Macroeconomics Questions and Answers

Q: If GDP is ₹34,000 crore and net income from abroad is ₹(-)4200 crore, then GNP is equal to:

GNP equals GDP plus net factor income from abroad.\[ GNP = 34000 + (-4200) = 29800\ \text{crore} \]The other forms subtract, multiply or divide the net factor income, which is not the definition. The answer is 34000 + (-4200), option C.A negative net factor income means residents earned less abroad than foreigners earned in the country, so GNP is below GDP, which fits 29,800 crore against 34,000 crore.

Q: Which of the following can cause "Stagflation" ?

Stagflation can be caused by a sudden supply shock like a rise in oil prices.Stagflation is high inflation together with stagnant output and rising unemployment. A sharp rise in the price of an essential input such as oil raises costs across the economy, which pushes prices up and cuts production at the same time, as happened after the oil shocks of the 1970s.A rapid rise in aggregate demand and expansionary fiscal policy raise both prices and output, which is demand-pull inflation, not stagflation. Appreciation of the currency makes imports cheaper and tends to lower inflation.

Q: Which one of the following statements is CORRECT in the context of Gross Domestic Product (GDP) calculation?

The correct statement is GDP includes government consumption expenditure.On the expenditure side, \(GDP = C + I + G + (X - M)\): government final consumption expenditure, such as salaries of public servants and purchases of goods and services, is one of the components.The others misstate the national accounting rules. Unpaid domestic work (cooking, cleaning and care within one's own household) lies outside the production boundary and is excluded. Rent on owner-occupied houses is included: the accounts impute the rent the owner would otherwise pay. Goods produced for own consumption, such as a farm household eating its own grain, are also included at an imputed value.

Q: Which one of the following statements is CORRECT in the context of price indices?

The correct statement is The price index that considers the quantity of goods in the base-year as weight is known as the Laspeyres Index.The Laspeyres index weights prices by base-year quantities:\[ P_{L} = \frac{\sum p_{1}q_{0}}{\sum p_{0}q_{0}} \times 100 \]The Paasche index instead uses current-year quantities, \(\sum p_{1}q_{1} / \sum p_{0}q_{1}\), so the statement attributing base-year weights to Paasche is wrong. The first two statements swap the names: an index of raw-material and semi-finished goods prices is a producer (wholesale) price index, while an index of consumer goods prices is the Consumer Price Index.

21.

From the given diagram, which of the following represents value of investment multiplier :

" + IMG("q249", "Graph of injections and withdrawals against national income: a rising withdrawals line crosses two horizontal injection lines, injections 1 at X and injections 2 at Z, with Y on injections 1 directly below Z", 330) + "

A.YZ/XY
B.XY/YZ
C.XY/XZ
D.XZ/XY

Exam Year(s)

DSSSB PGT - 2023,

Answer: B

In the diagram the investment moves from injections 1 to injections 2, and the equilibrium national income, where injections equal withdrawals, rises from the point X to the point Z. The rise in injections is the vertical distance YZ and the rise in national income is the horizontal distance XY, so the multiplier, the ratio of the rise in income to the rise in injections, is XY/YZ. The answer is option B. At a higher injection level, the multiplier shows how much larger the rise in income is than the rise in injection.

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22.

A shift of the AD curve to the right can be due to:

A.A decrease in government spending
B.An increase in consumer confidence
C.An increase in income tax rate
D.Widespread fear of recession

Exam Year(s)

DSSSB PGT - 2023,

Answer: B

The aggregate demand curve shifts to the right when planned spending rises at every price level. A rise in consumer confidence raises consumption, so aggregate demand increases. A cut in government spending, a rise in income tax and a widespread fear of recession all reduce spending and shift the curve to the left. The answer is option B.

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23.

According to Keynes. which of the following leaads to establishment of equilibrium level of output:

A.AD \(\gt\) AS
B.AD\(\lt\)AS
C.AD=AS
D.I\(\lt\)S

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

According to Keynes, the equilibrium level of output is established where aggregate demand equals aggregate supply, since then planned spending is just equal to the output and firms have no reason to change output. If AD is greater or less than AS, output will rise or fall. The answer is AD = AS, option C.

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24.

If GDP is ₹34,000 crore and net income from abroad is ₹(-)4200 crore, then GNP is equal to:

A.34000-(-4200)
B.34000x(-4200)
C.34000+(-4200)
D.34000/(-4200)

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

GNP equals GDP plus net factor income from abroad.

\[ GNP = 34000 + (-4200) = 29800\ \text{crore} \]

The other forms subtract, multiply or divide the net factor income, which is not the definition. The answer is 34000 + (-4200), option C.

