Tag: income-output determination

Questions Related to income-output determination

A produce strikes his equilibrium when the difference between $TR$ and $TC$ is maximised.
business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. True

  2. False

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Correct Option: A
Explanation:

A producer strikes his equilibrium when he produces that amount of output at which the difference between total revenue and total cost is maximum. This is because, $\text{Net profit} = TR - TC$.

The producer strikes his equilibrium only when $MP$ is diminishing.
business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

A producer strikes his equilibrium only when $MP$ is diminishing, where the $MC$ is simultaneously rising. The producer stops production when rising $MC$ matches with falling $MR$. Beyond this point, rising $MC$ would exceed $MR$, causing loss of profit.

In finding equilibrium position of a profit maximising firm, which technique is most convenient ___________.

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. total revenue and total cost technique

  2. marginal revenue and marginal cost technique

  3. demand and supply technique

  4. none of the above

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Correct Option: B

A circumstance in which it might pay a monopolist to cut the price of his product is where _________.

business economics and quantitative methods equilibrium of a firm shifts in demand and supply producer's equilibrium income-output determination liquidity preference and profit

  1. MC is falling

  2. MR is greater than MC

  3. his advertising costs are increasing

  4. average costs seem about to fall

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Correct Option: B

Excess demand generates greater employment opportunities in the economy.

economics income-output determination public debt public debt main feature of tax

  1. True

  2. False

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Correct Option: B
Explanation:

Excess demand is a situation when there is no possibility of greater employment opportunities as economy is already at full employment level.

Which of the following is not a component of aggregate demand in a two-sector economy?

economics income-output determination public debt public debt main feature of tax

  1. Net Exports

  2. Government Expenditure

  3. Consumption

  4. Both (a) and (b)

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Correct Option: A
Explanation:

The aggregate demand in two sector economy only includes the expenditure made by the consumer sector and the producer sector. The expenditure by the government sector and net exports are not included in the two sector economy.

Which of these is a component of Aggregate demand ______________.

economics income-output determination public debt public debt main feature of tax

  1. Private consumption expenditure

  2. Investment expenditure

  3. Government expenditure

  4. All of these

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Correct Option: D
Explanation:

The various components of expenditure method are: 

National income by expenditure method = C+I+G+ (X-M) where

C= Private Consumption expenditure by households 

I=  Gross Domestic Investment expenditure

G= Government Final consumption and investment expenditure

(X-M)= Net export ( Export - Import)

The deflationary gap can be corrected by raising the level of aggregate demand.

economics income-output determination public debt public debt main feature of tax

  1. True

  2. False

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Correct Option: A
Explanation:

The deflationary gap can be corrected by raising the level of aggregate demand because deflationary gap occurs when aggregate demand falls shod of aggregate supply.

Aggregate demand can be increased by _______________.

economics income-output determination public debt public debt main feature of tax

  1. Increasing bank rate

  2. Selling government securities by Reserve Bank of India

  3. Increasing cash reserve ratio

  4. None of the above

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Correct Option: D
Explanation:

Aggregate demand refers to the sum total of expenditure that the people plan to incur on the purchase of goods and services produced in an economy corresponding to their different levels of income. It can be increased when the credit creation capacity of the commercial banks gets increased. By increasing bank rate, selling government securities by RBI and increasing cash reserve ratio decrease the aggregate demand in an economy.

Demand curve slopes upwards from left to right.

economics income-output determination public debt public debt main feature of tax

  1. True

  2. False

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Correct Option: B
Explanation:

False. Demand curve slopes downward from left to right because of the law of diminishing marginal utility. According to this law, the utility/satisfaction of the consumer goes on decreasing with every additional consumption of the commodity and hence, the consumer will buy more goods only when the price decreases. Other reasons are income effect, substitution effect, different uses of commodity etc.