introduction to macro economics section 1 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (d)

Demand-pull inflation is asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve. This is commonly described as “too much money chasing too few goods.”

Answer: (d)

Income which is not produced by any production process is called Transfer Income.

Answer: (c)

Ragnar Frisch coined the widely-used term pair macroeconomics/microeconomics in 1933. He was a Norwegian economist and the co-recipient of the first Nobel Memorial Prize in Economic Sciences in 1969. He is known for having founded the discipline of econometrics.

Answer: (d)

Jean Baptiste Say was a French economist. He is well known for Say’s Law (or Say’s Law of Markets), often summarized as:

• “Aggregate supply creates its own aggregate demand”;
• “Supply creates its own demand”, or “Supply constitutes its own demand”.

He argued that the production and sale of goods in an economy automatically produce an income for the producers of the same value, which would then be reinjected into the economy and create enough demand to buy the goods.

Thus production is determined by the supply of goods rather than demand.

Answer: (a)

According to Keynes, money is demanded because of three motives -transaction, precautionary and speculative.

The first two motives provide a yield of convenience and certainty. The third motive provides money yield. Keynes has termed the demand for money as liquidity preference.