3524 + Interview Questions in Economics in Class 12 Page 9 InterviewSolution

401.	A consumer consumes only two of goods . For the consumes to be in onlyequilibrium why must Marginal Rate of Substitution between the two goods must be equal to the ratio of prices of these two goods ?It it enough to ensure equilibrium ?
Answer» Solution :(i) To define consumer equilibrium, we use Interference Curve map and the budget line . Two conditions for consumer Equilibrium (a) Necessary CONDITION Marginal Rate of Substitution = Market Rate of Exchange `[(P_x)/(P_y)]` Or , `MRS_(x,y)=P_x//P_y` MRS ( Market Rate of Exchange ) MRE Or `MRS_(x,y) =MRE[(P_x)/P_y]` `"" ` If `MRS_(x,y) gt MRE [(P_x)/(P_y)]` , At point T in figure It means the consumer.s willingness to pay for commodity X is higher than what makes values for commodity X. So, the consumer should buy more of X and less of Y to get MRS `=P_x/P_y` `""` If `MRS_(x,y) lt MRE [(P_x)/(P_y)]`, At point W in figure, It means the consumer willingness to pay for commodity X is lesser than what market value for commodity X ,So, consumer should buy less of X and more Y to get MRS = `p_x/p_y` (b) Sufficient Condition `MRS_(x,y)` Diminishing (Convex) at a point of equilibrium i.E., when `MRS_(xy)=MRE[P_x/P_y]` (ii) The consumer will reach equilibrium when the budget line is TANGENTIAL to the higher possible Indifference Curve, i.e. ., where necessary and sufficient condition satisfy . In the above diagram , the consumer will reach equilibrium at point E where budget line RS is tangential to the higher possible `IC_2` (iii) The consumer cannot move to Indifference Curve , i.e. ., `IC _3`as this is beyond this MONEY income. (iv) Even on `IC_2` all the other points except E are beyond his means . (v) Hence , at point E, the consumer is in equilibrium where his satisfaction maximizes, given his income and prices of goods X and Y . In equilibrium at E , the slope of Budget line = the slope of Indifference Curve. Therefore `MRS_(xy)`is equal to the ratio of the PRICE bof two goods `[(P_x)/(P_y)]` .

Discussion

402.	The demand for a goods falls to 500 units in response to rise in price by Rs. 10. If the original demand was 600 units at the price of Rs. 30, calculate price elasticity of demand.
Answer» SOLUTION :`{:("New Quantity (Q_(1)) = 500 unitsRise in PRICE (Delta P) = Rs. 10"),("Original Quantity "(Q)=600 "unitsOriginal Price "(P)=Rs. 30),("Change in Quantity "(Delta Q)=-100 "unitNew Price "(P_(1))=-Rs. 40),("Elasticity of Demand (ED) " = ?):}` Price Elasticity of demand `(ED)=(Delta Q)/(Delta P)xx(P)/(Q)=(-100)/(10)xx(30)/(600)=(-)0.5` `ED=-(-)0.5` (Demand is inelastic as `ED lt 1`) Negative sign indicates the inverse relationship between price and quantity demanded.

Discussion

403.	What is the impact of deficient demand?
Answer» SOLUTION :DEFICIENT demand cayses FALL in prices and fall in the output and EMPLOYMENT level.

Discussion

404.	What is hedging?
Answer» Solution :Hedging MEANS protection against the RISK related to VARIATIONS in foreign exchange rate. Exchange rate is locked for future SUPPLIES of foreign exchange.

Discussion

405.	Given reasons comment on the following statements : (i) A consumer's equilibrium isalways formed at a point on the given budget line. (ii) A consumer's equilibrium will shift to a higher indifference curve with an increase in consumer's income.
Answer» Solution :(i) Budget line shows all possible combinations of the two goods that a consumer can buy, GIVEN income and prices of commodities. Any other combination lying to the right of of this line will be unreasonable. Any combination lying to the left of this line results in non-spending of his income. (ii) Higher income means an increase in a consumer.s ability to purchase increased QUANTITY of both the goods, representedby arightward SHIFT of the budget line. The new budget line will from a tangent to a higher indifference curve.

