3524 + Interview Questions in Economics in Class 12 Page 33 InterviewSolution

1601.	_______ refers to the difference between exports and imports of visible items.
Answer» Balance of payments Balance of trade Both (a) and (b) Neither (a) nor (b) Solution :B. Balance of trade REFERS to the difference between EXPORTS and imports of visible ITEMS.

Discussion

1602.	If marginal product becomes negative, average product must also become negative.
Answer» Solution :False: Marginal product can be negative. But the AVERAGE product can NEVER be negative, because total product will ALWAYS be a FINITE quantity.

Discussion

1603.	Explain New AgriculturalStrategyas adopted in 1961 in India.
Answer» Solution :NAS is also CALLED seed-WATER-fertilizer technology. Itrequiredthe use of high yieldingvariety (HYV) of seeds, chemicalfertilizers, and pesticides in a given proportion. It alsorequired regular supply of water. NAS is also called Green Revolution. In the beginningit was adopted only by affluentstates like Punjab, TAMILNADU andAndhra Pradesh. Gradually other statesalso adopted whengovernmentprovided loans and subsidies to those who COULD not initiallyafford it.

Discussion

1604.	Can AC be less than MC when AC is rising?
Answer» SOLUTION :YES, AC can be less than MC, when AC is RISING, as LONG as MC is more than AC.

Discussion

1605.	Brokerage paid to the broker for sale and purchase of shares is included in national income because :
Answer» it is OPERATING surplus it is C.O.E. it is MIXED INCOME of SELF employed broker is rendering PRODUCTIVE serices Answer :D

Discussion

1606.	Which institution (s) perforemthe activityof creditcreation ?
Answer» COMMERCIAL Bank Central Bank Both (a) and (b) NEITHER (a) and (b) SOLUTION :A. Commercial Bank performthe ACTIVITYOF creditcreation.

Discussion

1607.	Calculate 'Net Domestic Product at Market Price' and 'Gross National Disposable Income'* *: (Rs.crores) (i) Private final consumption expenditure 400 (ii) Opening stock 10 (iii) Consumption of fixed capital 25(iv) Imports 15 (v) Government final consumption expenditure 90 (vi) Net current transfers to rest of the word 5 (vii) Gross domestic fixed capital formation 80 (viii) Closing stock 20 (ix) Exports 10 (x) Net factor income to abroad (-) 5
Answer» Solution :Net Domestic Product at MARKET PRICE = Private final consumption expenditure + Government final consumption expenditure + Gross domestic fixed capital FORMATION + change in stock + Net EXPORTS - DEPRECIATION Net Domestic Product at Market Price = 400+90+80+(20-10)+(10-15)-25 Net Domestic Product at Market Price = Rs.550

Discussion

1608.	Calculate national income by (a) income distribution method and (b) final expenditure method from the following data: (i) Net imports 50 (ii) Operating surplus 300 (iii) Net domestic capital formation 400 (iv) Compensation of employees 700 (v) Bonus 25 (vi) Private final consumption expenditure 1320 (vii) Government final consumption expenditure 100 ?(viii) Net factor income from abroad 20 (ix) Mixed income of self-employed 600 (x) Net indirect tax 170
Answer» ANSWER :RS 720 CRORE

Discussion

1609.	Real gross domestic products can be equal to nominal gross domestic product.
Answer» Solution :TRUE. It is possible when price LEVEL in both the YEARS is same.

Discussion

1610.	When income of buyers increase, equilibrium price falls.
Answer» SOLUTION :False: With an INCREASE in income of buyers, EQUILIBRIUM price will increase when piece of goods is normal, but DECREASES when that is INFERIOR.

Discussion

1611.	Price discrimination should be socially desirable. How?
Answer» SOLUTION :There should be an approach on the part of the Monopoly FIRM to fix LOWER prices for poor people and backward areas for its product.

