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

Answer: (b)

The business cycle is the fluctuation in economic activity that an economy experiences over a period of time. It is basically defined in terms of periods of expansion or recession.

During expansions, the economy grows in real terms (i.e. excluding inflation), as evidenced by increases in indicators like employment, industrial production, sales and personal incomes.

During recessions, the economy contracts, as measured by decreases in the above indicators.

Answer: (a)

Social Status is not a dimension of Human Development Index.

Answer: (a)

The classical economists’ belief in full employment as a normal condition of a free market economy is based on Say’s Law of Markets.

It was on the basis of this law that the classical economists thought that general overproduction and hence general unemployment were impossible. The law simply states “supply creates its own demand.”

Answer: (a)

In economics, the Lorenz curve is a graphical representation of the distribution of income or of wealth. It was developed by Max O.

Lorenz in 1905 for representing inequality of the wealth distribution.

On the graph, a straight diagonal line represents perfect equality of wealth distribution; the Lorenz curve lies beneath it, showing the reality of wealth distribution.

Answer: (c)

A capital gain is a profit that results from a disposition of a capital asset, such as stock, bond or real estate, where the amount realised on the disposition exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price.

Capital gains may refer to "investment income" that arises in relation to real assets. In other words, a capital gain represents an appreciation in value accruing over a prescribed period of time on the asset.

Answer: (d)

A superior good is a product that people demand more of as then their incomes grow. These are products that are generally more expensive and rarer like diamonds and classic cars.

Such a good must possess two economic characteristics: it must be scarce, and, along with that, it must have a high price.