3524 + Interview Questions in Economics in Class 12 Page 40 InterviewSolution

1951.	Define capital goods .
Answer» Solution :CAPITAL GOODS are those final goods which help in the PRODUCTIONOF other goods and SERVICES.

Discussion

1952.	What is repayment of loan ? Choose one option.
Answer» CAPITAL RECEIPT Revenue receipt Capital expenditure Revenue expenditure Answer :C

Discussion

1953.	Will the following be included in domestic factor income of India? Give reasons for your answer. (i) Profit earned by a foreign ban k from its branches in India. (ii) Scholarships given by the government of India. (iii) Profits earned by a resident of India from his company in singapore. (iv) Salaries received by Indians working in American embassy in India.
Answer» Answer :(i) Profit EARNED by a FOREIGN bank is included in domestic product of India because the banks branches are located in the Indian domestic territory. (ii) Scholarships is a trasnfer payment because no service is provided in RETURN. So, it is not included in domestic income. (iii) Profit earned by an Indian company in SINGAPORE is not included in domestic product of India because the compnay is located outside the economic (domestic ) territory of India. (iv) Salaries received by the Indians working in American embassy in India is not included because the embassy is treated as a PART of American domestic territory and not of India.

Discussion

1954.	Categorise the following into direct tax or indirect tax GST
Answer» ANSWER :INDIRECT TAX

Discussion

1955.	whatis therelationshipbetweenMPCand MPS? Explain ?
Answer» Solution :sum of MPCand MPSis alwaysequalto 1.How ? Income(Y)is ether consumed( C)orsaved( S) .THEREFORE,Y=C+S. increasein income`(Delta Y) `is EQUALTO increasein concumption`(DeltaC) ` andincrease in saving`(Delta S) .SoDelta Y =DeltaC+ Delta S.`Dividingbothsidesby `Delta `Y, we get `(DELTAY) /(DELTAI) =(DeltaC)/(Delta Y) +(DeltaS)/(DeltaY)` `1=MPC+MPS`

Discussion

1956.	What are demant deposits ?
Answer»

Discussion

1957.	Give example of non-tax revenue receipts .
Answer» Solution :Fees , Licence and PERMIT , SPECIAL ASSESSMENT , escheat ETC.

Discussion

1958.	PES of a commodity is 5 . A producer sells 500 units of a good at a price of 5rs per unit. How much will he be willing to sell at the price of 6rs per unit ?
Answer» Solution : PES `=(DeltaQ)/(DeltaP)xx(P)/(Q)` `5=(DeltaQ)/(1)xx(5)/(500)` `DeltaQ=(2500)/(5)=500` As PRICE INCREASES,quantity suppliedalso increases as per law of supply New Quantity =Initial Quantity+DeltaQ =500+500=1000`

Discussion

1959.	What are the main functins of money ? How does moneyt overcome the shortcomings of a barter system?
Answer»

Discussion

1960.	Unforeseen obsolescene of fixed capital assets during production is : (Chose the correct alternate)
Answer» CONSUMPTION of FIXED capital Capital loss Income loss None of the above. Answer :B

Discussion

1961.	Distinguish between BOT and Balance on current account.
Answer» SOLUTION :Balance on CURRENT account is the sum of BOT, balance of services and balance of UNILATERAL transfers whereas balance of trade is the difference between value of imports and EXPORTS of goods. Thus BOT is just one COMPONENT of Balance of current account.

Discussion

1962.	Government budget is a statement of actual receipts and expenditure of the government.
Answer» SOLUTION :Government BUDGET is a STATEMENT of expected receipts and EXPENDITURE of the government.

Discussion

1963.	Describe the great depression of 1929.
Answer» Solution :The great depression of 1929 affected the developed ECONOMIES like USA, EUROPE, etc. During this period, the output and employment fell by huge AMOUNT. The AGGREGATE demand was low, many factories were lying idle, workers were thrown out of jobs. Income levels were falling, there was widespread unemployment. In USA from 1929 to 1933, unemployment rate rose 3% to 25 % and output fell by about 33%.

