Question 1

"Supply creates its own demand "is a law of:
A)investment
B)inflation
C)consumption
D)market

Accepted Answer

This statement is known as Say's Law, which is a principle related to markets. It suggests that the production of goods creates a demand for them in the market.

Question 2

According to classical economists, variations in savings are due to:
A)level of investment
B)rate of interest
C)level of employment
D)none of the above

Accepted Answer

Classical economists believe that the rate of interest is the primary factor influencing savings. They argue that as interest rates increase, people are more incentivized to save rather than spend, because they can earn more from their savings. Conversely, when interest rates are low, there is less incentive to save, leading to lower levels of savings.

Question 3

Supply creates its own demand is the Basis of:
A)classical economics
B)keynesian economics
C)monetarism
D)none of these

Accepted Answer

The principle that supply creates its own demand is the basis of classical economics, attributed to Jean-Baptiste Say, known as Say's Law. Classical economists believed that production of goods and services creates a demand for those goods and services, ensuring that all output produced will eventually be consumed.

Question 4

Which policy is effective in the Keynesian range?
A)monetary policy
B)fiscal policy
C)incomes policy
D)none of these

Accepted Answer

In the Keynesian range, fiscal policy is effective because it directly influences demand through government spending and taxation, which is crucial in situations where the economy is operating below its potential output and interest rates are low or ineffective at stimulating demand.

Question 5

When output exceeds spending:
A)there is unsold output, and level of output will fall
B)there is unsold output, and level of output will rise
C)there is unsold output, and level of spending will rise
D)there is no unsold output since the level of spending will rise

Accepted Answer

When output exceeds spending, it means that not all goods produced are being purchased, leading to unsold output. This situation typically results in a reduction of production levels as businesses adjust to the lower demand, causing the level of output to fall.

Question 6

Entrepreneurs will have no tendency to expand or contract output and employment when
A)ad>as
B)ad<as
C)ad=as
D)none of the above

Accepted Answer

Entrepreneurs will have no tendency to expand or contract output and employment when aggregate demand (ad) equals aggregate supply (as), indicating a state of equilibrium in the economy.

Question 7

The concept of effective demand is associated with the name of
A)marshall
B)keynes
C)krugman
D)say

Accepted Answer

The concept of effective demand is primarily associated with John Maynard Keynes, who introduced it as a central principle in his economic theories, particularly in his work on the General Theory of Employment, Interest, and Money. Effective demand refers to the total demand for goods and services in an economy at a given time, considering both price levels and income distribution, and it plays a crucial role in determining the level of employment and output.

Question 8

Psychological law of consumption states that the value of MPC is lies between zero and
A)1
B)2
C)3
D)4

Accepted Answer

The psychological law of consumption, as proposed by Keynes, states that the Marginal Propensity to Consume (MPC) is between 0 and 1. This means that when income increases, consumption increases but by less than the increase in income.

Question 9

Net investment is also known as
A)depreciation
B)induced investment
C)autonomous investment
D)capital formation

Accepted Answer

Net investment refers to the total amount of money spent on new capital minus the depreciation on existing capital. This concept is closely related to capital formation, which involves the accumulation of physical assets such as buildings, machinery, and equipment that are used to produce goods and services.

Question 10

In the saving function S = -a + (b)Y, the term 'b' denotes
A)saving
B)mpc
C)mps
D)aps

Accepted Answer

The answer of In the saving function S = -a...

Question 11

Who propounded Psychological law of consumption
A)adam smith
B)ricardo
C)keynes
D)pigou

Accepted Answer

The Psychological Law of Consumption was propounded by John Maynard Keynes. It suggests that as income increases, the proportion of income spent on consumption decreases, but the absolute expenditure on consumption increases.

Question 12

When MPS = 0.2, MPC will be
A)0.8
B)0.2
C)1.2
D)20

Accepted Answer

MPC (Marginal Propensity to Consume) + MPS (Marginal Propensity to Save) = 1. Therefore, if MPS = 0.2, then MPC = 1 - 0.2 = 0.8.

