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

Answer: (d)

The Human Development Index (HDI) is an aggregate measure of progress in three dimensions—health, education and income which are used to rank countries into four tiers of human development.

The HDI was developed by the Pakistani economist Mahboob ul Haq working alongside Indian economist Amartya Sen.

Answer: (b)

The gross national product (GNP) measures the welfare of a nation’s economy through the aggregate of products and services produced in that nation.

Although GNP is a proficient measurement of the magnitude of the economy, many economists, environmentalists and citizens have been arguing the validity of the GNP in respect to measuring welfare.

They are calling for a green national product that would indicate if activities benefit or harm the economy and well-being. This new national product would differ from the traditional GNP by addressing both the sustainability and well-being of the planet and its inhabitants.

Answer: (b)

Gross National Product [GNP] is the gross value of all the final products without deducting the depreciation of fixed capital.

Net National Product [NNP] is the value of net output in an economy during a period of one year. The difference between the GNP and NNP is equal to Capital depreciation.

Answer: (b)

The Phillips curve shows the inverse relationship between inflation and unemployment: as unemployment decreases, inflation increases.

The relationship, however, is not linear. Graphically, the short-run Phillips curve traces an L-shape when the unemployment rate is on the x-axis and the inflation rate is on the y-axis.

Answer: (b)

Keynes defined Psychological Law of Consumption in terms of, “The fundamental psychological law, upon which we are entitled to depend with great confidence both a priori from our knowledge of human nature and from the detailed facts of experience, is that men are disposed of, as a rule, and on the average, to increase their consumption as their income increases but not by as much as the increase in the income.”