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

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: (c)

Money supply in India includes the following:

1. Currency with the public;
2. Demand deposits and time deposits with banks;
3. Deposits with Reserve Bank of India; and
4. Deposits in Post Office.

The currency with the public is less than the total currency issued by RBI. This is because of cash reserves with banks, i.e., a part of currency issued remains with banks.

As far as deposits are concerned, during the last four decades, the proportion of demand deposits, time deposits and others with banks in relation to the total supply of money has been increasing with reciprocal diminution in currency held by the public.

This is mainly due to the expansion of banking facilities in the country. Almost all the money in the economy exists as bank deposits – and banks create these deposits simply by making loans.

Answer: (a)

Disposable income is total personal income minus personal current taxes. In national accounts definitions, personal income, minus personal current taxes equals disposable personal income.

Subtracting personal outlays (which includes the major category of personal (or, private) consumption expenditure) yields personal (or, private) savings.

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: (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 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.