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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.
| 1201. |
In the government of India's budget for the year 2013-14 , the Finance Minister proposed to raise the excise duty on cigarettes . He also proposed to increase income tax on individual earning more than ₹one crore per annum . Identify and explain the types of taxes proposed by the Finance Minister . Was the objective only to earn revenue for the government ? What possible welfare objectives could the Government be considering ? |
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Answer» SOLUTION :(i) Income Tax - Direct tax . It is a tax whose incidence and impact lies on the same person i.e., the impact of tax cannot be shifted . (II) Excise duty - Indirect tax . It is a tax whose incidence and impact lie on different persons i.e., impact of the tax can be shifted to others. The policy objective adopted by the GOVERNMENT is not just to earn revenue , it also aims to achieve welfare objectives . These are : Imposing excise duty on cigarettes will increase the price , it is expected to DISCOURAGE cigarette smoking and will positively impact the health of people and increase their welfare . Raising income tax will reduce the gap between the RICH and poor people . It implies reduction in inequalities of income . The extra revenue could be spent on education , health and any other welfare programme to improve the social and economic conditions of the poor . |
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| 1202. |
Give meanings of : (i) involuntary unemployment, (ii) full employment. |
| Answer» Solution :INVOLUNTARY UNEMPLOYMENT is that situation in which those who want to work are not getting work at prevailing wage rate.Full employment refers to situation in which those who are WILLING to work are getting work at prevailing wage rate | |
| 1203. |
Receipts which do not affect asset or liability status of the government |
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Answer» CAPITAL receipts |
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| 1204. |
Explain the conditions of consumer's equilibrium under utility analysis |
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Answer» <P> Solution :Conditions for consumer's equilibrium are:(i) Budget line should be tangent to indifference CURVE, i.e., `MRS_(xy) = (P_(x))/(P_(y))` (Slope of IC) = Slope of Budget Line (ii) Indifference curve should be convex to the point of origin, i.e., MRS is diminishing. At equilibrium, marginal rate of substitution should be equal to the ratio of prices of the two goods: `MRS_(xy) gt P_(x)//P_(y)`. It means that to obtain one extra unit of X the consumer is willing to sacrifice more than he has to sacrifice actually. In the process, the consumer gains. As he goes on obtaining more and more units of X, marginal utility of X goes on declining. Therefore, the consumer is willing to sacrifice less and less of Y each time he obtains one extra unit of X. As a result, `MRS_(xy)` falls and ultimately becomes equal to `P_(x)//P_(y)` at some combination of X and Y. At this combination the consumer is in equilibrium. `MRS_(xy) lt P_(x)//P_(y)`. If the consumer ATTEMPTS to obtain more units of X BEYOND the equilibrium level, `MRS_(xy)` will become less than `P_(x)//P_(y)` and he will start losing. So he will not TRY to obtain more of X. |
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| 1205. |
Aggregate demand can be increased by: (choose the correct atternative) |
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Answer» INCREASING bank rate |
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| 1206. |
Distinguish between face value of money and intinsic ( commodity ) value of money . |
| Answer» SOLUTION :FACE value refers to the value which is marked on the face of the COIN or WRITTEN on a paper note. For instance value of a CURRENCY note is what is written on it. Thus, with a hundred rupee note one canbuy goods and servicesworth rupees one hundred . Intrinsic value refers to the value of matter that coin ( orpaper ) is made of . | |
| 1207. |
A severe drought results in a drastic fall in the output of wheat. Analyse how will it affect the market price of wheat? |
| Answer» SOLUTION :MARKET price of wheat will INCREASE (DUE to DECREASE in supply) . | |
| 1208. |
Why is only a small percentage to total deposits kept by banks as reserves ? |
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Answer» Solution :There are two reasons for keeping a SMALL percentageof their total DEPOSITS as cash reserves by commercial bank. (i) On the basis of their experience that bank know that all the depositors do not withdraw their money at the same time and also they do not withdraw the entire amount of their deposits. (ii) At the same time there is CONSTANT flow of new deposits in the banks. So, to meet the daily demand of depositors, keeping a small part of deposits as cash reserves by banks is SUFFICIENT. |
