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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.
| 2201. |
Which one of the following is an intermediate product ? |
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Answer» Purchaseof pulses by consumers |
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| 2202. |
Which of the following is a source of capital receipt ? |
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Answer» Foreign donations |
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| 2203. |
How do the deficit BOP and surplus BOP impact the exchange rate? |
| Answer» Solution :(i) In case of deficit BOP of a country, demand for FOREIGN CURRENCY will increase. As a result, exchange rate will go up IMPLYING depreciation of domestic currency. (ii) In case of SURPLUS BOP of a country, availability of foreign currency will increase. As a result, exchange rate is likely to FALL implying appreciation of domestic currency. | |
| 2204. |
What is low level equilibrium trap ? |
| Answer» Solution :If worn out assets are not REPLACED, it causes a fall in the stock of capital with the producers, funrther IMPLYING a fall in production capacity and output of the economy. The economy will ENTER into a state of depression as the level of income and output also falls. It is a situation of LOW level EQUILIBRIUM trap, a situation when low income causes low demand and low level of output and low income. | |
| 2205. |
How do commercial banks create deposits ? Explain |
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Answer» Solution :Commercial banks play the important role of 'money creator' in the economy. They have the capacity to generate CREDIT through demand DEPOSITS. These demand deposits MAKE credit more than the initial deposits. The process of money CREATION can be explained by TAKING an example of a bank XYZ. A depositor deposit Rs 10,000 in his savings account, which will become the demand deposit of the bank. Based on the assumption that not all customers will turn up at the same day to withdraw their deposits, banks maintains a minimum cash reserve of 10% of the demand deposits, i.e., Rs 1000. It lends the remaining amount of Rs 9000 in the form of credit to other customers. This further creates deposits for the bank XYZ. With the cash reserve of Rs 1000, the credit creation is worth Rs 10,000. So, the credit multiplier is given by: Credit multiplier `= 1//CRR = 1//10% = 10` The money supply in the economy will increase by the amount (times) of credit multiplier |
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| 2206. |
What is average propensity to save ? Give the formula for its measurement. |
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Answer» Solution :Average propensity to save (APS) refers to the RATIO of SAVING to the corresponding level of INCOME. APS = `("Saving(S)")/("Income(Y)")` |
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| 2207. |
When price of a good falls from Rs. 5 to Rs. 3 per unit, its demand rises by 40%. Calculate its price elasticity of demand. |
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Answer» Solution :`{:("Original PRICE (P) = RS. 5","% Change in Quantity = 40%"),("New Price (P1) = Rs. 3","ELASTICITY of Demand (ED) = ?"),("Change in Price "(DELTA P)=-Rs. 2,):}` Percentage change in Price `=(Delta P)/(P)xx100=(-2)/(5)xx100=-40%` Price Elasticity of Demand (ED) `=("% Change in quantity demanded")/("% Change in price")=(40%)/(-40%)` Price Elasticity of Demand (ED) `=(-)1` ED `=(-)1`, Demand is unitary elastic. |
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| 2208. |
If the domestic factor income is ₹ 200 crores and the national income is ₹ 190 crores , how much will be the net factorincome from abroad ? |
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Answer» |
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| 2209. |
Why leisure is not included in GNP ? |
| Answer» SOLUTION :It is very DIFFICULT to MEASURE the VALUE of LEISURE. | |
| 2210. |
What is meant by double coincidence of wants’? |
| Answer» SOLUTION :DOUBLE COINCIDENCE of wants refers to SIMULTANEOUS fulfillment ofmutual wants of buyers and sellers. | |
| 2211. |
Give reasons for the following statements: (i)Variable factor proportions obtain in the short run. (ii) Fixed factor proportions obtain in the long run. |