Discussion

406.	Calculate the value of themoneymultiplierand totalcreatedif intial deposit is of ₹ 5000 crores and LRR is 10%.
Answer» Solution :Given, LRR is 10%or 0.1 `"Money MULTIPLIER"=(1)/(LR R)=(1)/(0.1)=10` If initial deposit isof â‚¹ 500 crores , then : Total Deposit = `"Initial Deposit" XX " Money Multiplier = 500 xx 10` = â‚¹ 5,000 crores

Discussion

407.	whatis meant byvoluntaryunemployment ?
Answer» SOLUTION : it REFERS to asituationin whichall ablepersons WHOARE WILLINGTO workat althoughsuitableworkisavailableforthem i .E., theyarevoluntarlyunemployed .

Discussion

408.	Give three example of microeconomic variables.
Answer» SOLUTION :Price of a product, DEMAND of a GOOD by HOUSEHOLD, SUPPLY of apples by a fruit vendor.

Discussion

409.	when MPC is zero, valueof K wllalsobe zerotrueor false ?
Answer» SOLUTION :FALSE becausewhen MPC=0 , VALUEOF Kwillbe 1 and notzero.

Discussion

410.	Net factor incomefrom abroad is :
Answer» Exports MINUS Imports VISIBLE Exports minus Visible Imports Factor INCOMES RECEIVED from abroadminus factor incomes paid ABROAD Factor incomes received from abroad Solution :C. Net factor incomefrom abroad is Factor incomes received from abroadminus factor incomes paid abroad.

Discussion

411.	Giving reason explain how should the following be treated in estimating GDP_(MP) : Expenditure on purchasing car by a firm.
Answer» SOLUTION :YES, as it is an inverstment EXPENDITURE.

Discussion

412.	Name three problems of barter system.
Answer» Solution :(i) Lack of double coincidence of wants ,(II) Lack of COMMON MEASURES (UNIT ) of VALUE and (iii) Lack of storing wealth.

Discussion

413.	Calculate APC and MPC :
Answer» SOLUTION :

Discussion

414.	Out of factor income and transfer income , which one is included in the national income ?
Answer» SOLUTION :FACTOR INCOME.

Discussion

415.	How are the following treated while estimating private final consumption expenditure ? Give reasons for you answer. (i) Exports. (ii) Direct purchases made abroad by resident households. (iii) Final consumption expenditure of non-profit institutions serving households. (iv) Change in stocks.
Answer» SOLUTION :(i) EXPORTS will not be included in PRIVATE final consumption expenditure as exports do not reflect consumption expenditure by residents. (ii) It will be included in private final consumption expenditure as such purchases are MEANT for consumption. (III) It will be included in private final consumption expenditure as non-profit institutions serving households are a component of household sector. (iv) It will not be included in private final consumption expenditure as it is a component of capital formation.

Discussion

416.	Real flow refers to the flow of factor services from ----- to -----.
Answer» FIRMS to HOUSEHOLDS Households to firms Firms to government Households to government Solution :B. Real FLOW refers to the flow of FACTOR services from Households to firms.

Discussion

417.	A 15 per cent rise in the price of a commodity raises its supply from 300 units to 345 units. Calculate its price elasticity of supply
Answer» Solution :`E_(s) = ("PERCENTAGE change in quantity supplied")/("Percentage change in PRICE")` `((345 - 300)/(300) xx 100)/(15)= ((45)/(300) xx 100)/(15) = (15)/(15) = 1` `:. E_(s) = 1`

Discussion

418.	Categorise the following into direct tax or indirect tax Loans raised by government from the world bank .
Answer» ANSWER :CAPITAL RECEIPTS

Discussion

419.	Calculate (a) net domestic product at factor cost and (b) gross national disposable income. {:("","","₹ in crore"),((i),"Private final consumption expenditure",800),((ii),"Government final consumption expenditure",1000),((iii),"Exports",70),((iv),"Imports",120),((v),"Consumption of fixed capital",60),((vi),"Gross domestic fixed capital formation",500),((vii),"Change in stock",100),((viii),"Factor income to abroad",40),((ix),"Factor income from abroad",90),((x),"Indirect taxes",700),((xi),"Subsidies",50),((xii),"Net current transfers to abroad",(-)30):}
Answer» Solution :(a) NDPtc= (i) + (II) + (vi + vii) + (iii - iv) - (v) - (x) + (xi) = 8000 + 1000 + 500 + 100 + 70 - 120 - 60 - 700 + 50 = RS 8840 crore (b) GNDI = NDPtc + (v) + (x) - (IX) - (VIII) - (xi) - (xii) = 8840 + 60 + 700 + 90 - 40 - 50 -(-30) = Rs 9630 crore

