McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: General Knowledge (GK) , Union Public Service Commission (UPSC) .
| 201. |
Which one of the following is an example of optional money? |
| A. | Currency note |
| B. | Coins |
| C. | Cheque |
| D. | Bond |
| Answer» C. Cheque | |
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Explanation: On the basis of acceptability, money has been classified into legal tender and optional money. Legal tender money is enforced by law. Optional money is that money which may or may not be accepted as a means of payment; it has no legal sanction. Different credit instruments, like, cheques, bank drafts, etc., are the examples of optional money. |
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| 202. |
'Money' is an example of - |
| A. | Sunk capital |
| B. | Floating capital |
| C. | Concrete capital |
| D. | Social capital |
| Answer» B. Floating capital | |
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Explanation: Money is something which is widely accepted in payment for goods and services and in setting debts. Money is an example of Floating Capital. |
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| 203. |
The existence of a Parallel Economy or Black Money - |
| A. | makes the economy more competitive |
| B. | makes the monetary policies less effective |
| C. | ensures a better distribution of income and wealth |
| D. | ensures increasing productive investment |
| Answer» B. makes the monetary policies less effective | |
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Explanation: In India, Black money refers to funds earned on the black market, on which income and other taxes has not been paid. Black money leads to black liquidity which is immune to any monetary-fiscal policy. It can move around in the economy creating excess demand in several vulnerable sectors of the economy. Of particular relevance in this context is a policy dominated by sector-wise credit rationing in order to maintain inter-sectoral balances. The cost of credit is one one part of such a policy. So, in nutshell, the existence of parallel economy erodes the effectiveness of monetary policies. |
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| 204. |
An economy is in equilibrium when - |
| A. | planned consumption exceeds planned saving |
| B. | planned consumption exceeds planned investment |
| C. | intended saving equals intended investment |
| D. | intended investment exceeds intended savings |
| Answer» C. intended saving equals intended investment | |
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Explanation: In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. The condition of equilibrium of income is the equality of intended saving and intended investment. An economy is in equilibrium when total savings equal total investment. |
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| 205. |
The 'Canons of Taxation' were propounded by - |
| A. | Edwin Canon |
| B. | Adam Smith |
| C. | J.M. Keynes |
| D. | Dalton |
| Answer» B. Adam Smith | |
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Explanation: Canons of Taxation were first originally laid down by economist Adam Smith in his famous book 'The Wealth of Nations". In this book, Adam smith only gave four canons of taxation: (i) canon of equity: (ii) canon of certainty: (iii) canon of convenience; and (iv) canon of economy. |
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| 206. |
Beyond a certain point deficit financing will certainly lead to - |
| A. | inflation |
| B. | deflation |
| C. | recession |
| D. | economic stagnation |
| Answer» A. inflation | |
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Explanation: Deficit financing is a practice in which a government spends more money than it receives as revenue, the difference being made up by borrowing or minting new funds. Some economists are of the view that it leads to inflation as governments pay off debts by printing fiat money, increasing the money supply and the purchasing power of the people which increases the aggregate demand. |
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| 207. |
VAT is imposed: |
| A. | Directly on Consumer |
| B. | On first stage of production |
| C. | On final stage of production |
| D. | On all stages between production and sale |
| Answer» D. On all stages between production and sale | |
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Explanation: Value Added Tax (VAT) is imposed on the value added to each commodity by a firm during all stages of production and distribution. In simple terms, it is a fee assessed against businesses at each step of the production and distribution process, usually whenever a product is resold or value is added to it. Valueadded taxation in India was introduced as an indirect value added tax (VAT) into the Indian taxation system from 1 April 2005. |
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| 208. |
The aim of Differentiated Interest Scheme was to provide concessional loans to - |
| A. | weaker section of the society |
| B. | Public Sector Industries |
| C. | Public Limited Companies |
| D. | big exports |
| Answer» A. weaker section of the society | |
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Explanation: The Differential Rate of Interest Scheme, formulated in March 1972, offers financial assistance at concessional rate of interest. 0 4% to those who intend taking up any productive activity and has been tailored for persons whose income is very low. |
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| 209. |
Investment and savings are kept equal through a change in the level of - |
| A. | Consumption |
| B. | Investment |
| C. | Government expenditure |
| D. | Income |
| Answer» A. Consumption | |
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Explanation: Desired savings are kept equal to desired investment by responses to interest rate changes. Savings identity or the savings investment identity is a concept in National Income Accounting stating that the amount saved (S) in an economy will be amount invested (I). This identity only holds true because investment here is defined as including inventories. Thus, should consumers decide to save more, and spend less, the fall in demand would lead to an increase in business inventories. The change in inventories brings savings and investment into balance without any intention by business to increase investment. |
