introduction to macro economics section 3 MCQ Questions & Answers Detailed Explanation

Answer: (a)

Services provided by housewives can be categorized as non-economic services and thus cannot be accounted in national income which is the sum total of all the goods and services produced in a country, in a particular period of time.

Answer: (c)

In economics, the backward bending supply curve is related to labour.

Also known as the backwards-bending supply curve of labour, This curve models a situation where workers choose to substitute leisure time for work time, i.e. wages, thus reducing the pool of labour available.

It shows how the change in real wage rates affects the number of hours worked by employees.

Answer: (b)

Interest rates increase the cost of borrowing, which results in lesser investment activity and the purchase of consumer durables.

In a low interest-rate environment, shares become a more attractive buy, raising households’ financial assets. This may also contribute to higher consumer spending, and makes companies’ investment projects more attractive.

Lower interest rates also tend to cause currencies to depreciate: Demand for domestic goods rises when imported goods become more expensive. All of these factors raise output and employment as well as investment and consumer spending.

Answer: (c)

Say’s law, or the law of market, is an economic principle of classical economics named after the French businessman and economist Jean-Baptiste Say (1767–1832), who stated that “products are paid for with products” and “a glut can take place only when there are too many means of production applied to one kind of product and not enough to another.

Answer: (d)

In economics, an inferior good is a good that decreases in demand when consumer income rises (or rises in demand when consumer income decreases), unlike normal goods, for which the opposite is observed.

Normal goods are those for which consumers’ demand increases when their income increases. Cheaper cars are examples of inferior goods.

Answer: (c)

There is a close relationship between marginal product and average product because both are derived from the total product. When marginal product is equal to average product, the average product is at its maximum.

In the short-run production function, since marginal product starts off as greater than average product and then falls below average product, we can assume that at the “cross-over point,”

when MP = AP, AP is at its maximum.