, 102 in the app. The Laisha app has every practice question we have written to ASRB NET and ARS / SMS / STO recruitment in this subject, marked as you go, with timed papers, a jump-to-unanswered list and a certificate when you pass at 70 per cent.
Free for ten days, then one subscription of US$10 a month. We would rather say so here than have you find it later.
An AI operating system for agriculture: free guides, manuals and tools written for every country.