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

Answer: (c)

Deficient demand refers to the situation when aggregate demand for goods and services falls short of aggregate supply of output which is produced by fully employing the given resources of the economy. This deficient demand leads to the decrease in output, employ-ment and prices in the econo-my.

According to Malthus, deficiency of demand could lead to stagnation in which both capital and labor are redundant relative to the opportunities for employing them profitably.

Answer: (c)

National income is the total value a country’s final output of all new goods and services produced in one year. Understanding how national income is created is the starting point for macroeconomics.

Answer: (b)

Capitalism is an economic system that is based on private ownership of the means of production and the production of goods or services for profit.

Other elements central to capitalism include capital accumulation and often competitive markets.

Answer: (d)

Saving function is a mathematical relation between saving and income by the household sector.

This function captures the saving-income relation, the flip side of the consumption-income relation that forms one of the key building blocks for Keynesian economics.

Answer: (a)

Primarily there are three methods of measuring national income. The methods are product method, income method and expenditure method.

Product method is given by Dr Alfred Marshall, income method by A.C. Pigou and expenditure method by Dr Irving Fisher.

The ‘Investment Method’ is used for trading properties where evidence of rates is slight, such as hotels, cinema, car parks and etc.

Answer: (c)

In perfect competition, the existence of a large number of firms producing and selling the product ensures that an individual firm exercises no influence over the price of the product.

The output of an individual firm constitutes a very small fraction of the total output of the whole industry so that any increase or decrease in output by an individual firm has a negligible effect on the total supply of product of the industry.

As a result, a single firm is not in a position to influence the price of the product by the increasing or reducing its output.