3524 + Interview Questions in Economics in Class 12 Page 41 InterviewSolution

2001.	How isequilibrium exchange rate determined in the foreign exchange market ?
Answer» Solution : Equilibirum exchange rate is DETERMINED at a level where demand for FOREIGN exchange is equal to the SUPPLY of foreingexchange

Discussion

2002.	Law of diminishing marginal utility will operate even if consumption takes place in intervals, Defend or refute .
Answer» Solution :The given statement is refuted . Law of diminishing marginal UTILITY will operate only when consumption is a CONTINUOUS process . For example , if one sandwich is consumed in the morning and ANOTHER in the afternoon , the second sandwich MAY provide equal or higher satisfaction as compared to the first one.

Discussion

2003.	Explain any two features of monoploy market.
Answer» Solution :The following are the two features of a monopoly market. (i) Restricted entry of new firms: The entry into the mompolist market is restricted. In other words, no new firm can enter the monomploy market. There may be VARIOUS legal barriers such as, parent right, cartel laws, exclusive rights, etc, to resrict the entry of the new firms. (ii) There is only one SINGLE seller: Since, a monopolist firm is the single firm in the market, THEREFORE, it enjoys full control over the price and output decision. The monopolist has the total freedom to fix the price level, which maximizes his profit. Therefore, it can be SAID that a monopoly firm is a price-maker. (iii) There are no close SUBSTITUTES: There is no competition in the market as there is no close subsitition for the product sold by monopolist.

Discussion

2004.	Identify the following as Microeconomic study or Macreconomic study Growth of resources of an economy.
Answer» ANSWER :MACROECONOMIC STUDY

Discussion

2005.	Credit creation by Connerical bank is determined by
Answer» CRR SLR Initial deposits All the above Answer :D

Discussion

2006.	Demand for salt is nearly perfectly inelastic. If the government imposes a tax of 10% on salt what shall be the effect on quantity demanded of salt ? Why ?
Answer» SOLUTION :Quantity demanded of salt will remain unchanged. Salt is a relatively low - PRICED COMMODITY for which there is no GOOD SUBSTITUTE available. Value : Analytic

Discussion

2007.	The price elasticity of demand of good X is half the price elasticity of demand of Good Y. A 25% rise in the price of good Y reduces its demand from 400 units to 300 units. Calculate percentage rise in demand of good X when its price falls from Rs. 10 to Rs. 8 per unit.
Answer» Solution :In the given EXAMPLE FIRST we will calculate Price Elasticity of Good Y `{:("Original Quantity (Q) = 400 units","% Change in Price = 25%"),("New Quantity "(Q_(1))=300" units","Elasticity of Demand (ED) = ?"),("Change in Quantity "(Delta Q)=100" units",):}` Percentage in demand `=(Delta Q)/(Q)xx100=(-100)/(400)xx100=-25%` Price Elasticity of Demand (ED) `=("% Change in quantity demanded")/("% Change in price")=(-25%)/(25%)` Price Elasticity of Demand (ED) `=(-)1` Now, Price Elasticity of Good X `=(-)0.5` (as elasticity of demand of good X is half the price elasticity of demand of Good Y). Let us now calculate % RISE in Demand for X `{:("Original Price (P) = Rs. 10","% Rise in Quantity = ?"),("New Price "(P_(1))= Rs. 8,"Elasticity of Demand (ED) "=(-)0.5),("Change in Price "(Delta P)=-Rs. 2,):}` Percentage change in Price `=(Delta P)/(P)xx100=(-2)/(10)xx100=-20%` `(-)0.5=("% Change in quantity demanded")/(-20)` Percentae rise in demand for X = 10% Demand for Good X will rise by 10%

Discussion

2008.	Are the following entered (i) on the credit side or the debit side and (ii) in the current account or capital account in the Balance of Payments account?You must give reason for your answer. (a) Investments from abroad. (b)Transfer of funds to relatives abroad.(c )Imports of machinery.
Answer» Solution :(a) Investments from abroad: It is recorded in capital account because it creates a liability to pay foreign exchange. It is recorded on credit side because it LEADS to inflow of foreign exchange. (b)Transfer of FUNDS to RELATIVES abroad:It is recorded in the current account because it does not change any liability or an asset. It is recorded on debit side because it leads to outflow of foreign exchange. (c ) IMPORTS of machinery: It is recorded as VISIBLE items in the current account because it does not change any liability or an asset. It is recorded on debit side because it leads to outflow of foreign exchange.

