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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.
| 151. |
The value of the nominal GNP of an economy was Rs 2500 crore in a particular year. The value of GNP of that country during the same year, evaluated at the prices of some base year, was Rs 3,000 crore. Calculate the value of the GNP deflator of the year in percentage terms. Has the price level risen between the base year and the year and the year under cosideration ? |
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Answer» SOLUTION :`GNP` DEFLATOR `=("Nominal GNP")/("Real GNP")xx100=2500/3000xx100=83.3%` No, the PRICE level has not RISEN between the base YEAR and the year under consideration. Rather, it has fallen. |
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| 152. |
Total revenue= |
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Answer» PRICE `XX` QUANTITY |
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| 153. |
Identify the following as revenue receipts and capital receipts . Give reasons . (i) Loans recovered from Public sector enterprises. (ii) License and court fees received by the Government in the year 2014 - 15. (iii) Loan taken from USA for the infrastrustural developments . (iv) Sale of shares heldby Government in a PSU. (v) Financial help fromMicrosoft for the victims of flood affected areas. (vi) Amount borrowed from Japan for construction of Metro. (vii) Dividend received by Goverment from a company. (viii) Funds raised from public in the form of National Saving Certificates. (ix) Sale of 40% shares of a public sector undertaking to a private enterprise. (x) Profits of LIC , a public enterprise. |
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Answer» SOLUTION :(i) It is a CAPITAL receiptsas it reduces assets ofthe government . (ii) It is revenue receipt as it neither createsany liability nor reduces any ASSET of the government . (iii) It is a capital receipt as it CREATES liability for the government . (iv) It iscapital receipt as it reduces assets of the government . (v) It is a revenue receipt as it neither creates any liability nor reduces any assetof the government. (vi) It is a capitalreceipt as it creates liability for the government . (vii) It is revenue receiptas it neither createsany liability nor reduces any assets of the government . (viii) It is a capital receipt as it creates liability for the government . (ix) It is a capital receipt as it reduces assists of the government . (x) It is revenue receipt as it neither creates any liability nor reduces any asset of the government. |
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| 154. |
Why can a firm not earn abnormal profits under perfect competition in the long run ? Explain |
Answer» Solution :Under perfect competition, no FIRM can EARN abnormal profits in the long run. This is because if any firm in the long run earns abnormal profits (that is PRICE `GT` minimum of average cost curve.) then new firm are attracted into the marke. Due to the new entrants, the production of output increases, which then increases the supply of the output. This puts pressure on the price and price continues to fall, unit it REACHES the minimum of average cost curve. At the minimum of average cost cuve, all the abnormal profits are wiped-out and no firm earns abnormal profit. Thus, in long run, under perfect competition, no firm can earn abnormal profits, rather earns only normal profit. 
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| 155. |
Give the meaning of 'Oligopoly'. |
| Answer» SOLUTION :OLIGOPOLY is a market situation in which an INDUSTRY has only a few firms (or few large firms PRODUCING most of its output) mutually dependent for taking decisions about price and output. | |
| 156. |
Though the contribution of plastic industry in GDP is more, yet why is it not considered an Index of social welfare? |
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Answer» SOLUTION :Because in the production of plastic product a LOT of harmful gases are RELEASED in the ATMOSPHERE. VALUE: Environment conservation |
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| 157. |
The receipts of the government which create liabilities or reduce assets are called_________. |
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Answer» CAPITAL receipts |
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| 158. |
Howisequilibriumlevelofourtputdeterminedshortrun fixedprice ? |
