introduction to macro economics section 1 MCQ Questions & Answers Detailed Explanation

Answer: (b)

The gross national product (GNP) measures the welfare of a nation’s economy through the aggregate of products and services produced in that nation.

Although GNP is a proficient measurement of the magnitude of the economy, many economists, environmentalists and citizens have been arguing the validity of the GNP in respect to measuring welfare.

They are calling for a green national product that would indicate if activities benefit or harm the economy and well-being. This new national product would differ from the traditional GNP by addressing both the sustainability and well-being of the planet and its inhabitants.

Answer: (b)

Gross National Product [GNP] is the gross value of all the final products without deducting the depreciation of fixed capital.

Net National Product [NNP] is the value of net output in an economy during a period of one year. The difference between the GNP and NNP is equal to Capital depreciation.

Answer: (b)

The Phillips curve shows the inverse relationship between inflation and unemployment: as unemployment decreases, inflation increases.

The relationship, however, is not linear. Graphically, the short-run Phillips curve traces an L-shape when the unemployment rate is on the x-axis and the inflation rate is on the y-axis.

Answer: (a)

According to Keynes, money is demanded because of three motives -transaction, precautionary and speculative.

The first two motives provide a yield of convenience and certainty. The third motive provides money yield. Keynes has termed the demand for money as liquidity preference.

Answer: (d)

Jean Baptiste Say was a French economist. He is well known for Say’s Law (or Say’s Law of Markets), often summarized as:

• “Aggregate supply creates its own aggregate demand”;
• “Supply creates its own demand”, or “Supply constitutes its own demand”.

He argued that the production and sale of goods in an economy automatically produce an income for the producers of the same value, which would then be reinjected into the economy and create enough demand to buy the goods.

Thus production is determined by the supply of goods rather than demand.

Answer: (c)

Ragnar Frisch coined the widely-used term pair macroeconomics/microeconomics in 1933. He was a Norwegian economist and the co-recipient of the first Nobel Memorial Prize in Economic Sciences in 1969. He is known for having founded the discipline of econometrics.