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Question

Match List - I with List - II.
List - IList - II
A. Q theoryI. Unemployment and inflation
B. Phillips curveII. Unemployment and output
C. Okun's LawIII. Investment
D. Liquidity trapIV. Demand for money and interest rate
Choose the correct answer from the options given below :

The correct answer is
A-III, B-I, C-II, D-IV

To solve this matching question, we need to correctly associate each item from List - I with the corresponding item in List - II based on economic theories and concepts. Let's analyze each pair:

  1. Q Theory and Investment: The Q theory of investment, also known as Tobin's Q theory, is an economic theory that explains the relationship between the market value of an asset and its replacement cost. According to this theory, if the market value (Q) is higher than the replacement cost of assets, it motivates firms to invest more. Therefore, Q Theory is related to Investment.
  2. Phillips Curve and Unemployment and Inflation: The Phillips Curve represents an inverse relationship between the rate of unemployment and the rate of inflation in an economy. It suggests that with economic growth comes inflation, which in turn should lead to lower unemployment. So, Phillips Curve is associated with Unemployment and Inflation.
  3. Okun's Law and Unemployment and Output: Okun's Law describes the empirically observed relationship between unemployment and output, typically indicating that for every 1% increase in the unemployment rate, a country's GDP will be roughly an additional 2% lower than its potential GDP. Thus, Okun’s Law relates to Unemployment and Output.
  4. Liquidity Trap and Demand for Money and Interest Rate: A liquidity trap occurs when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. In such a situation, central banks' efforts to stimulate the economy become ineffective, and the demand for money and interest rates are affected. The Liquidity Trap pertains to Demand for Money and Interest Rate.

Based on the above analysis, the correct match for the options given is:

A-III, B-I, C-II, D-IV
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Important Questions from Macroeconomics

  1. A less elastic IS curve means that :
  2. In Keynesian framework, at full employment, which of the following is/are true ?
    (a) Supply curve in the short period is inelastic.
    (b) The supply is influenced by the increase in the quantity of money.
    Select the answer from the code given below :
  3. When LM curve is vertical, which one of the following is correct ? An increase in money supply will lead to :
  4. Crowding out will emerge in the economy, if :
  5. Which among the following were neglected by Keynes in his theory of employment ?
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