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

Answer: (c)

The issue of inflation is addressed from both the demand and supply sides. demand management is achieved by measures such as postponing public expenditure, mopping up excess liquidity either through taxes or savings schemes, etc.

On the supply side, the mechanism of the Public Distribution System (PDS) ensures the availability of essential commodities for the vulnerable sections of society.

This helps to maintain price levels. Coupled with this is the open market sale of rice and wheat resorted to by FCI from its buffer stock in times of price rise.

Answer: (b)

The Average Fixed Cost Curvegraphically represents the relation between the average fixed cost incurred by a firm in the short-run product of a good or service and the quantity produced. it is relatively high at small quantities of output, then declines as production increases.

It is downward sloping because as output increases, the firm spreads its fixed costs over larger and larger amounts of output.

Answer: (d)

The ‘Ability-to-Pay’ principle of Taxation is one of the canons of taxation proposed by Adam Smith in his ‘Wealth of Nations.’

It is a progressive taxation principle that maintains that taxes should be levied according to a taxpayer's ability to pay. It is concerned with the equitable distribution of taxes according to the stated taxable capacity or ability to pay an individual or group.

The emphasis in this approach is put on the redistribution of income.

Answer: (c)

Full employment refers to a situation in which every able-bodied person who is willing to work at the prevailing rate of wages is, in fact, employed.

It implies an absence of involuntary unemployment which occurs when those who are willing to work at the going wage rate do not get work.

Answer: (c)

J.M. Keynes’s magnum opus, ‘The General Theory of Employment, Interest and Money’ is often viewed as the foundation of modern macroeconomics.

Macroeconomics deals with the performance, structure, behaviour, and decision-making of an economy as a whole, rather than individual markets.