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

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: (b)

National Income is defined as the sum total of all the goods and services produced in a country, in a particular period of time.

Normally this period consists of a one-year duration, as a year is neither too short nor long a period. National product is usually used synonymously with National income.

Alfred Marshall in his ‘Principle of Economics’ (1949) defines National income as “The labour and capital of a country, acting on its natural resources, produce annually a certain net aggregate of commodities, material and immaterial, including services of all kinds…..and net income due on account of foreign investments must be added in.

This is the true net National income or Revenue of the country or the national dividend.” So the income of watchmen will be included while computing it.

Answer: (d)

The volume of investment depends upon the following two factors:

1. rate of interest; and
2. marginal efficiency of capital.

Before investing the money a businessman compares interest with the rate of marginal efficiency capital. If they expect that rate of profit will be greater than the rate of interest, then they invest the money otherwise not. The expected rate of return on capital is called the marginal efficiency of capital.

In other words, the marginal efficiency of capital is a return on investment which is based partly on expectations of future yields and partly on the actual price of the capital good concerned.

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.