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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.
| 1501. |
If a consumption function of a hypothetical economy is given as: C=100+0.6Y,then (i) What will be the values of marginal propensity to consume and marginal propensity to save for the economy? (ii) Write the corresponding saving function. |
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Answer» SOLUTION :(i) C=100+0.6(Y) (GIVEN) So, MPC=0.6 MPS=1-MPC =1-0.6 =0.4 (II) S=`-BARC+(1-b)Y` S=-100+0.4 Y |
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| 1502. |
What are revenue receipts in a government budget ? |
| Answer» Solution :Revenue RECEIPTS REFER to those receipts which NEITHER create any liability nor cause REDUCTION in the assets of the government . | |
| 1503. |
How are following treated in the estimation of national income ? Purchase of a truck to carry goods by a production unit. |
| Answer» SOLUTION :Yes, it will be included in the national income as it is a PART of the GROSS domestic capital formation. | |
| 1504. |
Consumption function is the function relationship between ____ and ____. |
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Answer» Consumption, AGGREGATE demand |
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| 1505. |
Primary deficit in a government budget is : (Choose the correct alternative). |
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Answer» Revenue EXPENDITURE - Revenvue RECEIPTS |
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| 1506. |
Name the sectors in which circular flow of income can be studied. |
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Answer» SOLUTION :(i) Two-sector economy (WITHOUT financial market) (ii) Two-sector economy (with financial market) (iii) Three-sector economy (An extra mile) (IV) Four-sector economy (An extra mile) |
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| 1507. |
The law of variable proportions is drawn under all of the assumptions mentioned below except the assumption that: |
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Answer» 1.The TECHNOLOGY is changing. |
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| 1508. |
Find multiplier if (a) 50% of additional income is saved. (b) MPC=0.25 |
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Answer» SOLUTION :`(a) K=(1)/(1-MPS)` `=(1)/(0.5)` `RIGHTARROW K=2` (b) `(b) K=(1)/(1-MPC)` `=(1)/(1-0.25)` `Rightarrow K=(1)/(0.75)=(4)/(3)=1.33` |
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| 1509. |
explain the minimumand maximumvalueof muliplier(K). |
| Answer» Solution :thesizeofmultiplierdependson thecurveof MPCbecause`k=(1_/(1-MPC)`.Thusminimumvalueofinvestmentmulitpieris BASED on thevalueof MPcsinceminimumvalueof multiplierdependson MAXIMUMVALUEOF MPC. Sincemaximumvalueof MPCCanBe1,20 maximumvalueof `K=(1)/(1-1)=(1)/(0)= OO` (infinity ). | |
| 1510. |
Give one reason for ''decrease'' in supply of a commodity |
| Answer» SOLUTION :INCREASE in the PRICE of INPUTS | |
| 1511. |
Money value of final goods and services, measured at prices of base year |
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Answer» NOMINAL INCOME |
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| 1512. |
Export of machinery is recorded on the: |
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Answer» Debit side of CURRENT Account |
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| 1513. |
Planners and policy makers are all busy in exploring sources of funds needed for investment. Why ? What do they expect to achieve ? |
| Answer» Solution :They expect to ACHIEVE increase in national income, i.e., growth. Investment LEADS to rise in national income a multople of TIMES the increase in investment. This is through the multiplier EFFECT directly related to marginal propensity to consume | |
| 1514. |
The price elasticity of supply of commodityX and Y areequal. Theprice ofX fallsfrom ₹10 to ₹8 per unit and itsquantity suppliedfalls by 16 per unit.The price of Y rises by 10 percent. Calculate the precentageincrease increase in itssupply. |
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Answer» <P> Solution :PED of X = PED of Y [Given]`{:("Commodity X","Commodity Y"),("Initial Price [P] = 10 (given)","PED = Y = 1 [As PED of X and Y are equal]"),("New Price "[P_(1)]=8,),(Delta P=-2,),("Percentage CHANGE in Price",),(=(Delta P)/(P)xx100=(-2)/(10)xx100=(-)20%,PED=("Percentage change in QUANTITY DEMANDED")/("Percentage change in Price")),("Percentage change in quantity demanded = 20%",),(PED=("Percentage change in Quantity demanded")/("Percentage change in Price"),1=("Percentage change in Quantity demanded")/(10%)),(=(20%)/((-)20%)=(-)1,"As price of Y increases by 10%, than"),(PED=1,"quantity demanded for y fall by 10%."):}` Numerical Problem to Calculate Price Elasticity of Demand by Total Expenditure Method. |