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| 210. |
Which of the following is not required while computing Gross National Product (GNP)? |
| A. | Net foreign investment |
| B. | Private investment |
| C. | Per capita income of citizens |
| D. | Purchase of goods by government |
| Answer» C. Per capita income of citizens | |
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Explanation: 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. Basically, GNP 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. GNP measures the value of goods andservices that the country's citizens produced regardless of their location. |
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| 211. |
In a highly developed country the relative contribution of agriculture to GDP is |
| A. | relatively high |
| B. | relatively low |
| C. | the same as that of other sectors |
| D. | zero |
| Answer» B. relatively low | |
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Explanation: In developed countries, the labor productivity of any commercial agriculture is high, so only a very small percentage of the population is involved with agriculture even when agriculture is a major industry and export. These countries focus more on manufacturing and service industry. Agriculture or the primary sectors of the economy have sizeable contributions in the GDP of developing nations. |
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| 212. |
The demand for money, according to Keynes, is for - |
| A. | speculative motive |
| B. | transaction motive |
| C. | precautionary motive |
| D. | All the above motives |
| Answer» C. precautionary motive | |
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Explanation: 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. |
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| 213. |
Economic progress of a country is determined by - |
| A. | Increase in per capita income of people of country |
| B. | Increase in the price of produced capital goods during the year |
| C. | Increased numbers of Trade Unions |
| D. | Fall in the general price level of a country |
| Answer» A. Increase in per capita income of people of country | |
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Explanation: Economic progress of a country is determined by increase in per capita income of people f that country. |
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| 214. |
What is "book-building"? |
| A. | Preparing the income and expenditure ledgers of a company (book-keeping) |
| B. | Manipulating the profit and loss statements of a company |
| C. | A process of inviting subscriptions to a public offer of securities, essentially through a tendering process |
| D. | Publishers' activity |
| Answer» C. A process of inviting subscriptions to a public offer of securities, essentially through a tendering process | |
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Explanation: Book building refers to the process of generating, capturing, and recording investor demand for shares during an IPO (or other securities during their issuance process) in order to support efficient price discovery. Usually, the issuer appoints a major investment bank to act as a major securities underwriter or bookrunner. The "book" is the off-market collation of investor demand by the bookrunner and is confidential to the bookrunner, issuer, and underwriter. Book-building is a process of price discovery used in public offers. The issuer sets a base price and a band within which the investor is allowed to bid for shares. |
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| 215. |
A hammer in the hands of a house-wife is a good. |
| A. | consumer |
| B. | capital |
| C. | free |
| D. | intermediary |
| Answer» D. intermediary | |
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Explanation: Good is any tangible item, whether produced or found naturally and which is available for exchange. Free good is a good that is so abundant is supply that it has no opportunity cost, for example, air. Intermediary good is a firm's product that is used as an input into the production process of either the same firm or another. |
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| 216. |
Surplus budget is recommended during |
| A. | Boom |
| B. | Depression |
| C. | Famines |
| D. | War |
| Answer» B. Depression | |
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Explanation: Surplus budget is a budget in which government receipts arc greater than government expenditures. Such a budget is desired when the economy is battling inflation due to excess aggregate demand (AD). Surplus budget plugs the inflationary gap by lowering the level of aggregate demand. AD is lowered on account of (i) rise in revenue collection by the government and (ii) fall in government expenditure. |
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| 217. |
Economic profit or normal profit is the same as - |
| A. | optimum profit |
| B. | accounting profile |
| C. | maximum profit |
| D. | net profit |
| Answer» D. net profit | |
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Explanation: Normal profit or economic profit is an economic condition occurring when the difference between a firm's total revenue and total cost is equal to zero. Simply put, normal profit is the minimum level of profit needed for a company to remain competitive in the market. In a sense, normal profit is the same as net profit which is calculated by subtracting a company's total expenses from total revenue, thus showing what the company has earned (or lost) in a given period of time. Accounting profit occurs when revenues are greater than costs, and not equal, as in the case of normal profit. |
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| 218. |