Discussion

2009.	Revenue Deficit is equal to :
Answer» Total Expenditure- Revenue Receipts Revenue Expenditure - Revenue Receipts FISCAL Deficit - Interest PAYMENTS Fiscal Deficit - Revenue Expenditure Answer :B

Discussion

2010.	if plannedsavingare greaterthanplanned investment, whatwill beitseffectourinventories ?
Answer» SOLUTION : stockofinventorieswillincrease .

Discussion

2011.	Define credit creation
Answer»

Discussion

2012.	Marginal product, mathematically, is the slope of the
Answer» 1.Total PRODUCT curve 2.Average product curve 3.Marginal product curve 4.Implicit product curve Answer :a

Discussion

2013.	If marginal propensity to save is 0.1. Calculate value of multiplier.
Answer» SOLUTION :MULTIPLIER(K)`=(1)/(MPS)=(1)/(0.1)=10`

Discussion

2014.	Classify public expenditure.
Answer» SOLUTION :PUBLIC expenditure may be classified as REVENUE expenditure and Capital expenditure.

Discussion

2015.	A consumer spends Rs. 1000 on a good priced at Rs. 10 unit. When its price falls by 20 per cent, the consumer spends Rs. 800 on the good. Calculate the price elasticity of demand by the Percentage method.
Answer» Solution :`{:("Initial Price (P) = 10","Initial Expenditure = 1000","Initial Quantity (Q)"=(1000)/(10)=100),("New Price "(P_(1))=,"New Expenditure = 800","New Quantity "(Q_(1))=("Exp.")/("Price")=(800)/(8)=100),(10-10xx(20)/(100)=8,,),(Delta P=(-)2,,Delta Q=0):}` `PED=(Delta Q)/(Delta P)XX(P)/(Q)=(0)/((-)2)xx(10)/(100)=0` ED is perfectly inelastic as quantity demanded does not change at all in response to change in price. Thus, its demand curve will be vertical/parallel to y-axis. Numerical Problems to Calculate Price or Quantity (When Price Elasticity of Demand is given).

Discussion

2016.	State the limitations of Barter Exchange
Answer» Solution :The MAJOR limitations of Barter EXCHANGE are:1. Lack of DOUBLE Coincidence of Wants2. Lack of Common Measure of Value3. Lack of STANDARD of DEFERRED Payment4. Lack of Store of Value

Discussion

2017.	Will a firm invest, if its marginal efficiency of investment is 12% and the rate of interest is 16% ?
Answer» SOLUTION :No, the firm will not INVEST as MARGINAL EFFICIENCY of investment is less than the rate of interest.

Discussion

2018.	Explainthe role of CashReserve Rationin controlling credit creation.
Answer» SOLUTION :The role of cash RESERVE ratio in controlling credit creation is mentioned below:1)Cash Reserve Ratio or CRR is the percentage of deposits which commercial banks keep with the central banks, in accordance with the law.2) If the CRR is INCREASED, the banks have to keep a HIGHER share of deposits in the central banks.3)Â This will reduce the FUNDS kept with them to give out as loans.4)Â Thus, the level of credit creation reduces.

Discussion

2019.	What is meant by visible items ?
Answer» SOLUTION :Visible ITEMS refer to those items which are made of some matter or material and can be SEEN, touched and measured. For example, jute, COTTON, etc.

Discussion

2020.	Would a firm decided to invest if MEI=10% and ROI=8%
Answer» SOLUTION :Yes,a FIRM WOULD DECIDE to invest if MEI=10% and ROI=8% as `MEI GT ROI`.

Discussion

2021.	A consumer spends Rs. 80 on a commodity when price is Rs. 1 per unit. If the price increases by Rs. 1, his expenditure becomes Rs. 96. Comment on PED.
Answer» Solution :`{:("Initial Price (P) = 1","Initial Expenditure = 80","Initial DD (Q)"(80)/(1)=80),("New Price "(P_(1))=2,"New Expenditure = 96","New DD "(Q_(1))=(96)/(2)=48),(Delta P=1,,Delta Q=-32):}` `PED=(Delta Q)/(Delta P)xx(P)/(Q)=([-]32)/(1)xx(1)/(80)=[-](4)/(10)=[-]0.4` NEGATIVE Sign of ED indicates the inverse relationship between price and QUANTITY demanded. PED = 0.4 [Less than unitary elastic demand or INELASTIC demad]

Discussion

2022.	In a two -sector economy, total production is always equal to total consumption.
Answer» SOLUTION :It happens because FIRMS sell their entire OUTPUT to the HOUSEHOLDS.

