3524 + Interview Questions in Economics in Class 12 Page 62 InterviewSolution

3051.	Name the items included in balance of trade.
Answer» SOLUTION :Items INCLUDED in BALANCE of trade are: (i) EXPORTS of GOODS (visible items) ii) Import of goods (visible items)

Discussion

3052.	Increase in cash reserve ratioadverselyaffects the capacityof commerical banksto create credit.
Answer» Solution :TRUE : An increase in CASH RESERVE ratioreduces of commercialbanksand LIMITS theircredit creatingpower.

Discussion

3053.	If an economy is to control recession like most of the Euro-Zone nations, which of the following can be appropriate:
Answer» Reducing Repo RATE Reducing CRR Both a and B None of a and b Solution :C. If an economy is to control recession LIKE most of the Euro-Zone nations Reducing Repo Rate, Reducing CRR can be APPROPRIATE.

Discussion

3054.	Suppose the price elasticity of demand for a good is -0.2. How will the expenditure on the good be affected if there is a 10% increase in the price of the good ?
Answer» Solution :TOTAL expenditure will RISE if there is 10% rise in the price of the good since its demand is INELASTIC (Given ED = 0.2).

Discussion

3055.	What will be the effect of foreign investment in India on exchange rate ? Explain.
Answer» SOLUTION :Foreign INVESTMENT in INDIA will add to the supply of foreign excahnge. DEMAND remaining unchanged, EXCHANGE rate will fall.

Discussion

3056.	Effective demand is determined at the point of equality between aggregate demand and aggreate supply.
Answer» Solution :In any community, effective demand represents the money actually spent by- people on goods and services. The money which the entrepreneurs receive is paid to the factors of production in the FORM of wages, rent, interest and profit. As such, effective demand (actual expenditure) equals national income which is the sum of the income receipts of all members of the community.It also represents the value of the output of the community because the total value of the national output is just the same thing as the receipts of the entrepreneurs from SELLING goods. Further, all output is either consumption goods or investment goods; we can therefore say that effective demand is equal to national expenditure on consumption plus investment goods.Thus, effective demand (ED) = national income (Y) = value of national output = Expenditure on consumption goods (C) + expenditure on investment goods (I).Therefore, ED = Y = C + I= 0 = Employment.In Fig. 4.2, ADF is the Aggregate Demand Function and ASF the Aggregate SUPPLY Function. We show employment along X-axis and sale proceeds along Y-axis. The point E where the ADF CURVE is cut by the aggregate supply curve is called the point of effective demand. It may be noted that there are so many points on the aggregate demand curve ADF, but all these points are not effective except point E.

Discussion

3057.	Define a commericalbank or What is banking
Answer»

Discussion

3058.	In which type of economy , domestic income is equal to national income ?
Answer» Open Economy Closed Economy Both (a) and (b) NEITHER (a) nor (b) SOLUTION :In Closed Economy , domestic INCOME is equal to national income

Discussion

3059.	Component of aggregae demand
Answer» FOREIGN exchange intereast rate CONSUMPTION none of these Solution :CONSUMPTION is the componentof AD

Discussion

3060.	Fill in the blank : N NP_(FC)"_______________" = GDP_(MP)
Answer» `+` Depreciation - Net factor income from abroad - Net Indirect taxes `+` Depreciation + Net factor income from abroad + Net Indirect taxes `+` Depreciation - Net factor income from abroad + Net Indirect taxes `+` Depreciation + Net factor income from abroad - Net Indirect taxes SOLUTION :N NP_(FC)"__+depriciation_-NFIA ___+___NIT______" = GDP_(MP)`

Discussion

3061.	Give one exampleof' externality " whichredduceswelfareof thepeople .
Answer» Solution :Any ONE example likesmoke out ofchimneys of factories releaseof contaminated WATER intoriver, traffic jams .

Discussion

3062.	If factor cost is greater than market price , then it means that :
Answer» Indirect Taxes`GT` Subsides Indirect Taxes = Subsidies Indirect Taxes `lt` Subsides Indirect Taxes `ge` subsidies Solution :C. If factor cost is GREATER than market price , then it MEANS that : Indirect Taxes `lt` Subsides.