Discussion

1964.	What do you mean by “bank of issue’?
Answer» Solution :Bank of issue means a bank which has the LEGAL RIGHT to issue CURRENCY NOTES.

Discussion

1965.	What is under employment equilibrium ?
Answer» SOLUTION :Under employment EQUILIBRIUM occurs when AS = AD, SHORT of their FULL employment level.

Discussion

1966.	Define Government budget.
Answer» Solution :Govt. budget is a financial statement showing expected receipts and expected expenditure of the government during a FISCAL YEAR.

Discussion

1967.	Exports of goods and services raises _____of foreign exchange.
Answer» SUPPLY DEMAND both (a) and (B) NEITHER (a) nor (b) ANSWER :A

Discussion

1968.	What are the components of aggregate demand ?
Answer» SOLUTION :(i) PRIVATE consumption expenditure, (ii) Investment expenditure, (III) Government expenditure, (IV) Net exports.

Discussion

1969.	Capital loss is :
Answer» Normal wear and tear of FIXED CAPITAL goods Foresen obsolescence Unforsen obsolescence All the above Answer :C

Discussion

1970.	Define deflationary gap?
Answer» SOLUTION :DEFLATIONARY GAP shows the gap by wihc actual AD falls falls short of the AD requiredto ESTABLISH FULL empolyment equilibirum.

Discussion

1971.	What does downward movement along the demand curve indicate?
Answer» Solution : Fall in price and RISE in quantity demanded, i.e., EXPANSION in DEMAND.

Discussion

1972.	What is the difference between planned and unplaned inventory accumulation ?
Answer» Solution :Planned Inventory. It REFERS to change in the STOCK of inventories which has beem planne. In a situation of planned inventory accumulation, firm will plan to raise inventories. It is positive for the firm. UNPLANNED Inventory. It refers to change in the stock of inventories which has OCCURRED unexpectedly. In a situation of unplanned inverntory accumulation, due to unexpected fall in sales, the firm will have unsold stock of goods. It is NEGATIVE for the firm.

Discussion

1973.	Classify the following as intermediate goods or final goods : Chalks dusters etc. purchased by a school.
Answer» SOLUTION :INTERMEDIATE GOODS

Discussion

1974.	Bread purchased is alwaysa consumergoods ,Defend or refute .
Answer» SOLUTION :The givenstatement is refuted.itdependson theenduse of breadwhenit ispurchasedby a householdit isa CONSUMER good if it is purchased by RESTAURANT it isa producer(INTERMEDIATE ) good.

Discussion

1975.	How is a deficit or a surplus on the current account restored?
Answer» SOLUTION :Deficit on the current ACCOUNT is RESTORED through the surplus on capital account and surplus on the current account is restored through the deficit on capital account.

Discussion

1976.	When there is increase in demand and decrease in supply, equillbrium price:
Answer» FALLS Rises Constant NONE of these Answer :B

Discussion

1977.	Give the meaning of ex-ante investment.
Answer» Solution :Ex-ante INVESTMENT REFERS to AMOUNT of investment which firms PLAN to invest at different levels of INCOME in the economy.

Discussion

1978.	Classify the following statment:-Purchases of new assets within the domestic market.
Answer» ANSWER :GROSS DOMESTIC CAPITAL FORMATION

Discussion

1979.	If disposable income is Rs. 500 and saving Rs. 100, find out average propensity to consume.
Answer» SOLUTION :`APC=(Y-S)/(Y)=(500-100)/(500)=0.8`

