Question

For long run economics growth it is nesassry to maintain?

1 convergence
2 conditional convergence
3 divergence
4 semi- conditional convergence

The sum of marginal propensity to consume and marginal propensity to save is always
A 3
B 2
C 1
D 0

Is developing countries, marginal propensity to consume is

A low
B sometimes high
C high
D sometimes low

In Richard quivalance mechanism of 4 year
Government wants to hold

A bond
B coupon payment
C note
D bill

A fall in domestic consumption will make the import
A. cannot determine the information
B. Rise
C. Sometime fall and sometimes rise
D. Fall

Answer 1

1) Option A
The high income countries or developed countries faces slowdown in the growth rate because of diminishing marginal utility of the capital. The high income countries tend to have higher capital to labor ratio and that increases the productivity. However, low income countries can have higher marginal returns because of capital deepening and they can eventually catch the high income club.
The economic growth maintains the convergence of low income and high income countries.

2) Option C
The common public or households receive their income and they either use for expenditure which is also known called as consumption or they save it for the future. The income is divided in between saving for future and current expenditure so the sum of MPC and MPS is always equal to one.

3) Option C
The developing countries tend to fall in low income or middle income category and so the people need to spend a major share of their income on basic necessities. The developed countries fall into high income group and well established market as well as excess production means they spend a smaller share of income on basic needs and have a higher propensity to save.

4) Option A
The Ricardian Equivalance states that the government strategy to propel the economy through increasing deficit will not yield any material results as the people will not increase their expenditure in anticipation of rise in taxes in the future. The attempt of the government to run deficit is financed by the debt and it is raised through bonds.

5) Option A
The fall in the domestic consumption is not a substantial information to conclude any result. It is quite true that the fall in consumption will reduce the demand for import but if there is a possibility that import could be unaffected.