MCQs on Theories of Interest - IS-LM, Classical & Keynesian Theory

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MCQs on Theories of Interest

1. According to Classical Theory, the rate of interest is determined by:

a) Supply and demand for money
b) Central bank policies
c) Supply of savings and demand for investment
d) Marginal efficiency of capital

2. Keynes’ Liquidity Preference Theory states that people demand money for:

a) Only precautionary motives
b) Transaction, precautionary, and speculative motives
c) Consumption only
d) Investment purposes only

3. In Keynesian theory, the rate of interest is determined by:

a) Investment demand
b) National income
c) Supply and demand for money
d) Government expenditure

4. What does the money demand curve show?

a) Inverse relationship between interest rate and quantity of money demanded
b) Direct relationship between interest rate and demand
c) Government demand for money
d) Investment trends

5. The equilibrium rate of interest is achieved when:

a) Total output equals total income
b) Money demand equals money supply
c) Taxes equal subsidies
d) Investment equals consumption

6. If the money supply increases, the interest rate:

a) Increases
b) Falls
c) Remains unchanged
d) Doubles

7. A rightward shift in the money demand curve leads to:

a) Lower interest rate
b) Higher interest rate
c) No change
d) Decrease in investment

8. In the IS-LM model, the IS curve represents:

a) Equilibrium in the goods market
b) Equilibrium in the money market
c) Inflation level
d) Government borrowing

9. In the IS-LM model, the LM curve shifts due to:

a) Changes in investment
b) Changes in money supply
c) Changes in taxes
d) Changes in exports

10. Hicks-Hansen synthesis refers to:

a) Classical theory of output
b) Combination of Keynesian and Classical interest theories via IS-LM model
c) Liquidity trap
d) Price level determination

11. The speculative motive for holding money is influenced by:

a) Income level
b) Transaction needs
c) Interest rate expectations
d) Price level

12. In the Liquidity Trap situation, changes in money supply:

a) Have a strong effect on interest rates
b) Decrease the interest rate significantly
c) Do not affect the interest rate
d) Increase employment immediately

13. In the IS-LM model, if government spending increases, the IS curve:

a) Shifts to the left
b) Shifts to the right
c) Becomes vertical
d) Does not change

14. What causes the LM curve to shift rightward?

a) Increase in taxes
b) Increase in money supply
c) Rise in interest rates
d) Decrease in exports

15. If the interest rate is above equilibrium, there is:

a) Excess demand for money
b) Excess supply of money
c) Balanced market
d) Hyperinflation

16. Which curve is downward sloping in the IS-LM model?

a) IS curve
b) LM curve
c) Aggregate supply
d) Aggregate demand

17. Which variable causes a movement along the LM curve?

a) Government spending
b) Taxes
c) Interest rate
d) Investment demand

18. The vertical LM curve represents:

a) Elastic money demand
b) Liquidity trap
c) Money demand insensitive to interest rate
d) Perfect capital mobility

19. The IS-LM model assumes:

a) Prices are constant in the short run
b) Prices adjust immediately
c) Fiscal policy is ineffective
d) Only monetary policy matters

20. Which of the following factors can shift the IS curve?

a) Changes in money supply
b) Change in interest rate
c) Change in investment or government spending
d) Change in bank reserves

Chapter NumberPAPER I – INDIAN ECONOMY & INDIAN FINANCIAL SYSTEM
MODULE B: ECONOMIC CONCEPTS RELATED TO BANKING
1. MODULE B: ECONOMIC CONCEPTS RELATED TO BANKING
Fundamentals of Economics, Microeconomics, Macroeconomics, Types of Economies, and Supply & Demand
2. Money Supply and Inflation
3. Theories of Interest - Explained with Examples
4. Business Cycles and Economic Policies - Explained with Examples
5. National Income, GDP and Union Budget - Explained with Examples
QandAs/MCQs 8 MCQs: Economics Fundamentals, Micro and Macro Concepts
QandAs/MCQs 9MCQs on Money, Money Supply, and Inflation
QandAs/MCQs 10 MCQs on Theories of Interest - IS-LM, Classical & Keynesian Theory
QandAs/MCQs 11 MCQs: Business Cycle, Policies, National Income
QandAs/MCQs 12MCQs: Monetary & Fiscal Policy | National Income | Union Budget
MODULE C: INDIAN FINANCIAL ARCHITECTURE
MODULE D: FINANCIAL PRODUCTS AND SERVICES
MODULE A: INDIAN ECONOMIC ARCHITECTURE

Tags:Economics, Theories of Interest, IS-LM Curve, Keynesian Theory, Classical Theory, Money Market, Interest Rate, MCQs, Banking Exams, UPSC Economics, Banking Economics

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