Preparation of butter and ghee by a household for their own use is a part of the:
(a) own-account production
(b) household capital formation
(c) industrial production
(d) consumption
Solution: (d)
The processing of agricultural products; the pro duction of grain by threshing; the production of flour by milling; the curing of skins and the production of leather; the production and preservation of meat and fish products; the preservation of fruit by drying, bottling, etc.; the production of dairy products such as butter or cheese; the production of beer, wine or spirits; the production of baskets and mats; etc, come under processing of primary commodities for own consumption.
Which of the following relations always holds true?
(a) Income = Consumption + Investment
(b) Income = Consumption + Saving
(c) Saving = Investment
(d) Income = Consumption + Saving + Investment
Solution: (b)
Consumers do one of two things with their disposable income: They save it or they spend it. So Income = Consumption + Saving.
Over a short period, when income rises, the average propensity to consume usually
(a) rises
(b) falls
(c) remains constant
(d) fluctuates
Solution: (b)
Keynes postulated that aggregate consumption is a function of aggregate current disposable income. The Keynesian consumption function is written as:
C = a + cY
where a > 0 & 0 < c < 1; and 'a' is the intercept, a constant which measures consumption at a zero level of disposal income; c is the marginal propensity to consume (MPC); and Y is the disposal income. So as income increases, average propensity to consume (APC = C/Y) falls.
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The main emphasis of Keynesian economics is on
(a) Expenditure
(b) Exchange
(c) Foreign trade
(d) Taxation
Solution: (a)
Keynesian Economics is an economic theory of total spending in the economy and its effects on output and inflation. It emphasizes that government expenditures (or tax cuts) leads to increase in GDP which is a multiple of the original expenditure.
The basic problem studied in Macro Economics is
(a) production of income
(b) usage of income
(c) flow of income
(d) distribution of income
Solution: (a)
Macroeconomics involves the sum total of economic activity, dealing with the issues such as production of national income, growth, inflation, and unemployment. It is all about is about maximizing national income and growth.
The value of the investment multiplier relates to
(a) a change in income due to a change in autonomous investment.
(b) change in autonomous investment due to changes in income.
(c) change in income due to changes in consumption.
(d) change in income due to a change in induced investment.
Solution: (b)
The term investment multiplier refers to the concept that any increase in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy. The investment multiplier tries to determine the financial impact for a public or private project.
The relationship between the rate of interest and the level of consumption was first visualized by
(a) Amartya K. Sen
(b) Milton Friedman
(c) Irving Fisher
(d) James Duesenberry
Solution: (c)
Irving Fisher, in His Theory of Interest (1930), found the relationship between interest rates (nominal interest rate and real interest rate) and the consumption level. Though his theory is about interest rate and inflation, it discusses the effect of real interest rate on savings and gives an inverse relationship between nominal interest rates and consumer expenditures.
Collective consumption means
(a) household consumption
(b) individual consumption
(c) self–consumption
(d) consumption by the citizens of the country
Solution: (d)
Collective consumption is a concept that refers to the many goods and services that are produced and consumed on a collective level, such as in cities or countries. These include schools, libraries, roads, bridges, public transportation, health care, welfare, fire and police protection, etc.
Regarding the money supply situation in India, it can be said that the:
(a) Currency with the public is inconvertible only.
(b) Currency with the public is less than the deposits with the banks.
(c) Currency with the public is more than the deposits with the banks.
(d) Currency with the public is almost equal to deposits with banks.
Solution: (b)
Money supply in India includes the following: (i) Currency with the public; (ii) Demand deposits and time deposits with banks; (iii) Deposits with reserve Bank of India; and (iv) Deposits in Post Office. The currency with public is less than the total currency issued by RBI. This is because of cash reserves with banks, i.e., a part of currency issued remains with banks. As far as deposits are concerned, during the last four decades, the proportion of demand deposits, time deposits and other with banks in relation to total supply of money has been increasing with reciprocal diminution in currency held by the public. This is mainly due to the expansion of banking facilities in the country. Almost all the money in the economy exists as bank deposits – and banks create these deposits simply by making loans.
If a change in all inputs leads to a proportionate change in output, it is a case of
(a) Constant returns to scale
(b) Diminishing returns to scale
(c) Increasing returns to scale
(d) Variable returns to scale
Solution: (a)
If output increases by that same proportional change as all inputs change then there are constant returns to scale (CRS). If output increases by less than that proportional change in inputs, there are decreasing returns to scale (DRS). If output increases by more than that proportional change in inputs, there are increasing returns to scale (IRS).
