introduction to macro economics section 6 MCQ Questions & Answers Detailed Explanation
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The following question based on Introduction to Macro Economics topic of indian economy mcq
(a) remains constant
(b) fluctuates
(c) falls
(d) rises
The correct answers to the above question in:
Answer: (c)
Keynes postulated that aggregate consumption is a function of aggregate current disposable income. The Keynesian consumption function is written as:
C = a + cY a > 0, 0 < c < 1;
where a is the intercept, a constant which measures consumption at a zero level of disposable income;
c is the marginal propensity to consume (MPC); and
Y is the disposal income.
So as income increases, the average propensity to consume (APC = C/Y) falls.
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Read more introduction to macro economics Based Indian Economy Questions and Answers
Question : 1
Who among the following is not a classical economist?
a) Thomas Malthus
b) John Maynard Keynes
c) John Stuart Mill
d) David Ricardo
Answer »Answer: (b)
Classical economics is widely regarded as the first modern school of economic thought.
Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill. John Maynard Keynes was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics and formed the economic policies of governments.
He built on and greatly refined earlier work on the causes of business cycles and is widely considered to be one of the founders of modern macroeconomics and the most influential economist of the 20th century.
His ideas are the basis for the school of thought known as Keynesian economics, as well as its various offshoots.
Question : 2
Rate of interest is determined by
a) Liquidity preference
b) Commercial Banks
c) Central Government
d) The rate of return on the capital invested
Answer »Answer: (a)
According to the classical view, the rate of interest is determined by the interaction of the supply of and demand for capital.
Thus this theory is popularly called the demand and supply theory of the rate of interest. The supply of money together with the liquidity preference curve in theory interact to determine the interest rate at which the quantity of money demanded equals the quantity of money supplied.
According to Keynes, interest is the price paid for surrendering their liquid assets. Greater the liquidity preference higher shall be the rate of interest. The liquidity preference constitutes the demand for money.
Question : 3
Investment is equal to
a) stock of plants, machines and equipments
b) None of these
c) gross total of all capital assets minus wear and tear
d) gross total of all types of physical capital assets
Answer »Answer: (c)
Investment” is a broader concept that includes investment in all kinds of capital assets, whether physical property or financial assets.
In economic statistics and accounts, the capital formation can be valued gross, i.e., before deduction of consumption of fixed capital (or “depreciation”), or net, i.e., after deduction of “depreciation” write-offs.
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.
Question : 4
The relationship between the rate of interest and level of consumption was first visualized by
a) Irving Fisher
b) James Duesenberry
c) Milton Friedman
d) Amartya K. Sen
Answer »Answer: (a)
Irving Fisher, in His Theory of Interest (1930), found the relationship between interest rates (nominal interest rate and real interest rate) and the consumption level.
Though his theory is about the interest rate and inflation, it discusses the effect of real interest rates on savings and gives an inverse relationship between nominal interest rates and consumer expenditures.
Question : 5
A rising Per Capita Income will indicate a better welfare if it is accompanied by
a) changed Income distribution in favour of poor.
b) changed Income disribution in favour of Industrial Labour.
c) changed Income distribution in favour of rich.
d) unchanged Income distribution overall.
Answer »Answer: (a)
Per capita income has lately been viewed as a better determinant of economic development and welfare.
However, high inequality can still diminish economic growth. So equal or more rational distribution of income in the favour of the poor is the best way to ensure that the welfare is holistic and leaves no quarters deprived as after all, economic welfare is a part and parcel of social welfare.
GET Introduction to Macro Economics PRACTICE TEST EXERCISES
introduction to macro economics section 1
introduction to macro economics section 2
introduction to macro economics section 3
introduction to macro economics section 4
introduction to macro economics section 5
introduction to macro economics section 6
Introduction to Macro Economics Shortcuts and Techniques with Examples
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