InterviewSolution
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InterviewSolution
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.
| 1. |
Increase in stock of goods held by a consumer will contribute to capital formation. |
| Answer» Solution :FALSE. Any INCREASE in stock of goods held by a CONSUMER does not contribute to capital formation as it is assumed that such goods are consumed, the moment they are PURCHASED. | |
| 2. |
Explain the meaning of diminshing marginal rate of substitution with the help of a numercial example |
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Answer» Solution :Marginal Rate of Substitution (MRS) refers to the rate at which a CONSUMER is willing to substitute one good for each additional unit of other good. Algebraically. `MRS = (Delta Y)/(Delta X)` It shows how many units of good Y the consumer is willing to SACRIFICE to gain one additional unit of good X. The following SCHEDULE explains the concept of MRS  As the consuer moves from consumption combination P to consumption combination Q, consumption of good X increases from 2 units to 3 units while, the consumption of good Y falls from 10 units to 5 units. That is to gain one additional unit to good X, the consumer sacrifices 5 units of good Y. Thus, the MRS is 5 |
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| 3. |
Explain the meaning of inflationary gap and deflationary gap . Explain any one measure by which these gaps can b e reduced. |
| Answer» Solution :Inflationary Gap is the amount by which actual aggregate DEMAND exceeds the LEVEL of aggregate demand(anticipated) required to establish the full employment. Deflationary Gap is the amount by which actual aggregate demand falls SHORT of aggregate supply at level of full employment.Measure to Correct the inflationary Gap :Statutory Liquidity Ratio: SLR refers to a fixed percentage of the total assets of a bank in the form of cash or other liquid assets that are required to be MAINTAINED by the bank. During the situation of Infiationary Gap, SLR is increased. This reduces the credit creation capacity of Commercial Banks and reduces, the flow of money in the economy. As a result of that, the aggregate demand COMES down ultimately the economv attains equilibrium. | |
| 4. |
Distinguish between average propensity to consume and marginal propensity to consume. The value fo which of these two can be greater than oneand when ? |
| Answer» SOLUTION :1. APC refers to RATIO of absolute CONSUMPTION to absolute INCOME at a particular point of TIME whereas MPC refers to ratio of change in consumption to change in income.2. Value of APC can be greater than one when consumption is greater than income. | |
| 5. |
Componenet of current account in BOP |
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Answer» BORROWING and lending |
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| 6. |
How are exports affected by depreciation of foreign currency ? Explain |
| Answer» Solution :Depreciation of foreign currency means fall in exchange rate. It means that foreign buyers will not get less AMOUNT of GOODS from the domestic ECONOMY by paying the same amount of foreign exchange. It makes exports costlier. DEMAND for exports FALLS | |
| 7. |
(a) State any two precautions that must be taken into consideration while estimating national income by value added method. In an economy following transcations took place. Calculate value of output value added by Firm B: (i) Firm A sold to firm B goods of 80 crore, to firm C 50 crore to household 30 crore and goods of value 10 crore remains unsold (iii) Firm B sold firm C goods of 70 crore, to firm D 40crore, goods of value 30 crore were exported and goods of value 5 crore was gold to government Or Differentiate betweeen National Current Places and National Income at Constant Prices. Which of the two presents a better view of the economic growth of economy and why? |
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Answer» Solution :(a) Precautions of value added method are: (i) Value of sale and purchase of second hand goods is not considered while estimating value added as the value of second hand goods is already accounted during the year they were produced. (ii) Value of intermediate goods is not included in the estimation of value because value of intermediate goods is reflected in the value of final goods. (b) Value of output of firm B=sales of firm B to firm C + Sales of firm B to firm D+ Exports + Sales firm B to Government=70+40+30+5=145 crores Value Added by Firm B= VALUES of output by firm B - Purchase by Firm B from firm A =145-80=65 crore Or National Income at constant PRICES: When national product is estimated on the bases of prices prevailing in the base year. it is called national income at constant prices or real national income. National income at current prices: When national product is estimated on the BASIS of prices or nominal national income. `("National Income at Current Prices")/("Price Index of Current Index")xx"Prices Index of Bse year"` National Income at constant prices reflects the real growth of an economy because it INCREASES only when there is an increase in real national output over a period of time. National Income at current prices mauy increase due to increasein price and goods and serivices during the current year, it does not reflect hte true picture of economic growth. |