Which of the following is not a feat tare of a capitalist economy? |
| A. | Right to private property |
| B. | Existence of competition |
| C. | Service motive |
| D. | Freedom of choice to consumers |
| Answer» C. Service motive | |
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Explanation: Capitalism is an economic system in which each individual in his capacity as a consumer, producer, and resource owner is engaged in economic activity with a large measure of economic freedom. The inspiring force in this system is self-interest and maximization of profit. The decisions of businessmen, farmers, producers, including that of wage-earners are based on the profit motive. |
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| 219. |
When the demand for a good increases with an increase in income, such a good is called - |
| A. | Superior good |
| B. | Giffin good |
| C. | Inferior good |
| D. | Normal good |
| Answer» A. Superior good | |
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Explanation: A superior good is a product that people demand more of as they their incomes grow. These are products that are generally more expensive and rarer like diamonds and classic cars. Such a good must possess two economic characteristics: it must be scarce, and, along with that, it must have a high price. |
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| 220. |
In equilibrium, a perfectly competitive firm will equate - |
| A. | marginal social cost with marginal social benefit |
| B. | market supply with market demand |
| C. | marginal profit with marginal cost |
| D. | marginal revenue with marginal cost |
| Answer» D. marginal revenue with marginal cost | |
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Explanation: A perfectly competitive firm's supply curve is that portion of its marginal cost curve that lies above the minimum of the average variable cost curve. A perfectly competitive firm maximizes profit by producing the quantity of output that equates price and marginal cost. In that price equals marginal revenue for a perfectly competitive firm, price is also equal to marginal cost. In other words, the firm produces by moving up and down along its marginal cost curve. The marginal cost curve is thus the perfectly competitive firm's supply curve. |
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| 221. |
Equilibrium is a condition that can - |
| A. | never change |
| B. | change only if some outside factor changes |
| C. | change only if some internal factor changes |
| D. | change only if government policies change |
| Answer» C. change only if some internal factor changes | |
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Explanation: In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absenceof external influences the (equilibrium) values of economic variables will not change. For example, in the standard text-book model of perfect competition, equilibrium occurs at the point, at which quantity demanded and quantity supplied is equal. Equilibrium can change if there is a change in demand or supply conditions which arc internal factor changes. |
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| 222. |
Enterpreneurial ability is a special kind of labour that - |
| A. | is hired out to firms at high wages |
| B. | organizes the process of production |
| C. | produces new capital goods to earn interest |
| D. | manages to avoid losses by continual innovation |
| Answer» B. organizes the process of production | |
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Explanation: In economics, factors of production are the inputs to the production process. Factors of production' may also refer specifically to the 'primary factors', which are stocks including land, labor (the ability to work), and capital goods applied to production. Many economists today consider "human capital" (skills and education) as the fourth factor of production, with entrepreneurship as a form of human capital. In markets, entrepreneurs combine the other factors of production, land, labor, and capital, in order to make a profit. |
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| 223. |
An exceptional demand curve is one that moves - |
| A. | upward to the right |
| B. | downward to the right |
| C. | horizontally |
| D. | vertically |
| Answer» B. downward to the right | |
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Explanation: A demand curve that violates the law of demand is termed an exceptional demand curve. If a household expects the price of a commodity to increase, it may start purchasing a greater amount of the commodity even at the presently increased price. Similarly, if the household expects the price of the commodity to decrease, it may postpone its purchases. Thus, law of demand is violated in such cases. In this case, the demand curve does not slope down from left to right; instead it presents a backward slope from the top right to down left. This curve is known as an exceptional demand curve. |
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| 224. |
Production function explains the relationship between - |
| A. | initial inputs and ultimate output |
| B. | inputs and ultimate consumption |
| C. | output and consumption |
| D. | output and exports |
| Answer» A. initial inputs and ultimate output | |
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Explanation: Production function explains the relationship between factor input and output under given technology. It explains as to for increasing the output, in which proportion various inputs or factors may be employed under given technological conditions. In short, production function may be defined as a technological relationship that tells the maximum output producible from various combinations of inputs. Production function explains the physical relationship between input and output under given technology. |
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| 225. |
The four factors of production are - |
| A. | land, labour, capital, organisation, |
| B. | land, electricity, water, labour |
| C. | labour, capital, land, rainfall, |
