introduction to macro economics section 5 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (c)

Investment expenditure refers to the expenditure incurred either by an individual or a firm or the government for the creation of new capital assets like machinery, building etc.

Business inventories are goods that firms produce in one time period with the intent to sell later and they are counted as part of business investment. The purchase of a house cannot be considered an investment expenditure as it may be for personal use.

Answer: (c)

Liquidity preference refers to the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes in his book The General Theory of Employment, Interest and Money (1936).

It is the desire to hold money rather than other assets, in Keynesian theory based on motives of transactions, precaution, and speculation.

Answer: (d)

Demand refers to how much (quantity) of a product or service is desired by buyers.

The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.

So for demand to originate, a product is required first.

Answer: (d)

Internal economies are those economies in production—those reductions in production costs—which accrue to the firm itself when it expands its output or enlarges its scale of production.

The internal economies arise within a firm as a result of its own expansion independent of the size and expansion of the industry as a whole.

Answer: (b)

In economics, the average propensity to consume (APC) is defined as the ratio of aggregate or total consumption to aggregate income in a given period of time.

Thus, the value of average propensity to consume, for any income level, may be found by dividing consumption by income.