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Answer» Solution :(i) Short run is a period of time in which some factors are variable, and at least one factor is fixed. The level of output in a firm can be INCREASED only by increasing the quantity of variable factors. The quantity of fixed input remains unchanged at different levels. Therefore, when variable factors are increased, whereas the quantity of fixed factor remains unchanged, the proportions between variable factors and fixed factors get changed. These are KNOWN as variable factor proportions. (ii) In the long run all the factors BECOME variable because we can change both the factors of production, that is why fixed factor ALSO becomes variable. Therefore, when the scale of production of a firm is increased, quantity of all the factors is increased in a given PROPORTION. These are known as fixed factor proportions. |
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| 2212. |
What is meant by ‘money supply’? Discuss, in brief, the various constituents of money supply |
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Answer» Solution :The money supply is the TOTAL value of money available in an economy at a point of time. There are SEVERAL ways to define "money", but standard measures usually include CURRENCY in circulation and demand deposits. Each country's central bank may use its own definitions of what constitutes money for its purposes. Currency with the Public,Demand Deposits with the Public,Money Supply M1 or NARROW Money,Money Supply M2,Money Supply M3 or Broad Money,Money Supply M4,High-Powered Money (H),Money MULTIPLIER. |
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| 2213. |
The marginal, average, and total product curves encountered by the firm producing in the short run exhibit all of the following relationships except: |
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Answer» When total product is RISING, average and MARGINAL product MAY be either rising or falling. |
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| 2214. |
Define externalities. Give an example of negative externality. What is its impact on welfare ? |
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Answer» Solution :Externalities refer to the BENEFITS (or harms) a firm or an INDIVIDUAL causes to another for which it is not paid (or penalised) EXAMPLE : Polluting river by an oil refinery. Impact: Reduces welfare through NEGATIVE effect on health. |
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| 2215. |
Distinguishbetween occupationalstructure and status structure of employment . |
| Answer» SOLUTION :Occupationalstructurerefers todistribution of workingforce by industrialsectors into PRIMARY, secondaryand tertiarysectors, while status STRUCTURE refers to distributionof working force into SELF employed, regularsalariedand casual WAGE workers. | |
| 2216. |
Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2 if she spends her entire income. The prices of the goods are Rs 6 and Rs. 8 respectively . How much is the consumer's income ? |
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Answer» Solution :Budget equation is given as: `P_x. X+ P_y.Y = M` Let good 1 be X and good 2 be Y PUTTING the values , we GET , `(6).(6) +(8).(8) = 36+64 = Rs 100` |
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| 2217. |
Explain the "Banker's Bank as a function" of the central bank. OR Explain the "Bank of Issue function" of the central bank. |
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Answer» SOLUTION :Banker's Bank : Central bank is the apex bank of all the commercial banks and financial institutions in the country. It holds the same relationship with the commerical banks as commerical bank holds with its customer. The central bank accepts deposits from the commerical banks and holds it as reserves for them. The commerical banks are compulsorily required to hold a part of their deposits as reserves with the central bank in accordance with the cash RESERVE ratio (CRR). In addition to the CRR requirements, the commercial banks hold reserves with the central bank for clearing their settlements with other banks and to fulfil their requirements of inter-bank transfers. OR Bank of issue function of central bank implies that Central Bank has the exclusive AUTHORITY to issue the currency (notes + COINS). The currency issued by the central bank is KNOWN as 'legal tender money' i.e., the value of such currency is backed by the central bank. However, the currency issued by the central bank is its monetary liability. In other words, the central bank is obliged to back the currency issued with, assets of equal value such as good coins and bullions, foreign exchange, etc. In addition to issuing currency to the general public, the central bank also issues currency to the central government if required, can sell its securities to the central bank and in return gets the required cash currency. |
