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

Answer: (c)

An indifference curve is a locus of combinations of goods which derive the same level of satisfaction so that the consumer is indifferent to any of the combinations he consumes.

If a consumer equally prefers two product bundles, then the consumer is indifferent between the two bundles. The consumer gets the same level of satisfaction (utility) from either bundle.

In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer.

Answer: (c)

The term investment multiplier refers to the concept that any increase in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy.

The investment multiplier tries to determine the financial impact of a public or private project.

Answer: (a)

The gross national product is the sum total of all final goods and services produced by the people of one country in one year. The GNP is a flow concept. It can be calculated with either the expenditure approach or the income approach.

The expenditure approach sums all that is purchased: in a sense, it is equivalent to the income approach because purchases are only possible if income is present.

GDP can be calculated as the sum of all expenditures: personal consumption expenditure (C), gross private domestic investment (Ig), government purchases (G), and net exports (Xn).

An increase in the stock of unsold articles does not come under any of these heads.

Answer: (d)

According to the Keynesian Consumption theory, “men are disposed, as a rule, and on average, to increase their consumption as their income increases, but not by as much as the increase in their income.”

Another feature of consumer behaviour is that when income increases, people do not spend their entire incremental income on consumption. They save a part of it for their financial security during the period of unemployment, illness, etc.

In simple words, the marginal propensity to consume decreases, i.e., households spend a decreasing proportion of marginal income on consumption.

That is why families on a lower-income scale save a lower percentage of their income and those on a higher scale of income save a larger proportion of their income.

Answer: (d)

Octroi is a local tax that is collected by the state government on those goods that have been bought into the city/state for the purpose of personal use and sale.

The charges on the items are generally levied after on the weight, value and a total number of goods. It is levied on certain articles, such as foodstuffs, on their entry into a city.