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This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 851. |
What is the price elasticity of supply , when : (a) Supply curve passes through the origin , (b) Supply curve is a vertical straight line, (c ) Supply curve is a horizontal straight line. |
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Answer» Solution :The price elasticity of SUPPLY in the following CASES will : (a) UNITARY elastic supply (b) Perfectly inelastic supply (C ) Perfectly elastic supply |
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| 852. |
Explain the circular flow of income |
Answer» Solution :The flow of production, income generation and expenditure involving different sectors of the economy in the form of wages, rent and dividends, is known as circular flow of income (see diagram). Production gives rise to income (factor income), which in turn gives rise to demand for GOOD and services. This demand leads to expenditure by HOUSEHOLDS on goods and services produced. In this way income generated by production units reaches BACK to production units and makes the circular flow COMPLETE. 
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| 853. |
Primary deficit equals |
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Answer» Borrowings |
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| 854. |
Equilibriumbeyondthe leveloffullemploymentdoesnot causea risein levelof output . |
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| 855. |
Nominal GDP can never be less than Real GDP. |
| Answer» Solution :False. Nominal GDP can be less than REAL GDP, if PRICES in the current YEAR are less than the prices in the BASE year. | |
| 856. |
PES for commodities A and B is known to be 1 and 2 respectively. If price of A falls by 10% and that of B rises by 10%, then what will be percentage change in supply in both the cases. |
Answer» SOLUTION :
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| 857. |
When price of factor input falls, supply curve shifts rightward. |
| Answer» SOLUTION :True : It is so because when price of factor inputs falls, then cost of production of a FIRM DECREASES, which WOULD SHIFT the supply curve rightward. | |
| 858. |
How is multiplier related with MPS ? |
| Answer» Solution :MULTIPLIER is INVERSELY related with the MPS. `K=(1)/(MPS)` | |
| 859. |
The following headine appeared in the Hindustan Times on 2 August 2014, "Crop damaged in Himachnal sent tamato prices roaring in Delhi. " Use a diagram and economic theory to analyse the statement . |
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Answer» Solution :When the tomato crop was DAMAGED in Himachal the supply of tomatoes DECREASES. This means that the supply curve shifts lettward from SS to `S_(1) S_(1)` . With NEW supply curve `S_(1) S_(1)`, there is excess demand at initial price OP because at price OP, supply is PB and demand is PA, so there is excess demand of AB at price OP. Due to this excess demand, competition among the consumer will raise the price of tomato. Due to this rise in price of tomato, there is upward movement along the supply curve (xpansion in supply) from B to C and Similarly, there is upward movement along the demand curve (Contraction in demand) from A to C. So, finally, equilibrium price of tomato rises fromn OP to OP and equilibrium QUANTITY of tomato falls from OQ to `OQ_(1)`. Conclusion: This explains how prices in Delhi rose when the tomato crop got damaged in Himachal. Value: Analytic ` (##FM_M_ECO_XII_P1_C12_E02_062_S01.png" WIDTH="80%"> |
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| 860. |
From the following data of the cost of production of a firm, calculate (i) average fixed cost and (ii) average variable cost of producing 8 units: {:("Output",0,3,8),("TC (Rs)",80,104,152):} |
Answer» Solution :The TOTAL fixed cost will be the same at all the levels of output. For zero output, total cost is Rs 80. At zero output, total variable cost will be zero. HENCE, Rs 80 represents total fixed cost at all levels of output.  The AFC of PRODUCING 8 units is Rs 10 and AVC is Rs 9. |
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| 861. |
Surplus in BOP account used to purchase foreign currency by RBI. |
| Answer» SOLUTION :ACCOMMODATING | |
| 862. |
For a price-taking firm. |
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Answer» MARGINAL REVENUE is LESS than price |
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| 863. |
What will likely be the impact of large scale outflow of foreign capital on ProductionPossibility Curve of the economy and why? |
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Answer» SOLUTION :(i) The PRODUCTION Possibility Curve shifts to the left. (ii) It is so because outflow of foreign capital decreases the capital resource in our COUNTRY leads to fall in production capacity of our country. (iii) It can be explained with the help of the diagram that PP is at full employment LEVEL and due to outflow of foreign capital it shifts leftwards `P_(1)P_(1)`. |
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| 864. |
Categorise the following into revenue expenditure or capital expenditure Repayment of a part of its outstanding loans to World bank by the Government of india . |
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| 865. |
Capital receiptsinclude : |
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Answer» TAX REVENUE |