| D. | labour, climate, land, tools, |
| Answer» A. land, labour, capital, organisation, | |
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Explanation: Factors of Production is an economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit. Resources required for generation of goods or services, generally classified into four major groups: (i) Land (including all natural resources), (ii) Labor (including all human resources), (iii) Capital (including all man-made resources), and (iv) Enterprise (which brings all the previous resources together for production). |
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| 226. |
The term utility means - |
| A. | usefulness of a commodity |
| B. | the satisfaction which a commodity yields |
| C. | the service which a commodity is capable of rendering |
| D. | None of these |
| Answer» B. the satisfaction which a commodity yields | |
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Explanation: In economics, 'Utility,' refers to the total satisfaction received from consuming a good or service. It is usually applied by economists in such constructs as the indifference curve, which plots the combination of commodities that an individual or a society would accept to maintain a given level of satisfaction. |
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| 227. |
The degree of monopoly power is to be measured in terms of the firm's- |
| A. | normal profit |
| B. | supernormal profit |
| C. | both normal and supernormal profit |
| D. | selling price |
| Answer» B. supernormal profit | |
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Explanation: Monopoly power implies the amount of discretion which a monopolist possesses to fix up the prices of his products and degree of control over his output decisions. According to J.S. Bains, the degree of monopoly power can be measured by the monopoly firm's super-normal profit. |
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| 228. |
Who propounded the Innovation theory of profits? |
| A. | J.A. Schumpeter |
| B. | P.A. Samuelson |
| C. | Alfred Marshall |
| D. | David Ricardo. |
| Answer» A. J.A. Schumpeter | |
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Explanation: Schumpeter's (1934) original theory of innovative profits emphasized the role of entrepreneurship (his term was entrepreneurial profits) and the seeking out of opportunities for novel value-generating activities which would expand (and transform) the circular flow of income. It did so with reference to a distinction between invention or discovery on the one hand and innovation, commercialization and entrepreneurship on the other. This separation of invention and innovation marked out the typical nineteenth century institutional model of innovation, in which independent inventors typically fed discoveries as potential inputs to entrepreneurial firms. |
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| 229. |
The principle of maximum social advantage is the basic principle of - |
| A. | Micro Economics |
| B. | Macro Economics |
| C. | Fiscal Economics |
| D. | Environmental Economics |
| Answer» C. Fiscal Economics | |
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Explanation: The 'Principle of Maximum Social Advantage', introduced by British economist Hugh Dalton, is the fundamental principle of Public Finance which implies that all the financial operations of the state should aim at maximization of net social benefit. It takes into consideration both the aspects of public finance that is the government revenue or taxation as well as government expenditure. Since it studies problems related to government taxation and spending, it comes under the domain of fiscal economics. |
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| 230. |
Diamonds are priced higher than water because : |
| A. | they are sold by selected firms with monopolistic powers. |
| B. | their marginal utility to buyers is higher than that of water. |
| C. | their total utility to buyers is higher than that of water. |
| D. | consumers do not buy them at lower prices. |
| Answer» B. their marginal utility to buyers is higher than that of water. | |
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Explanation: The water diamond paradox or puzzle was a mystery of Adam Smith who observed that the price of diamonds was much higher than that of water even though water seemed to offer for more utility than diamonds. The resolution of this puzzle or paradox is based on the distinction between marginal utility and total utility. The marginal utility of diamonds is very high and so consumers are willing to pay higher prices for diamond, than for water. |
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| 231. |
Buyers and Sellers will have perfect knowledge of market conditions under - |
| A. | Duopoly |
| B. | Perfect competition |
| C. | Monopolistic competition |
| D. | Oligopoly |
| Answer» A. Duopoly | |
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Explanation: Complete market information is one of the main features of Perfect Competition. This condition implies close contact betweenbuyers and sellers. Both of them possess complete knowledge about the prices at which goods are being bought and sold, and the prices at which others are prepared to buy or sell. |
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| 232. |
In short run, if a competitive firm incurs losses, it will - |
| A. | stop production. |
| B. | continue to produce as long as it can cover its variable costs. |
| C. | raise price of its product. |
| D. | go far advertising campaign. |
| Answer» A. stop production. | |
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Explanation: In the short run, a firm that is operating at a loss (where the revenue is less that the total cost or the price is less than the unit cost) must decide to operate or temporarily shutdown. It will shutdown if the sale of the goods or services produced cannot even cover the variable costs of production. |
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| 233. |
If the average revenue is a horizontal straight line, marginal revenue will be - |