| Answer» SOLUTION : under shortfixedprice, equilibriumlevelof OUTPUTIS DETERMINED EX | |
| 159. |
For the given exchange rates, mention which currency is appreciating and which one is depreciating |
Answer» 
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| 160. |
whenMPCgtMPS, thevalueof investmentmultiplier(K) will begraterthan5. |
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Answer» |
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| 161. |
Define margin requirement. What is its role in supply of money ? |
| Answer» Solution :MARGIN REQUIREMENT refers to the amount of security that banks demand from the borrower of loan. It is the difference between market value of security offered for loans and the amount of loan. To increase the money supply, the CENTRAL BANK lowers the margin rquirement but raises the margin requirement when money supply is to be CURTAILED. | |
| 162. |
Define the capital receipts of a government. |
| Answer» SOLUTION :All money MOBILISED by government that EITHER CREATES a liability of repyment on Government or involves REDUCTION in some of an an asset by selling it off. | |
| 163. |
What is speculation demand for maney inversely releated to the rate of interest? |
| Answer» Solution :HINT: DISCUSS “Speculative MOTIVE" GIVEN in POWER Booster Secton. | |
| 164. |
What will be the effect of a rise in the bank rate on money supply? |
| Answer» SOLUTION :MONEY SUPPLY will REDUCE. | |
| 165. |
Name the credit control methodwhichrefers to difference betweentheamountof loanand marketvaule of the security offered by theborroweragainstthe loan. |
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Answer» SELECTIVE CREDIT Controls |
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| 166. |
An example of microeconomic theory : |
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Answer» CONSUMER BEHAVIOUR and demand |
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| 167. |
Suppose a consumer wants to consume two goods which are available only in integer units. The two goods are equally priced at Rs10 and the consumer's income is Rs 40. (i) Write down all the bundles that are available to the consumer. (ii) Among the bundles that are available to the consumer's . Identify those which cost her exactly 40. |
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Answer» Solution :Let `P_x =P_y= ` Rs 10 Money INCOME = 40 (i) BUNDLES available to consumer are : `(0,0) ,(0,1),(0,2),(0,3),(0,4),(1,0),(1,1),(1,2),(1,3),(2,0),(2,1),(2,2),(3,0),(3,1) and (4,0)` (ii) (0,4) ,(1,3) , (2,2) , (3,1) and (4,0) COST exactly Rs 40 . All the other bundles cost less than Rs. 40 |
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| 168. |
Marginal revenue can be defined as the change in total revenue resulting from |
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Answer» PURCHASE of an ADDITIONAL UNIT of a commodity |
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| 169. |
What is the shape of he demand curve of foreign exchange ? |
| Answer» SOLUTION :Demandcurve is downwoard sloping ( due to the inverse RELATIONSHIP between RATE and the DEMAND for FOREIGN exchange ) | |
| 170. |
What is meant by break-even point ? |
| Answer» Solution :Break-even point refers to the point at which CONSUMPTION is equal to NATIONAL INCOME. At this point, SAVING is ZERO. | |
| 171. |
Give the meaning of inferior good and explain the same with the help of an example. |
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Answer» SOLUTION :(i) A good is called .inferior GOODS. when its demand falls with a rise in the income of a consumer and VICE- versa. (ii)For example, JOWAR or Bajra for a poor person. (iii) A good is inferior in a relative terms. It means, a good is inferior or normal is determined by the income level of a consumer. (iv)When a consumer moves to HIGHER income, he/she may consider some goods below their income status, and treats them as inferior. |
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| 172. |
Does a change in producers' technology lead to a movement along the supply curve or a shift in the supply curve ? Does a change in price lead to a movement along the supply curve or a shift in the supply curve ? |
| Answer» Solution :A change in producers.s technology LEADS to a SHIFT in the SUPPLY curve. A change in price leads to a movement along the supply curve. | |
| 173. |
There are large number of seller in a perfectly competitive market. Explain the significance of this feature. |
