Solution: (b)
Net National Product at factor cost is also called as national income. Net National Product at factor cost is equal to sum total of value added at factor cost or net domestic product at factor cost and net factor income from abroad. NNP at factor cost = NNP at Market Price -Net Indirect Tax. National income measures the money value of the flow of output of goods and services produced within an economy over a period of time.
Who defined investment as “the construction of a new capital asset like machinery or factory building”?
(a) Hansen
(b) J.M. Keynes
(c) Harrod
(d) J.R. Hicks
Solution: (b)
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: (a) Expected rate of profit which he calls as Marginal Efficiency of Capital (MEC). Investment demand increases with the increase in the expected rate of profit; (b) the rate of interest (IR). Investment demand decreases with the increase in the rate of interest.
The rate of interest is determined by
(a) The rate of return on the capital invested
(b) Central Government
(c) Liquidity preference
(d) Commercial Banks
Solution: (d)
Bank Rate is determined by the Reserve Bank of India. The rate of interest is determined by the commercial banks in India. As per RBI notification, banks are free to determine rates of interest subject to BPLR and spread guidelines. Banks may, however, offer loans at below BPLR to exporters or other creditworthy borrowers including public enterprises based on a transparent and objective policy approved by their Boards.
Per capita, income is equal to
(a) National Income /Total Population of the country
(b) National Income + Population
(c) National Income – Population
(d) National Income × Population
Solution: (a)
Per capita income or average income or income per person is the mean income within an economic aggregate, such as a country or city. It is calculated by taking a measure of all sources of income in the aggregate (such as GDP or Gross National Income) and dividing it by the total population.
According to the classical system, saving is a function of
(a) Income
(b) The interest rate
(c) The real wage
(d) The Price level
Solution: (a)
Saving function is a mathematical relation between saving and income by the household sector. This function captures the saving-income relation, the flip side of the consumption-income relation that forms one of the key building blocks for Keynesian economics.
An increase in national income because of an increase in price is called
(a) an increase in national income in real terms
(b) an increase in national income at constant prices
(c) an increase in money national income
(d) an increase in national income at base year prices
Solution: (d)
To find the real value of changes in output under inflationary conditions, the effects of any general price increase (price inflation) must be taken into account. This is done by holding prices constant from a starting measure, called the base year. It holds prices constant in terms of the prices existing in the base year.
National income accounting is the study of the income and expenditure of the entire
(a) family
(b) state
(c) economy
(d) organization
Solution: (c)
National Income Accounting is a set of principles and methods used to measure the income and production of a country. There are basically two ways of measuring national economic activity: as the money value of the total production of goods and services during a given period (usually a year) or as the total of incomes derived from economic activity after allowance has been made for capital consumption.
The demand for money, according to Keynes, is for
(a) speculative motive
(b) transaction motive
(c) precautionary motive
(d) All the above motives
Solution: (c)
According to Keynes, money is demanded because of three motives -transaction, precautionary and speculative. The first two motives provide yield of convenience and certainty. The third motive provides money yield. Keynes has termed demand for money as liquidity preference.
The aggregate net value of the output in one year is the
(a) National income at factor cost
(b) Gross Domestic Product at market prices
(c) Net National Product at market prices
(d) Gross National Product at market prices
Solution: (c)
Net national product at market price is the market value of the output of final goods and services produced at current price in one year of a country. 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.
Gross National Product is the money measure of
(a) all tangible goods produced in a country
(b) final goods and services produced in the economy
(c) services generated annually in the economy
(d) all tangible goods available in the economy
Solution: (b)
Gross national product (GNP) is the market value of all products and services produced in one year by labour and property supplied by the residents of a country. It is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens (including income of those located abroad), minus income of non-residents located in that country.