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| 1209. |
_____ refers to the situation when aggregate supply falls short of aggregate demand corresponding to full employment level of output in the economy. |
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Answer» DEFICIENT DEMAND |
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| 1210. |
Savingand investmentmultiplierare alwaysequal . |
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Answer» |
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| 1211. |
Give two examples of implicit cost of a firm. |
| Answer» Solution :The TWO examples are: (i) IMPUTED cost of the seller.s self-owned SHOP, and (II) imputed cost of FAMILY labour being used free by the seller. | |
| 1212. |
How can government budget be a useful instrument in reducing inequalities in the distribution of income and wealth ? |
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Answer» Solution :Government uses budgetary policies to reduce inequalities in the distribution of income and wealth by : imposing NEW taxes and increasing the rates of EXISTING taxes . spending more on education , health CARE and housing for the poor . strengthening public distribution system (through fair price SHOPS). |
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| 1213. |
Normally a household will not buy a second-hand scooter even if the price of scooter falls. How we get a downward sloping market demand curve for scooters? |
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Answer» SOLUTION :(i) We know that though an individual may not buy a second-hand SCOOTER even if the price of scooter falls but there may be some individual that could not AFFORD to buy even a second-hand scooter earlier and now with a fall in their price they can afford it now. (II) Therefore, the number of consumers of a second-hand scooter increases with a fall in their price leading to an increase in market demand at a lower price. Thus the market demand curve for SCOOTERS will be a downward sloping. |
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| 1214. |
When economists speak of the utility of a certain good, they are referring to - |
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Answer» The DEMAND for the good. |
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| 1215. |
Explain the working of money multiplier. |
| Answer» Solution :MONEY MULTIPLIER refers to deposits creation by the commercial banks as some multiple of deposits initially received by these bank. The value of multiplier depends on the Legal Reserve Ratio (LRR). Suppose banks receive initially a deposit of Rs 10,000. Further Suppose than LRR is 0.2. Bank keep Rs 2,000 as reserves and lend the rest. The borrowers spend this money. Those who receive the money from the borrowers redeposit the same into their respective bank ACCOUNT. This leads to fresh deposits of Rs 8,000. Banks again keept 20% of it, i.e., Rs 1,600 as reserves and lend the rest 6,400 which again comes back into the banking system by the same process. In this way new deposits go on being created but every new creation becomes SMALLER and smaller. The total deposit creation is 1/LRR i.e., 1/0.2 times. It comes to 5 times and total deposits become Rs 50,000 worth. | |
| 1217. |
When can domestic product be more than national product ? |
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Answer» |
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| 1218. |
Whether or not the following measures taken by RBI will increase the money supply ? (i) Increase in Repo rate (ii) Decrease in Cash Reserve Ratio (CRR)(iii) Purchase of securities in the open market (iv) Increase in Margin Rqequirement. |
| Answer» SOLUTION :Measure (ii) and (III) will increasethe money supply WHEREAS (i) and (iv) willdecrease the money supply. | |
| 1219. |
What is meant by 'official reserve transactions? Discuss their importance in Balance of Payments. "" Or What are official reserve transaction? Explain their importance in the balance of payments. |
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Answer» Solution :Official reserve transactions are CARRIED out by the government and the central banks in pursuit of some international economic policy objective, while keeping an eye on such trasaction's effect on the BOP and exchange rate. As a RESULT such transactions are not autonomous. These reserves are held in the FORM of foreing CURRENCY, gold, SDR with IMF etc. i) The decrease in these reserves appears as a credit ITEMS in BOP. 2) The increase in these reserves appears as a debit item in BOP. |
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| 1220. |