| A. | U shaped |
| B. | Kinked |
| C. | Identical with average revenue |
| D. | L shaped |
| Answer» C. Identical with average revenue | |
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Explanation: The price of a good is also known as the Average Revenue of the firm. Average Revenue (AR) or Price and Marginal Revenue (MR) are identical. When the former is constant, the latter is also constant. More-over, the Average Revenue curve of a firm is the same as the individual demand curve. Hence, the competitive demand curve is a horizontal straight line parallel to the OX axis. |
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| 234. |
The demand of a factor of production is |
| A. | direct |
| B. | derived |
| C. | neutral |
| D. | discretion of the producer |
| Answer» B. derived | |
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Explanation: There are 4 factors of production; land, labor, capital and entrepreneurship. The demand for the factors of production is a derived demand. That means these factors of productionare demanded because there is a demand for the end product they produce. |
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| 235. |
Bilateral monopoly refers to the market situation of - |
| A. | two sellers, two buyers |
| B. | one seller and two buyers |
| C. | two sellers and one buyer |
| D. | one seller and one buyer |
| Answer» D. one seller and one buyer | |
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Explanation: In a bilateral monopoly there is both a monopoly (a single seller) and monopsony (a single buyer) in the same market. The one supplier tends to act as a mo-nopoly power, and looks to charge high prices to the one buyer. The lone buyer looks towards paying a price that is as low as possible. Since both parties have conflicting goals, |
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| 236. |
Production function refers to the functional relationship between input and |
| A. | product |
| B. | produce |
| C. | output |
| D. | service |
| Answer» C. output | |
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Explanation: The Production function expresses a functional relationship amidst quantities of raw materials and goods. It is the name given to the relationship between rates of input of productive services and the rate of output of product. |
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| 237. |
Under perfect competition, the industry does not have any excess capacity because each firm produces at the minimum point on its - |
| A. | long-run marginal cost curve |
| B. | long-run average cost curve |
| C. | long-run average variable cost curve |
| D. | long-run average revenue curve |
| Answer» B. long-run average cost curve | |
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Explanation: Under perfect competition, the firms operate at the minimum point of long-run average cost curve. In this way, the actual long- run output of the firm under monopolistic competition falls short of what is produced underperfect competition which can be considered the socially ideal output. This gives the mea-sure of excess capacity which lies unutilized under imperfect competition. |
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| 238. |
Exploitation of labour is said to exist when - |
| A. | Wage = Marginal Revenue Product |
| B. | Wage < Marginal Revenue Product |
| C. | Wage > Marginal Revenue Product |
| D. | Marginal Revenue Product =0 |
| Answer» B. Wage < Marginal Revenue Product | |
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Explanation: The term "exploitation" is used to denote the payment to labor of a wage less than its marginal revenue product. Under monopolistic competition, all factors are exploited in this sense. All firms hire labour until the marginal revenue product equals the marginal factor cost. |
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| 239. |
The size of the market for a product refers to - |
| A. | the number of people in the given area |
| B. | the geographical area served by the proudcers |
| C. | the volume of potential sales of the product |
| D. | the number of potential buyers of the product |
| Answer» D. the number of potential buyers of the product | |
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Explanation: The size of market for a product refers to number of buyers and sellers in a particular market. This is especially important for companies that wish to launch a new product or service, since small markets are less likely to be able to support a high volume of goods. The market size is defined through the market volume and the market potential (defines the up- per limit of the total demand and takes potential clients into consideration). |
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| 240. |
Economic problem arises mainly due to |
| A. | overpopulation |
| B. | unemployment |
| C. | scarcity of resources |
| D. | lack of industries |
| Answer» C. scarcity of resources | |
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Explanation: The theory of Economic problem states that there is scarcity, or that the finiteresources available are insufficient to satisfy all human wants and needs. The problem then becomes how to determine what is to be produced and how the factors of production (such as capital and labor) are to be allocated. |
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| 241. |
In Economics the 'Utility' and 'Usefulness' have - |
| A. | same meaning |
| B. | different meaning |
| C. | opposite meaning |
| D. | None of the above |
| Answer» B. different meaning | |
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Explanation: In economics, utility is a representation of preferences over some set of goods and services. Preferences have a utility representation so long as they are transitive, complete, and continuous. Usefulness refers to which extent something is useful and the utility is the quality of that piece in practical use. Both are inter-related terms. Utility is a factor of usefulness term. Usefulness means having practical utility of a piece which is beneficial, pertinent and functional. |
