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

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: (d)

According to the Keynesian Consumption theory, “men are disposed, as a rule, and on average, to increase their consumption as their income increases, but not by as much as the increase in their income.”

Another feature of consumer behaviour is that when income increases, people do not spend their entire incremental income on consumption. They save a part of it for their financial security during the period of unemployment, illness, etc.

In simple words, the marginal propensity to consume decreases, i.e., households spend a decreasing proportion of marginal income on consumption.

That is why families on a lower-income scale save a lower percentage of their income and those on a higher scale of income save a larger proportion of their income.

Answer: (d)

If we subtract the depreciation charges from the gross national product, we get net national product at market price. Net national product at market price=Gross national product at market price-Depreciation.

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.