| Answer» SOLUTION :There exists a large NUMBER of BUYERS and sellers in a PERFECT COMPETITIVE | |
| 174. |
whatis autonomousinvestment? |
| Answer» SOLUTION : Autonomousinvestmentis theinvestmentwhichis AUTONOMOUS( in DEPENDENT) of thelevelofincomeand notifluencedy profitexpectations . | |
| 175. |
How is MC related to TFC? |
| Answer» Solution :MC is independent (not related) of TFC and is AFFECTED by change in only TVC. | |
| 176. |
China is a big manufacturer of telephone instruments. It has recently become a member of WTO, which means that it can sell its product in other member countries like India. Suppose that it does export a large number of telephone instruments to India. (i) How will it affect the price and quantity sold of telephone instruments in India?(ii) Suppose that the demand for telephone instruments is relatively elastic. How will it affect India's total expenditure on telephone instruments? |
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Answer» Solution :(i) The supply of telephone instruments in India will increase. An increase in supply of telephone instruments will result in a rightward shift of the supply curve from SS to `S_(1)S_(1)` as shown below: The supply curve shifts rightward from SS to `S_(1)S_(1)`. With new supply curve `S_(1)S_(1)` there is excess supply at initial price OP because at price OP supply is PB and demand is PA, so there is excess supply of AB at price OP. Due to this excess supply, competition among the producer will fall the price. Due to this fall in price there is downward movement along the supply curve (Contraction in supply) from BB to C and similarly there is downward movement along the demand curve(Expansion in demand) from A to C. So, FINALLY, EQUILIBRIUM price falls from OP to `OP_(1)`, and equilibrium quantity rises from OQ to `OQ_(1)`, Conclusion Due to increase in number of firms, (a) Equilibrium price of telephones falls from OP to `OP_(1)`. (b) Equilibrium quantity of telephones rises from OQ to `OQ_(1)`. (ii) For a product with relatively elastic demand a fall in the price of a COMMODITY results in a relatively larger expenditure by the consumers. THUS, the total expenditure on telephones will increase. ` (##FM_M_ECO_XII_P1_C12_E02_066_S01.png" width="80%"> |
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| 177. |
Give the meaning of marginal propensity to consume and marginal propensity to save. Can the value of average propensity to save be negative ? If yes, when ? |
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Answer» Solution :The marginal PROPENSITY to SAVE (MPS) is the portion of each EXTRA dollar of a household’s income that's saved.MPC is the portion of each extra dollar of a household’s income that is consumed or spent. YES, APS can be NEGATIVE when S is negative or when C > Y. |
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| 178. |
Explain the effect of fall in foreign exchange rate on (a) balance of trade and (b) GDP. |
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Answer» SOLUTION :(a) Fall in foreignexchange rate makesimportscheaperand exportscostlier . This will increasedemand forimportsand reduce DEMAND for EXPORTS.This will have negative effect on balance of TRADE. (b) Since fall in exchange rate reducesexports and increases IMPORTS, ithas a negative effect on GDP. Through the expenditure method of GDP, rise in imports and fall in exports both reduce GDP. |
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| 179. |
Explain the meaning of Managed Floating Exchange Rate |
| Answer» Solution :Managed floating exchange rate is the flexible exchange to reduce FLUCTUATIONS in the rate. When foreign exchange rate is too high, the CENTRAL bank starts SELLING the foreign CURRENCY from its RESERVES. When it is too low central bank starts buying foreign currency in the market. | |
| 180. |
milk purchased bya person is alwaysa finalgood " defenedor refute . |
| Answer» SOLUTION :The givenstatement is REFUTED. Milk purchasedby apersonswill befinalgood onlywhenit ispurchasedforprocessing it However ,ifmilk Is purchased bya DAIRY shop for resaleor purchased bya sweetshopfor processing it intosweetsthenit ISAND intermediate good. | |
| 181. |
If MPC is greater than MPS, the value of multiplier will be |
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| 182. |