Discussion

2023.	Calculatein income when MPC=0.8 and change in investment=1000
Answer» SOLUTION :`K("MULTIPLIER")=(1)/(1-MPC)=(1)/(1-0.8)=(1)/(0.2)=(1)/(1//5)=5` `"Change in income"=DeltaIxxK=1000xx5=5000`

Discussion

2024.	There is ____ relationship between exchange rate and supply of foreign exchange.
Answer» a DIRECT an INVERSE no both (i) and (II) ANSWER :A

Discussion

2025.	Under managed floating rate system , central bank maintains reserves of foreign exchange
Answer» Solution :True. Central bank maintains RESERVES of FOREIGN EXCHANGE to ensure that the exchange rate STAYS within the targeted value.

Discussion

2026.	Other things remaining the same, when foreign currency becomes cheapter, the effect on national income is likely to be:
Answer» Positive NEGATIVE Positive and negative both No effect Answer :B

Discussion

2027.	State the components of the two parts of the Balance of Payments Accounts
Answer»

Discussion

2028.	Deamand deposite include(Chosse the correctalternative):
Answer» Saving accountdeposits and FIXEDDEPOSITS Saving account deposits and current accountdeposits Current account deposits and fixeddeposits All types of deposits SOLUTION :B. Demand DEPOSIT INCLUDE Saving account deposits and current accountdeposits.

Discussion

2029.	Why does supply curve of foreign exchange slop upwards ?
Answer» SOLUTION : It slops upwards because of direct relation between supply of froeign exchange and FOREIGN rat, i.e. supply RISES with increases in exchange rate and vice-versa

Discussion

2030.	Distinguish between loan and overdraft .
Answer» Solution :(i) An overdraftis an advance given by allowing a customer to withdraw more than the deposits in his current account up to the agreed limit. (ii) Overdraft is made usually against pledge of PAPER assest like listed share and debentures but loans are given against SECURITY . (iii) In caseof loan the BORROWER has to pay interest on FULL amount sanctionedbut in case of overdraft, borrower is given the facility of borrowing only as much as he require on which he has to pay interest on the DAILY balance.

Discussion

2031.	State three sources eact of revenue receipts and capital receipts in government budget.
Answer» Solution :Sources of revenue receipts : (i) DIRECT tax, (ii) Indirect tax and (iii) Dividend from PUBLIC sector UNDERTAKING ETC. Sources of capital receipts: (i) Recovery of loan, (ii) Sale of SHARES of public sector undertakings, (iii) Market borrowing etc.

Discussion

2032.	What is Reverse Fiepo rate?
Answer» SOLUTION :It is the RATEOF interestatwhichthe CENTRAL bank (ReserveBank)accepts DEPOSITS fromthe commercialbanks.

Discussion

2033.	What is a cheque ?
Answer» SOLUTION :A cheque is a WRITTEN order to a BANK to pay the stated SUM from the drawer's ACCOUNT.

Discussion

2034.	Under which market form is a firma price taker ?
Answer» SOLUTION :Under PERFECT competition, a FIRM is a PRICE TAKER.

Discussion

2035.	Classify the following as intermediate goods or final goods : Furniture purchased by a school
Answer» SOLUTION :FINAL GOODS

Discussion

2036.	"Marginal propensity to consume falls with sucessive increase in the level of income." It is always true?
Answer» Solution :This may be true if there is equitable distibution of income. A RATIONAL consumer always attempts to SAVE more as his income INCREASES, but if bigger part of national income is concentrated in a few HANDS, the MARGINAL propensity to consume will be high for a poor person as he needs to spend more to fulfill his basic requirements.

