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

Answer: (c)

Full employment refers to a situation in which every able-bodied person who is willing to work at the prevailing rate of wages is, in fact, employed.

It implies an absence of involuntary unemployment which occurs when those who are willing to work at the going wage rate do not get work.

Answer: (c)

J.M. Keynes’s magnum opus, ‘The General Theory of Employment, Interest and Money’ is often viewed as the foundation of modern macroeconomics.

Macroeconomics deals with the performance, structure, behaviour, and decision-making of an economy as a whole, rather than individual markets.

Answer: (a)

When prices rise between 20% to 100% per annum or even more, it is called galloping or hyperinflation. Such a situation brings a total collapse of the monetary system because of the continuous fall in the purchasing power of money.

Galloping inflation has an adverse effect on middle and low-income groups in society.

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: (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)

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.”