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| 1515. |
Other name for legal reserve requirement is _ |
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Answer» Cash RESERVE RATIO |
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| 1516. |
State the components of current account? |
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Answer» |
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| 1517. |
The price elasticity of demand of a commodity is (-)1.5. When its price falls by Rs. 1 per unit its quantity demanded rises by 3 units. If the quantity demanded before the price change was 30 units, what was the price at this demand ? |
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Answer» <P> Solution :`{:(,"PED"=[-]1.5" Given"),("INITIAL Price [P] = ?","Initial Quantity or quantity demanded before the price change [Q] = 30"),("New Price "[P_(1)]=?,"New Quantity "(Q_(1))=?),(Delta P=-1,Delta Q=3):}``PED=(Delta Q)/(Delta P)xx(P)/(Q) "or" (-)1.5 =(3)/((-)1)xx(P)/(30)` `P=(45)/(3)=15` So, the price before change, i.e., initial price = 15 at the initial quantity = 30. Numerical Problems to CALCULATE Price Elasticity of Demand by PERCENTAGE Method. |
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| 1518. |
Calculate the 'Nationals Income' and 'Private Income'* *:{:(,"Rs. crores"),("(i)Rent",200),("(ii)Net factor income to abroad",10),("(iii)National debt interest",15),("(iv)Wages and salaries",700),("(v)Current transfers from government",10),("(vi)Undistributed profits",20),("(vii)Corporation tax",30),("(viii)Interest",150),("(ix)Social security contributions by employers",400),("(x)Net domestic product accruing to government",250),("(xi)Net current transfers to rest of the world",5),("(xii)Dividends",50):} |
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Answer» Solution :National Income = Wages and salaries + Social security contributions by employers +RENT + Interest + Dividends + Corporation tax + Undistributed profits - NET FACTOR income to ABROAD `N NP_(FC)`-700+100+200+150+50+30+20-10 =Rs.1240 crore |
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| 1519. |
State the two components of M_(1) measure of Money Supply. |
| Answer» Solution :CURRENCY HELD by public and DEMAND deposits held by banks. | |
| 1520. |
An employess approches hisemplyer fora loan of Rs. 3,00,000 for thehighereducation fo his son . Theemployer agrees to provide interest free loan . Whatwill be the treatment of interest incalculation of national income? |
| Answer» SOLUTION :INTEREST on suchwill be includedin thenationalincome as it is a PARTOF compensationof EMPLOYEES . | |
| 1521. |
Give an example each of fixed cost and variable cost |
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Answer» Solution :EXAMPLE of FIXED COST - Rent, INTEREST etc. Example of Variable Cost - EXPENDITURE on raw material etc. |
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| 1522. |
Are the following statements true or false ? Give reasons. Intermediate goods have a derived demand , while final goods have direct demand. |
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| 1523. |
What is the main function of money is an economic system ? |
| Answer» Solution :It is to facilitate the exchangeof goods and services i.e., to LESSEN the time and EFFORT to CARRY on TRADE . | |
| 1524. |
howdoesthe introductionofgovernmentsectoraffectthe economy ? |
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Answer» SOLUTION : itimpactsthelevelof AGGREGATEDEMAND throughgovernmentexpenditureandtaxes . FOREXAMPLE, anincreaseingovernmentexperditureonpurchaseofconsumptiongoodsandcapitalgoodsincreasethelevelofaggregatedemandinspiteofthefactthatincreaseintaxescausesa failinaggregatedemand . |
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| 1525. |
An activity which results in value addition is |
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Answer»
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| 1526. |
What are fixed and flexible exchange rates? OR Explain the meaning of Managed Floating Exchange Rate. |
