Which of the following is a feature of the Classical theory of interest? MCQ with Answer and Explanation

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Which of the following is a feature of the Classical theory of interest?

A. Interest is a monetary phenomenon only

B. Interest is determined by demand and supply of real savings and investment

C. Liquidity preference determines interest

D. Interest is determined by demand and supply of money

Answer: Option B

Solution (By JKSSB Mock Tests)

In classical theory, the rate of interest is a real phenomenon determined by the demand for investment and the supply of savings.

This question belongs to: Economy GK Economy Set 1

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Question #1

The term 'Invisible Trade' in the balance of payments refers to:

A. Only capital transfers

B. Trade in goods only

C. Trade in services, income and transfers

D. Only foreign direct investment

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Correct Answer: Option C

Explanation:
Invisible trade (or invisibles) includes trade in services (such as tourism, software, transportation), income (interest, dividends) and unilateral transfers.

This question belongs to: Economy GK Economy Set 1

Question #2

Sustainable Development Goal 1 is related to:

A. gender equality

B. ending poverty in all its forms

C. climate action

D. quality education

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Correct Answer: Option B

Explanation:
SDG 1 aims to end poverty in all its forms everywhere.

This question belongs to: Economy GK Economy Set 1

Question #3

In the context of monetary economics, the 'Liquidity Effect' of an increase in the money supply refers to:

A. Only the rise in prices

B. The long-run rise in interest rates

C. The short-run decline in nominal interest rates caused by an increase in liquidity

D. Only the rise in output

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Correct Answer: Option C

Explanation:
The liquidity effect is the tendency for an exogenous increase in the money supply to lower nominal interest rates in the short run as the supply of loanable funds increases.

This question belongs to: Economy GK Economy Set 1

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