Discussion

1612.	When a good is called normal goods ?
Answer» Solution :For normal good, with a rise in income, the DEMAND of he commodity also rises and vica-versa. Shortly, DIRECT RELATIONSHIP EXISTS between the income of a consumeranddemand of normal good. For example, a NEW car, new clothings.

Discussion

1613.	Dpreciation on domestic currency leads to rise in exports
Answer» SOLUTION : TRUE. Depreciation of DOMESTIC currency makes domestic goods relatively cheaper, which leads to increases TARGETED value.

Discussion

1614.	Who regulates money supply?
Answer» GOVERNMENT of India Reseve Bank of India Commerical BANKS Planning COMMISSION ANSWER :b

Discussion

1615.	A consumer consumes only two goods X and Y. At certain consumption level of these goods, the finds that the ratio of marginal utility to price in case of X is lower than that in case of Y. Explain the reaction of the consumer.
Answer» SOLUTION :As , we know condition for consumer equilibrium is , Necessary Condition Marginal utility of last rupeespend on each commodity is same . Suppose there are two commodities , X and Y respectively. So , for commodity X , the condition is , Marginal Utility of Money = Price of X Or, `{:("Marginal Utility of a PRODUCT in Util "[MU_x])/("Marginal Utility of ONE Rupee "[MU_R])=` Price of X Or `(MU_x)/(P_x) = MU_R ""....(1)` Similarly , for commodity Y, the condition is , `(MU_y)/(P_y)=MU_R ""...(2)` Putting equation (2) in (1) , we get `(MU_x)/(P_x)=(MU_y)/P_y` Putting equation (2) in (1), we get `(MU_x)/P_x =(MU_y)/(P_y)` But as given in the questions that the ratio of marginal utility to price in case of X is lower than in case of Y.i.e, `(MU_x)/(P_x) lt (MU_y)/P_y` . It is means, marginal utility from the lest rupee spent on commodity X is less than the marginal utility from the last rupee spent on commodity Y . So, to attain the equilibrium the consumer MUST decrease the quantity of X which will increase the `MU_x` and increase the quantity of Y , which will decrease the `MU_y` . Decrease in quantity of X and increase in quantity of y continue till `(MU_x)/P_x =(MU_y)/(P_y)` .

Discussion

1616.	Disinvestment by government means
Answer» SELLING of its FIXED capital assets Selling of shares of PUBLIC ENTERPRISES held by it Selling of its buildings All the above Answer :B

Discussion

1617.	Demand deposits include (Choose the correct alternative) (a) Saving account deposits and fixed deposits (b) Saving account deposits and current account deposits (c) Current account deposits and fixed deposits (d) All types of deposits
Answer» SOLUTION :(B) Saving account DEPOSITS and CURRENT account deposits

Discussion

1618.	What is saving function
Answer» SOLUTION :Saving FUNCTION refersto the functional relationship between SAVINGS and (national) INCOME.

Discussion

1619.	Distinguish between marginal propensity to consume and marginal propensity to save. What is the relationship between the two ?
Answer» SOLUTION :The MARGINAL propensity to consume (MPC) is the FLIP side of MPS.MPS measures that relationship to DETERMINE how much spending increases for each dollar of additional income. On the other hand ,MPC measures that relationship to determine how much consumption increases for each dollar of additional income.The sum of these two is unity i.e.,MPC +MPS =1

Discussion

1620.	Measure ex-ante AD, when autonomous investement and consumption expenditure (A) is 50crore, and MPS is 0.2 and level of income is 300crores.
Answer» Solution :MPC=-1MPS i.e. MPC=1-0.2=0.8 `AD=C+BAR(I)` `=bar(C )+bY+bar(I) or, bar(A)+By=50+0.8(300)=290"CRORE"`

Discussion

1621.	What is revenue budget ?
Answer» Solution :Revenue budget contains the details of the current RECEIPTS (or CALLED revenue receipts ) and current EXPENDITURES (also known as revenue expenditure) of the GOVERNMENT .