Discussion

3063.	Calculate Multiplier when MPC is 4/5 and 1/2. From the calculations establish the relation between size of Multiplier and size of MPC.
Answer» Solution :`"Multiplier" =(1)/(1-MPC)` `"When MPC "=(4)/(5),` `K=(1)/(1-0.8)=(1)/(0.2)=5` `"When MPC"=(1)/(2)` `K=(1)/(1-0.5)=(1)/(0.5)=2` Observing the same we may conclude that there exist positive or direct relation hetween MPC and Investment Multiplier. Investment Multiplier COEFFICIENT measures the change in final income with respect to given change in the initial investment in the economy. It carries rlirect relation with rate. of GROWTH in an economy, i.e. higher the MPC more chance of growth exists in an economy. But, it is IL two sided sword hence if investment FALLS in an economy the income may also fall.

Discussion

3064.	Increase in fiscal deficit does not effect primary deficit.
Answer» SOLUTION :because PRIMARY DEFICIT is equal to fiscal deficit minus interest payment.

Discussion

3065.	What is a fixed exchange rate ?
Answer» SOLUTION : Fixed EXCHANGE RATE REFERS to the rate of exchange, which is fixed by the government

Discussion

3066.	What is the basic difference between direct and indirect tax ?
Answer» SOLUTION :In case of DIRECT tax , the BURDEN cannot be shifted , i.e., impact and INCIDENCE is on the same person WHEREAS , the burden of indirect tax can be shifted ,i.e., the impact and incidence is on differentpersons.

Discussion

3067.	A movement along thedemand curve for soft drinks is bestdescribed as:
Answer» an increases in demand. a decrease in demand. a CHANGE in quantity DEMANDED. a change in demand. Answer :C

Discussion

3068.	What do you mean by abnk of issue ?
Answer» SOLUTION :Bank of issue menas a bank which has the LEGAL righr to issue currency notes (RBI)

Discussion

3069.	Give the broad definition of money.
Answer»

Discussion

3070.	M_(1) is algo known as transection money.
Answer» SOLUTION :TRUE. As MONEY, can be directly used for making TRANSACTIONS.

Discussion

3071.	In the government of India's budget for the year 2013- 14 , theFinance Minister proposed to raise the Goods and Services Tax (GST)on cigarettes. He also proposed to increase income tax on individual earning more than Rupee one crore per annum. Identify and explain the types of taxes proposed by the Finance Minister . Was the objective only to earn revenue for the government ? What possible welfare objectives could the Government be considering ?
Answer» Solution :Goods and Service Tax (GST) - Indirect tax . Indirect tax is a tax where the payer and the bearer of the tax are different people. Income tax - Direct Tax . Direct TAXIS a tax where the payer and the bearer of the tax is the same person . Besides the objective of raising more revenue , the proposals also serve some welfare objectives . `` Firstly, raising Goods and Services Tax (GST) on cigarettes will make them more expensive . The price rise isexpected to discourage cigarette smoking , which will positively impact the health of people and raising their welfare . `` Secondly , raising income tax on income above Rupee one crore will REDUCE the gap between the rich and poor people . In other WORDS , income inequalities will reduce. `*` Thirdly , the EXTRA revenue raised fromtheseproposals could be spent on health EDUCATION and other welfare enhancing schemes to improve the welfare of the poor.

Discussion

3072.	Which economic system did India adopt as development strategy ?
Answer» CAPITALIST SYSTEM Socialist system Mixed capitalist system Socialist system UPTO 1991 and then capitalist system Answer :C

Discussion

3073.	Taxpaid by a person to the government does not provide any direct benefit to the tax payer, Defnd of Refute.
Answer» SOLUTION :The given STATEMENT is defended. Government spends tax receipts for common benefit of the society. Tax payer cannot expect that the tax AMOUNT will be used for his DIRECT benefit

Discussion

3074.	If compensation of employees in a firm constitues 55% of net value added at factor cost of a firm, find the proportion of operating surplus.
Answer» SOLUTION :100%-55%=45% (ASSUMING MIXED INCOME is zero)

Discussion

3075.	How does increase in inequalities in distribution of income affect welfare of the society ? Explain.
Answer» Solution :Increase in INEQUALITIES means that rich become RICHER and poor become POORER. Since utility of money is higher among poor and lower among the rich, any increase in inequalities may not LEAD to increase in welfare.

