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

Answer: (c)

Laissez Faire is an economic theory from the 18th century that is strongly opposed to any government intervention in business affairs.

Sometimes it is referred to as “let it be economics.” It is an economic environment in which transactions between private parties are free from tariffs, government subsidies, and enforced monopolies, with only enough government regulations sufficient to protect property rights against theft and aggression.

Answer: (c)

Capital output ratio is the ratio of capital used to produce an output over a period of time.

This ratio has a tendency to be high when capital is cheap as compared to other inputs. For instance, a country with abundant natural resources can use its resources in lieu of capital to boost its output; hence the resulting capital output ratio is low.

Answer: (b)

Transfer payment refers to a payment made by a public authority other than one made in exchange for goods or service produced.

Transfer payments are not part of the national income. Examples include Old age pensions, unemployment compensations, social security payments and child benefit.

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: (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: (d)

The price mechanism is an economic term that refers to the manner in which the prices of commodities affect the demand and supply of goods and services.

It is essentially a feature of market-driven or capitalist economic systems. It is based on the principle that only by allowing prices to move freely will the supply of any given commodity match demand.