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| 866. |
Distinguish between directtaxes and indirecttaxes. Give an example of each. |
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Answer» SOLUTION :When (i) liability to pay a tax and (ii) the BURDEN of that tax falls on the same person, the tax is CALLED a direct tax. When (i) liability to pay a tax is on one person and (ii) the burden of that tax falls on some other person, the tax is called an indirect tax. Direct taxes include tax varieties such as income tax, corporate tax, wealth tax, gift tax, expenditure tax etc. Some examples of indirect taxes are sales tax, excise duty, VAT, service tax, entertainment tax, custom duty etc. |
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| 867. |
What are components of government budget ? |
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Answer» Solution :There are TWO components of the GOVERNMENT budget (i) Revenue budget (ii) Capital budget . Revenue budget CONTAINS the details of CURRENT receipts (or revenue receipts ) and current expenditure (or revenue expenditure) of the government . Capital budget contains the capital receipts and capital expenditure of the government . |
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| 868. |
Equilibrium beyond the full employment level does not lead to rise in output level |
| Answer» SOLUTION :True. The level of output will not RISE as ECONOMY is ALREADY at FULL employment level and there is no idle capacity in the economy. | |
| 869. |
Explain any two sources of restricted entry under monopoly. |
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Answer» Solution :(a) Grant of PATENT rights (i) When a company INTRODUCES a new product or new technology it applies to the government to grant it patent certificate by which it gets exclusive rights to produce new product or use new technology. (ii) Patent rights prevent others to produce the same product or use the same technology without obtaining LICENCE from the concerned company. Patent rights are granted by the government for a CERTAIN number of years. (b) Licensing by Government : A monopoly market emerges when government gives a firm license, i.e. exclusive legal rights to produce a given product or SERVICE in a particular area or region. |
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| 870. |
List the items included as invisible in the balance of payments account. |
| Answer» Solution : INVISIBLE items refer to items relating to trading of services with other countries and UNILATERAL transfers. EXPORT and IMPORT of services are called Invisible items because services are not seen crossing the border. All types of services like services of shipping, BANKING, tourism, investment services and unilateral transfers are invisible items. | |
| 871. |
When the marginal product of a variable input falls, total product also falls. |
| Answer» Solution :False: TOTAL product is defined as: `TP=MP_(1) + MP_(1)+MP_(2)+…+MP_(N)`. Thus, as long as MP is more than ZERO, TP keeps increasing at a DIMINISHING rate, although MP may be diminishing. | |
| 872. |
Discuss the limitations of Barter Exchange. |
| Answer» Solution :The major limitations of Barter Exchange are:1. Lack of Double Coincidence of Wants:Barter system can work only when both buyer and seller are ready to exchange each other’s goods. For example, A can exchange goods with B only when A has what B wants and B has what A wants. However, such double coincidence is very rare.2. Lack of Common Measure of Value:In the barter system, all commodities are not of equal value and there is no common measure (unit) of value of goods and services, in which exchange ratios can be expressed. For example, if A has wheat and B has rice, then it is difficult to decide, how MUCH wheat is needed to exchange with ONE kilogram of rice. In the absence of common measure, the exchange ratio is fixed randomly, in which one of the party generally suffers.Barter system can work with few commodities in the primitive society. However, it is very difficult in the modern economy, where we need millions of exchange ratios for a large number of goods and services.3. Lack of Standard of Deferred Payment:Under barter system, contracts involving future payments or credit transactions cannot take place with ease because of following REASONS:(a) The borrower MAY not be able to arrange goods of exactly same quality at the TIME of repayment.(b) There may be conflicts regarding which specific commodity is to be used for repayment.(c) The commodity to be repaid may lose or gain its value at the time of repayment.So, it is very difficult to make deferred payments in the form of goods.4. Lack of Store of Value:Under barter system, it is difficult for people to store wealth for future use because:(a) Most of the goods (like wheat, rice, vegetables, etc.) do not possess durability, i.e. their quality deteriorates with passage of time.(b) Storage of goods requires time and efforts.As a result, goods cannot be used to store the earnings for a long period. | |
| 873. |
Who are economic agents ? |
| Answer» Solution :These are those INDIVIDUALS or institutions who TAKE ECONOMIC decisions. These include consumers, PRODUCERS and the government. | |
| 874. |
In inflation is higher in country A than in Country B, and the exchange rate between the two countires is fixed, what is likely to happen to the trade balance between the two countries ? |