Why is the demand curve of a firm under monopolistic competition more elastic than under monopoly ? Explain |
| Answer» Solution :The demand CURVE under monopolisitc competition is more elastic than under monopoly. The reason behind this can be ATTRIBUTED to the FACT that the nature of the goods available in both the markets is different. That is, under monopolistic market, there is a wide range of close subtitutes available for the goods whereas, in monopoly market, the monopolist is the single seller and there are no close SUBSTITUTES available for its PRODUCT. Due to responsive to the changes in prices of the good. In contrast to this, in monopolistic market, due to the availability of a wide range of demand to the changes in prices. Hence, we can infer that the demand curve under monopolisitc competition is more elastic than under monopoly. | |
| 1221. |
Find out (a) explicit cost and (b) implicit cost from the following data: {:(,"(Rs Thousand)"),("Investment in fixed assets","2000"),("Borrowings at 12% interest per annum.","1500"),("Wages paid durig the year","120"),("Annual rental value of the owner's factory building","100"),("Estimated annual value of the management services of the owner","240"):} |
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Answer» Solution :Case I-When Calculating Accounting Cost Depreciation is a Explicit Cost (a) Explicit cost = Interest on BORROWINGS `=180 (Rs. 1500 "THOUSAND@"12%)+" Wages paid "= 120 +" Depreciation "= 100 = "Total 400 (Rs. in Thousand)"` (b) Implicit cost: Imputed interest on Own investment of Rs. 500 (2000-1500) Thousand `@ 12%= 60 +" Rental value "= 100 + "Imputed value of the owner.s SERVICES" = 240 =" Total 400 (Rs. in Thousand)"` Case II-When Calculating Economic Cost Depreciation is a Implicit Cost (a) `"Explicit cost" = "Interest on borrowings "=" paid "= 180("Rs. 1500thousand "@12%) +" Wages paid "=120 =" Total 300 (Rs. in Thousand)"` (b) Implicit cost: Imputed interest on Own investment of `"Rs." 500(2000-1500)" Thousand "@ 12% = 60 +" Rental value "= 100 +" Imputed value of the owner.s services" = 240 + "Depreciation "100 = "Total 500(Rs.in Thousand)"` |
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| 1222. |
Differentiate between aggregate demand and aggregate supply. |
| Answer» Solution :Aggregate demand is the total expenditure that the WHOLE economy is planning to do on the purchase of goods and services during the given time period.Aggregate supply is the value of total output that all the firms are WILLING to supply during the given time period.AD indicates the total demand in the economy whereas AS shows the total supply in the economy.AD includes all the sectors whereas AS just deals with the FIRM SECTOR. | |
| 1223. |
whathappenswhenaggregatedemandincreasebeyondthelevel ofitsfullemployment? |
| Answer» SOLUTION :whenAD increasebeyonditsfullemploymentlevelputputremainsconstantastherespurcesarealreadyfullyempolyed( USED )BUTAS ADincreasethepressureof DEMAND on theexistingsupplymountsuptheresultis a riseinpricescausinginflation . | |
| 1224. |
What is surplus of balance of payments? |
| Answer» SOLUTION :It refers to a situaiton when INFLOW of FOREIGN EXCHANGE ois more than unflow of foreign exchange. | |
| 1225. |
What is the relationship between marginal product and marginal cost? |
Answer» Solution :(i) DIMINISHING returns DETERMINES the SHAPE of both of these CURVES.  (ii) When marginal product is rising, marginal cost is falling. (iii) When diminishing returns occur, marginal product begins falling and marginal cost begins rising. |
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| 1226. |
What is meant by intermediategoods ? |
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Answer» |
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| 1227. |
Explain the implication of homogeneous product. |
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Answer» Solution :(i) Products sold in the market are HOMOGENEOUS, i.e., they are IDENTICAL in all respects like quality, colour, size, weight, design, etc. (ii) The products sold by different firms in the market are equal in the eyes of the buyers. (iii) Since, a buyer cannot distinguish between the PRODUCT of one firm and that of another, he becomes indifferent as to the firms from which he buys. (iv) The implication of this feature is that since the buyers treat the products as identical they are not ready to pay a different price for the product of any one firm. They will pay the same price for the products of all the firms in the industry. On the other hand, any attempt by a firm to SELL its product at a higher price will fail. To sum up, the "homogenous products" feature ensures a uniform price for the products of all the firms in the industry. |
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| 1228. |