Discussion

2037.	Why is AC curve U-shaped?
Answer» Solution :AVERAGE Cost is U-Shaped because of Law of variable proportion: (i) The shape of average cost (AC) depends upon total cost (TC). (ii) Initially, total cost (TC) INCREASES at a diminishing rate (Total Product increases at Increasing rate), which makes its average, i.e., average cost (AC) to FALL, then reaches its minimum point. (iii) Thereafter, total cost (TC) increases at increasing rate (Total Product increases at diminishing rate), which makes the average cost (AC) to rise. This type of production behaviour SHOWS OPERATION of law of variable proportion.

Discussion

2038.	Calculatethe legalreserve requriement if initial deposit of ₹ 200 crores lead to creation of totaldepositeof ₹ 1,600 crores.
Answer» Solution :TOTAL DEPOSIT = â‚¹ 1,600 crores, Initial deposit= â‚¹ 200 crores `"Money Multiplier"=("Total Deposits")/("Initial Deposits")= (1,600)/(200) = 8` We also know: Money Multiplier `=(1)/(LR R)` It means. `8 = (1)/(LR R)` Or, LRR = 0.125 or 12.5%

Discussion

2039.	Give the meaning of macroeconomics.
Answer» Solution :Microeconomics studies the BEHAVIOUR of individual economic UNITS of an ECONOMY, like households, firms, individual CONSUMERS and producers etc.

Discussion

2040.	Component of fiscal policy
Answer» BANK rate margin requirement moral suasion all of these Answer :D

Discussion

2041.	The central bank_ securities to control excess demand.
Answer» ANSWER :SELLS

Discussion

2042.	Briefly explain the money flow and the real flow of inccome.
Answer» Solution :Money flow and real flow are the two main aspects of the CIRCULAR flow of income economic model. Both refer to exchanges of goods and services for money, but the two concepts DIFFER in how they refer to the OPPOSITE SIDES of these exchanges as they RELATE to individuals and companies.Real flows refer to the flow of the actual goods or services, while money flows refer to the payments for the services (wages, for example) or consumption payments.

Discussion

2043.	With the increase in level of output, average fixed cost goes on falling till it reaches zero.
Answer» SOLUTION :FALSE: Average fixed COST means per unit fixed cost. Average fixed cost is obtained by dividing the TOTAL fixed cost by output. As a result, average fixed cost goes on falling. But average fixed cost will NEVER be zero. Because zero average fixed cost means zero fixed cost which is not possible.

Discussion

2044.	If change in investment is 1000 and MPC is 0.8, then income will change by
Answer» 1250 2500 5000 10000 Answer :C

Discussion

2045.	Define savingfunction.
Answer» SOLUTION :SAVING functionis MATHEMATICALRELATION between SAVINGAND INCOME.

Discussion

2046.	Aggregate 9emand can be increased by: (choose the correct aiternative) (a) increasing bank rate (b) selling government securities by Reserve Bank of India (c) increasing cash reserve ratio (d) none of the above
Answer» SOLUTION :(d) NONE of the above

Discussion

2047.	What happens to equilibrium price of a commodity if there is an 'decrease in its demand and increase' in its supply ?
Answer» SOLUTION :EQUILIBRIUM PRICE will FAL.

Discussion

2048.	Services of domestic servants like chauffeurs, gardeners and maids are not included in the estimation of National income.
Answer» ANSWER :FALSE

Discussion

2049.	Give the meaning of producer's equilibrium. A produces that quantity of his product at which marginal cost and marginal revenue are equal. Is he earning maximum profits ? Give reasons for your answer.
Answer» Solution :At a point where, MC = MR, the producer's equilibrium is established. YES, the producer earns maximum profit on this point. Because any deviation from this position will either reduce the profit of a firm or increase the losses. MC refers to the additional cost that TAKES place by producing an additional unit of output. MR refers to the additional revenue that takes place by selling an additional unit. When MARGINAL cost is less than MR available from the sale of a product, the firm will go on increasing its output. When MC and MR are equal, the firm reaches on its equilibrium. After that point if a firm increases its output, MC will be greater than MR RESULTING in decline in profit. This diagram is related to the perfect competition, where the equilibrium output is OQ, where MR = MC.

Discussion

2050.	An economy is in equilibrium. Calculate the Investment Expenditure from the following : National Income=800 Marginal Propensity to Save=0.3Autonomous Consumption=100
Answer» SOLUTION :Given Y=800 MPS(s)=0.3 i.e. MPC (c )=1-MPS=1-0.3=0.7 C=100 We KNOW that at EQUILIBRIUM, Y=C+I C=ab+by =100+0.7y By PUTTING the value of Y & C 800=100+0.7(800)+I 800=100+560+I I=800-660 I=Rs.140 Thus, the Investment expenditure is Rs.140.

