3524 + Interview Questions in Economics in Class 12 Page 43 InterviewSolution

2101.	What is meant by the law of demand?
Answer» Solution :It states that PRICE of the COMMODITY and quantity demanded are inversely related to each other when other factors remain CONSTANT (CETERIS Paribus).

Discussion

2102.	What is the range of invesment multiplier? Clarify the relation of investment multiplier with marginal prppensity to consume (MPC) and with marginal propensity to save (MPS).
Answer» SOLUTION :RANGE of Investment Multiplier =One to Infinity. Relation : If MPC rises, investment Multiplier also rises, i.e. there is positive relationship between MPC and investment multiplier (K). However, if MPS rises, investment multiplier FALLS, i.e. there is an inverse relationship between MPS and investment multiplier (K).

Discussion

2103.	National product at current prices is higher than national product at constant prices during a period of :
Answer» Rising prices Falling prices Constant prices Both (a) and (b) SOLUTION :NATIONAL product at current prices is higher than national product at constant prices during a PERIOD of :Rising pricesbecause of INFLATION

Discussion

2104.	will the following factor income be included in domestic factor income of India ? give reasons for your answe : (i) Compensation of employees to the residen of Japan working in Indian embassy in Japan. (ii) Payment of fees to a Chartered Accountant by a firm. (iii) Rent received by an Indian resident from Russian embassy in India. (iv) Compensation given by insurance company to an injured worker.
Answer» Solution :(i) Yes, it will be included in domestic factor income of India as Indian EMBASSY in Japan is a part of domestic territory of India. (ii) No, PAYMENT of fees to a chartered accountant by a firm is an intermediate EXPENDITURE for the firm, hence will not be included in domestic factor income of India. (iii) No, rent received by an Indian resident from Russian embassy in India will be included in domestic income of India as Russian embassy is not a part of domestic territory of India. (iv) No, as compensation is given by the insurance COMPANY to the employee and not by the employer. COE REFERS to monetary and non-monteary benefits received by an employee from his/her employer.

Discussion

2105.	All finanical insititutioncan alsobe tremedaas bankinginstitutions.
Answer» Solution :FALSE :A FINANCIAL institution can be a BANKING institution only when it performs the functions of ACCEPTING DEPOSITS and advancing loans

Discussion

2106.	If the increase in demand is proportionately equal to the decrease in supply, equilibrium price will rise.
Answer» Solution :True: As we know whether demand increases or SUPPLY decreases both LEAD to an increase in equilibrium PRICE. Hence, equilibrium price will rise.

Discussion

2107.	Define full employment in an economy. Discuss the situation when aggregate demand is more than aggregate supply at full employment income level. or What are two alternative ways of determining equilibrium level of income? How are these related?
Answer» Solution : FuIl Employment Is a situation where those who are able and willing to work are getting work at the prevailing wage rate. When Aggregate Demand is GREATER than Aggregate Supply at full employment, such a situation is known as Excess Demand or Inflationary Gap. It is called inflationary because this leads to a rise in GENERAL price LEVEL of the economy. or Two alternative ways of determining EQUILIBRIUM level of income are: I. Aggregate Demand-Aggregate Supply Approach (AD-AS Approach) II. Saving-Investment Approach (S-I Approach). Interrelation between the two approaches: AD=AS(AD=AS)(AD-AS approach) C+I=C+S I=S(S-I) approach)

Discussion

2108.	(a) What is a budget line ? What does the point on it indicate in terms of prices ? (b) A consumer consumes only two pieces of goods X and Y . Her money income is Rs 24 and the price of price of goods X and Y are Rs 4 and Rs 2respectively. Answer the following questions: (i) Can the consumer afford a bundle 4X and 5Y ? Explain. (ii) What will be the MRS_(xy)when the consumer is in equilibrium ? Explain.
Answer» SOLUTION :(a) Budget line shows all possible combinations of the two goods that a consumer can buy at given income and prices of commodities The point on budget line in terms of prices indicate that prices are IMPLICITLY in the budget line. (b) (i) No , consumer cannot afford a bundle 4 X and 5 Y because his money income i.e. ., 24 is less than the EXPENDITURE on bundle 4 X and 5 X `(P_x.X+ P_y.Y = 4.4 (16) + 2.5 (10) = 26).` (ii) A we know, a consumer is in EQUILIBRIUM when `MRS_(xy)=P_x//P_y` So , in equilibrium `MRS_(xy)=4//2=2`

Discussion

2109.	What happens to equilibrium price of a commodity if there is an increase' in its demand and 'decrease' in its supply ?
Answer» SOLUTION :EQUILIBRIUM PRICE will RISE.