| Answer» Solution : In this situation, the EXPORTS from COUNTRY B and country A will rise and it will LEAD to surplus trade balance for country B. However, due to HIGHER prices in country A. its imports will increase from country B and it will lead to deficit in trade balance for country A | |
| 875. |
In India, there are extreme inequalities of of income and wealth and a majority of population live below the poverty line. How can budgetary policy help in solving this problem ? |
| Answer» Solution :GOVERNMENT can reduce such inequalities of income and WEALTH through its budgetary policy. Government can aim to influence distribution of income by imposing taxes on the rich and spending more on the welfare of the poor. It will reduce income of the rich and raise STANDARD of living of the poor, THUS reducing inequalities in the distribution of income. | |
| 876. |
In which type of economy , domestic income will be equal to national income ? |
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Answer» |
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| 877. |
Autonomous items of trade are undertaken by the government to restore equilibrium in balance of payment. |
| Answer» Solution :False because AUTONOMOUS items are meant for EARNING PROFIT, not for restoring EQUILIBRIUM in BOP. | |
| 878. |
In a government budget , primary deficit is ₹ 10 , 000 crore and interest payment ₹ 8 , 000 crore. How much is the fiscal deficit ? |
| Answer» Solution :Fiscal deficit =PRIMARY Deficit + Interest PAYMENTS = 10 , 000 + 8000 = ₹ 18 , 000crores. | |
| 879. |
If X and Y are two commodities, indifference curve shows - |
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Answer» X and Y are EQUALLY PREFERRED |
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| 880. |
Why is it that on one hand coal is found in plenty, yet it is scarce while on the other, a rotten vegetable is rare but not scarce? |
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Answer» Solution :COAL is found in plenty yet it is scarce because its demand is also high. Scarcity MEANS that availability is less than sufficient to SATISFY all wants or desires. On the other hand, a ROTTEN vegetable is rare but not scarce because there is no demand or want for a rotten vegetable. VALUE: Analytic |
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| 881. |
There is an inverse relationship betweenlegalreserveratio (LRR)and value of moneymultiplier. ORSize ofmoneymultiplieris given by theinverse of LRR. |
| Answer» Solution :TRUE : MONEY multiplier is INVERSELY related to LHH as Money Multiplier `= (1)/(LRR)` | |
| 882. |
It affects the assets and liabilities of the government : |
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Answer» taxes |
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| 883. |
Define money supply and explain its components Or State the meaning and components of money supply |
| Answer» Solution :The money supply is the total value of money available in an economy at a point of time.Components of money supply are:Currency with the PUBLIC, Demand DEPOSITS with the Public, Money Supply M1 or NARROW Money, Money Supply M2, Money Supply M3 or Broad Money, Money Supply M4, High-Powered Money (H), Money Multiplier | |
| 884. |
Suppose that a sole proprietorship is earning total revenues of 1,00,000 and is incurring explicit costs of 75,000. If the owner could work for another company for 30.000 a year, we would conclude that ……………….. . |
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Answer» the firm is INCURRING an economic LOSS. |
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| 885. |
What is the saving function ? Derive it from consumption function. |
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Answer» Solution :SAVINGS function shows the FUNCTIONAL relationship between thesavings and NATIONAL income.As saving function is corollary of consumption function, THEREFORE it can be derived from the consumption function.C=c bar + by , put this in the equation S=Y-C ,we will get, S=Y-C S=Y-(c bar+bY) S = -c bar+(1-b) Y |
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| 886. |
The interest payments as per the government budget during a year are₹13, 500 crores , which is 30 % of primary deficit . Calculate fiscal deficit ? |
| Answer» SOLUTION :{FISCAL DEFICIT =₹58 , 500 CRORES } | |
| 887. |
If a consumer has monotonic preferences , can she he indifferent between the bundles (10,8) and (8,6) ? |
| Answer» SOLUTION :No, if a cosumer has MONOTONIC preference BUNDLE (10,8) is PREFERRED to bundle (8,6) as bundle (10,8) has more UNITS of both the goods. | |
| 888. |
How can money be defined? |
| Answer» Solution :Money may be DEFINED as " any thing that is generally acceptedby the people in EXCHANGE of goods and SERVICES or in PAYMENT of debts ". | |
| 889. |
Distinguish between intermediate products and final products . Give examples. OR Explain the basic of classifying goods into intermediate and final goods . Give suitable examples. |
| Answer» Solution :INTERMEDIATE PRODUCTS :Intermediate product are the raw materials used in the production of finished GOODS and services .These Goods are either used for resale. ÂFor e.g : Cotton bought by a textile MILL for making cloth is an intermediate product.In making cake intermediate products used are cake flour, SUGAR, cocoa powder, butter. ÂFINAL PRODUCTS :Goods which are ready for consumption or capital FORMATION by the final users. These Goods are neither used for resale. ÂFor e.g : cotton bought by consumer for their personal USE is a final good.Oil , sugar ,salt bought by consumer for final consumption. | |
