macro fundamentals, GDP, investment & growth section 2 MCQ Questions & Answers Detailed Explanation

Answer: (d)

When a country goes through industrialization, it uses more capital and less labour comparatively or we can say labours are replaced by capital (machinery). That means ratio of capital to labour increases sharply. So, statement (a) is true.

Industrialization also leads to an increase in production of goods and services (with the same amount of labour or maybe less labour). So, production per labour also increases which means an increase in labour productivity. So, statement (b) is also true.

Total factor productivity means the productivity of all factors of production i.e. labour, capital, land etc. During industrialization, since overall production increases, production per unit of inputs i.e. labour, capital, land etc also increases. So, statement (c) is also true. Productivity of labour = $\text"Output"/\text"Labour"$

Productivity of land = $\text"Output"/\text"Land"$

We all know that because of industrialization output increased. Now if output increased (with the same land and labour), then as per the above formula, productivity of land and productivity of labour, both will increase.

So, in case of industrialization, productivity of all the factors of production increases.

Answer: (a)

Answer: (a)

Answer: (d)

Answer: (d)

Answer: (a)

Incremental Capital Output Ratio (ICOR) is defined as:-

ICOR = $\text"change in capital"/\text"change in output" = \text"(change in capital/output)"/\text"(change in output/output)" = \text"investment % in GDP"/ {% \text"change in GDP"}$

ICOR represents how much extra unit of capital is required to produce one additional unit of output. It basically represents the (inverse of) efficiency of the new capital. Hence, statement (iii) is false. “Basically, capital/output ratio represents (average) productivity and ICOR represents (marginal) productivity.”

So, if ICOR of India = 5 or (5/1), then India requires Rs. 5 of additional capital goods to produce Rs. 1 of extra output.

If our ICOR is 5 and we want a growth of 8% in GDP then we will have to do 40% investment.