Discussion

3076.	Mrs Ramgopal says that economists say inconsistent things: as price falls,demand rises but as demand rises prices rises.Defend or refute.
Answer» SOLUTION :We defend the statement of Mrs Ramgopal.As price Falls,demand rises.According to Law of demand,there is INVERSE relationship between demand and price.Lesser price to higher demand. Demand=f(price) When demand rises ,prices also rises .Price is function of twin forces of demand and SUPPLY.Price=f (demand,supply) In the given figure ,price measured on vertical axis and quantity is OQ. But due ti increase in demand,the demand curve shifts RIGHTWARD from DD to `D_(1)D_(1)` With new demand curve `D_(1)D_(1)` ,there is excess 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 raise the price.With the rise in price,there is upward movement along the demand curve (Cintraction 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 equilibrium price rises from OP to `OP_(1)` so,demand rises,price rises.

Discussion

3077.	"The rate of increase in consumption is equal to the rate of increase in income". Do you agree with this statement ?
Answer» Solution :No, we don't agree with this statement because a rational CONSUMER always want some amount for saving, so out of his total income, he always saves some amount. HENCE rate of INCREASE in consumption can't be EQUAL to rate of increase in income.

Discussion

3078.	What is meant by net factor income from abroad? Briefly discuss its various components .
Answer» Solution :Net factor income from abroad is the difference between the factor income earned from abroad by NORMAL RESIDENTS of a country (say, India) and the factor income earned by non-residents (foreigners) in the domestic territory of that country (i.e., India). Following are its three main components:(i) Net compensation of EMPLOYEES.(ii) Net income from property and entrepreneurship (rent, interest, profit).(iii) Net RETAINED earnings of resident COMPANIES abroad.

Discussion

3079.	Classify the following as intermediate goods or final goods : Books purchased by a book seller.
Answer» SOLUTION :INTERMEDIATE GOODS

Discussion

3080.	Identifywhich ofthefollowing statement is true ? (a) Fiscaldeficit is differencebetweenplannedrevenueexpenditureand planned revenuereceipts(b)Fiscaldeficitsis differencebetween totalplannedexpenditureand totalplannedreceiptsandtotal plannedreceipts. (c)Primarydeficitsis thedifferncebetweentotal plannedreceptand interest payments. (d) Fiscal deficitsis thesum ofprimarydeficitsand interestpayment .
Answer» SOLUTION :(d) Fiscaldeficitis THESUMOF primarydeficientand INTERESTPAYMENT .

Discussion

3081.	lf legai reserve ratio is 20%, what will be the value of money multiplier?
Answer» SOLUTION :MONEY MULTIPLIER= 5.

Discussion

3082.	A consumer buys 80 units of a good at a price of Rs. 5 per unit. Suppose, the price elasticity of demand is (-) 2. At what price will he buy 64 units ?
Answer» Solution :`{:("Original Quantity (Q) = 80 unitsOriginal Price (P) = Rs. 5"),("New Quantity "(Q_(1))=64 " unitsNew Price "(P_(1))=?),("CHANGE in Quantity "(Delta Q)=-16 " unitsChange in Price "(Delta P)=?),("Elasticity of Demand (ED) = "-2):}` Price Elasticity of demand `(ED)=(Delta Q)/(Delta P)XX(P)/(Q)` `-2=(-16)/(Delta P)xx(5)/(80)=Delta P=Rs. 0.5` As the quantity demanded is DECREASING, price will increase. It means that New Price = Original Price (P) + Change in Price `(P)=5+0.5=Rs. 5.5` New Price = Rs. 5.5

Discussion

3083.	Exchange rates refers to the rate at which the following is exchanged :
Answer» Goods Services Currencies All THA above Answer :C

Discussion

3084.	Are the following statements true or false ? Give reasons. Final goods include only those goods which are consumed by the households.
Answer» Solution :FALSE . FINAL goods include those goods which are either consumed by the HOUSEHOLDS or PURCHASED by the producers for investmentpurposes.

Discussion

3085.	Discuss the meaning of investment multiplier. What can be its minimum and maximum value?
Answer» Solution :An INVESTMENT MULTIPLIER refers to the concept that any INCREASE in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy. i) MINIMUM value of multiplier is 1 because minimum value of MPC can be zero. (ii) Maximum value of multiplier MAY be – (infinity) because maximum value of MPC can be 1.

Discussion

3086.	The difference between total cost and total variable cost falls with the increase in output.
Answer» Solution :False: It is so because the DIFFERENCE between TC and TVC is EQUAL to TFC that remains constant at level of output.