| 890. |
When do you say there is excess supply for a commodity in the market? |
| Answer» Solution :When Market PRICE is above the equilibrium price, then at that given price, DEMAND is lesser than SUPPLY, which leads to EXCESS supply. | |
| 891. |
Calculate :(i) Total expenditure on good X when P_(X) falls from Rs. 6 to Rs. 1.(ii) Derive the value of ED.(iii) What shape will the demand curve take ? |
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Answer» <P> Solution :`{:(P_(X),Q_(X)=1400//P_(X),P_(X)Q_(X)),(6,233.3,1400),(5,280,1400),(4,350,1400),(3,466.6,1400),(2,700,1400),(1,1400,1400):}`THUS, total expenditure remains unchanged at Rs. 1400 when `P_(X)` falls from Rs. 6 to Rs. 1. (i) Since expenditure remains constant to any change in `P_(X)`, the value of ED = 1. (ii) DEMAND curve will be a rectangular hyperbola. |
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| 892. |
Are the following statements true or false ? Give reasons. Market price is always more than factor cost. |
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Answer» |
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| 893. |
Define legal reserve ratio? |
| Answer» SOLUTION :It is MINIMUM ratio (Fixed by RBI) of depositys of commerical BANKS which is legally COMPULSORY for them to keep as RESERVES. | |
| 894. |
How is price elasticity of demand affected by :(i) Number of substitute available for the good.(ii) Nature of the good. |
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Answer» Solution :(i) Number of substitute available for the good : (a) If close substitutes for the commodity are available, the demand for the commodity will be elastic. The reason is that even a SMALL rise in its price will induce the buyers to GO for its substitutes. For example, Pepsi and Coke are CONSIDERED fairly close substitutes. If the price of coke increases, Pepsi becomes relatively CHEAPER. Consumer will buy more of Pepsi and less of relatively expensive Coke. (b) However, the demand for a commodity (such as salt) having no close substitutes is inelastic. (ii) Nature of the good :Elasticity of demand of a commodity is influenced by its nature. (a)The demand for necessities of life (commodities satisfying minimum basic needs) is less elastic. They are required for human survival and they have to be purchased whatever may be the price. Therefore, demand for necessities does not fluctuate much with price changes. (b) Whereas, demand for luxury goods is more elastic than the demand for necessities. When the price of luxuries falls, CONSUMERS buy more of them and when the price rises, demand contracts substantially. |
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| 895. |
The net value added at factor cost of a producing unit is equal to : |
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Answer» Sum of FACTOR PAYMENTS |
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| 896. |
The country needs a huge amount of imports for development projects. Name one step which the Central Bank can take to make imports cheaper using foreign exchange market. |
| Answer» SOLUTION :Central Bank increases SUPPLY of FOREIGN EXCHANGE in the foreign exchange market by selling foreign currency (exchange). This will lead to a fall in foreign exchange rate or appreciation of domestic currency. It will make imports cheaper. | |
| 897. |
A purely competitive firm's supply schedule in the short run is determined by ...... . |
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Answer» its average REVENUE. |
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| 898. |
What is government budget ? Explain its major components . |
| Answer» Solution :“A government budget is an ANNUAL financial statement SHOWING item wise estimates of EXPECTED revenue and anticipated expenditure during a fiscal year.Components : Revenue Receipts , CAPITAL Receipts , Revenue Expenditure , Capital Expenditure . | |
| 899. |
Distinguish between Intermediate product and final product , giving suitable examples in support of your answer. |
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Answer» Solution :INTERMEDIATE PRODUCTS :Intermediate product are the RAW materials used in the production of FINISHED goods and services .These Goods are either used for resale.For e.g : Cotton bought by a textile mill for making cloth is an intermediate product.In making CAKE intermediate products used are cake flour, sugar, cocoa powder, butter. FINAL PRODUCTS :Goods which are ready for consumption or capital FORMATION by the final users. These Goods are NEITHER used for resale.For e.g : cotton bought by consumer for their personal use is a final good.Oil , sugar ,salt bought by consumer for final consumption. |
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| 900. |
At which point does the SMC curve cut the SAC curve? Give reason in support of your answer. |
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Answer» Solution :(i) It happens because when SAC falls, SMC is less than SAC. (ii) When SAC STARTS rising, SMC is more than SAC. (III) So, it is only when SAC is constant and at its minimum point, that SMC is equal to SAC. THEREFORE, SMC curve cuts SAC curve at its minimum point. |
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