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| 242. |
If two commodities are complements, then their crossprice elasticity is- |
| A. | zero |
| B. | positive |
| C. | negative |
| D. | imaginary number |
| Answer» D. imaginary number | |
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Explanation: In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good. It is measured as the percentage change in demand for the first good that occurs in response to a percentage change in price of the second good. A negative cross elasticity denotes two products that are complements, while a positive cross elasticity denotes two substitute products. |
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| 243. |
Transfer earning or alternative cost is otherwise known as - |
| A. | Variable cost |
| B. | Implicit cost |
| C. | Explicit cost. |
| D. | Opportunity cost |
| Answer» D. Opportunity cost | |
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Explanation: 0 |
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| 244. |
Economic development depends on : |
| A. | Natural resources |
| B. | Capital formation |
| C. | Size of the market |
| D. | All of the above |
| Answer» D. All of the above | |
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Explanation: Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area. Economic development can also be referred to as the quantitative and qualitative changes in the economy. Such actions can involve multiple areas including development of human capital, critical infrastructure, regional competitiveness, environmental sustainability, social inclusion, health, safety, literacy, and other initiatives. |
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| 245. |
Human Development Index was developed by : |
| A. | Amartya Sen |
| B. | Mahbub-ul-Haq |
| C. | Friedman |
| D. | Montek Singh |
| Answer» B. Mahbub-ul-Haq | |
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Explanation: The origins of the Human Development Index (HDI) are found in the annual Human Development Reports of the United Nations Development Programme (UNDP). These were devised and launched by Pakistani economist Mahbub ul Haq in 1990. To produce the Human Development Reports, Mahbub ul Haq brought together a group of well-known development economists including: Paul Streeten, Frances Stewart. |
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| 246. |
While determining income the expenditure on which of the following items is not considered as investment? |
| A. | Construction of factory |
| B. | Computer |
| C. | Increase in the stock of unsold articles |
| D. | Stock and share in joint stock company |
| Answer» C. Increase in the stock of unsold articles | |
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Explanation: The gross national product is the sum total of all final goods and services produced by the people of one country in one year. The GNP is a flow concept. It can be calculated with either the expenditure approach or the income approach. The expenditure approach sums all that is purchased: in a sense, it is equivalent to the income approach because purchases are only possible if income is present. GDP can be calculated as the sum of all expenditures: personal consumption expenditure (C), gross private domestic investment (Ig), government purchases (G), and net exports (Xn). Increase in the stock of unsold articles do not come under any of these heads. |
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| 247. |
Rate of interest is determined by - |
| A. | The rate of return on the capital invested |
| B. | Central Government |
| C. | Liquidity preference |
| D. | Commercial Banks |
| Answer» C. Liquidity preference | |
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Explanation: According to the classical view, rate of interest is determined by the interaction of supply of and demand for capital. Thus this theory is popularly called as the demand and supply of theory of rate of interest. The supply of money together with the liquidity-preference curve in theory interact to determine the interest rate at which the quantity of money demanded equals the quantity of money supplied. According to Keynes, interest is the price paid for surrendering their liquid assets. Greater the liquidity preference higher shall be the rate of interest. The liquidity preference constitutes the demand for money. |
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| 248. |
Speculative demand for cash is determined by - |
| A. | The rate of interest |
| B. | the level of income |
| C. | the general price level |
| D. | the market conditions |
| Answer» A. The rate of interest | |
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Explanation: Speculative demand is the demand for financial assets, such as securities, money or foreign currency that is not dictated by real transactions such as trade, or financing. The assets demand for money is inversely related to the market interest rate. This is because at lower interest rate, more people will expect a rise in interest rate (or a fall in bond prices). |
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| 249. |
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 |
| Answer» B. final goods and services produced in the economy | |
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Explanation: 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. |
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| 250. |
The difference between GNP and NNP equals - |
| A. | corporate profits |
| B. | personal taxes |
| C. | transfer payments |
| D. | depreciation |
| Answer» D. depreciation | |
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Explanation: Gross National Product [GNP) is the gross value of all the final products without deducting the depreciation of fixed capital. Net National Product (NNP) is the value of net output in an economy during a period of one year. The difference between the GNP and NNP is equal to Capital depreciation. |
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