The 'substitution effect' of a price change always leads consumers to buy: MCQ with Answer and Explanation

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The 'substitution effect' of a price change always leads consumers to buy:

A. more of the good whose relative price has fallen

B. less of the good whose relative price has fallen

C. only inferior goods

D. the same amount

Answer: Option A

Solution (By JKSSB Mock Tests)

The substitution effect always causes consumers to buy more of the relatively cheaper good.

This question belongs to: Economy GK Economy Set 1

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Practice More Economy Set 1 Questions

Question #1

The 'real interest rate' is approximately equal to:

A. inflation minus nominal interest rate

B. nominal interest rate divided by inflation

C. nominal interest rate plus inflation

D. nominal interest rate minus inflation

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Correct Answer: Option D

Explanation:
Real interest rate ≈ nominal interest rate - inflation rate.

This question belongs to: Economy GK Economy Set 1

Question #2

The 'net investment' is equal to gross investment minus:

A. taxes

B. depreciation

C. savings

D. consumption

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Correct Answer: Option B

Explanation:
Net investment = gross investment - depreciation.

This question belongs to: Economy GK Economy Set 1

Question #3

The sacrifice ratio measures:

A. the ratio of exports to imports

B. the cost of unemployment in terms of inflation

C. the ratio of tax revenue to GDP

D. the cost of inflation in terms of lost output

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Correct Answer: Option D

Explanation:
The sacrifice ratio is the cumulative output loss required to reduce inflation by one percentage point.

This question belongs to: Economy GK Economy Set 1

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