Discussion

2110.	Show that the sum of value added is equal to sum of factor incomes.
Answer» Solution :Sice VALUE added at FACTOR cost in the production PROCESS is distributed AMONG factors as factor incomes in the form of rent, wages, INTEREST and profit, therefore, the sum of value added is equal to sum of factor incomes in the economy.

Discussion

2111.	The change in the total product resulting from a change in a variable input is:
Answer» 1.Average cost 2.Average product 3.Marginal cost 4.Marginal product Answer :d

Discussion

2112.	Which of the following expression is correct?
Answer» `"multiplier(K)"=("Change in INCOME"(DeltaY))/("Change in investment"(DELTAI))` `"multiplier(k)"=(1)/(MPS-1)` `"multiplier(k)"=(1)/(MPC)` `"multiplier(k)"=("Change in income"(DeltaI))/("Change in investment"(DeltaY)` Solution :a

Discussion

2113.	What are leakages ?
Answer» SOLUTION :SAVINGS, taxes and IMPORTS are the important withdrawals (leakages) from the circular flow. Increase in these VARIABLES reduces the level of production in the economy or magnitude of circular flow as these are withdrawals from the circular flow.

Discussion

2114.	Can APC be ever zero ?
Answer» Solution :APC can never be EQUAL to ZERO as CONSUMPTION can never be zero at any LEVEL of income.

Discussion

2115.	Define under-employment equilibrium
Answer» SOLUTION :Under-employment EQUILIBRIUM refers to a SITUATION when aggregate demand is equal to the aggregate supply at a level where the RESOURCES are not fully employed.

Discussion

2116.	If regardless of changes in its price, the quantity demanded of a good remains unchanged, then the demand curve for the good will be:
Answer» HORIZONTAL vertical positively sloped. negatively sloped. Answer :B

Discussion

2117.	Aggregate used for domestic income
Answer» `NDP_(FC)` `N NP_(FC)` `GNP_(MP)` `N NP_(MP)` ANSWER :A

Discussion

2118.	Which of the following is not a flow ?
Answer» capital income investment depreciation Answer :A

Discussion

2119.	Purchase of new houses by consumer households.
Answer» ANSWER :GROSS DOMESTIC CAPITAL FORMATION

Discussion

2120.	What happens to equilibrium price of a commodity if there is an increase in its demand and 'decrease' in its supply?
Answer» SOLUTION :EQUILIBRIUM PRICE will INCREASE.

Discussion

2121.	In an economy, every time the income rises, 75 percent of the rise in income is spent on consumption. Now suppose in the same economy investment rises by Rs. 750 crore. Calculate : (i) change in income, (ii) change in saving.
Answer» SOLUTION :(i) `MPC=0.75, :. MPS=0.25` `:. K=1/(1-MPC)=1/(1-0.75)=4` `:. DeltaY=K. Delta I=4xx750` CRORE = Rs. `3,000` crore `133` (II) `DeltaS=DeltaY-DeltaC=3,000-(0.75xx3,000)` `=3000-2250` crore = Rs. `750` crore.

Discussion

2122.	The government of India has implemented DBT (Direct Benefit Transfer scheme), wherein subsidy on LPG is directly transferred to the bank a/c of the consumer. It is also asking rich people to give up subsidy altogether. (a) What in your opinion is the idea behindthe above action of the government ? (b) Write two economic values highlighted here.
Answer» Solution :(a) The government wants the people to realise the actual benefit that the people get by way of subsidy. It also wants to eliminate fake consumers. If rich people give up VOLUNTARILY, it will HELP to reduce government's burden of subsidy and also instil a sense of sharing among those who give up subsidy. (B) Values : (1) Awareness of the BENEFITS that the government is concerned for US. (2) Concern for others.

Discussion

2123.	The central problem in economics is that of
Answer» 1.Comparing the success of command versus market economies. 2.Guaranteeing that production occurs in the most efficient manner. 3.Guaranteeing a MINIMUM LEVEL of INCOME for EVERY citizen. 4.Allocating scarce resources in such a manner that society's unlimited needs or wants are SATISFIED in the best possible manner. Answer :d

Discussion

2124.	Classify the following as factor income or transfer income. (i) Unemployment allowances. (ii) Salary received by Rakesh froma company. (iii) Financial help to earthquake victims. (iv) Compensation received from the employer. (v) Claim received from insurance company by an injured worker. (vi) Birthday gift received from a friend. (vii) Bonus received on Diwali.
Answer» SOLUTION :FACTOR income: (ii) , (IV) , (VII) ; TRANSFER Income : (i) , (iii) , (v) , (vi).