Question 13

In the linear consumption function C = a + bY, coefficient 'a' denotes
A)mpc
B)apc
C)autonomous consumption
D)induced consumption

Accepted Answer

The coefficient 'a' in the linear consumption function C = a + bY denotes autonomous consumption, which is the level of consumption when income (Y) is zero.

Question 14

In the equation C = 60 + 0.6 Y, MPC is
A)60
B)0.6
C)0
D)1

Accepted Answer

MPC, or Marginal Propensity to Consume, is the change in consumption (C) resulting from a change in income (Y). In the equation C = 60 + 0.6Y, the coefficient of Y (0.6) represents the MPC, indicating that for every additional unit of income, consumption increases by 0.6 units.

Question 15

Keynes assumed the presence of --------- economy for the fundamental law of consumption
A)capitalistic
B)socialistic
C)planned
D)none of the above

Accepted Answer

Keynes assumed the presence of a capitalistic economy for the fundamental law of consumption, as his theories primarily address the dynamics and issues within capitalist systems, focusing on aspects like investment, consumption, and the role of government intervention to mitigate economic downturns.

Question 16

Demand-pull inflation may be caused by:
A)an increase in costs
B)a reduction in interest rates
C)a reduction in government spending
D)an outward shift in aggregate supply

Accepted Answer

Demand-pull inflation is typically caused by an increase in demand for goods and services, which can be triggered by a reduction in interest rates. Lower interest rates make borrowing cheaper, encouraging consumers and businesses to spend and invest more, thus increasing demand.

Question 17

Inflation:
A)always reduces the cost of living
B)always reduces the standard of living
C)reduces the price of products
D)reduces the purchasing power of a rupee

Accepted Answer

Inflation leads to a decrease in the purchasing power of money, meaning that each unit of currency buys fewer goods and services than it did before. This is because as prices increase, the same amount of money can buy less.

Question 18

An increase in injections into the economy may lead to:
A)an outward shift of aggregate demand and demand-pull inflation
B)an outward shift of aggregate demand and cost-push inflation
C)an outward shift of aggregate supply and demand-pull inflation
D)an outward shift of aggregate supply and cost-push inflation

Accepted Answer

An increase in injections into the economy, such as government spending, investments, and exports, can lead to an increase in aggregate demand. This can cause the aggregate demand curve to shift outward, potentially leading to demand-pull inflation if the economy is near or at full capacity. Demand-pull inflation occurs when the demand for goods and services exceeds the economy's ability to supply them, leading to an increase in prices.

Question 19

According to the Phillips curve, unemployment will return to the natural rate when:
A)nominal wages are equal to expected wages
B)real wages are back at long-run equilibrium level
C)nominal wages are growing faster than inflation
D)inflation is higher than the growth of nominal wages

Accepted Answer

The answer of According to the Phillips curve, unemployment will...

Question 20

What is the cause of inflation?
A)if money supply increases.
B)if the production rate falls.
C)if money supply increases and production falls.
D)both money supply and production decreases.

Accepted Answer

Inflation can be caused by an increase in the money supply and/or a decrease in production. When more money chases fewer goods, prices rise.

Quiz 4: Economic Concepts and Policies

"Supply creates its own demand "is a law of:

According to classical economists, variations in savings are due to:

Supply creates its own demand is the Basis of:

Which policy is effective in the Keynesian range?

When output exceeds spending:

Entrepreneurs will have no tendency to expand or contract output and employment when

The concept of effective demand is associated with the name of

Psychological law of consumption states that the value of MPC is lies between zero and

Net investment is also known as

In the saving function S = -a + (b) Y, the term 'b' denotes

Who propounded Psychological law of consumption

When MPS = 0.2, MPC will be

In the linear consumption function C = a + bY, coefficient 'a' denotes

In the equation C = 60 + 0.6 Y, MPC is

Keynes assumed the presence of --------- economy for the fundamental law of consumption

Demand-pull inflation may be caused by:

Inflation:

An increase in injections into the economy may lead to:

According to the Phillips curve, unemployment will return to the natural rate when:

What is the cause of inflation?