Discussion

3087.	The main aim of comparingcountries is to :
Answer» Know differences in physical features Know differences in ECONOMIC features. Know how MUCH rich or poor we are a country is in relation to other countries. Learn from DEVELOPMENTAL EXPERIENCES of these countries. Answer :D

Discussion

3088.	What is Micro-macro paradox ? Give example.
Answer» Solution :The paradox is "What is LOGICAL at the micro level may not be logical at macro level". For example, if a farner PRODUCE more potatoes when there is excess demand for potatoes, it will ADD to his properity. But, if all the farmers in an aconomy produce more potatoes, the aggregate supply will increase causing the PRICES and the PROFITS to fall. Consequently, the economy will be driven towards falling income level rather than properity.

Discussion

3089.	Gross domestic capital formation is equal to :
Answer» Gross FIXED CAPITAL FORMATION plus closing STOCK Gross fixed capital formation plus opening stock Net fixed capital formation plus consumption of fixed capital plus change in stock Net fixed capital formation plus consumption of fixed capital SOLUTION :Gross domestic capital formation is equal to :Net fixed capital formation plus consumption of fixed capital plus change in stock

Discussion

3090.	Calculte (a) Valueadded by produced domestic whyolesalers and domestic retailers of product, (b) privated final consumption expenditure and net exports : {:(,,(Rs."crore")),((i),"Sales by rest of the world toWholesalers" ,5),((ii),"Sales by domestic producers to domestic wholesalers",100),((iii),"Sales by domestic wholeaslers to the rest of the world",30),((iv),"Sales by domestic wholeaslers to domestic retailers ",80),((v),"Sales by domestic retailers to households",100):}
Answer» ANSWER :VA by doemestic producers=100 VA by DOMESTIC wholeaslers=5 VA by domestic retailers =20 (b) PFCE=100 (c) NET exports =25

Discussion

3091.	Monopolistic competition differs from perfect competition primarily because-
Answer» in monopolistic competition FIRMS can differentiate their products. in perfect competition firms can differentiate their products. in monopolistic competition entry into the INDUSTRY is blocked. in monopolistic competition there are RELATIVELY few BARRIERS to entry. Answer :a

Discussion

3092.	State the meaning and components of money supply.
Answer» Solution :Money supply means the total amount of money in an economy. The effective money supply consists mostly of currency and demand deposits. RBI publishes figures for four alternative MEASURES of money supply, viz, $M_1$,$M_2$,$M_3$ and $M_4$.They are defined as, $M_1$ = CU + DDWhere, CU is Currency (notes plus coins) HELD by the public and DD is net Demand Deposits held by commercial BANKS. The word ‘net’ implies that only deposits of the public held by the banks are to be included in money supply. The inter bank deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of money supply.$M_2$ = $M_1$+ Savings deposits with POST office savings banks$M_3$ = $M_1$+ Net time deposits of commercial banks$M_4$ = $M_3$ + Total deposits with post office savings organisations (excluding National Savings Certificates)

Discussion

3093.	Which ofthe following is not the function of theCentral Bank ? (Choose the correct alternative )
Answer» Banking facilitiesto GOVERNMENT Bankingfacilities to public Lending to government Lending to commercial banks Solution :B. Bankingfacilities to PUBLICIS not the function of theCentral BANK.

Discussion

3094.	Classify the following as intermediate goods or final goods : Unsold wood wih furniture producing firm at the end of a year.
Answer» SOLUTION :FINAL GOODS

Discussion

3095.	Primary deficit is the difference between revenue deficit and interest payment.
Answer» SOLUTION :Primary deficit is the DIFFERENCE between FISCAL deficit and interest payment.

Discussion

3096.	How are following treated in the estimation of domestic factor income ? Rent received by an Indian resident from the Russian Embassy in India.
Answer» Solution :No, it will not be included in the DOMESTIC factor INCOME as the Russian EMBASSY is not a PART of the domestic territory of India.

Discussion

3097.	Give the meanings of 'average propensity to save' and 'marginal propensity to save'. How are they calculated ?
Answer» SOLUTION :APS refers to ratio of ABSOLUTE savings to absolute income. It is calculated by APPLYING following formula-APS= S/YMPS refers to ratio of CHANGE in savings to change in income. It is calculated by applying following formula-MPS= dS/dY

Discussion

3098.	whenMPC gt MPS, thevalueof multiplier(K)will begreaterthan MPS. True orfalse ?
Answer» Solution :NOTBE GREATER true .TruewhenMPSis 0.1 FalsewhenMPC is 0.6,0.7 and 0.8(i.e.,GREATERTHAN MPS)