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Answer» Solution :Fixed exchange RATE refers to a system where the exchange rate is held constant or fixed by the monetary authority of the country. Under this regime, the monetary authority of the country pegs (or, fixes) the value of its currency against various other frequent fluctuations in the exchange rate and makes international trade more predictable. On the other hand, a flexible exchange rate refers to a system where the exchange rate is determined by the market forces (demand for foreign exchange and supply of foreign exchange) with minimum or no government intervention. The equilibrium exchange rate is determined where the demand for foreign currency is equal to the supply of foreign currency. OR Managed floating system of exchange rate COMBINES the features of both the fixed exchange rate as WELL as the flexible exchange rate. On one hand, the foreign exchange market is allowed to operate freely and on the other hand, there is an official declaration of rules or guidelines for the inervention by the monetary authority. In other words, the managed floating exchange rate regime determines the exchange rate through the market foreces with intervention of the monetary authority as and when REQUIRED. |
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| 1527. |
"In perfect competition, industry is the price maker and firm is the price taker." Discuss. |
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Answer» Solution :Yes, this STATEMENT is true. (i)As we know, in Perfect competition, homogeneous goods are produced. So, industry cannot charge different PRICE from different firms. (ii) So, industry will give that price to the firm where industry is in equilibrium, i.e., where Demand = Supply. Any movement from that point would be unstable.  (iii) In the given DIAGRAM, price and revenue is MEASURED on vertical axis and UNITS of commodity on horizontal axis. Industry will give OP price or point E to the firm as at that point Demand - supply, i.e., industry is in equilibrium. The firms will follow the same price and charges same from the consumer. |
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| 1528. |
Why does cosumption curve not start from the origin. |
| Answer» Solution :Consumption CURVE does not start from the origin because it includes autonomous consumption (i.e. MINIMUM consumption REQUIREMENT) and autonomous consumption is NEVER zero. | |
| 1529. |
Describe the four major sectors in an economy according to the macroconomics point of view. |
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Answer» Solution :Four sectors of an ECONOMY are (a) Households. These supply FACTORS of production (land, labour, capital and ENTREPRENEUR) to the firms and buy goods and serives from the firms. (b) Firms. These are economic units which carry out production of goods services with the help of factors of production, supplied by households. (c) Government. The state which produces goods and services for collective consumption e.g., maintaining LAW and order in the country, providing services like street lighting, parks, etc. (d) External sector. It refers to the economic TRANSACTIONS of the domestic with the rest of the world e.g., imports, exports, loans etc. |
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| 1530. |
A consumer buys 40 units of a good at the price of Rs. 3 per unit. When the price rises to Rs. 4 per unit, he buys 30 units. Calculate the price elasticity of demand by total expenditure method. |
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Answer» Solution :`{:("Price (Rs.)","Quantity (in UNITS)","Total EXPENDITURE in Rs."("Price"xx"Quantity")),("10","20","200"),("8","24","192"):}` Demand is UNITARY elastic (ED = 1) as total expenditure remains the same at Rs. 120 with an INCREASE in price from Rs. 3 to Rs. 4. |
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| 1531. |
The worst effect of depression is unemployment. How can government budget be helpful in fighting it ? Explain |
| Answer» Solution :Government can fight depression through TAXES, subsidies and government expenditure. Through taxes, government can lower rates of income TAX etc. to leave more disposable income in the hands of people. It will encourage people to spend more. Through subsidies, government can GIVE subsidies to new production units for providing employment. Through government expenditure, government can raise its own expenditure on administration adn new projects. It will raise DEMAND and employment | |
| 1532. |
Identify a commercial bank from the following |
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Answer» LIC |
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| 1533. |
If the demand for a good is inelastic, an increase in its price will cause the total expenditure of the consumers of the good to : |
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Answer» REMAIN the same. |
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| 1534. |
Firm 'A' produces both jeans and shirts. How will an increase in the price of jeans affect the supply curve of the shirts ? |
Answer» SOLUTION :An INCREASE in the price of JEANS will make the production of jeans more attractive. As the RESULT of, firm .A. will shift its resources from shirts to jeans. It will shift the supply curve of shirts towards left as shown in given figure. 
