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

Answer: (d)

Economic progress of a country is determined by increase in per capita income of people of that country.

Answer: (c)

Capital formation is frequently thought of as a measure of total “investment”, in the sense of that portion of capital actually used for investment purposes and not held as savings or consumed.

But in fact, in national accounts, the concept of gross capital formation refers only to the accounting value of the “additions of non-financial produced assets to the capital stock less the disposals of these assets”. “Investment” is a broader concept that includes investment in all kinds of capital assets, whether physical property or financial assets.

The net valuation method views “depreciation” as the compensation for the cost of replacing fixed equipment used up or worn out, which must be deducted from the total investment volume to obtain a measure of the “real” value of investments; the depreciation write-off compensates and cancels out the loss in the capital value of assets used due to wear & tear, obsolescence, etc.

Answer: (c)

Pump priming is the action taken to stimulate an economy, usually during a recessionary/deflationary period, through government spending, and interest rate and tax reductions.

Growth is accomplished through the increase in purchasing power experienced by those affected by the injection of funds, with the goal of promoting higher demand for goods and services.

Answer: (c)

The consumption function is a mathematical formula laid out by famed economist John Maynard Keynes.

The formula was designed to show the relationship between real disposable income and consumer spending, the latter variable being what Keynes considered the most important determinant of short-term demand in an economy.

Answer: (b)

Bank Rate is determined by the Reserve Bank of India. The rate of interest is determined by the commercial banks in India.

As per RBI notification, banks are free to determine rates of interest subject to BPLR and spread guidelines. Banks may, however, offer loans at below BPLR to exporters or other creditworthy borrowers including public enterprises based on a transparent and objective policy approved by their Boards.

Answer: (b)

Net national product (NNP) is the total market value of all final goods and services produced by residents in a country or other polity during a given time period (gross national product or GNP) minus depreciation.

The net domestic product (NDP) is the equivalent application of NNP within macroeconomics, and NDP is equal to gross domestic product (GDP) minus Depreciation:

NDP = GDP - Depreciation.