Discussion

1980.	Explain the features of free entry and exit of firms.
Answer» Solution :(i) Buyers and sellers are free to enter or leave the market at any time they like. New firms induced by LARGE profits can enter the industry whereas losses make inefficient firms to leave the industry. (ii) The freedom of entry and exit of firms has an important implication. This ensures that no firm can earn above normal profit in the long run. Each firm earns just the normal profit, i.e., minimum necessary to carry on business. (iii) Suppose the EXISTING firms are earning above normal profits, i.e. positive economic profits. Attracted by the positive profits, the new firms enter the industry. The industry.s output, i.e. market supply, goes up. The prices come down. New firms continue to enter and the prices continue to fall till economic profits are reduced to ZERO. (iv) Now suppose the existing firms are incurring losses. The firms start LEAVING. The industry.s output starts falling, prices going up, and all this continues till losses are wiped out. The remaining firms in the industry then once again earn just the normal profits. (v) Only zero economic profit in the long run is the basic outcome of a perfectly competitive market.

Discussion

1981.	Giving reasons explain where "charity to foreign countries" is recorded in BOP accounts.
Answer» Solution :Charity to foreign COUNTRIES is RECORDED in the current account of BOP because it is transfer payment. It is enterd on the debit side of current account as it CORRESPONDS to outflow of foreign EXCHANGE.

Discussion

1982.	State whether the following transactions will be recorded on debit or credit side of BOP. (i)Loan from IMF to cover deficit of BOP.(ii) Indian Government repays loan taken from IMF.(iii) Purchase of shares of Infosys by a Japanese resident.(iv) Export of jute to Sri Lanka.Acquisition of a foreign company by Tata.(vi)Purchase of toys from China.
Answer» SOLUTION :Transactions RELATING to inflow of FOREIGN EXCHANGE will be recorded on the credit side and outflow of foreign exchange on the debit side. Debit Side: (ii), (v), (vi); Credit Side: (i), (iii), (iv).

Discussion

1983.	Name the situation under which planned aggregate expenditure excceeds the equilibrium level of expenditure.
Answer» SOLUTION :EXCESS DEMAND

Discussion

1984.	What are the components of BOP accounts?
Answer» SOLUTION :The main COMPONENTS of BOP accounts are: i) CURRENT account II) Capital account.

Discussion

1985.	(a) What is autonomous investment ? Explain diagrammatically. (b) Why does government spend on autonomous investment ?
Answer» Solution :. (a) Refer to section 7.10 of Chapter 7. Autonomous investments are incurred by government to provide STRONG infrastructural BASE for the economy. According to its fiscal policy, the government spends on public UTILITIES like on railways, roads, ELECTRICITY etc. irrespective of level of income in the economy.

Discussion

1986.	There is no common denomination under barter exchange to express the exchange ratios.
Answer» SOLUTION :TRUE, All COMMODITIES are not of equal value and there is ABSENCE of COMMON measure.

Discussion

1987.	State items of : (a) Debt creating capital receipts . (b) Non-debt creating capital receipts .
Answer» Solution :(a) Debt CREATING capital receipts : Borrowings WITHIN the country . Borrowings from abroad . Borrowings from RBI. (b) Non-debt creating capital receipts : Recovery of LOANS DISINVESTMENT .

Discussion

1988.	Measure the level of ex-ante aggregate demand when autonomous investment and consumption expenditure (A) is 50 crore, and MPS is 0.2 and level of income (Y) is Rs.4000 crore. State whether the economy is in equilibrium or not (cite reasons)
Answer» Solution :MPC=1-MPS=1-0.2 MPC=0.8 Y=400 crores `AD=C+bar(I)=bar(C )+bY+bar(I)` `AD=bar(A)+bY "where", bar(A)=bar(C )=bar(I)` `=50+(0.8)(4000)=3250"crore"` AS or Y=4000 Here, ` 3250 LT 4000 or AD lt AS` Hence, aggregate demand is LESS than aggregate SUPPLY. Hence, the economy is not in equilibrium.

Discussion

1989.	Transactions which take place on both current and capital account are:
Answer» Autonomous accommodating both a) and B) NEITHER a) nor b) ANSWER :A

Discussion

1990.	A company located in India receives a loan from a company located abroad. How is this transaction recorded in India's BOP account?
Answer» Credit SIDE of current ACCOUNT DEBIT side of current account Credit side of CAPITAL account Debit side of capital account Answer :C

Discussion

1991.	Value of average propensity to save can never be less than zero. OR Average propensity to save is always greater than zero. OR Average propensity to save can never be negative.
Answer» Solution :False. : APS can be NEGATIVE at LOW level of income when CONSUMPTION expenditure is greater than income.