Discussion

420.	in aneconomy75%is increase in incomeisspentin consumption, investementis increased byRs. 1,000crore. Calculate:(a)Total increasein income(b)totalincrase in comsumptionexpenditure .
Answer» SOLUTION :`MPC=(75)/(100)=(3)/(4) thereforeMPS =1-(3)/(4) =(1)/(4)` `K=(1)/(MPS)=(1)/(1//4)=4` `(a)K=(DELTAY)/(DeltaI)or4=(Delta Y) /(1000)` or`DeltaY= 4xx1,000 =4,000` increase in incomeis4,000crore . (B)increasein consumption expenditure , `DeltaC=MPCxxDelta Y("" :' MPC=(DeltaC)/(DeltaY))` `=(3//4)xx4,000` `=3,000` CRORE

Discussion

421.	In a state of equilibrium, quantity demanded will be less than the quantity supplied.
Answer» Solution :False: MARKET equilibrium is obtained when the QUANTITY supplied of a commodity equals the quantity DEMANDED. If the quantity demanded of a commodity is less than the quantity supplied, equilibrium price will fall.

Discussion

422.	Rising portion of MC curve is a supply curve of a competitive firm.
Answer» Solution :False: Supply CURVE is that part of RISING MC curve which would be GREATER than or EQUAL to minimum of short run average variable cost.

Discussion

423.	What is meant by moneyas a medium of exchange?
Answer»

Discussion

424.	(a) What is meant by Repo Rate ? How does the Central Bank use this measure to control inflationary conditions in an economy ? (b) What is meant by Margin Requirement? How does the Central Bank use this measure to control deflationary conditions in an economy ?
Answer»

Discussion

425.	It facilitates borrowing and lending transactions
Answer»

Discussion

426.	Explain the varuous functions of the central bank
Answer»

Discussion

427.	Calculate the value of money multiplierif the legal reserve requirementsare 20%.
Answer» SOLUTION :Money MULTIPLIER `= (1)/(LRR)=(1)/(20%)=5`

Discussion

428.	Calculate : (a) Operating surplus, and (b) Domestic income
Answer» SOLUTION :(a) OPERATING surplus = (i) + {(iv)+(VII)+(viii(} =800+460+940+300 =â‚¹2.500 CRORES (b) Domestic INCOME = (i) + Operating Surplus + (x) =2,000+2500+200 =â‚¹4,700 crores

Discussion

429.	How does multiplier work ?
Answer» SOLUTION :Working of MULTIPLIER expresses the relationship between an initial increase in INVESTMENT and the resulting increase in AGGREGATE income

Discussion

430.	in an economy plancedsavingis greaterthanplannedinvestment. Explainhowthe economyachievesequilibriumlevelof nationalincome .
Answer» SOLUTION : whenplannedsavingis highterthanplannedinvestmentit indicatesexperienditureon buyinggoodsin theeconomyis lessthanwhattheproducers hadexpectedthiswouldresultin unplannedadditionin theinventoriesof unsoldstockconsequentlyADfail shortof ASproducerswillcutdownemploymentandproducelessNAtionalincomewillfalland asresultplanned savingwillstartfallinguntii itbecomesequalto plannedinvestmentthuseconomyachievesequilibriumlevelof NATIONALINCOME .

Discussion

431.	Demand for electricityhas increased. However supplycannot be increased due to lack of resources. Explain how,in anytwo ways, demand for electricity can be decreased.
Answer» Solution :ELECTRICITY is a PUBLIC utility service therefore its increased demand should not be reduced. However, supply cannot be immediately increased due to LACK of resources. Therefore, in the given situation, ways should be found to MEET the increased demand of the electricity from available supply of the electricity. Demand for electricalappliances: Use of energy saving electricalappliances. Use of alternative sources of energy like solar energy, wind energy etc. Value: Environmental CONSERVATION

Discussion

432.	If Real GDP is Rs.200 and Price Index (with base = 100) is 110, calculate Nominal GDP.
Answer» Solution :We know, Real GDP = `("Nominal GDP")/("Price Index of Current Year")xx100` `200=("Nominal GDP")/(110)xx100` Nominal GDP = Rs.220

Discussion

433.	What are non-monetary exchanges ? Give an example. Explain their impact on use of gross domestic product as an index of welfare of the people.
Answer» Solution :Non-monetary exchanges refer to the goods and services produced but not exchanged through money, like the domestic services RENDERED by the members of a family to each other. The VALUE of these services is many a TIMES DIFFICULT to estimate and so it escapes national income estimation. These exchanges however have positive effect on the WELFARE of the people.