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| 2218. |
Due to rise in price of commodity x the demand of commodity y falls. What type of commodity are they? |
| Answer» SOLUTION :SUBSTITUTE GOODS. | |
| 2219. |
How is classical concept of AS different from Keynesian concept of AS? |
| Answer» SOLUTION :According to classical concept, AGGREGATE supply curve is perfectly inelastic with respect to prices and AS is always at FULL EMPLOYMENT level of output. According to Keynesian concept, aggregate supply curve is perfectly elastic with respect to prices until full employment level of output is ATTAINED. | |
| 2220. |
In which market forms are average revenue and marginal revenue of a firm always equal? |
| Answer» SOLUTION :PERFECT COMPETITION. | |
| 2221. |
Who all are considered as the residents of a country ? |
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Answer» |
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| 2222. |
Define government budget . |
| Answer» Solution :GOVERNMENT budget is an annual statement , showing item wise estimates of RECEIPTS and EXPENDITURES during a FISCAL YEAR. | |
| 2223. |
(a) Can an economy be in state of under employment equilibrium ? Use diagram. (b) Why do we say that an economy generaly functions at less than full employment level ? Is it justified? |
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Answer» Solution :(a) Refer to section 8.2.3 of chapter 8. (b) It is justified to SAY that an ECONOMY generally operates at less than full employment level. It is because economy is producing at this level due to deficiency of aggregate demand and not because of low level of aggregate supply. Actually supply of a commodity is perfectly price-elastic TILL we reach the full employmentequilibrium, which means that a producer keeps increasing production and supply according to rise in demand of the people till full employment output. If aggregate demand does not reach the full employment level, under employment EQUILIBRIUM is the obvious consequence. |
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| 2224. |
Value of APS is negative when |
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Answer» `DeltaY LT DeltaC` |
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| 2225. |
Giving reasons, categorise the following into revenue receipts and capital receipts. (i) Recovery of loan, (ii) Corporation tax, (iii) Dividend on investment made by government, (iv) Sale of public sector undertaking, (v) Interest received on loans, (vi) Dividend received from public enterprises, (vii) Grants from foreign government, (viii) Income tax received by govt. and (ix) Borrowing from public. |
| Answer» Solution :(i) It is capital RECEIPT as it reduces financial assets. (ii) and (iii) are revenue receipts because they create neither liabilities nor assets. (iv) It is capital receipt as disinvestment reduces government assets. (v) It is revenue receipt as it creates neither liability nor assets (vi) Dividend is revenue receipt. (vii) GRANTS from FOREIGN government are revenue receipts as it does lead to increase or decrease in assets or liabilitites of the government (viii) are revenue receipts (IX) BORROWING is capital receipts as it creates liability. | |
| 2226. |
How does Maruti Udyog Ltd. Fix the prices of its cars, is it studied in macroeconomics? |
| Answer» Solution :False: MACROECONOMICS is the study of aggregates e.g., determination of GENERAL price level in an economy. The PRINCIPLES UNDERLYING the pricing of a single good buy a single firm or single industry are studied in microeconomics. | |
| 2227. |
Government takes measures ot restrcit autonomous imports of gold. Explain the economic values desired to be achieved from this. |
| Answer» Solution :Restriciting autonomous imports of gold reduce the foreign EXCHANGE DEMAND. It will reduce the foreign exchange payment . Since autonomous payments DECLINE . BOP DEFICIT decline. This decline will reduce pressure of defict and its is the the economic valure realised. | |
| 2228. |
Differentitate between autonomous and accommodating items. |
| Answer» SOLUTION :Autonomous items are guided by profit MOTIVE whereas accommodating items are not determined by CONSIDERATIONS of profit. Accommodating items are meant to maintain BOP identity. | |
| 2229. |
In an economy, every time income rises, 75% of the rise in income is spent on consumption. Now suppose in the same economy investment rises by Calculate the following : (i) Change in income (ii) Change in saving |
| Answer» SOLUTION :3000 CRORE, 750 crore | |
| 2230. |
What is meant by central problem of an economy? |
