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

Answer: (d)

Economic progress of a country is determined by increase in per capita income of people of that country.

Answer: (c)

Capital formation is frequently thought of as a measure of total “investment”, in the sense of that portion of capital actually used for investment purposes and not held as savings or consumed.

But in fact, in national accounts, the concept of gross capital formation refers only to the accounting value of the “additions of non-financial produced assets to the capital stock less the disposals of these assets”. “Investment” is a broader concept that includes investment in all kinds of capital assets, whether physical property or financial assets.

The net valuation method views “depreciation” as the compensation for the cost of replacing fixed equipment used up or worn out, which must be deducted from the total investment volume to obtain a measure of the “real” value of investments; the depreciation write-off compensates and cancels out the loss in the capital value of assets used due to wear & tear, obsolescence, etc.

Answer: (c)

Pump priming is the action taken to stimulate an economy, usually during a recessionary/deflationary period, through government spending, and interest rate and tax reductions.

Growth is accomplished through the increase in purchasing power experienced by those affected by the injection of funds, with the goal of promoting higher demand for goods and services.

Answer: (c)

Gilt-edged securities are bonds issued by governments. They are government securities, i.e., instruments issued by the government to borrow money from the market. Gilt-edged securities are a high-grade investment with very low risk.

Answer: (b)

When the national output is multiplied by the present ruling price, we obtain national income at current prices.

On the other hand, if the national output is multiplied by the base price if called national income at constant price. But what is seen is that prices of commodities go on changing. When the current outputs are multiplied by the current prices it will give rise to monetary national income.

So a very rise in National Income at current or constant prices does not indicate an increase in product or output but is rather due to the rise in the price level.