Discussion

Explore topic-wise InterviewSolutions in .

How isequilibrium exchange rate determined in the foreign exchange market ?

Law of diminishing marginal utility will operate even if consumption takes place in intervals, Defend or refute .

Explain any two features of monoploy market.

Identify the following as Microeconomic study or Macreconomic study Growth of resources of an economy.

Credit creation by Connerical bank is determined by

Demand for salt is nearly perfectly inelastic. If the government imposes a tax of 10% on salt what shall be the effect on quantity demanded of salt ? Why ?

The price elasticity of demand of good X is half the price elasticity of demand of Good Y. A 25% rise in the price of good Y reduces its demand from 400 units to 300 units. Calculate percentage rise in demand of good X when its price falls from Rs. 10 to Rs. 8 per unit.

Are the following entered (i) on the credit side or the debit side and (ii) in the current account or capital account in the Balance of Payments account?You must give reason for your answer. (a) Investments from abroad. (b)Transfer of funds to relatives abroad.(c )Imports of machinery.

Revenue Deficit is equal to :

if plannedsavingare greaterthanplanned investment, whatwill beitseffectourinventories ?

Define credit creation

Marginal product, mathematically, is the slope of the

If marginal propensity to save is 0.1. Calculate value of multiplier.

Classify public expenditure.

A consumer spends Rs. 1000 on a good priced at Rs. 10 unit. When its price falls by 20 per cent, the consumer spends Rs. 800 on the good. Calculate the price elasticity of demand by the Percentage method.

State the limitations of Barter Exchange

Will a firm invest, if its marginal efficiency of investment is 12% and the rate of interest is 16% ?

Explainthe role of CashReserve Rationin controlling credit creation.

What is meant by visible items ?

Would a firm decided to invest if MEI=10% and ROI=8%

A consumer spends Rs. 80 on a commodity when price is Rs. 1 per unit. If the price increases by Rs. 1, his expenditure becomes Rs. 96. Comment on PED.

In a two -sector economy, total production is always equal to total consumption.

Calculatein income when MPC=0.8 and change in investment=1000

There is ____ relationship between exchange rate and supply of foreign exchange.

Under managed floating rate system , central bank maintains reserves of foreign exchange

Other things remaining the same, when foreign currency becomes cheapter, the effect on national income is likely to be:

State the components of the two parts of the Balance of Payments Accounts

Deamand deposite include(Chosse the correctalternative):

Why does supply curve of foreign exchange slop upwards ?

Distinguish between loan and overdraft .

State three sources eact of revenue receipts and capital receipts in government budget.

What is Reverse Fiepo rate?

What is a cheque ?

Under which market form is a firma price taker ?

Classify the following as intermediate goods or final goods : Furniture purchased by a school

"Marginal propensity to consume falls with sucessive increase in the level of income." It is always true?

Why is AC curve U-shaped?

Calculatethe legalreserve requriement if initial deposit of ₹ 200 crores lead to creation of totaldepositeof ₹ 1,600 crores.

Give the meaning of macroeconomics.

Component of fiscal policy

The central bank_ securities to control excess demand.

Briefly explain the money flow and the real flow of inccome.

With the increase in level of output, average fixed cost goes on falling till it reaches zero.

If change in investment is 1000 and MPC is 0.8, then income will change by

Define savingfunction.

Aggregate 9emand can be increased by: (choose the correct aiternative) (a) increasing bank rate (b) selling government securities by Reserve Bank of India (c) increasing cash reserve ratio (d) none of the above

What happens to equilibrium price of a commodity if there is an 'decrease in its demand and increase' in its supply ?

Services of domestic servants like chauffeurs, gardeners and maids are not included in the estimation of National income.

Give the meaning of producer's equilibrium. A produces that quantity of his product at which marginal cost and marginal revenue are equal. Is he earning maximum profits ? Give reasons for your answer.

An economy is in equilibrium. Calculate the Investment Expenditure from the following : National Income=800 Marginal Propensity to Save=0.3Autonomous Consumption=100