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| 8. |
A firm gets maximum profits only if difference between average revenue and average cost is the maximum. |
| Answer» Solution :False: A PRODUCER is only in equilibrium if DIFFERENCE between TOTAL evenue and total cost is MAXIMUM. | |
| 9. |
Reserve repo rate is the rate at which Central Bank lends funds to banks. |
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Answer» |
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| 10. |
Commerical banksdo not contributeto quantumof moneysupplyin the economyas they do nothavenote- issuingauthority. |
| Answer» SOLUTION :FALSE: Commercialbankscontribute toquantum of MONEYSUPPLY in the economyas THEYDO nothave note-issuingauthority. | |
| 11. |
The balance of trade shows a deficit of Rs 500 crore. The value of exports is Rs 700 crore. Find the value of imports. |
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Answer» Rs 700 crore |
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| 12. |
An increase of rupee 100crore ininvestment leads to a rise 500 crores in the national income. |
| Answer» Solution :`"Multipler (K)"=("Change in Income")/("CHANGEIN INVESTMENT")=(500)/(100)=5` | |
| 13. |
One of the following is an example of social infrastructure : |
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Answer» Power |
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| 14. |
Explain the effects on the market equillibrium by imposing ban on the sale of GUTKHA in Delhi. |
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Answer» Solution :Due to the ban on the sale of GUTKHA in DELHI, the supply of GUTKHA will be reduced and the firms producing GUTKHA will SHIFT their factors of production in the production of other related goods. Consumer demand of GUTKHA willreduce and HENCE in this WAY both the demand and supPply of GUTKHA will reduce. Value : Social health conciousness. |
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| 15. |
Standing of growth rates (2011-15) of India, Pakistanand China in descendingorder is : (Choose the correct alternative) |
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Answer» INDIA, Pakistanand CHINA |
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| 16. |
The component not included in money supply |
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Answer» CURRENCY with PRIVATE individuals |
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| 17. |
When supply decreases more than proportionately tiian the fall in demand, equilibrium price will also fall. |
| Answer» Solution :FALSE: With a decrease in supply proportionately more than DEMAND, equilibrium PRICE will rise. | |
| 18. |
The measurement of Balance of Payments deficit is based on |
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Answer» AUTONOMOUS transactions |
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| 19. |
What does budget line in terms of price and income indicate ? |
| Answer» SOLUTION :BUDGET LINE in terms of price and MONEY income INDICATE that prices are implicitly in the budget line. | |
| 20. |
What is meant by Net factor income from abroad ? |
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Answer» |
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| 21. |
Economy can never operate outside PPC with the given resources and technology. |
| Answer» SOLUTION :True: Economy can never operate outside PPC with the given resources and technology as all POINTS outside PPC are unattainable. | |
| 22. |
A consumer consumes only two goods X and Y and is in equilibrium .Price of falls . Explain the reaction of the consumer through the Utility Analysis |
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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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| 23. |
From the information given below, calculate : ** Value added by firm A and firm B, ** Gross Domestic Product at market price, ** Net Domestic Product at factor cost. |
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Answer» =Sales by firm A+ Change in STOCK of firm A- Purchases by firm A =500+20-320 =Rs. 200 crores Value added by firm B =Sales by firm B to general government+Sales by firm B to housholds+(Closing stock of firm B - Opening stock of firm B)-Purchases by firm B from firm A =100+350+(40-30)-200 =Rs. 260 crores Gross Domestic Product at market price =Value added by firm A+Value added by firm B =200+260=Rs. 460 crores Net Domestic Product at factor COST =Gross Domestic product at market price-Consumption of FIXED capital-Indirect Taxes paid by both the firms =460-120-75 =Rs. 265 crores |
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| 24. |
whatisequilibriumoutput ? |
| Answer» SOLUTION :OUTPUTIS atequilibriumlevelwhenquantityproductis equaltoquantity DEMANDED . | |
| 25. |
State any one objective of a government budget. |
| Answer» SOLUTION :REALLOCATION of RESOURCES . | |
| 26. |
State factors for leftward shift of supply curve. |
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Answer» SOLUTION :A DECREASE in supply means that producers now supply less at a given price level. The conditions are (a) Rise in the prices of remuneration of factors of the production. (b) Rise in the prices of other goods. (c ) When the technology becomes outdated. (d) Change in the OBJECTIVE of producer (decrease supply at the same price) (e ) Taxation POLICY of government rises. 
