introduction to macro economics section 6 MCQ Questions & Answers Detailed Explanation

Answer: (c)

In microeconomics, an Engel curve describes how household expenditure on a particular good or service varies with household income.

The curve is named after the German statistician Ernst Engel (1821–1896), who was the first to investigate this relationship between goods expenditure and income systematically in 1857.

Answer: (c)

Investment expenditure refers to the creation of new assets i.e. an addition to the stock of existing capital assets.

According to Keynes investment demand depends upon two factors:

1. Expected rate of profit which he calls Marginal Efficiency of Capital (MEC). Investment demand increases with the increase in the expected rate of profit;
2. the rate of interest (IR). Investment demand decreases with the increase in the rate of interest.

Answer: (d)

In his 1798 work, An Essay on the Principle of Population, Malthus examined the relationship between population growth and resources and developed the Malthusian theory of population growth.

He proposed that human populations grow exponentially (i.e., doubling with each cycle) while food production grows at an arithmetic rate (i.e. by the repeated addition of a uniform increment in each uniform interval of time).

Answer: (c)

National income is the monetary value of all goods and services produced by nationals of a country. Only productive activities are included in the computation of national income.

All incomes earned through productive activities are included in national income. Income earned through unproductive activities is not included.

Answer: (c)

A surplus budget is a budget in which government receipts are greater than government expenditures.

Such a budget is desired when the economy is battling inflation due to excess aggregate demand (AD). The surplus budget plugs the inflationary gap by lowering the level of aggregate demand. AD is lowered on account of

1. rising in revenue collection by the government, and
2. a fall in government expenditure.

Answer: (a)

The standard of living is a measure of the material welfare of the inhabitants of a country. The baseline measure of the standard of living is real national output per head of population or real GDP per capita.

This is the value of national output divided by the resident population. Other things being equal, a sustained increase in real GDP increases a nation’s standard of living providing that output rises faster than the total population.