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

Answer: (c)

Investment expenditure refers to the expenditure incurred either by an individual or a firm or the government for the creation of new capital assets like machinery, building etc.

Business inventories are goods that firms produce in one time period with the intent to sell later and they are counted as part of business investment. The purchase of a house cannot be considered an investment expenditure as it may be for personal use.

Answer: (c)

Liquidity preference refers to the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes in his book The General Theory of Employment, Interest and Money (1936).

It is the desire to hold money rather than other assets, in Keynesian theory based on motives of transactions, precaution, and speculation.

Answer: (d)

Demand refers to how much (quantity) of a product or service is desired by buyers.

The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.

So for demand to originate, a product is required first.

Answer: (c)

Gross national product (GNP) is the market/monetary value of all products and services produced in one year by labour and property supplied by the residents of a country.

Answer: (a)

The income approach equates the total output of a nation to the total factor income received by residents or citizens of the nation. Transfer incomes are excluded from national income.

Therefore, wages of labourers will be included, pensions of retired workers will be excluded from national income.

Labour income includes compensations in kind. Non-labour income includes dividends, undistributed profits of corporations before taxes, interest, rent, royalties, profits of non-incorporated enterprises and of government enterprises.

Answer: (b)

The price of a commodity is always determined by the forces of demand and supply in the market.

The price at which the amount demanded and the amount supplied are equal is known as ‘equilibrium price.’

The equilibrium price definitely increases when there is an increase in demand combined with a decrease in supply.