Discussion

1622.	The Balance of Trade shows a deficit of Rs 300 crores. The value of exports are Rs 500 crores. What is the value of imports?
Answer» Solution :Balance of TRADE = Exports - Imports So, Imports = Exports - Balance of trade = 500 - (-) 300 = RS 800 CRORES

Discussion

1623.	Are the following statements true or false ? Give reasons. Primary deficit indicates the government's inability to meet its regular and recurring expenditure .
Answer» SOLUTION :False . This is indicated by REVENUE DEFICIT and not by primary deficit .

Discussion

1624.	Which one of the following commodities have inelastic demand ? Salt, a particular brand of lipstick, medicine and school uniform.
Answer» Solution :SALT, medicine and school uniform have inelasticdemand as they do not have MANY SUBSTITUTES. On the other hand, a PARTICULAR brand of lipstick has an elastic DEMAND since they have many substitutes.

Discussion

1625.	______ of 1929 led to persistent fall in output, employment and income level.
Answer» ANSWER :GREAT DEPRESSION

Discussion

1626.	What is meant by fixed (supplementary) costs of a firm? Give examples.
Answer» Solution :(i) Fixed costs are those costs of production which do not change with a change in output. (ii) These are the costs incurred on fixed factors, LIKE RENT 4of land and building, interest, etc. These are unavoidable contractual costs. (iii) Fixed costs are also called overhead costs or GENERAL costs because these are common for all the units produced. These costs are also called supplementary costs or indirect costs. (IV) The shape of Total fixed Cost is horizontal (Parallel to X-Axis). They have to be incurred when the output is large or small or even zero.

Discussion

1627.	State the nature of transactions that are recorded in current account of the Balance of Payments account.
Answer» Solution :1) Export and import of GOODS2) Export and import of services3) UNILATERAL or unrequited transfers to and from abroad4) Income RECEIPTS and payments to and from abroad

Discussion

1628.	Distinguish between co-operative and non-cooperative oligopoly.
Answer» Solution :Co-operative oligopoly is the oligopoly in which firms might decide to collude together and not to compete with each other. Thus, in such a case the firms would BEHAVE as a signle monopoly and aim at maximising their collective profits rather than their individual profits. On the other HAND, non-cooperative oligopoly is the oligopoly where each firm AIMS at maximising its own profits and decides how much QUANTITY to PRODUCE assuming that the other firms would not change their quantity supplied.

Discussion

1629.	The price elasticities of demand for goods X and Y are known to be 1 and 2 respectively. Price of X rises by 5% while that of goods Y falls by 5%. What are the percentage changes in the quantities demanded of X and Y ?
Answer» SOLUTION :Price Elasticity of DEMAND (ED) of X `=("% Change in quantity demanded")/("% Change in price")` `1=("% Change in quantity demanded")/(5%)`Price Elasticity of Demand (ED) of Y `=("% Change in quantity demanded")/("% Change in price")` `2=("% Change in quantity demanded")/((-)5%)` Percentage change (RISE) in the quantity of Y = 10% Quantity of X will fall by 5%, Quantity of Y will rise by 10%.

Discussion

1630.	What islegal ReserveRatio? Explain its components
Answer» Solution :LRR (Legal Reserve Ratio) refers to that legal minimum fraction of deposits which the banks are mandate to keep as cash with themselves. Legal Reserve Ratio has two variants: (i) Cash Reserve Ratio, and (ii) Statutory Liquidity Ratio. Cash Reserve Ratio (CRR)-It refers to cash reserves of Commercial Banks with the Central Bank as a percentage of their deposits. Statutory Liquidity Ratio (SLR) refers to reserves in the form of liquid assets (including (i) cash, (ii) gold, and (iii) APPROVED securities) with the Commercial Banks themselves, as a percentage of their total deposits. Both CRR and SLR are fixed by the Central Bank, and both are a legal BINDING for the Commercial Banks. In this sense, both CRR and SLR are legal reserve ratios.

