introduction to macro economics section 2 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (a)

When prices rise between 20% to 100% per annum or even more, it is called galloping or hyperinflation. Such a situation brings a total collapse of the monetary system because of the continuous fall in the purchasing power of money.

Galloping inflation has an adverse effect on middle and low-income groups in society.

Answer: (c)

Money supply in India includes the following:

1. Currency with the public;
2. Demand deposits and time deposits with banks;
3. Deposits with Reserve Bank of India; and
4. Deposits in Post Office.

The currency with the public is less than the total currency issued by RBI. This is because of cash reserves with banks, i.e., a part of currency issued remains with banks.

As far as deposits are concerned, during the last four decades, the proportion of demand deposits, time deposits and others with banks in relation to the total supply of money has been increasing with reciprocal diminution in currency held by the public.

This is mainly due to the expansion of banking facilities in the country. Almost all the money in the economy exists as bank deposits – and banks create these deposits simply by making loans.

Answer: (a)

Disposable income is total personal income minus personal current taxes. In national accounts definitions, personal income, minus personal current taxes equals disposable personal income.

Subtracting personal outlays (which includes the major category of personal (or, private) consumption expenditure) yields personal (or, private) savings.

Answer: (b)

The equilibrium price is the market price where the quantity of goods supplied is equal to the quantity of goods demanded.

This is the point at which the demand and supply curves in the market intersect. Both under perfect competition and monopolistic competition, the firm is in equilibrium at the point of equality of marginal cost and marginal revenue.

(MC = MR).

Answer: (d)

If we subtract the depreciation charges from the gross national product, we get net national product at market price. Net national product at market price=Gross national product at market price-Depreciation.