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| 1535. |
Can Marginal revenue be negative. |
| Answer» Solution :True : If additional units are SOLD at such a lower price that the total revenue falls, MR will be NEGATIVE. This normally happens when demand for a COMMODITY is LESS than unit ELASTIC. | |
| 1537. |
In the context of an economy when we talk about 'scarcity', we refer to short supply of land. |
| Answer» SOLUTION :False: Scarcity refers to limited availability of all types of GOODS and services in relation to their REQUIREMENTS. The concept of scarcity, thus, is not limited to LAND ALONE. | |
| 1538. |
At the market price of 10rs , a firm supplies 4 units of output. The market price increases to 30rs. The price elasticity of the firm's supply is 1.25. What quantity will the firm supply at the new price ? |
Answer» SOLUTION : PRICE elasticity of supply (PES) `=(DeltaQ)/(DeltaP)xx(P)/(Q)` `1.25=(DeltaQ)/(20)xx(10)/(4)`, i.e., `DeltaQ=10` As price increases, then quantity supplied ALSO increase. It means, New Qunatity =Original Quantity (Q) + Change in Quantity `(DeltaQ]=4+10=14` units. New Quantity `=14` units |
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| 1539. |
Name one step the government can take through its budget to reduce the gap between the rich and the poor. |
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Answer» SOLUTION :Impose TAXES on the rich and give subsidies to the poor. Value - PROBLEM SOLVING |
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| 1540. |
Calculate the value of money multiplier if the legal reserve requirements are 20%. |
| Answer» SOLUTION :MoneyMultiplier `=(1)/("LRR")=(1)/(0.2)=5` | |
| 1541. |
Briefly discuss the meaning of domestic territory. |
| Answer» Solution :Domestic TERRITORY, as used in national accounting, has a special meaning and is MUCH bigger than the political FRONTIERS of a country. According to United Nation, “Economic territory is the geographical territory administered by a government WITHIN which persons, GOODS and capital circulate freely.†| |
| 1542. |
What will be the effect on equilibrium price and equilibrium quantity, when: (i) number of firms increases and (ii) price of inputs increases. |
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Answer» Solution :(i)Number of firms increases:When number of firms increasekeeping other factors CONSTANT, TOTAL supply, in the market, ALSO increases due to more producers producing the commodity. It shifts the supply curve towards right. Since an increase in number of firms does not have any impact on demand the demand curve remains unchanged. It can be shown with the help of given diagram. The supply curve shifts rightward from SS to `S_(1)S_(1)`. With new supply curve `S_(1)S_(1)` there is excess supPply at initial price OP because at price OP supply is PB and demand is PA, so there is excess supply of AB at price OP Due to this excess supply, competition among the producer will fall the price. Due to this fall in price there is downward movemernt along the supply curve (Contraction in supply) from B to C and similarly there is downward movement along the demand curve (Expansion in demand) from A to C. So, finally, equilibrium price falls from OP to `OP_(1)`, and equilibrium quantity rises from OQ to `OQ_(1)` Conclusion So, due to increase in number of firms, (a) Equilibrium price falls from OP to `OP_(1)` (b) Equilibrium quantity rises from OQ to `OQ_(1)` . (ii) Price of inputs increases: When price of inputs increases, assuming no CHANGE in other factors, then the cost of production rises. As a result, supply decreases due to fall in the profitability level. It shifts the supply curve towards left. Since an increase in the price of inputs does not have any impact on demand, the demand curve remains unchanged. It can be shown with the help of given diagram. In the given figure price is on vertical axis and quantity demanded and supplied is on horizontal axis. The supply curve shifts leftward 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 rise the price. Due to this rise in price, there is upward movement along the supply curve (Expansion 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 rises from OP to `OP_(1)` and equilibrium quantity falls from OQ to` OQ_(1)`. Conclusion Due to increase in input price, (i) Equilibrium price rises from OP to OP1. (ii) Equilibrium quantity also falls from OQ to OQ1. ` (##FM_M_ECO_XII_P1_C12_E02_047_S01.png" WIDTH="80%"> ` (##FM_M_ECO_XII_P1_C12_E02_047_S02.png" width="80%"> |