Discussion

3099.	When the price of a commodity is Rs. 20 per unit, its quantity demanded is 800 units. When its price rises by Rs. 5 per unit, its quantity demanded falls by 20 per cent. Calculate its price elasticity of demand. Is its demand elastic ? Give reason for your answer.
Answer» Solution :`{:("ORIGINAL Quantity (Q) = 800 units"," % Change in Price "=20%),("% Change in Quantity "=-20%,"Change in Price "(DELTA P) =Rs. 5),("Elasticity of Demand (ED) = ?","NEW Price "=Rs. 25):}` Percentage change in Price `=(Delta P)/(P)xx100=(5)/(20)xx100=25%` Price Elasticity of Demand (ED) `=("% Change in quantity demanded")/("% Change in price")=(-20%)/(25%)` Price Elasticity of Demand (ED) `=(-)0.8` ED `=(-)0.8`, Demand is less elastic because ED `LT 1`.

Discussion

3100.	Infosys raising loans from a bank in London.
Answer» SOLUTION :AUTONOMOUS

Discussion

Explore topic-wise InterviewSolutions in .

Name the items included in balance of trade.

Increase in cash reserve ratioadverselyaffects the capacityof commerical banksto create credit.

If an economy is to control recession like most of the Euro-Zone nations, which of the following can be appropriate:

Suppose the price elasticity of demand for a good is -0.2. How will the expenditure on the good be affected if there is a 10% increase in the price of the good ?

What will be the effect of foreign investment in India on exchange rate ? Explain.

Effective demand is determined at the point of equality between aggregate demand and aggreate supply.

Define a commericalbank or What is banking

In which type of economy , domestic income is equal to national income ?

Component of aggregae demand

Fill in the blank : N NP_(FC)"_______________" = GDP_(MP)

Give one exampleof' externality " whichredduceswelfareof thepeople .

If factor cost is greater than market price , then it means that :

Calculate Multiplier when MPC is 4/5 and 1/2. From the calculations establish the relation between size of Multiplier and size of MPC.

Increase in fiscal deficit does not effect primary deficit.

What is a fixed exchange rate ?

What is the basic difference between direct and indirect tax ?

A movement along thedemand curve for soft drinks is bestdescribed as:

What do you mean by abnk of issue ?

Give the broad definition of money.

M_(1) is algo known as transection money.

Which economic system did India adopt as development strategy ?

Taxpaid by a person to the government does not provide any direct benefit to the tax payer, Defnd of Refute.

If compensation of employees in a firm constitues 55% of net value added at factor cost of a firm, find the proportion of operating surplus.

How does increase in inequalities in distribution of income affect welfare of the society ? Explain.

Mrs Ramgopal says that economists say inconsistent things: as price falls,demand rises but as demand rises prices rises.Defend or refute.

"The rate of increase in consumption is equal to the rate of increase in income". Do you agree with this statement ?

What is meant by net factor income from abroad? Briefly discuss its various components .

Classify the following as intermediate goods or final goods : Books purchased by a book seller.

lf legai reserve ratio is 20%, what will be the value of money multiplier?

A consumer buys 80 units of a good at a price of Rs. 5 per unit. Suppose, the price elasticity of demand is (-) 2. At what price will he buy 64 units ?

Exchange rates refers to the rate at which the following is exchanged :

Are the following statements true or false ? Give reasons. Final goods include only those goods which are consumed by the households.

Discuss the meaning of investment multiplier. What can be its minimum and maximum value?

The difference between total cost and total variable cost falls with the increase in output.

The main aim of comparingcountries is to :

What is Micro-macro paradox ? Give example.

Gross domestic capital formation is equal to :

Monopolistic competition differs from perfect competition primarily because-

State the meaning and components of money supply.

Which ofthe following is not the function of theCentral Bank ? (Choose the correct alternative )

Classify the following as intermediate goods or final goods : Unsold wood wih furniture producing firm at the end of a year.

Primary deficit is the difference between revenue deficit and interest payment.

How are following treated in the estimation of domestic factor income ? Rent received by an Indian resident from the Russian Embassy in India.

Give the meanings of 'average propensity to save' and 'marginal propensity to save'. How are they calculated ?

whenMPC gt MPS, thevalueof multiplier(K)will begreaterthan MPS. True orfalse ?

When the price of a commodity is Rs. 20 per unit, its quantity demanded is 800 units. When its price rises by Rs. 5 per unit, its quantity demanded falls by 20 per cent. Calculate its price elasticity of demand. Is its demand elastic ? Give reason for your answer.

Infosys raising loans from a bank in London.