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

Answer: (b)

According to the Marginal Productivity Theory, the reward or the price of a factor unit depends upon its productivity or its contribution to the total product. While employing a factor, an employer compares the marginal revenue productivity (MRP) of the lost unit and the marginal cost of the factor.

He will employ a factor up to the point where the reward (marginal cost of the factor) paid to the factor equals its MRP.

If MRP is more than the marginal cost, the employer increases its profits by employing more units of the factor; on the other hand, if the marginal cost of the factor is greater than MRP, it will reduce employment to reduce its loss.

Answer: (d)

In economics, marginal cost is the change in the total cost that arises when the quantity produced is incremented by one unit.

That is, it is the cost of producing one more unit of a good. Marginal cost is independent of the fixed cost and depends on the changes in the variable factors.

Since fixed costs do not change with output, there are no marginal fixed costs when output is increased in the short run.

It is only the variable costs that vary with output in the short run. Therefore, the marginal costs are in fact due to the changes in variable costs, and whatever the amount of fixed cost, the marginal cost is unaffected by it.

Answer: (a)

Dadabhai Naoroji prepared the first estimates of National income in 1876. He estimated the national income by first estimating the value of agricultural production and then adding a certain percentage as nonagricultural production.

However, such a method can only be called a non-scientific method. The first person to adopt a scientific procedure in estimating the national income was Dr VKRV Rao in 1931.

Answer: (a)

The Gross Domestic Income (GDI) is the total income received by all sectors of an economy within a nation. It includes the sum of all wages, profits, and taxes, minus subsidies.

Since all income is derived from production (including the production of services), the gross domestic income of a country should exactly equal its gross domestic product (GDP).

Answer: (a)

Disposable income is total personal income minus personal current taxes (or plus receipts of the government).

In national accounts, definitions, personal income, minus personal current taxes equals disposable personal income. Subtracting personal outlays (which includes the major category of personal (or, private) consumption expenditure) yields personal (or, private) savings

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.