Value Based Questions and Answers on Macro Economics
Q1: Ms. Nidhi is interested in knowing the change in quantity produced by a farmer with a fall in the price of the product. Which branch of economics would she study to ascertain the change?
Answer: Micro Economics
Q2: Give an example to show that an item which is kept constant in micro economics is considered a variable in macro economics.
Answer: National Income is kept constant in micro economics, but in macro economics, it is considered as an important variable.
Q3: What is the rationale for not taking into account the value of intermediate goods in the measure of Gross Domestic Product?
Answer: To avoid the problem of double counting.
Q4: Will the commission given to a broker for sale of an old house be included in national income?
Answer: Yes, it will be included in national income as it is a payment for productive service received.
Q5: Why leisure is not included in Gross National Product?
Answer: It is very difficult to measure the value of leisure.
Q6: State whether money supply is a stock variable or flow variable?
Answer: Money supply is a stock variable because it is expressed at particular point of time.
Q7: What will be the effect of a rise in the bank rate on money supply?
Answer: Money supply will reduce.
Q8: Can the value of Average Propensity to Consume be greater than one?
Answer: Yes, the value of APC can be more than 1. At low levels of income; consumption tends to be more than income. So, APC >1 before the break- even point is attained.
Q9: Can Average Propensity to Consume be ever zero?
Answer: APC can never be equal to zero as consumption can never be zero at any level of income.
Q10: What happens when the credit availability is restricted and credit made costlier?
Answer: Limited and costly credit leads to contraction of credit and it has a deflationary impact on the economy.
Q11: Why is an entertainment tax, an indirect tax ?
Answer: The burden of entertainment tax can be shifted to other persons(ultimate consumers).
Q12: The price of 1 US Dollar has fallen from Rs 68 to Rs 64. Has the Indian currency appreciated or depreciated?
Answer: Indian currency has appreciated.
Q13: Why are exports entered as positive items in the balance of payments accounts?
Answer: Exports lead to an inflow of foreign exchange in the country. Thus they are recorded as positive (credit) items.
Q14: How is purchase of an asset in another country treated in the capital account?
Answer: Purchase of an asset in a foreign country appears as a negative (debit) item in the capital account (as there is an outflow of foreign exchange).
Q15: Should a current account deficit be a cause for alarm? Explain.
Answer: Since deficit in current account is met by the surplus of capital account, it is not taken as a cause for alarm.
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