Discussion

434.	The National AIDS Control Programmaims at :
Answer» CuringHIV infection Curing AIDS Check the SPREAD of HIV infection All the above. Solution :N//A

Discussion

435.	What are consumption goods ?
Answer» SOLUTION :Consumption goods REFER to those goods which satisfy the WANTS of the consumers directly.

Discussion

436.	The second glass of lemonade gives lesser satisfaction to a thirsty boy . This is a clear case of
Answer» LAW of DEMAND. Law of DIMINISHING returns Law of diminishing UTILITY . Law of supply. Answer :C

Discussion

437.	Which of the following method can be used to caluclate National Income ?
Answer» Income METHOD Expenditure Method Value Added Method All of the above Solution :method can be USED to calculate NATIONAL Income-1.Income Method2.Expenditure Method3.Value Added Method

Discussion

438.	State any four items each of current account and capital account of the balance of payments account.
Answer» Solution :The MAJOR components of a current account are:The Balance of Trade (only visible ITEMS i.e. GOODS): Goods imported and exported to and from the country.Trading of Services: Services received from other countries and rendered to other nations.Net investment income: Income from foreign investment less payments on foreign investments.Net cash transfers: Current transfers in the form of donations, gifts, aids, etc. form PART of net cash transfer.The following are the components of Capital Account:Foreign Direct Investment: Investment and control in a company based in a country by a foreign company.Portfolio Investment: Investment in STOCKS, bonds, debts and other financial assets.Government loans to the Government of other countries of the world.

Discussion

439.	What happens to the level of national income when aggregates demand fails short of aggregate supply?
Answer» Solution :When AGGREGATE supply (AS) is greater than Aggregate demand (AD), then the level of stock piles up andproducers have to CUT PRODUCTION which results in unemployment and HENCE national income FALLS.

Discussion

440.	"Fiscal deficit is necessarily inflationary in nature". Do you agree ? Support your answer with valid reasons.
Answer» Solution :The term "Fiscal Deficit "is the DIFFERENCE between the GOVERNMENT's total expenditure and its total RECEIPTS (excluding borrowing) . Such borrowings are generally FINANCED by issuing new currency which may lead to inflation. However ,if the borrowings are for infrastructural development , this may lead to capacity BUILDING and may not be inflationary.

Discussion

441.	Decrease in margin requirement heps to correct___________.
Answer» SOLUTION :DEFICIENT DEMAND

Discussion

442.	What is the general shape of the AP and MP curves?
Answer» SOLUTION :AP and MP CURVES are INVERSELY U-shaped.

Discussion

443.	Autonomous transactions take place on:
Answer» Current ACCOUNT only Capital Account only Both Current and Capital Accounts Neither Current Account nor Capital Account Solution :C. Both Current and Capital Accounts. Autonomous Transaction provides a functionality to the developer in which it allows to do changes in a separate transaction and to save/discard that PARTICULAR transaction WITHOUT affecting the main SESSION transaction. This autonomous transaction can be specified at subprogram level.

Discussion

444.	State four problemsemployeesin informal employmentface inIndia.
Answer» Solution :1. There is no legal protectionabout theconditions under which informal employeeswork. 2. Informal employeescan be removed from service without any NOTICE and compensation . 3. Theestablishments in WHICHTHEY work normally use outdated technologies,sometimes involvingrisks to their lives. 4. Most of them are lowelypaid and work under DEPLORABLE conditions.

Discussion

445.	Autonomous transactions take place on
Answer» CURRENT ACCOUNT Capital Account Both (a) and (b) Neither (a) nor (b) Solution :C. AUTONOMOUS transactions TAKE place on both Current Account and Capital Account.

Discussion

446.	What are the three phases of circular flow of income ?
Answer» SOLUTION :GENERATION PHASES , DISTRIBUTION phases and DISPOSITION phases.

Discussion

447.	Which one of the following options is likely to cause an inward shift in a country'sPPC?
Answer» Earthquake DESTROYING resources of the country. Scientists discovering NEW MACHINES. Workers getting jobs in a new metroproject. The country finds new reserves of crude OIL. ANSWER :a

Discussion

448.	What is narrow and braod definition moneybased on ?
Answer» Solution :The narrow definition of moneyt is based upon its MEDIUM of payment funciton The BROAD definition of money is based upon it STORE of VALUE function

Discussion

449.	Why does SMC curve cut AVC curve at the minimum point of AVC curve?
Answer» Solution :(i) It happens because when AVC falls, SMC is less than AVC. (II) When AVC starts rising, SMC is more than AVC. (iii) So, it is only when AVC is CONSTANT and at its minimum POINT, that SMC is equal to AVC. THEREFORE, SMC curve cuts AVC curve at its minimum point.