Discussion

1631.	Policies of surplus budget during inflationis a part of which objective of government budget ?
Answer» Economic Growth Economic Stability REDUCING REGIONAL DISPARITIES Reallocation of Resources Answer :B

Discussion

1632.	Explain the meaning of non-market activities.
Answer» SOLUTION :These REFER to ACTIVITIES of acquiring goods and services without ENTERING the market, e.g., services of housewife, barter transactions, VEGETABLES grown in kitchen garden etc.

Discussion

1633.	If MPC gt MPS, the value of multiplier will be
Answer» GREATER than 2 less than 2 equal to 2 equal to 5 Answer :A

Discussion

1634.	Give meaning of full employment.
Answer» SOLUTION :the condition in which VIRTUALLY all who are able and WILLING to work are EMPLOYED.

Discussion

1635.	Why do householdbuy more at a lower price than at a higher price ?
Answer» Solution :The inverse relationship between price of the commodity and quantity demanded for that commodity is because of the following reasons: (i) Income effect : (a) Quantity demanded of a commodity changes due to change in purchasing power (real income), caused by change in price of a commodity is called Income Effect. (b) Any change in the price of a commodity affects the purchasing power or real income of the consumers although his money income remains the same. (c ) When price of a commodity rise more has to be spent on purchase of the same quantity of that commodity. THUS, rise in price of commodity leads to fall in real income, which will thereby reduce quantity demanded is known as Income effect. (ii) Substitution effect : (a) It refers to substitution of one commodity in place of another commodity when it becomes relatively cheaper. (b) A rise in price of the commodity let COKE, also means that price of its substitute, let pepsi, has fallen in relation to that of coke, even though the price of pepsi remains unchanged. So, people will buy more of pepsi and less of coke when price of coke rises. (c ) In other words, consumers will I substitute pepsi for coke. This is called Substitution effect. Price effect = Income effect+ Substitution effect (iii) LAW of Diminishing Marginal Utility: (a) This law states that when a consumer CONSUMES more and more units of a commodity,every additional unit of a commodity giveslesser and lesser satisfaction and marginal utilitydecreases. (b) The consumer consumes a commodity till marginal utility (benefit) he gets equals to the price (cost) they pay, i.e., where benefit = cost. (c ) For example, a thirsty man gets the maximum satisfaction (utility) from the first glass of water. Lesser utility from the 2nd glass of water, still lesser from the 3rd glass of water and so on. Clearly, if a consumer wants to buy more units of the commodity, he would like to do so at a lower price. Since, the utility derived from additional unit is lower. (iv) Additional consumer: (a) When price of a commodity falls, two effects are quite possible: New consumers, that is , consumers that were not able to afford a commodity previously, starts demanding it at a lower price. Old consumers of the commodity starts demanding more of the same commodity by spending the same amount of money. (b) As the result of old and new BUYERS push up the demand for a commodity when price falls.

Discussion

1636.	BOP is in disequilibrium when
Answer» CURRENT account balance+ capital account balance is not EQUAL to ZERO current account balance+ capital account balance is some positive number current account balance+ capital account balance is NEGATIVE number. all of these Answer :D

Discussion

1637.	What are monotonic preferences ?
Answer» Solution :CONSUMER.s PREFERENCES are assumed to be such that between any two bundles `(x_1 ,x_2) and (y_1,y_2) , " if " (x_1 , x_2)` has more of at least ONE of the good and no less of the other good as compared to `(y_1,y_2)` , the consumer PREFERS `(x_1,x_2)" to " (y_1,y_2)` . Preferences of this kind are called MONOTONIC preferences.