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| 27. |
Define national income (N NP_(FC)). |
| Answer» SOLUTION :It id the value added (NVA) of all FINAL goods and services produced by the normal RESIDENTS of a country (factors of PRODUCTION) during a period of one year. It includes NFIA. | |
| 28. |
‘What are the alternative definations of money suppty in India |
| Answer» Solution :HINT: Discuss MEASURES of MONEY Supply” | |
| 30. |
sevices of housewivesandleisure timeactivities contribute to welfareof people.However . Theyare notincludedin theestimation of nationalincome. Why ? |
| Answer» SOLUTION :Suchnon- markettransactionsare notincludedin thenational incomebecauseit is DIFFICULT to ascertaintheirmarketvalue and suchservices are notrenderedfor THEPURPOSE of earningincome . | |
| 31. |
Although there are few (more than one) firms in oligopoly. Even these firms can enjoy monopoly power. How? |
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Answer» Solution :FIRMS in oligopoly FORM cartel and in this WAY these firms can CONTROL over prices. Value: CRITICAL thinking |
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| 32. |
Classify the following as stock and flow : (i) Amount of bank deposits as on 31.03.2014. (ii) Production of wheat. (iii) Population of India as on 31st March 2012. (iv) Number of literate people as on 31st March 2014. (v) Domestic income of a country. |
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Answer» Solution :STOCK : (i), (III), (iv) Flow : (II), (V) |
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| 33. |
Which one is a capital receipt ? |
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Answer» License and court fees RECEIVED by the government in year 2014-15 . |
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| 34. |
Land reforms mean to solve problems relating to : |
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Answer» OWNERSHIP of LAND |
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| 35. |
Losses are classified as: |
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Answer» STOCK variable |
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| 36. |
(a) Explain currency authority functionn of central bank (b) Why is the central bank sole authority for the issue of currency in the country? |
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Answer» SOLUTION :(a) Refer to section 6.31A (b) The central bank i.e RBI is the SOLE authority for issue of currency in the country as: (i) It ensures uniformity in note circulation (ii) It enables governament to control money SUPPLY through RBI (III) It builds up public faith in the currency system. |
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| 37. |
Describe any two methods by which Reserve India can regulate money supply. |
| Answer» Solution :CRR - Cash Reserve Ratio is the proportion of total deposits that the BANKS are required to MAINTAIN with the RBI has reserves.Thus, expanding the money supply. OPEN Market Operation - It is the sale/purchase of the government BONDS and securities in the market to adjust the rupee LIQUIDITY. | |
| 38. |
When receipts of foreign exchange are less than payments of foreign exchange, then BOP is: |
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Answer» DEFICIT |
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| 39. |
Distinguish between ''real'' gross domestic product and ''norminal'' gross domestic product. Which of these is a better index of welfare of the prople and why ? |
Answer» Solution :The difference are are follows:  Real GDP is a better index of economic welfare. This is because a change in the Real GDP REFLECTS a change in the QUANTITY of goods and services produced. The change in the production of goods and services implies a change in the employment and income LEVELS, thereby, INDICATING a change in the living STANDARDS of the people in an economy. |
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| 40. |
State the two components of money Supply State the components of money supply. State the two components of M, measure of Money Supply |
| Answer» SOLUTION :Currency and COINS with PUBLIC (ii) Demand DEPOSITS of commercialbanks | |
| 41. |
The price elasticity of supply of a commodity is 2.0. A firm supplies 200 units of it at a price of Rs 8 per unit. At what price will it supply 250 units ? |
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Answer» Solution :Given, `E_(s) = 2, P = Rs 8, Q = 200` UNITS, `Q_(1) = 250` units `:. Delta Q = Q_(1) - Q = 250 - 200 = 50` units Let the CHANGE in price, `Delta P = x` We know that, `E_(s) = (Delta Q)/(Delta P) xx (P)/(Q) or 2 = (50)/(x) xx (8)/(200) = (2)/(x)` or `2x = 2x = 1 ro Delta P = 1` New price, `P_(1) = P + Delta P = 8 + 1 = Rs 9` |
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| 42. |
As the price of a product decreases by 7% the total expenditure on it goes up by 3.5%. What can we say about the elasticity of demand for this product ? |
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Answer» SOLUTION :DEMAND is highly elastic `(ED gt 1)` as TOTAL expenditure has increased by 3.5% with a DECREASE in price of 7% in the price. Demand is highly elastic `(ED gt 1)`. |
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| 43. |
Classify the following expenditures as intermediate consumption expenditure and final consumption expenditure. (i) Expenditure on research and development by Tata. (ii) Insurance premium paid by a firm to an insurance company. (iii) Insurance premium paid by households to an insurance company. (iv) Expenditure on repairs and maintenance of plant and machinery. (v) Expenditure incurred by a firm on purchase of equipments. (vi) Advertising expenditure incurred by Airtel on promotion of its products. (vii) Business expenses of the employees on tour and entertainment. |
| Answer» SOLUTION :Intermediate CONSUMPTION Expenditure : (i), (ii), (iv), (vi), (vii), Final Consumption Expenditure : (III), (V). | |
| 44. |
Calcularte national income by the (a) Income method and (b) Expenditure method : {:(,,(Rs."Arab")),((i),"Net imports",(-)5),((ii),"Social security contributions by employers",1),((iii),"Net indriect tax",10),((iv),"Operating surplus",40),((v),"Net factor income to abroad",(-)2),((vii),"Governmen final consumption expenditure",20),((vii),"Net domestic capirtal formation",25),((viii), "Comprensation of employees",42),((ix),"Private final consumption expenditure",100),((x),"Consumption of fixeed capital",5),((xi), "Mixed income of self employed",58):} |
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| 45. |
Repo rate is therate at which : |
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Answer» Commercial Banks purchasegovernment SECURITIES from thecentral bank |
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| 46. |
Multiplier ist he ratio of increase in income to a given increase in |
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Answer» supply |
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| 47. |
In an economy , income generated is four times the increase in investment expenditure. Calculate the values of MPC and MPS. |
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Answer» (a) Multiplier (k) `=(1)/(1-MPC)` `4= (1)/(1-MPC)` `1-MPC `=(1)/(4)` MPC`=0.75` MPS `=1-MPC=1-0.75` MPS `= 0.25` |
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| 48. |
Natural resources are being exhausted rapidly due to |
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Answer» EXCESSIVE mining |
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| 49. |
Purchase of machine from Japan by a producer. |
| Answer» SOLUTION :AUTONOMOUS | |
| 50. |
Identify the indirect tax from the following options : |
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Answer» Corporate TAX |
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