A negative net factor income means residents earned less abroad than foreigners earned in the country, so GNP is below GDP, which fits 29,800 crore against 34,000 crore.

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25.

In the circular flow of income and output, savings is:

A.Injection of money
B.Leakage of money
C.Additions to capital stock
D.Addition to government expenditure

Exam Year(s)

DSSSB PGT - 2023,

Answer: B

Saving is a leakage from the circular flow of income, since it is income that is not spent on the goods produced. Investment, government spending and exports are injections. The answer is leakage of money, option B.

Leakages from the circular flow are saving, taxes and imports, and injections are investment, government spending and exports. Additions to capital stock is investment, an injection, so it is the opposite of saving.

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26.

Net factor income from abroad is:

A.GDP-NDP
B.GNP-NNP
C.GNP-GDP
D.GDP-NNP

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

Net factor income from abroad is the difference between the gross national product and the gross domestic product, GNP minus GDP. The other options are differences involving depreciation. The answer is option C.

In national accounts GNP = GDP + net factor income from abroad, so GNP - GDP is exactly that net income. GDP - NDP and GNP - NNP are depreciation, and GDP - NNP mixes depreciation and net factor income, which is why only option C fits.

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27.

Disposable income is equal to:

A.Personal income -direct taxes
B.Private income - direct taxes
C.Personal income - indirect taxes
D.Private income - indirect taxes

Exam Year(s)

DSSSB PGT - 2023,

Answer: A

Disposable income is the income left to households after paying direct taxes, so it is personal income minus direct taxes. The answer is option A.

Disposable income is what households can spend or save, so DI = C + S. Personal income is the base because private income also contains the undistributed profits of firms, and indirect taxes are already inside the prices households pay, so subtracting them is not how disposable income is found.

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28.

Which of the following can cause "Stagflation" ?

A.Rapid increase in aggregate demand
B.Sudden supply shock like rise in oil prices
C.Expansionary fiscal policy
D.Appreciation of the domestic currency

Exam Year(s)

HPPSC HPAS - 2025,

Answer: B

Stagflation can be caused by a sudden supply shock like a rise in oil prices.

Stagflation is high inflation together with stagnant output and rising unemployment. A sharp rise in the price of an essential input such as oil raises costs across the economy, which pushes prices up and cuts production at the same time, as happened after the oil shocks of the 1970s.

A rapid rise in aggregate demand and expansionary fiscal policy raise both prices and output, which is demand-pull inflation, not stagflation. Appreciation of the currency makes imports cheaper and tends to lower inflation.

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29.

Which one of the following statements is CORRECT in the context of Gross Domestic Product (GDP) calculation?

A.GDP includes unpaid domestic work.
B.GDP includes government consumption expenditure.
C.GDP excludes rent on owner-occupied houses.
D.GDP excludes self-consumption of production by the producer.

Exam Year(s)

IIT JAM - 2026,

Answer: B

The correct statement is GDP includes government consumption expenditure.

On the expenditure side, \(GDP = C + I + G + (X - M)\): government final consumption expenditure, such as salaries of public servants and purchases of goods and services, is one of the components.

The others misstate the national accounting rules. Unpaid domestic work (cooking, cleaning and care within one's own household) lies outside the production boundary and is excluded. Rent on owner-occupied houses is included: the accounts impute the rent the owner would otherwise pay. Goods produced for own consumption, such as a farm household eating its own grain, are also included at an imputed value.

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30.

Which one of the following statements is CORRECT in the context of price indices?

A.A weighted average of prices of raw materials and semifinished goods, relative to a base-year is known as the Consumer Price Index.
B.A weighted average of prices of consumer goods, relative to a base-year is known as the Producer Price Index.
C.The price index that considers the quantity of goods in the base-year as weight is known as the Laspeyres Index.
D.The price index that considers the quantity of goods in the base-year as weight is known as the Paasche Index.

Exam Year(s)

IIT JAM - 2026,

Answer: C

The correct statement is The price index that considers the quantity of goods in the base-year as weight is known as the Laspeyres Index.

The Laspeyres index weights prices by base-year quantities:

\[ P_{L} = \frac{\sum p_{1}q_{0}}{\sum p_{0}q_{0}} \times 100 \]

The Paasche index instead uses current-year quantities, \(\sum p_{1}q_{1} / \sum p_{0}q_{1}\), so the statement attributing base-year weights to Paasche is wrong. The first two statements swap the names: an index of raw-material and semi-finished goods prices is a producer (wholesale) price index, while an index of consumer goods prices is the Consumer Price Index.

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