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Part 028 – Macro Economics Previous Year Questions

Q1. Transfer payments include :
(a) Gifts received from a friend
(b) rent free accommodation by the employer
(c) net factor income from abroad
(d) Employee’s contribution to social security
Ans: (d) A transfer payment is a one- way payment of money for which no money, good, or service is received in exchange. Governments use such payments as means of income redistribution by giving out money under social welfare programs such as social security, old age or disability pensions, student grants, unemployment compensation, etc. Examples of certain transfer payments include welfare (financial aid), social security, and government making subsidies for certain businesses

Q2. Effective demand depends on

(a) capital-output ratio
(b) output-capital ratio
(c) total expenditure
(d) supply price
Ans: (d) Effective Demand is “the demand in which the consumer are able and willing to purchase at conceivable price” simply saying if the product price is low more will buy; but if the rates go high then the quantity of the demand goes down. Keynes used two terms: Aggregate Demand Function or Price and Aggregate Supply Function or Price to explain the determination of effective demand.

Q3. A rising Per Capita Income will indicate a better welfare if it is accompanied by

(a) unchanged Income distribution overall.
(b) changed Income distribution in favour of rich.
(c) changed Income distribution in favour of poor.
(d) changed Income disribution in favour of Industrial Labour.
Ans: (c) Per capita income has lately been viewed as a better determinant of economic development and welfare. However, high inequality can still diminish economic growth. So equal or more rationale distribution of income in the favour of the poor is the best way to ensure that the welfare is holistic and leaves no quarters deprived as after all, economic welfare is a part and parcel of social welfare.

Q4. National Income is generated from:

(a) any money-making activity
(b) any laborious activity
(c) any profit-making activity
(d) any productive activity
Ans: (b) 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.

Q5. ‘Hire and Fire’ is the policy of

(a) Capitalism
(b) Socialism
(c) Mixed Economy
(d) Traditional Economy
Ans: (c) In capitalism, people may sell or lend their property, and other people may buy or borrow them. In many countries with mixed economies (part capitalism and part socialism) there are laws about what we can buy or sell, or what prices we can charge, or whom we can hire or fire.

Q6. Consumption function expresses the relationship between consumption and

(a) savings (b) income
(c) investment (d) price
Ans: (b) The consumption function is a mathematical formula laid out by famed economist John Maynard Keynes. The formula was designed to show the relationship between real disposable income and consumer spending, the latter variable being what Keynes considered the most important determinant of short-term demand in an economy.

Q7. Which of the following would not constitute an economic activity in Economics ?

(a) A teacher teaching students in his college
(b) A teacher teaching students in a coaching institute
(c) A teacher teaching his own daughter at home
(d) A teacher teaching students under Sarva Shiksha Abbiyan Scheme
Ans: (c) Economic activity, is quite simply, the activity of the economy. It includes the growth and shrinkage of the economy and all factors that affect this (for example Aggregate Expenditure). It is commonly measured by the GDP (Gross Domestic Product) which is probably one of the most reliable economic indicators. A teacher teaching his daughter at home is the example of a non-economic activity.

Q8. Which one of the following is not included while estimating national income through income method?

(a) Rent
(b) Mixed incomes
(c) Pension
(d) Undistributed profits
Ans: (c) The income approach equates the total output of a nation to the total factor income received by residents or citizens of the nation. Transfer incomes are excluded from national income. Therefore, wages of labourers will be included, pensions of retired workers will be excluded from national income. Labour income includes, compensations in kind. Non-labour income includes dividends, un distributed profits of corporations before taxes, interest, rent, royalties, profits of non-incorporated enterprises and of government enterprises.

Q9. Income and consumption are :

(a) inversely related
(b) directly related
(c) partially related
(d) unrelated.
Ans: (b) Consumption and income are directly or positively related. An increase in income is associated with an increase in income; a decrease in consumption accompanies a decrease in income.

Q10. Which of the following is deducted from GNP to arrive at NNP ?

(a) Depreciation (b) Interest
(c) Tax (d) Subsidy
Ans: (a) If we subtract the depreciation charges from the gross national product, we get net national product at market price. Net national product at market price=Gross national product at market price-Depreciation.

Q11. Price mechanism is a feature of

(a) Capitalist economy
(b) Barter economy
(c) Mixed economy
(d) Socialist economy
Ans: (a) 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.

