introduction to macro economics section 5 MCQ Questions & Answers Detailed Explanation

Answer: (a)

The matrix method is a structural analysis method used as a fundamental principle in many applications in civil engineering. The method is carried out, using either a stiffness matrix or a flexibility matrix.

Primarily there are three methods of measuring national income. The methods are product method, income method and expenditure method.

Answer: (c)

Consumers do one of two things with their disposable income: They save it or they spend it. So Income = Consumption + Saving.

Answer: (d)

Desired savings are kept equal to desired investment by responses to interest rate changes.

Savings identity or the savings-investment identity is a concept in National Income Accounting stating that the amount saved (S) in an economy will be the amount invested (I). This identity only holds true because investment here is defined as including inventories.

Thus, should consumers decide to save more, and spend less, the fall in demand would lead to an increase in business inventories. The change in inventories brings savings and investment into balance without any intention by the business to increase investment.

Answer: (a)

Total product (TP) is the total output a production unit can produce, using different combinations of factors of production.

When marginal product =0 (at point D in the figure), the total product is at its maximum (as seen at point C in the figure given below). Then en as the marginal product becomes negative, the total product starts going down.

Answer: (a)

The Innovation Theory of Profit was proposed by Joseph. A. Schumpeter, who believed that an entrepreneur can earn economic profits by introducing successful innovations.

In other words, the innovation theory of profit posits that the main function of an entrepreneur is to introduce innovations and the profit in the form of reward is given for his performance.

Answer: (a)

Deflation sets in when aggregate supply exceeds aggregate demand. Recession sets in.

This will lead to a buildup in stocks (inventories) and this sends a signal to producers either to cut prices (to stimulate an increase in demand) or to reduce output so as to reduce the buildup of excess stocks.

Either way - there is a tendency for output to move closer to the current level of demand.