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

Answer: (b)

In economics, the average propensity to consume (APC) is defined as the ratio of aggregate or total consumption to aggregate income in a given period of time.

Thus, the value of average propensity to consume, for any income level, may be found by dividing consumption by income.

Answer: (c)

Inventory refers to raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business’s assets that are ready or will be ready for sale.

Inventory represents one of the most important assets that most businesses possess because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company’s shareholders/owners.

Answer: (d)

Keynesian Economics is an economic theory of total spending in the economy and its effects on output and inflation. It emphasizes that government expenditures (or tax cuts) leads to increase in GDP which is a multiple of the original expenditure.

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)

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: (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.