Discussion

1638.	Contribution of a production unit of national income is:
Answer» Value of OUTPUT LESS intermediate COSTS Value of output less intermediate costs less depreciation Value of output less intermediate costs less depreciation less indirect tax Value of output less intermediate costs less depreciation less not indirect tax. Answer :D

Discussion

1639.	Explain how the equilibriumlevel of income can be attained in an economy if, AggregateDemand is more than the Aggregate Supply.
Answer» SOLUTION :Equilibriumlevel of Income refers to that level of output where Aggregate demandis equalto theAggregate supply . If Aggregate Demand exceeds Aggregate Supply, it means buyers are PLANNING to buy more goods and servicesthan producers are planning to produce.Thus,theinventories in hand with theproducerswill START falling. As a result,producers will plan to RAISE theproduction.This will INCREASE the level of income upto the level Aggregate Demand is equal toAggregate Supply.

Discussion

1640.	A rise in the price of a good results in an increase in expenditure on it. Is its demand elastic or inelastic ?
Answer» SOLUTION :The DEMAND is INELASTIC.

Discussion

1641.	Give one reason for an ''increase'' in supply of a commodity.
Answer» Solution :`A FALL in the PRICE of inputs' can be one of the reasons for an INCREASE in the supply of a COMMODITY

Discussion

1642.	What is meant by domestic (internal) borrowing ? Mention three sources.
Answer» SOLUTION :When GOVERNMENT faces a budget deficit, it borrows money from various sources. The amount raised through sources from within the country itself is known as DOMESTIC or internal BORROWING. The three main sources are : (a) Central Bank of the country (b) Open market (i.e., public) (c) COMMERCIAL Banks or non - banking financial companies

Discussion

1643.	National income of a country is a stock concept.
Answer» Solution :Itis a FLOW concept as it is MEASURED over a period of TIME.

Discussion

1644.	Law of Demand is a qualitative statement. Comment.
Answer» Solution :(i) Law of DEMAND is only an qualitative, and not a quantitative STATEMENT. (ii) It indicates only the direction in which the quantity demanded will change with a change in price, it says NOTHING about the magnitude of such a change. (iii) For example, price of coke rises from Rs 8 to Rs 10 per bottle, then as per law of demand we can say that the demand for coke will TALL But the law does not give the actual amount by which the demand for coke will decline.

Discussion

1645.	Explain the precautions that are taken while estimating national income by value added method.
Answer» Solution :While calculating national income by value added method, value of the following items should be included:(i) Imputed rent of owner occupied houses.(II) Imputed value of goods and services produced for self-consumption or for free distribution.(III) Value of own-account production of fixed assets by enterprises, government and HOUSEHOLDS.(iv) Only value added and not value of output by production UNITS should be included (i.e., avoid double counting).(v) Do not include sale of second-hand goods because they are not fresh production activity. However, BROKERAGE or commission paid to facilitate the sale is included as it is a fresh production activity.

Discussion

1646.	Which transactions determine the balance of trade? When is balance of trade in suplus?
Answer» Solution :The BALANCE of trade is the difference between the value of a country's imports and exports for a given PERIOD. The balance of trade is the LARGEST component of a country's balance of payments.A country that exports more goods and services than it imports has a trade surplus. The formula for calculating the BOT can be simplified as the total value of exports MINUS the total value of imports.

Discussion

1647.	How can increase in foreign direct investment affect the price of foreign exchange ?
Answer» Solution :INCREASE in foreign DIRECT INVESTMENT will increase the SUPPLY of foreign exchange and therefore it will reduce the PRICE of foreign exchange.

Discussion

1648.	Define current transfers.
Answer» Solution :Current TRANSFERS refer to transfer MADE out of the current income of the payer and added to the current income of the RECIPIENT.

Discussion

1649.	In perfect competition, selling costs can help in raising sale of the product.
Answer» Solution : False: Under perfect competition, as the UNITS of a good are HOMOGENEOUS and are sold at the same PRICE.