Discussion

450.	Why is sale of public undertaking a capital receipt ?
Answer» SOLUTION :Because it REDUCES ASSET of the GOVERNMENT.

Discussion

Explore topic-wise InterviewSolutions in .

A consumer consumes only two of goods . For the consumes to be in onlyequilibrium why must Marginal Rate of Substitution between the two goods must be equal to the ratio of prices of these two goods ?It it enough to ensure equilibrium ?

The demand for a goods falls to 500 units in response to rise in price by Rs. 10. If the original demand was 600 units at the price of Rs. 30, calculate price elasticity of demand.

What is the impact of deficient demand?

What is hedging?

Given reasons comment on the following statements : (i) A consumer's equilibrium isalways formed at a point on the given budget line. (ii) A consumer's equilibrium will shift to a higher indifference curve with an increase in consumer's income.

Calculate the value of themoneymultiplierand totalcreatedif intial deposit is of ₹ 5000 crores and LRR is 10%.

whatis meant byvoluntaryunemployment ?

Give three example of microeconomic variables.

when MPC is zero, valueof K wllalsobe zerotrueor false ?

Net factor incomefrom abroad is :

Giving reason explain how should the following be treated in estimating GDP_(MP) : Expenditure on purchasing car by a firm.

Name three problems of barter system.

Calculate APC and MPC :

Out of factor income and transfer income , which one is included in the national income ?

How are the following treated while estimating private final consumption expenditure ? Give reasons for you answer. (i) Exports. (ii) Direct purchases made abroad by resident households. (iii) Final consumption expenditure of non-profit institutions serving households. (iv) Change in stocks.

Real flow refers to the flow of factor services from ----- to -----.

A 15 per cent rise in the price of a commodity raises its supply from 300 units to 345 units. Calculate its price elasticity of supply

Categorise the following into direct tax or indirect tax Loans raised by government from the world bank .

in aneconomy75%is increase in incomeisspentin consumption, investementis increased byRs. 1,000crore. Calculate:(a)Total increasein income(b)totalincrase in comsumptionexpenditure .

In a state of equilibrium, quantity demanded will be less than the quantity supplied.

Rising portion of MC curve is a supply curve of a competitive firm.

What is meant by moneyas a medium of exchange?

(a) What is meant by Repo Rate ? How does the Central Bank use this measure to control inflationary conditions in an economy ? (b) What is meant by Margin Requirement? How does the Central Bank use this measure to control deflationary conditions in an economy ?

It facilitates borrowing and lending transactions

Explain the varuous functions of the central bank

Calculate the value of money multiplierif the legal reserve requirementsare 20%.

Calculate : (a) Operating surplus, and (b) Domestic income

How does multiplier work ?

in an economy plancedsavingis greaterthanplannedinvestment. Explainhowthe economyachievesequilibriumlevelof nationalincome .

Demand for electricityhas increased. However supplycannot be increased due to lack of resources. Explain how,in anytwo ways, demand for electricity can be decreased.

If Real GDP is Rs.200 and Price Index (with base = 100) is 110, calculate Nominal GDP.

What are non-monetary exchanges ? Give an example. Explain their impact on use of gross domestic product as an index of welfare of the people.

The National AIDS Control Programmaims at :

What are consumption goods ?

The second glass of lemonade gives lesser satisfaction to a thirsty boy . This is a clear case of

Which of the following method can be used to caluclate National Income ?

State any four items each of current account and capital account of the balance of payments account.

What happens to the level of national income when aggregates demand fails short of aggregate supply?

"Fiscal deficit is necessarily inflationary in nature". Do you agree ? Support your answer with valid reasons.

Decrease in margin requirement heps to correct___________.

What is the general shape of the AP and MP curves?

Autonomous transactions take place on:

State four problemsemployeesin informal employmentface inIndia.

Autonomous transactions take place on

What are the three phases of circular flow of income ?

Which one of the following options is likely to cause an inward shift in a country'sPPC?

What is narrow and braod definition moneybased on ?

Why does SMC curve cut AVC curve at the minimum point of AVC curve?

Why is sale of public undertaking a capital receipt ?