From the given information , calculate : (a) Revenue Receipts (b) Fiscal Deficit and (c) Primary Deficit : |
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Answer» Solution :(a) Revenue Deficit= Revenue Expenditure - Revenue Receipts ₹ 12 , 000 crores =₹ 20 , 000 crores - Revenue Receipts Revenue Receipts=₹ 20 , 000 crores -₹ 12 , 000 crores =₹ 8 ,000 crores (b) Fiscal Deficit = Revenue Deficit + (Capital Expenditure - Non-debt Creating Capital Receipts) =₹ 12 , 000 crores + ( ₹ 35 , 000 crores -₹ 25 , 000 crores ) =₹ 22, 000 crores (c) Primary Deficit = Fiscal Deficit - Interest Payments =₹ 22 , 000 crores -₹ 7 , 000 crores =₹ 15 , 000 crores |
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| 1229. |
What do you mean by fiat money? |
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| 1230. |
A consumer buys 10 units of a good at a price of Rs. 9 per unit. At price of Rs. 10 per unit he buys 9 units. What is price elasticity of demand / Use expenditure approach. Comment on the likely shape of demand curve on the basis of this measure of elasticity. |
Answer» Solution :`{:("Price (Rs.)","Quantity (in UNITS)","Total Expenditure in Rs."("Price"XX"Quantity")),("9","10","90"),("10","9","90"):}` Demand is unitary elastic (ED = 1) as total expenditure remains constant with the increasing in price. |
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| 1231. |
Real GDP is : |
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Answer» `"Nominal GDP"div"PRICE index"` |
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| 1232. |
Distinguish between stock and flow. Between net investment and capital which is a stock and which is a flow ? Compare net investment and capital with flow of water into a tank. |
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Answer» Solution :The main differences between stock and flow are. (i) Stock is related to a point of time WHEREAS flow is related to a period of time. (II) A stock is a quantity measurable at a PARTICULAR point of time whereas a flow is a quantity which is measured over a SPECIFIC period of time. (iii) Capital is a stock variable wheras net INVESTMENT is a flow variable. Net investment is a flow whereas capital is a stock. Amount of water in a tank at a particular point of time is a stock concept (as capital), whereas amount of water flowing into it is a flow concept (as not investment). |
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| 1233. |
Which one of the following four possibilities, results in an increase in total consumer expenditure ? |
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Answer» DEMAND is UNITARY ELASTIC and price falls. |
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| 1234. |
Which of the following is not a revenue receipt ? |
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Answer» recovery of LOANS |
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| 1235. |
In an economy planned and saving exceeds planned investment. How willthe equality between the two be achieved? Explain. |
| Answer» Solution : If in an economy planned savings exceeds planned investment , that would result in undesired build-up of unsold STOCK. Consequently, AD falls short of AS. Due to excess SUPPLY resulting from the stock piling of unsold goods, i.e., unintended inventories, the PRODUCERS will cut down employment and will produce less. National income will fall and as a result planned SAVING will start Jailing until it becomes equal to planned investment. It is at this point that equilibrium level of income is determined. | |
| 1236. |
Distinguish between stocks and flows. Give two examples of each |
Answer» SOLUTION :
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| 1237. |
Explain producer's equilibrium with the help of MC and MR schedules. Usc diagram. |
Answer» Solution :When there is no fixed price and price falls with the rise in output, MR CURVE slope downwards. Producer aims to produce that LEVEL of output at which MC is equal to MR and MC curve cuts the MR curve from below. Let us understand this with the help of following table:  According to Table, both the conditions of equilibrium are SATISFIED at 4 units of output. MC is equal to MR and MC is RISING. MC is more than MR when output is produced after 4 units of output. So, Producer.s Equilibrium will be achieved at 4 units of output. Let us understand the determination of equilibrium with the help of a diagram:  Producer.s Equilibrium is determined at OQ level of output corresponding to point E as at this point, MC = MR and MC curve cuts MR curve from below. In Figure, output is shown on the horizontal axis and revenue and costs on the vertical axis. Producer.s equilibrium will be determined at OQ level of output corresponding to point E because at this, the following two conditions are met: (i) MC=MR, and (ii) MC curve cuts the MR curve from below. When `MRgtMC`, then producer will continue to produce as long as MR becomes equal to MC. It is so because firm will find it PROFITABLE to raise the output level. When `MRltMC`, then producer will cut down the production as long as MR becomes equal to MC. It is so because firm will find it unprofitable to produce an extra unit. So, it starts reducing the level of output till MR = MC. So, the producer is at equilibrium at OQ units of output. |
