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

Answer: (a)

Domestic Product is the ross money value of all final goods and services produced in the domestic territory of a country during a year.

National Product is the gross money value of all final goods and services produced by the normal residents of a country during a year. It includes net factor income from abroad.

Answer: (b)

Since 1955 the national income estimates are being prepared by Central Statistical Organization.

The CSO uses different methods like the Product Method, Income Method and Expenditure method for various sectors in the process of estimating the National Income.

Answer: (b)

Closing stock refers to the goods remaining unsold during the year. It includes finished products, raw materials, or work in progress and is deducted from the period's costs in the balance sheets.

The amount of closing stock (properly valued) is used to arrive at the cost of goods sold in a periodic inventory system with the following calculation:

Opening stock + Purchases - Closing stock = Cost of goods sold.

Answer: (c)

Capital Output Ratio is the ratio of capital used to produce output over a period of time. This ratio has a tendency to be high when capital is cheap as compared to other inputs.

For instance, a country with abundant natural resources can use its resources in lieu of capital to boost its output; hence the resulting capital-output ratio is low. The capital-output ratio tends to increase if the capital available in a country is cheaper than the other inputs.

Therefore, the countries that are rich in natural resources have a low capital-output ratio. This is because they can easily substitute capital with natural resources in order to increase the output. When countries use their natural resources instead of capital then COR reduces.

Answer: (d)

Intermediate consumption is an accounting flow that consists of the total monetary value of goods and services consumed or used up as inputs in production by enterprises, including raw materials, services and various other operating expenses.

Intermediate consumption (unlike fixed assets) is not normally classified in national accounts by type of good or service, because the accounts will show net output by sector of activity.

Because this value must be subtracted from Gross Output to arrive at GDP, how it is exactly defined and estimated will importantly affect the size of the GDP estimate.

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.