introduction to macro economics section 6 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (c)

A surplus budget is a budget in which government receipts are greater than government expenditures.

Such a budget is desired when the economy is battling inflation due to excess aggregate demand (AD). The surplus budget plugs the inflationary gap by lowering the level of aggregate demand. AD is lowered on account of

1. rising in revenue collection by the government, and
2. a fall in government expenditure.

Answer: (c)

National income is the monetary value of all goods and services produced by nationals of a country. Only productive activities are included in the computation of national income.

All incomes earned through productive activities are included in national income. Income earned through unproductive activities is not included.

Answer: (d)

The price mechanism is an economic term that refers to the manner in which the prices of commodities affect the demand and supply of goods and services.

It is essentially a feature of market-driven or capitalist economic systems. It is based on the principle that only by allowing prices to move freely will the supply of any given commodity match demand.

Answer: (c)

In microeconomics, an Engel curve describes how household expenditure on a particular good or service varies with household income.

The curve is named after the German statistician Ernst Engel (1821–1896), who was the first to investigate this relationship between goods expenditure and income systematically in 1857.

Answer: (c)

Investment expenditure refers to the creation of new assets i.e. an addition to the stock of existing capital assets.

According to Keynes investment demand depends upon two factors:

1. Expected rate of profit which he calls Marginal Efficiency of Capital (MEC). Investment demand increases with the increase in the expected rate of profit;
2. the rate of interest (IR). Investment demand decreases with the increase in the rate of interest.