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| 1543. |
India is a labour abundance and capital scarce economy. Which technique of production should be used to produce the commodity? |
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Answer» Solution :INDIA should adopt labour intensive technique. VALUE: ANALYTIC |
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| 1544. |
How is the demand for a good affected by a rise in the prices of other goods ? Explain |
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Answer» Solution :Price of other goods and demand for the given GOOD: Any two goods are considered to be related to each other, when the demand for one good changes in response to the change in the price of the other good. The related goods can be classified into FOLLOWING two categories. 1. Substitute goods : Substitute goods refer to those goods that can be consumed in PLACE of each other. In other words, they can be substituted for each other. For example, tea and coffee, Colgate and Pepsodent, Cello pens and Reynolds pen, etc. For example, if price of tea increases, then the demand for tea will decrease. As a result, consumers will shift their consumption towards coffee and the demand for coffee will increase. (Price of Tea `uarr rarr` Demand for Coffee `uarr`). It should be roted that the demand for a good moves in the same direction as that of the price of its substitute. 2. Complementary goods : Complementary goods refer to those goods that are consumer TOGETHER. The joint consumption of these goods satisfies wants of the consumer. For example: tea and sugar, ink pen and ink, printer and PAPER, etc. For example, sugar and tea are complementary goods. Since, sugar and tea are consumed together, so a rise in price of tea reduces the demand for sugar and vice-versa. It should be noted that demand for a good moves in the opposite direction of the price of its complementary goods. (Price of tea `uarr rarr` demand for sugar `uarr`) |
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| 1545. |
What is primary deficit? |
| Answer» SOLUTION :Primary deficit = FISCAL deficit - INTEREST PAYMENTS | |
| 1546. |
How are the total revenue of a firm, market price and the quantity sold by the firm related to each other ? |
| Answer» Solution :Total REVENUE = MARKET PRICE `xx` QUANTITY sold | |
| 1547. |
What is deficit financing ? |
| Answer» Solution :GOVERNMENT MAY borrow from RBI against its securities to meet the fiscal deficit. RBI ISSUES new currency for this purpose. This process of PRINTING of new currency to meet the deficit is called deficit financing. | |
| 1548. |
Recently Government of India has doubled the import duty on gold. What impact is there on foreign exchange and how? |
| Answer» Solution :Since the increase in import DUTY on GOLD has made imports of gold costly, it has REDUCED the demand for import of gold as well as demand for FOREIGN exchange. Again SUPPLY of foreign exchange remaining unchanged, price of foreign exchange is likely to fall. | |
| 1549. |
Is fiscal deficits necessarily inflationary ? Is fiscal deficit advantageous always ? |
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Answer» Solution :Fiscal deficits are not necessarily inflationary. If HIGH fiscal deficit is accompanied by higher demand and greater output, it would not be inflationary as it is covering the gap required for smooth functioning of the economy by raising the level of AGGREGATE demand. Fiscal deficit is, no doubt, advantageous when it creates NEW capital assets, increases productive capacity and national income, i.e., if it PROMOTES economic growth. But, it is not beneficial always because it can lead to wasteful expendiure and inflationary pressure. Value - Critical THINKING. |
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| 1550. |
How the law of diminishing marginal utility applied with regard to education/knowledge ? |
| Answer» Solution :In this case the law of DIMINISHING marginal UTILITY will not APPLY because every EFFORT to get education / knowledge increases the utility. Value : ANALYTIC | |