introduction to macro economics section 4 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (a)

In economics, a multiplier is a factor of proportionality that measures how much endogenous variable changes in response to a change in some exogenous variable. For example, suppose a one-unit change in some variable x causes another variable y to change by M units.

Then the multiplier is M. In monetary macroeconomics and banking, the money multiplier measures how much the money supply increases in response to a change in the monetary base.

The multiplier may vary across countries, and will also vary depending on what measures of money are considered. For example, consider M2 as a measure of the U.S. money supply, and M0 as a measure of the U.S. monetary base.

If a USD1 increase in M0 by the Federal Reserve causes M2 to increase by $10, then the money multiplier is 10.

Answer: (b)

Gross National Product (GNP) is defined as “the market value of all goods and services produced in one year by labour and property supplied by the residents of a country.”

It is contrasted to Gross domestic product (GDP), defined as “the value of all final goods and services produced in a country in 1 year.”

Answer: (a)

In the words of McConnell, the demand for factors of production is a derived demand that is derived from the finished goods and services which resources help to produce.

While the demand for goods is direct demand, demand for factors is derived from demand. It is based on the productivity of the factors.

Answer: (b)

Collective consumption is a concept that refers to the many goods and services that are produced and consumed on a collective level, such as in cities or countries.

These include schools, libraries, roads, bridges, public transportation, health care, welfare, fire and police protection, etc.

Answer: (a)

For the private corporate sector, retained profits adjusted for non-operating surplus/deficit is considered as its Net Saving.

Retained profits are those which are ploughed back into business after making commitments to depreciation provision for various fixed assets, debts, government and to share-holders.