| Answer» SOLUTION :The PROBLEM of making a choice among alternative uses of RESOURCES is known as BASIC or central problem of an economy. | |
| 2231. |
Distinguish between domestic product and national product . |
| Answer» SOLUTION :Domestic PRODUCT includes production only within domestic territory.. That can be DONE by either resident or non resident companies but has to be within domestic territory of a COUNTRY WHILENational product includes production done by only RESIDENTS OF A COUNTRY, NOT necessarily WITHIN ITS DOMESTIC TERRITORY.. that is it can be even outside the domestic territory of a country.. But only by RESIDENT OF THE COUNTRY | |
| 2232. |
Give the meaning of full employment. |
| Answer» SOLUTION :Full employment REFERS to a situation in which all those people, who are willing and able to work at the existing WAGE rate, GET work without any undue difficulty. | |
| 2233. |
What happens to total expenditure on a commodity when its price falls and its demand is price elastic ? |
| Answer» SOLUTION :TOTAL EXPENDITURE will INCREASE. | |
| 2234. |
Identify the following as Microeconomic study or Macreconomic study General price level. |
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Answer» |
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| 2235. |
Since price of a commodity forms average revenue for a firm, both average revenue and marginal revenue cannot be negative. Is this rule ? |
| Answer» SOLUTION :False : AR represents the price of a product. A business firm invariably has to charge a price which forms AR of the firm. Negative AR will imply that a firm sells its output in the market and instead of CHARGING the consumers it pays them in FORM of cash etc. MR would be negative, if a firm is faced with a less unit elastic DEMAND. Value : Critical Thinking | |
| 2236. |
By spending his entire income only on two goods X and Y a consumer finds that , (MU_x)/P_x gt (MU_y)/P_yExplain how will the consumer react. |
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Answer» Solution :As, we know conditions for consumer equilibrium is , Necessary Condition MARGINAL utility of last rupee spent 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 in Util 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_y)=(MU_y)/P_y` But as given in the question that the ratio of marginal utility to price in case of X is HIGHER than that in case of Y, i.e., `(MU_x)/P_x GT (MU_y)/P_y` It means marginal utility from the last rupee spent on commodity X is more than marginal utility from the last rupee spent on commodity Y. So, to attain the equilibrium consumer must increase the quantity of X, which decreases the `MU_x` and decreases the quantity of Y, which will increase the `MU_y` Increase in quantity of X and decrease in quantity of Y CONTINUE till `(MU_x)/P_x = (MU_y)/P_y` . |
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| 2237. |
When MC is equal to MR, while maximizing profit, then |
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Answer» MC MUST be RISING |
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| 2238. |
Which of these is a component of Aggregate demand |
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Answer» PRIVATE consumption EXPENDITURE |
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| 2239. |
How does the instrument of open market operating help during deficient demand? |
| Answer» Solution :During deficient demand, the CENTRAL bank starts purchasing securities from the OPEN market. It INCREASES the money supply and enhances the purchasing securities from the open market. It increases the money supply and enhances the purchasing POWER CAPACITY of the economy. | |
| 2240. |
Market for a good is in equilibrium. There is increase in demand for goods. Explain the chain of effects of this change. Use diagram. Or How does an increase in demand of a commodity affect its equilibrium price and equilibrium quantity? Explain with the help of a diagram. Or How will equilibrium price and quantity be affected when there is rightward shift of demand curve? |
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Answer» Solution :As given in the examination PROBLEM that market for a good is in equilibrium. So, we assume that initial PRICE is OP as shown in the FIGURE ` (##FM_M_ECO_XII_P1_C12_E02_039_S01.png" WIDTH="80%"> In the given figure price is on vertical axis and QUANTITY demanded andd supplied are on horizontal axis. But due to increase in demand, demand curve shifts rightward from DD to `D_(1)D_(1)`. With new demand curve `D_(1)D_(1)` there is excess demand at initial price OP because at price OP, demand is PB and supply 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. With the rise in price, there is upward movement along the demand curve (contraction in demand) from B to C and similarly, there is upward movement along the supply curve (expansion in supply) from A to C . So, finally equilibriun price rises from OP to `OP_(1)` and equilibrium quantity also rises from OQ to `OQ_(1)` Conclusion Due to increase in demand, (i) Equilibrium price rises from OP to OP (ii) Equilibrium quantity also rises from OQ to `OQ_(1)`. |
