introduction to macro economics section 2 MCQ Questions & Answers Detailed Explanation

Answer: (c)

An indifference curve is a locus of combinations of goods which derive the same level of satisfaction so that the consumer is indifferent to any of the combinations he consumes.

If a consumer equally prefers two product bundles, then the consumer is indifferent between the two bundles. The consumer gets the same level of satisfaction (utility) from either bundle.

In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer.

Answer: (c)

The term investment multiplier refers to the concept that any increase in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy.

The investment multiplier tries to determine the financial impact of a public or private project.

Answer: (a)

The gross national product is the sum total of all final goods and services produced by the people of one country in one year. The GNP is a flow concept. It can be calculated with either the expenditure approach or the income approach.

The expenditure approach sums all that is purchased: in a sense, it is equivalent to the income approach because purchases are only possible if income is present.

GDP can be calculated as the sum of all expenditures: personal consumption expenditure (C), gross private domestic investment (Ig), government purchases (G), and net exports (Xn).

An increase in the stock of unsold articles does not come under any of these heads.

Answer: (b)

The equilibrium price is the market price where the quantity of goods supplied is equal to the quantity of goods demanded.

This is the point at which the demand and supply curves in the market intersect. Both under perfect competition and monopolistic competition, the firm is in equilibrium at the point of equality of marginal cost and marginal revenue.

(MC = MR).

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)

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.