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

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: (b)

Keynes defined Psychological Law of Consumption in terms of, “The fundamental psychological law, upon which we are entitled to depend with great confidence both a priori from our knowledge of human nature and from the detailed facts of experience, is that men are disposed of, as a rule, and on the average, to increase their consumption as their income increases but not by as much as the increase in the income.”

Answer: (d)

The Human Development Index (HDI) is an aggregate measure of progress in three dimensions—health, education and income which are used to rank countries into four tiers of human development.

The HDI was developed by the Pakistani economist Mahboob ul Haq working alongside Indian economist Amartya Sen.

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.