Discussion

1650.	The demand function of a commodity x is Q_(x)=12-P_(x) (where Q_(x)= the quantity demanded of a commodity x and P_(x)= price of the commodity x). Derive the TR and MR schedules when the price of commodity varies from12rs to 1rs.
Answer» SOLUTION : Note : PUTTING the various values of price from `12rs` to `1rs` in `Q_(X)=12-P_(x)`, we get the corresponding values of the quantities DEMANDED (For EXAMPLE, `Q_(x)` will be `0` when `P_x)=12`).

Discussion

Explore topic-wise InterviewSolutions in .

_______ refers to the difference between exports and imports of visible items.

If marginal product becomes negative, average product must also become negative.

Explain New AgriculturalStrategyas adopted in 1961 in India.

Can AC be less than MC when AC is rising?

Brokerage paid to the broker for sale and purchase of shares is included in national income because :

Which institution (s) perforemthe activityof creditcreation ?

Real gross domestic products can be equal to nominal gross domestic product.

When income of buyers increase, equilibrium price falls.

Price discrimination should be socially desirable. How?

When a good is called normal goods ?

Dpreciation on domestic currency leads to rise in exports

Who regulates money supply?

A consumer consumes only two goods X and Y. At certain consumption level of these goods, the finds that the ratio of marginal utility to price in case of X is lower than that in case of Y. Explain the reaction of the consumer.

Disinvestment by government means

Demand deposits include (Choose the correct alternative) (a) Saving account deposits and fixed deposits (b) Saving account deposits and current account deposits (c) Current account deposits and fixed deposits (d) All types of deposits

What is saving function

Distinguish between marginal propensity to consume and marginal propensity to save. What is the relationship between the two ?

Measure ex-ante AD, when autonomous investement and consumption expenditure (A) is 50crore, and MPS is 0.2 and level of income is 300crores.

What is revenue budget ?

The Balance of Trade shows a deficit of Rs 300 crores. The value of exports are Rs 500 crores. What is the value of imports?

Are the following statements true or false ? Give reasons. Primary deficit indicates the government's inability to meet its regular and recurring expenditure .

Which one of the following commodities have inelastic demand ? Salt, a particular brand of lipstick, medicine and school uniform.

______ of 1929 led to persistent fall in output, employment and income level.

What is meant by fixed (supplementary) costs of a firm? Give examples.

State the nature of transactions that are recorded in current account of the Balance of Payments account.

Distinguish between co-operative and non-cooperative oligopoly.

The price elasticities of demand for goods X and Y are known to be 1 and 2 respectively. Price of X rises by 5% while that of goods Y falls by 5%. What are the percentage changes in the quantities demanded of X and Y ?

What islegal ReserveRatio? Explain its components

Policies of surplus budget during inflationis a part of which objective of government budget ?

Explain the meaning of non-market activities.

If MPC gt MPS, the value of multiplier will be

Give meaning of full employment.

Why do householdbuy more at a lower price than at a higher price ?

BOP is in disequilibrium when

What are monotonic preferences ?

Contribution of a production unit of national income is:

Explain how the equilibriumlevel of income can be attained in an economy if, AggregateDemand is more than the Aggregate Supply.

A rise in the price of a good results in an increase in expenditure on it. Is its demand elastic or inelastic ?

Give one reason for an ''increase'' in supply of a commodity.

What is meant by domestic (internal) borrowing ? Mention three sources.

National income of a country is a stock concept.

Law of Demand is a qualitative statement. Comment.

Explain the precautions that are taken while estimating national income by value added method.

Which transactions determine the balance of trade? When is balance of trade in suplus?

How can increase in foreign direct investment affect the price of foreign exchange ?

Define current transfers.

In perfect competition, selling costs can help in raising sale of the product.

The demand function of a commodity x is Q_(x)=12-P_(x) (where Q_(x)= the quantity demanded of a commodity x and P_(x)= price of the commodity x). Derive the TR and MR schedules when the price of commodity varies from12rs to 1rs.