TARGET SSC: Economics Test- 2
1. A want becomes a demand only when it is backed by the
- ability to purchase
- necessity to buy
- desire to buy
- utility of the product
2. The term ‘Microeconomics’ and ‘macroeconomics’ were coined by
- Alfredf Marshall
- Regner Nurkse
- Ragnar Frisch
- JM Keynes
3. During periods of inflation, tax rates should
- remain constant
4. “Economics is what it ought to be”- This statement refers to
- Normative economies
- Positive Economies
- Monetary economies
- Fiscal economies
5. The excess of price a person is to pay rather than forgo the consumption of the commodity is called
- Producer’s surplus
- Consumer’s surplus
6. The hypothesis that rapid growth of per capita income will be associated with a reduction in poverty is called
- Trickle down Hypothesis
- Trickle up Hypothesis
- U-shaped Hypothesis
- Poverty estimation hypothesis
7. According to Keynes, business cycles are due to variation in the rate of investment caused by fluctuations , in the
- Marginal efficiency of capital
- Marginal Propensity to save
- Marginal Propensity to consumption
- Marginal Efficiency to investment
8. Average propensity to consume is defined as
- Aggregate consumption + total population
- Aggregate income + Aggregate consumption
- Change in consumption + change in income
- Aggregate consumption/Aggregate income
9. In short run, if a competitive firm incurs losses, it will
- Stop production
- continue to produce as long as it can cover it’s variable costs
- raise price of products
- go for advertising campaign
10. The Keynesian consumption function shows a relation between
- aggregate consumption and total population
- aggregate consumption and general price level
- aggregate consumption and aggregate income
- aggregate consumption and interest rate
- Need , describe basic human requirements (food,water,clothing,….etc)
- Want , when needs directed to specific objects it become wants(I need food but wants a burger)
- Demand , are wants for a specific brand backed with the ability to buy (every one wants BMW, Mercedes etc)
Ragnar Frisch, a Norwegian Economist
Positive economics is defined as the “what is” of economics, while normative economics focuses on the “what ought to be”. Normative economics is a branch of economics that expresses value or normative judgments about economic fairness. It focuses on what the outcome of the economy or goals of public policy should be. Positive economics clearly states an economic issue and normative economics provides the value-based solution for the issue.
The concept of Consumer’s surplus was evolved by Alfred Marshall.
Consumers are ready to more for certain goods than what they actually pay for them. This extra satisfaction that consumers get from their purchase of goods is called by Marshall as consumer’s surplus.
“Trickle-down economics“, also referred to as “trickle-down theory“, is the theory that economic benefits provided to upper income level earners will help society as a whole. In theory their extra wealth will be spent into the economy, providing wealth for lower income earners and creating jobs. This wealth in turn is spent back into the economy.
The trickle-up effect or fountain effect is an economic theory used to describe the overall aggregate demand of households and middle-class people to drive and support the economy. The theory was founded by John Maynard Keynes.
According to Keynes Marginal Efficiency of Capital (MEC) Theory, “The trade cycle is best regarded as being occasioned by a cyclical change in the marginal efficiency of capital, though complicated and often aggravated by associated changes in the other significant short-period variables of the economic system.”
The average propensity to consume (APC) refers to the percentage of income that is spent on goods and services rather than on savings. One can determine the percentage of income spent by dividing the average household consumption (what is spent) by the average household income (what is earned). The inverse of the average propensity to consume is the average propensity to save (APS).
Average propensity to consume (APC) =Total Consumption Expenditure/Total Disposable Income
C = a + c Yd
The Keynesian Consumption function expresses the level of consumer spending depending on three items
- C = Consumer spending
- Yd – disposable income
- a – autonomous consumption (consumption when income is 0. (e.g. even with no income, you may borrow to be able to buy food))
- c – marginal propensity to consume (the % of extra income that is spent) Also known as induced consumption.
This suggests Consumption is primarily determined by the level of disposable income (Yd). Higher Yd, leads to higher consumer spending.