Giving reasons, statethe following statements are true or false: (i) An increase in the price of Coke would result in decrease in the demand for Pepsi. (ii) An increasein the price of sugar would result in an increase in the demand for tea. An increase in the income of a consumer would result in anincrease in demand for all types of goods that are demanded by a consumer. |
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Answer» SOLUTION :(i) False : Coke and Pepsi are substitute goods. An increase in the price of Cokewould induce consumers to substitute Coke by Pepsi. Demand for Pepsi will increase. (II) False: Sugarand TEA are complementary goods. An increase in price of sugar would make tea COSTLIER. Hence, the demand for tea would decrease. (iii) False : With the increase in income, the consumer.s demand for NORMAL goods will increase. Demand for inferior goods may, in fact, fall. |
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| 183. |
There has been constant rise in price of sugar overtime . What measures would you support to bring down the prices ? |
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Answer» Solution :Using measures of budgetary policy , government can tryto fix prices at a lower LEVEL by INCURRING expenditure through subsidies which would reduce cost of production and hence the prices. If government does not want to add to its expenditure on subsidies ,then it should ensure availability of sugar at reasonable prices through its fair price SHOPS . In the situations of emergence , BUFFER stocks may also be used . |
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| 184. |
Deflationary gap exists when aggregate demand is greater than aggregate supply at full employment level. |
| Answer» Solution :False, INFLATIONARY Gap exists when actual Aggregate Demand is more than Aggregate SUPPLY corresponding to full EMPLOYMENT level of output in the economy. | |
| 185. |
Are the following transactions enteredon the credit side or debit side of BOP account ? (i) Exports (ii) Imports (iii) Borrwings from rest of the world (iv) Gifts from abroad (v) Lending to abroad. |
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Answer» SOLUTION :TRANSACTIONS which invole inflow of foreign exchange are RECORDED on credit SIDE and outflow of foreign exchange on DEBIT side. Accordingly items (i), (iii), (iv) are credit items because these bring in foreign exchange. Items (ii) and (v) are debit items as these cause outflow of foregin exchange. |
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| 186. |
A consumer spends Rs.400 on a good priced at Rs.8 per unit. When its price rises by 25 percent, the consumer spends Rs.500 on the good. Calculate the price elasticity of demand by the Percentage method. |
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Answer» Solution :Given Initial Total EXPENDITURE `TE_(0)=Rs.400` Final Total Expenditure `TE_(1)`=Rs.500 Initial Price `P_(0)=Rs.8` Percentage CHANGE in price =+25 Percentage change in price `=(P_(1)-P_(0))/(P_(0))xx100` `25=(P_(1)-8)/(8)xx100` `(200)/(100)=P_(1)-8` `P_(1)=10` `{:("Price (P)","Total Expenditure Te=Price P"XX" Quantity Q","Quantity Q=TEP"),(P_(0)=Rs.8,TE_(0)=Rs.400,Q_(0)=50),(P_(1)=Rs.10,TE_(1)=Rs.500,Q_(1)=50):}` Now, `ED=("Percentage change in quantity demanded")/("Percentage change in price")` Percentage change in Quantity `= (Q_(1)-Q_(0))/(Q_(0))xx100` `=(50-50)/(50)xx100` =0 `ED=("Percentage change in quantity demanded")/("Percentage change in price")` `=(0)/(25)` Ed=0 Thus, the price elasticity of demand is 0. |
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| 187. |
Explain 'non-monetary exchanges' as a limitation of using gross domestic product as an index of welfare of a country. |
| Answer» SOLUTION :Non-monetary exchanges are not considered for the ESTIMATION of domestic income. These TRANSACTIONS such as domestic services rendered by HOUSE wife, KITCHEN gardening and a parent teaching her child. Thus, 'non-monetary exchanges' as a limitation of using gross domestic product as an index of welfare of a country. | |
| 188. |
The consumption expenditure in the economy is not zero, even at zero level of income. Why ? |
| Answer» SOLUTION :It happens because of presence of autonomous CONSUMPTION. Autonomous Consumption refers tominimum level of consumption, which is needed for SURVIVAL, i.e consumption at zero level of NATIONAL INCOME. | |
| 189. |
What happens to equilibrium price of a commodity if there is 'decrease in its demand and increase' in its supply? |
| Answer» SOLUTION :EQUILIBRIUM PRICE will FALL. | |
| 190. |
