Tag: economics

Questions Related to economics

Which of these is a component of Aggregate demand ______________.

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  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 _______________.

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  1. Increasing bank rate

  2. Selling government securities by Reserve Bank of India

  3. Increasing cash reserve ratio

  4. None of the above

Show answer
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.

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  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. 

Desire means demand.

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 is a desire to buy commodity backed by the ability to pay and willingness to buy a commodity.

The equilibrium is the state when _________.

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  1. demand equals supply

  2. demand is more than supply

  3. demand is less than supply

  4. supply is less than demand

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Correct Option: A
Explanation:

Market equilibrium is a situation where the aggregate demand and supply of a commodity are the same I.e., equal. Equilibrium is achieved at the intersection of aggregate demand aggregate supply and at that level we get the equilibrium price and quantity. 

Market equilibrium of a commodity is determined by ________.

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

  1. balancing of demand and supply position

  2. aggregate demand

  3. aggregate supply

  4. government intervention

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Correct Option: A
Explanation:

Market equilibrium is a situation where the aggregate demand and supply of a commodity are the same. Equilibrium is achieved at the intersection of aggregate demand aggregate supply and at that level we get the equilibrium price and quantity. 

When demand increases, the demand curve shifts to the left. 

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  1. True

  2. False

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Correct Option: B
Explanation:

Demand increases when price remains constant and other factors change.
For example if the income of the consumer increases, his demand will increase as a result the demand curve shifts to the right.
When demand for a good decreases say with the fall in income, the demand curve will shift to the left.

The factors causing deficient demand are:

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

  1. Fall in consumption expenditure

  2. Decrease in private investment

  3. Decrease in government expenditure

  4. All of the above

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Correct Option: D
Explanation:

Aggregate demand is the total consumption of goods and services as it is not practically possible to count all the goods and services consumed and hence, the total expenditure undertaken by each household for consumption, private investment, expenditure by government on consumption and investments and net exports. Hence, deficient demand can be because of fall in household consumption, decrease in private investment, decrease in government expenditure. 

The relationship between rate of interest and investment demand is ___________.

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  1. direct

  2. inverse

  3. constant

  4. none of the above

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Correct Option: B
Explanation:

Marginal efficiency of investment (MEI) refers to the expected rate of return from the allocation of a proportion of income or capital invested in the business. There is a inverse relation between the rate of interest and investment. If the rate of interest is high then people will take less loan from the bank and they will have less money to invest in whereas if rate of interest is low then people will take more loan from the bank to invest in the business.