Discussion

1992.	When foreign exchange rate rises, the demand of foreign exchange
Answer» rises falls does not change none of these Answer :C

Discussion

1993.	When the price of a commodity falls by 20 per cent, its demand rises from 400 units to 500 units. Calculate its price elasticity of demand
Answer» Solution :`Ed = (% "CHANGE in Quantity Damanded")/(%"Change in PRICE")` % change in Quantity Demanded `= (Q_(2) - Q)/(Q_(1)) 100` `= (500 - 400)/(400) xx 100` `= 25%` `Ed = (25)/(-20) = 1.25`

Discussion

1994.	A decline in the price of good X by Rs. 5 causes an increase in its demand by 20 units to 50 units. The new price is Rs. 15. Calculate elasticity of demand.
Answer» SOLUTION :Let Initial Price `[P]=x` New Price `[P_(1)]=` [Initial Price] `x-5` [As GIVEN that price falls by 5] New Price `[P_(1)]=15` [Given] Then, Initial Price [P] = New Price `[P_(1)]+5=15+5=20` initial Quantity [Q] = 30 [As given quantity increase by 20 units and which goes to 50] New quantity `[Q_(1)]=50` `{:("Initial Price (P) = 20" "Initial Quantity (Q) = 30"),("New Price "(P_(1))=15"New Quantity "(Q_(1))=50),(DELTA P=[-]5""Delta Q=20):}` `PED=(Delta Q)/(Delta P)xx(P)/(Q)=(20)/((-)5)xx(20)/(30)=(400)/((-)150)=(-)2.66` Negative Sign of ED indicates that inverse relationship between price and quantity demanded. PED = 2.66 [More than unitary elastic DEMAND or Elastic demand]

Discussion

1995.	Can we think that classical belief can help in functioing of our economy ?
Answer» Solution :Classical BELIEF is that the government does not interfere in the ECONOMY because there is ALWAYS full employment equilibrium. But economy may achieve equilibrium even when there is underemployment or Over full employment. The government will have to interfere to correct the DEFICIENT and excess demand using various policy measures.

Discussion

1996.	Give the meaning of aggregate demand.
Answer» Solution :Aggregate demand refers to the total value of final GOODS and SERVICES which all the SECTORS of an ECONOMY are planning to BUY at a given level of income during a period of one accounting year.

Discussion

1997.	Which one of the following options is not a condition of perfect competition?
Answer» A large NUMBER of firms. Perfect MOBILITY of factors. Informative advertising to ensure that consumers have GOOD INFORMATION. Freedom of entry and exit into and out of the market. Solution :Informative advertising to ensure that consumers have good information.

Discussion

1998.	Both MPS and APS can be equal to one.
Answer» Solution :FALSE. : MPS can be equal to ONE when entire additional income is SAVED. However, APS can never be equal to one as SAVINGS can never be equal to income.

Discussion

1999.	What is the meaning of Balance of Payments? What are its main components? Explain them briefly.
Answer» Solution :Balance Of Payment (BOP) is a statement which records all the monetary transactions made between RESIDENTS of a country and the rest of the world during any given period. This statement includes all the transactions made by/to individuals, corporates and the government and HELPS in monitoring the flow of funds to develop the economy. When all the elements are correctly included in the BOP, it should sum up to zero in a perfect scenario. This means the inflows and outflows of funds should balance out. However, this does not ideally happen in most cases.There are three components of balance of payment viz current account, capital account, and financial account. The total of the current account must balance with the total of capital and financial accounts in ideal situations.The current account is used to monitor the inflow and outflow of goods and services between countries. This account covers all the receipts and payments made with respect to raw materials and manufactured goods.All capital transactions between the countries are monitored through the capital account. Capital transactions include the purchase and sale of ASSETS (non-financial) like land and properties. The capital account also includes the flow of TAXES, purchase and sale of fixed assets etc by migrants moving out/in to a different country.