Distinguish between Gross Domestic Product at Market Price and National Income. |
| Answer» Solution :GDPis the market PRICEOF output ( goods and services) produced domestically in a countryWHILENational INCOME is total incomeearned by NATION's factorofproduction for their contribution in PRODUCTION ( domestic & non domestic production ) | |
| 191. |
How are following treated in the estimation of domestic factor income ? Factor income from abroad. |
| Answer» Solution :No, it is not included in the domestic factor because the factor income is not EARNED in the domestic TERRITORY of INDIA. | |
| 192. |
Althoughpropensitytoconsumeis fairly highinindiayetmanufacturingsectorindiashowsa low rateof growthdueto lowdemand , why is it so ? |
| Answer» SOLUTION :NO douubtpropensityto consumein india is highbutmajorityof peoplebeingpoorspendtheirearnings on necessarygoodslikefood clothing and relateditems.Afterspendingon theirbasicneedslittereis leftwithpeopleforbuyingnanufacuredgoods .ASA result, manufacuringsectorshows a LOW rateofgrowthbecauseof lowdemand . | |
| 193. |
What is meant by Current Account Deficit (CAD) and Current Account Surplus (CAS)?State their significance. |
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| 194. |
Explain the process of money creation by the commercial banks withthe help of a numericalexapmle. |
| Answer» Solution :Money creation (or deposit creation or credit creation) by the banks is determined by (i) the amount of the initial fresh deposits and (ii) the Legal Reserve Ratio (LRR), the minimum ratio of deposit legally REQUIRED to be KEPT as liquid ASSETS by the banks. It is assumed that all the money that goes out of banks is redeposited into the banks. Let the LRR be 20% and there is fresh deposits of Rs.10,000. As required the bank keep 20% i.e., Rs.2000 as reserves. Suppose the bank lend the remaining Rs.8,000. Those who borrow, use this money for MAKING payment. As assumed those who receive payments, put the money back into the banks. In this way, banks receive fresh deposits of Rs.8,000. The banks again keep 20% i.e. Rs.1600 as reserves and lend Rs.6,400, which is also 80% of the last deposit. The money again comes back to the banks leading to a fresh deposit of Rs.6,400. The money goes on multiplying in this way, and ultimately total money creation is Rs.50,000. Given the amount of fresh deposit and the LRR, the total money creation is: Total Money Creation = Initial Deposits x 1/LRR | |
| 195. |
Explain the impact of Indians lending abroad on market exchange rate. |
| Answer» Solution :Lending abroad increases the demand for foreign EXCHANGE. Supply of foreign exchange remaining unchanged, exchange RATE is likely to RISE. | |
| 196. |
In a two-section ecnomy the income and consuptionfuctionareas follows: ltbrltY = C+1,C = 40 + 0.75 Y If theinvestments are₹ 60 crose, calculate , (a) Equilbriumlevel oficcome , (b) level of consuptionat equilbrum, (c) Saving at equilibrium . |
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Answer» Solution :Atequilibriumlevel AD= AS = National icome (Y) So,AD = Y + C+I GivenC= 40 + + 0.75 Y ` Y = (40 + 0.75 Y) + 60` or ` Y - 0.75 Y = 100or0.25 Y = 100or Y =(100)/(0.25)= 400` EQUILIBRIUM level of income = ₹ 400 CRORE. (B) Putting the value of Y = 400 in the consumption function `(= 40 + 0.75Y)`we get `C = 40 + (0.75) (400) = ₹ 340` crore Levelof consumption at equilibrum= ₹ 340 crore. (c) Saving (S)= Inome(Y) -Consumption(C) (S) = 400-340 = 60 Level of saving at equilibrium = ₹60 crore. |
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| 198. |
What is real gross domestic product ? |
| Answer» Solution :When GROSS DOMESTIC PRODUCT (GDP) of a given year is estimated on the basis of price of the base year, it is CALLED real GDP. | |
| 199. |
Example of stock |
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Answer» income |
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| 200. |
Giving reasons , classify the following as direct and Indirect taxes : (i) Income Tax (ii) Goods and Services Tax (iii) Corporate Tax (iv) Capital Gains Tax |
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Answer» Solution :(i) It is a direct tax as its impact and incidence LIE on the same person. (ii) It is an indirect tax as its impact and incidence lie on different persons. (III) It is direct tax as its impact and incidence lie on the same person. (IV) It is a direct tax as its impact and incidence lie on the same person . |
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