introduction to macro economics section 3 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

National income is the total value of a country's final output of all new goods and services produced in one year.

Services provided by housewives, the income of smugglers and services of sadhus can be categorized as non-economic services and thus cannot be accounted for.

Answer: (a)

Services provided by housewives can be categorized as non-economic services and thus cannot be accounted in national income which is the sum total of all the goods and services produced in a country, in a particular period of time.

Answer: (c)

In economics, the backward bending supply curve is related to labour.

Also known as the backwards-bending supply curve of labour, This curve models a situation where workers choose to substitute leisure time for work time, i.e. wages, thus reducing the pool of labour available.

It shows how the change in real wage rates affects the number of hours worked by employees.

Answer: (b)

Interest rates increase the cost of borrowing, which results in lesser investment activity and the purchase of consumer durables.

In a low interest-rate environment, shares become a more attractive buy, raising households’ financial assets. This may also contribute to higher consumer spending, and makes companies’ investment projects more attractive.

Lower interest rates also tend to cause currencies to depreciate: Demand for domestic goods rises when imported goods become more expensive. All of these factors raise output and employment as well as investment and consumer spending.

Answer: (d)

Intermediate consumption is an accounting flow that consists of the total monetary value of goods and services consumed or used up as inputs in production by enterprises, including raw materials, services and various other operating expenses.

Intermediate consumption (unlike fixed assets) is not normally classified in national accounts by type of good or service, because the accounts will show net output by sector of activity.

Because this value must be subtracted from Gross Output to arrive at GDP, how it is exactly defined and estimated will importantly affect the size of the GDP estimate.