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

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: (c)

A Closed economy is an economy in which no activity is conducted with outside economies.

A closed economy is self-sufficient, meaning that no imports are brought in and no exports are sent out. The goal is to provide consumers with everything that they need from within the economy's borders.

Answer: (c)

Heavy selling cost is one of the defining features of an oligopoly. Firms resort to heavy selling costs to attract customers.

Under this market form, the firms have to compete to promote their sale by largely homogenous products, differentiated mainly by heavy advertising and promotional expenditure that ultimately adds to the total selling cost.

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.