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| 1238. |
Distinguish between nominal income and real income. Explain why due to the presence of non-monetary production, real national income on its own cannot he treated as a true index of welfare. |
| Answer» Solution :REAL income is nominal income adjusted for inflation. Real income is the buying power of your nominal income. If prices go up, nominal income (DOLLAR income) being the same, real income GOES down. If prices go down, nominal income (dollar income) being the same, real income goes up.Due to the presence of non-monetary production, real national income on its own cannot he treated as a true index of welfare BECAUSEIT does not ADD to the flow of goods and services in the economy. | |
| 1239. |
A dentist was charging Rs. 300 for a standard clearing job, and per month it used to generate total revenue equal to Rs. 30,000. She has increased the price of dental cleaning to Rs. 350 since last month. As the result of, few customers are now coming for dental clearing, but the total revenue is now Rs. 33,250. From this, what can we conclude about the elasticity of demand for such a dental service. Calculate PED by proportionate method. |
| Answer» SOLUTION :With the increase in fees, the total revenue of a dentist has also increased. Hence, the elasticity of demand for her dental service is less than one because of POSITIVE RELATION between PRICE and total revenue. | |
| 1240. |
Legal Reserve Ratio (LRR) is that ratio of deposits which banks are legally bound to keep in the form of cash with themselves and with the Central Bank |
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Answer» |
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| 1241. |
How is the equilibrium level of income attained through AD and AS apprach? |
| Answer» SOLUTION :According to AD and AS APPROACH, EQUILIBRIUM level of income is determined at the point where aggregate demand (AD) represented by (C+I) is equal to aggregate supply (AS). | |
| 1242. |
Construction of a school building is a : |
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Answer» CAPTIAL RECEIPT |
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| 1243. |
The demand for cooking gas is not falling inspite of regular hike in the price of cooking gas. What will be the elasticity of demand for cooking gas. Explain giving suitable reasons in support of your answer. |
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Answer» SOLUTION :The elasticity of demand for cooking GAS will be INELASTIC because there will be no CHANGE in demand for cooking gas inspite of its rise in price. Value : Critical THINKING |
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| 1244. |
Fromthe given information , calculate : (a) Revenue Receipts (b) Fiscal Deficit and (c) Primary Deficit : |
| Answer» SOLUTION :{(a)₹ 5, 000 CRORES, (b)₹12 , 000 crores , (c)₹5, 000 crores } | |
| 1245. |
Are the following statements true or false ? Give reasons. Construction of flyover is a revenueexpenditure of the government . |
| Answer» Solution :FALSE . It ISA CAPITAL EXPENDITURE as it LEADS to creation of asset. | |
| 1246. |
Distinguishbetween Repo Rate and Reverse Repo Rate. |
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Answer» SOLUTION :REPO Rate is the rate atwhichcentral bank LENDS funds to the commercial banksfor short term. Reverse RepoRate is the rate at commercialbanks part their SURPLUS funds with central bank for short term. |
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| 1247. |
A straight line supply curve cuts X-axis in its positive range. What can you say about the elasticity of supply ? |
| Answer» SOLUTION :LESS ELASTIC `(ES LT 1)`. | |
| 1248. |
The branch of economic theory that deals with the problem of allocation of resources is |
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Answer» 1.Microeconomic THEORY. |
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| 1249. |
What is meant by investment ? Discuss the two types of investments. |
| Answer» Solution :INVESTMENT refers to the expenditure incurred on creation of NEW CAPITAL assets.2 types of investment are there-1. AUTONOMOUS investment2. Induced investment | |
| 1250. |
Which of the three countries has highest life expectancy at birth ? |
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Answer» INDIA |
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