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| 2241. |
Explainthe objectiveof stabilityof prices of governmentbudget. Or Explainthe role of governmentbudget in controllinginflationary and deflationary tendencies. Or Explainhow governmentbudgetcan be helpfulin bringing economic stabilisation in the economy. |
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Answer» SOLUTION :To controlprices,economic stabilityin maintained bygovernment through changing direction ofits revenueand expenditure in BUDGET. To check inflation Governmentinitiates to reduce thelevel of aggregatedemand by reducingmoney supplyin theeconomy. It is done by INCREASE taxation Increasingpublicdebt Reducing deficit financing ( printingnew currency ) Reducingpublic expenditure To checkdeflation Government initiates to increase the LEVEL of aggregate demand by increasing money supplyin the economy.It is done by Decreasingtaxation DECREASING public debt Increasing deficitfinancing (printingnewcurrency ) Increasingpublic expenditure. |
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| 2242. |
When price of a good falls from Rs. 8 per unit to Rs. 7 per unit, its demand rises from 12 units to 16 units. Compare expenditure on the good to determine whether demand is elastic or inelastic. |
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Answer» Solution :`{:("PRICE (Rs.)","Quantity (in units)","Total Expenditure in Rs."("Price"XX"Quantity")),("8","12","96"),("7","16","112"):}` Demand is highly ELASTIC `(ED gt 1)` as total expenditure has increased from Rs. 96 to Rs. 112 with a decrease in the price from Rs. 8 to Rs. 7. |
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| 2243. |
What is appreciation of domestic currency? Explain its effects on exports. |
| Answer» Solution :Appreciation of domestic (SAY Indian) currency means increase in the value of domestic currency in TERMS of foreign currency (say American). It makes Indian currency more valuable indicating less rupees are required to buy a dollar. In other words, a dollar can buy lesser amount of Indian GOODS. As a result, Indian EXPORTS are LIKELY to fall. | |
| 2244. |
Why is budget line negatively sloped? |
| Answer» Solution :BUDGET line is downward sloping because if a consumer wants to buy more of ONE commodity , he has to buy less of other goods, GIVEN money income. | |
| 2245. |
If C = 100 + 0.75 Y, then Saving Function will be expressed as: |
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Answer» S= 100 + 0.25 Y |
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| 2246. |
A government budget is an annual statement of ________ during a fiscal year. |
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Answer» ESTIMATED RECEIPTS and expenditure |
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| 2247. |
Explain the differences between variable factors and fixed factors. |
Answer» SOLUTION :
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| 2248. |
Gifts and donations sent or received from abroad is an item of Capital account in BOP. |
| Answer» SOLUTION :False because being real transaction, it is an ITEM of Current account in BOP. | |
| 2249. |
What are official reserve transactions? Explain their importance in BOP. |
| Answer» Solution :In BOP ACCOUNT, there is third category (besides CURRENT account and capital account) called Official Reserve Account which records transactions of RBI. The COUNTRY could engage in official reserve transactions i.e., running down in reserves of foreign exchange in case of deficit by selling foreign currency in the foreign exchange market. The decrease.(increase) in official reserves is called overall balance of payment deficits (surplus). The BASIC premise is that the monetary AUTHORITIES are the ultimate financiers of any deficit in BOP (or recipients of any surplus). | |
| 2250. |
What is net factor income from abroad ? |
| Answer» SOLUTION :It refers to the difference between the factor income received by normal residents of the COUNTRY from the rest of the WORLD and the factor income paid to the rest of the world (EARNED by non-residents in the country). | |