Discussion

2000.	State whether the following statements are true of false. Give reasons for your answer : . (a) Breadis always a consumer good. (b) Butter is only a final product.
Answer» SOLUTION :(a) True. Capital FORMATION is measured over a period of time. (b) FALSE. It depends on the use of bread. When it is purchased by a household, it is a consumer good. If it is purchased by HOTEL, it is a producer (intermediate) good. (C) False. It depends on the end use of butter. If it is purchased by a baker cakes, then it is an intermediate good.

Discussion

Explore topic-wise InterviewSolutions in .

Define capital goods .

What is repayment of loan ? Choose one option.

Categorise the following into direct tax or indirect tax GST

whatis therelationshipbetweenMPCand MPS? Explain ?

What are demant deposits ?

Give example of non-tax revenue receipts .

PES of a commodity is 5 . A producer sells 500 units of a good at a price of 5rs per unit. How much will he be willing to sell at the price of 6rs per unit ?

What are the main functins of money ? How does moneyt overcome the shortcomings of a barter system?

Unforeseen obsolescene of fixed capital assets during production is : (Chose the correct alternate)

Distinguish between BOT and Balance on current account.

Government budget is a statement of actual receipts and expenditure of the government.

Describe the great depression of 1929.

What do you mean by “bank of issue’?

What is under employment equilibrium ?

Define Government budget.

Exports of goods and services raises _____of foreign exchange.

What are the components of aggregate demand ?

Capital loss is :

Define deflationary gap?

What does downward movement along the demand curve indicate?

What is the difference between planned and unplaned inventory accumulation ?

Classify the following as intermediate goods or final goods : Chalks dusters etc. purchased by a school.

Bread purchased is alwaysa consumergoods ,Defend or refute .

How is a deficit or a surplus on the current account restored?

When there is increase in demand and decrease in supply, equillbrium price:

Give the meaning of ex-ante investment.

Classify the following statment:-Purchases of new assets within the domestic market.

If disposable income is Rs. 500 and saving Rs. 100, find out average propensity to consume.

Explain the features of free entry and exit of firms.

Giving reasons explain where "charity to foreign countries" is recorded in BOP accounts.

Name the situation under which planned aggregate expenditure excceeds the equilibrium level of expenditure.

What are the components of BOP accounts?

(a) What is autonomous investment ? Explain diagrammatically. (b) Why does government spend on autonomous investment ?

There is no common denomination under barter exchange to express the exchange ratios.

State items of : (a) Debt creating capital receipts . (b) Non-debt creating capital receipts .

Measure the level of ex-ante aggregate demand when autonomous investment and consumption expenditure (A) is 50 crore, and MPS is 0.2 and level of income (Y) is Rs.4000 crore. State whether the economy is in equilibrium or not (cite reasons)

Transactions which take place on both current and capital account are:

A company located in India receives a loan from a company located abroad. How is this transaction recorded in India's BOP account?

Value of average propensity to save can never be less than zero. OR Average propensity to save is always greater than zero. OR Average propensity to save can never be negative.

When foreign exchange rate rises, the demand of foreign exchange

When the price of a commodity falls by 20 per cent, its demand rises from 400 units to 500 units. Calculate its price elasticity of demand

A decline in the price of good X by Rs. 5 causes an increase in its demand by 20 units to 50 units. The new price is Rs. 15. Calculate elasticity of demand.

Can we think that classical belief can help in functioing of our economy ?

Give the meaning of aggregate demand.

Which one of the following options is not a condition of perfect competition?

Both MPS and APS can be equal to one.

What is the meaning of Balance of Payments? What are its main components? Explain them briefly.

State whether the following statements are true of false. Give reasons for your answer : . (a) Breadis always a consumer good. (b) Butter is only a final product.