macro fundamentals, GDP, investment & growth section 1 MCQ Questions & Answers Detailed Explanation

Answer: (b)

Answer: (b)

Intermediate goods are semi-finished goods that have been produced by a process but cannot be used as it is and need to go through further production/transformation process to be converted into a final good.

For example, steel sheets. The steel sheets cannot be used as it is and needs to be transformed into final products like automobiles, appliances etc. So (ii) the statement is true.

A particular good will be capital in nature only if it possesses the following three characteristics:

1. It is a produced durable output of a man-made process
2. It again acts as an input for the further production processes (to be sold in the market)
3. While acting as an input, it does not get transformed or consumed (hence it’s a final good)

Answer: (a)

Capital formation means the production of capital goods. Production of capital goods leads to the future production of goods and services and hence economic growth. So, statement (iii) is true

Production of capital goods increases the capital stock in the economy but does not tell whether there is an increase in efficiency of that capital.

Efficiency is measured as how much output is produced from how much of inputs. So, we can’t say that ICOR will increase or decrease with capital formation.

Basically, if you increase the number of hours you study, still you cannot say that the “number of pages per hour” that you study will increase or decrease.

Answer: (d)

Informal economic activity constitutes around 30% of the GDP. We may not be able to measure it accurately but while calculating the GDP figures informal activity is extrapolated based on formal activities and are included in GDP.

Re-exports means, something imported and then processed and then again exported. So, whatever goes in processing will be part of our GDP.

For example, India imported crude oil worth Rs 50 and then refined/processed it and then exported it in Rs. 80, then Rs. 80 – Rs. 50 = Rs. 30 will be included in India’s GDP

Answer: (d)

An economy produces two types of final goods i.e. consumption and capital goods. Consumption goods get consumed and capital goods are used for further production processes (capital goods are also called investment).

The value of these two goods produced in the economy in a year is called GDP. These two types of goods i.e. GDP is purchased by the four sectors of the economy

1. Household sector (consumption goods)
2. Private sector (capital goods)
3. Government sector (consumption and capital both)
4. External sector (consumption and capital booth)

Answer: (c)