Q12. The main feature of a capitalist economy is

(a) Administered prices
(b) Public ownership
(c) Economic planning
(d) Private ownership
Ans: (d) Capitalism is an economic system that is based on private ownership of the means of production and the production of goods or services for profit. Other elements central to capitalism include capital accumulation and often competitive markets.

Q13. A ‘Transfer Income’ is an

(a) Income which is not produced by any production process
(b) Income taken away from one person and given over to another
(c) Unearned income
(d) Earned income
Ans: (a) Income which is not produced by any production process is called Transfer Income.

Q14. National Income is also called as :

(a) GNP at Factor Cost
(b) GNP at Market Price
(c) NNP at Factor Cost
(d) NNP at Market Price
Ans: (a) National Income is the total value of all goods and services produced in the economy during a particular period of time.

Q15. Which one of the following is not a dimension of human development index ?

(a) Life expectancy
(b) Knowledge
(c) Social status
(d) Standard of living
Ans: (c) Social Status is not a dimension of Human Development Index.

Q16. Transfer payments mean

(a) Old age pensions
(b) Unemployment compensations
(c) Social security payments
(d) All the above
Ans: (d) Transfer payment refers to a payment made by a public authority other than one made in exchange for goods or service produced. Transfer payments are not part of the national income. Examples include Old age pensions, unemployment compensations, social security payments and child benefit.

Q17. Economic progress of a country is determined by

(a) Increase in per capita income of people of country
(b) Increase in the price of produced capital goods during the year
(c) Increased numbers of Trade Unions
(d) Fall in the general price level of a country
Ans: (a) Economic progress of a country is determined by increase in per capita income of people of that country.

Q18. A hammer in the hands of a house-wife is a ______ good.

(a) consumer (b) capital
(c) free (d) intermediary
Ans: (d) Good is any tangible item, whether produced or found naturally and which is available for exchange. Free good is a good that is so abundant is supply that it has no opportunity cost, for example, air. Intermediary good is a firm’s product that is used as an input into the production process of either the same firm or another.

Q19. A camera in the hands of a professional photographer is a _______ good.

(a) Free (b) Intermediary
(c) Consumer (d) Capital
Ans: (b) Good is any tangible item, whether produced or found naturally and which is available for exchange. Free good is a good that is so abundant is supply that it has no opportunity cost, for example, air. Intermediary good is a firm’s product that is used as an input into the production process of either the same firm or another.

Q20. The economist who believed that unemployment is impossible and that market mechanism has a built in regulatory system to meet any ups and downs

(a) J.M.Keynes (b)Ohlin
(c) J.B.Say (d) Galbraith
Ans: (c) The classical economists’ belief in full employment as a normal condition of a free market economy is based on Say’s Law of Markets. It was on the basis of this law that the classical economists thought that general over-production and hence general unemployment were impossible. The law simply states “supply creates its own demand.”

Q21. The difference between GNP and NNP equals

(a) corporate profits
(b) personal taxes
(c) transfer payments
(d) depreciation
Ans: (d) Gross National Product (GNP) is the gross value of all the final products without deducting the depreciation of fixed capital. Net National Product (NNP) is the value of net output in an economy during a period of one year. The difference between the GNP and NNP is equal to Capital depreciation.

Q22. Investment multiplier shows the effect of investment on

(a) Employment(b) Savings
(c) Income (d) Consumption
Ans: (c) Investment multiplier is simply the multiplier effect of an injection of investment into an economy. The multiplier effect refers to the idea that an initial spending rise can lead to even greater increase in national income.

Q23. Which of the following is not an investment expenditure in goods and services?

(a) Expansion of the main plant of a company
(b) Purchase of a house
(c) Purchase of machinery
(d) An increase in business inventories
Ans: (b) 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 house cannot be considered as investment expenditure as it may be for personal use.

Q24. Which one of the following represents the Savings of the Private Corporate Sector?

(a) Dividends paid to shareholders
(b) Total profits of a company
(c) Undistributed profits
(d) Excess of income over expenditure
Ans: (c) For 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.

Q25. The incomes of Indians working abroad are a part of

(a) domestic income of India
(b) income earned from Abroad
(c) net domestic product of India
(d) gross domestic product of India
Ans: (c) Domestic Product is the ross money value of all final goods and services produced in the domestic territory of a country during a year. National Product is the gross money value of all final goods and services produced by the normal residents of a country during a year. It includes net factor income from abroad.

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