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

Answer: (c)

The issue of inflation is addressed from both the demand and supply sides. demand management is achieved by measures such as postponing public expenditure, mopping up excess liquidity either through taxes or savings schemes, etc.

On the supply side, the mechanism of the Public Distribution System (PDS) ensures the availability of essential commodities for the vulnerable sections of society.

This helps to maintain price levels. Coupled with this is the open market sale of rice and wheat resorted to by FCI from its buffer stock in times of price rise.

Answer: (b)

The Average Fixed Cost Curvegraphically represents the relation between the average fixed cost incurred by a firm in the short-run product of a good or service and the quantity produced. it is relatively high at small quantities of output, then declines as production increases.

It is downward sloping because as output increases, the firm spreads its fixed costs over larger and larger amounts of output.

Answer: (d)

The ‘Ability-to-Pay’ principle of Taxation is one of the canons of taxation proposed by Adam Smith in his ‘Wealth of Nations.’

It is a progressive taxation principle that maintains that taxes should be levied according to a taxpayer's ability to pay. It is concerned with the equitable distribution of taxes according to the stated taxable capacity or ability to pay an individual or group.

The emphasis in this approach is put on the redistribution of income.

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)

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 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.