Discussion

2125.	The value of multiplier is
Answer» `(1)/(MPC)` `(1)/(MPS)` `(1)/(1-MPS)` `(1)/(MPC -1)` ANSWER :B

Discussion

2126.	Give an example of a positive externality and its impact on welfare of the people.
Answer» Solution :Use of public parks by the PEOPLE for PLEASURE for which no PAYMENTS are made by the public. It increases welfare through positive effect on HEALTH.

Discussion

2127.	break- evenpointisstruckwhensavingis equal tozero .
Answer» ANSWER : truebacauseat zerolevelofincome, a minimumlevelof CONSUMPTION is- incomeandso SAVING= 0

Discussion

2128.	There is no common unit of value in barter system .
Answer» ANSWER :True because there is lack of COMMON measure ( unit ) of value in BARTER system .

Discussion

2129.	What is high powered money?
Answer» Solution :It is money CREATED or produced by the RBI .It INCLUDES currency(noted and coins) held by the public , CASH reserves with commerical banks and deposits held by the government and commerical banks with RBI .It is called high powered money because RBI ACQUIRES assets against these liabilities

Discussion

2130.	Money is defined as:
Answer» COMMONLY ACCEPTED MEASURE of value a store of value a standard of DEFERRED payments all of these Answer :D

Discussion

2131.	Briefly discuss the following functions ofcentral bank:(i)Currency Authority, (ii)Banker to the Government, (iii) Bankers Bank and Supervisor.
Answer» Solution :(i)Currency AuthorityThe central bank is given the sole monopoly of issuing currency in order to secure control over volume of currency and credit. These notes circulate throughout the country as legal tender money. It has to keep a reserve in the form of gold and foreign securities as per statutory rules against the notes issued by it.(ii)Banker to the GovernmentCentral bank functions as a banker to the government—both central and state governments. It carries out all banking business of the government. Government keeps their CASH BALANCES in the current account with the central bank. Similarly, central bank accepts receipts and makes payment on behalf of the governments.(iii) Bankers Bank and SupervisorCentral bank acts as banker’s bank in THREE capacities:(i) It is the custodian of their cash reserves. Banks of the country are required to keep a certain percentage of their deposits with the central bank; and in this way the central bank is the ultimate holder of the cash reserves of commercial banks, (ii) Central bank is lender of last resort. Whenever banks are short of funds, they can take loans from the central bank and get their trade bills discounted. The central bank is a source of great STRENGTH to the banking system, (iii) It acts as a bank of central clearance, settlements and transfers. Its moral PERSUASION is usually very effective so far as commercial banks are concerned.

Discussion

2132.	(a) 'Devaluation and Deprecitation of currency is one and the same thing'. Do you agree? How do they affect the exports of a country? (b) What is meant by 'official reserve transrtctions'? Discuss their importance in Balance of Payments.
Answer» Solution :(a) Depreciation and Devaluation both imply a fall in external value of a currency, however the term depreciation is used under the floating EXCHANGE rate SYSTEM that is when the exchange rate system is determined by the combined market forces of demand and supply. A currency loses or gains value because of fluctuations in demand and supply. The term devaluation is used in a system of fixed exchange rates. In this system, the exchange value of a currency is decided by the government. Devaluation of currency is the DELIBERATE action of the government. Depreciation and devaluation of a currency normally encourages exports from a country, as exports become cheaper for the foreign nationals and foreign currency can now buy more of domestic goods, i.e. the international competitiveness of the goods and services of such a NATION gets better. (b) The transactions carried on by monetary authorities of a country, which causes changes in official reserves are termed as official reserve transactions. Autonomous receipts and autonomous payments give rise to either deficit or surplus on balance of payments. The central bank MAY finance a deficit by: (i) reducing reserves of foreign currency (ii) by borrowing from the IMF or monetary authorities This will be shown as decrease in reserves. The central bank may use surplus to purchase foreign securities, foreign currency, gold etc. which may result in increase in reserves of the nation.

Discussion

2133.	Find National Income from the following : Autonomous consumption = Rs. 100 Marginal propensity to consume = 0.80 Investment = Rs. 50
Answer» SOLUTION :`Y=bar(C)+MPC. Y+I=100+0.8Y+50` `0.2Y=150` `Y=750` (RS.)

Discussion

2134.	Flow of goods and services is
Answer» REAL flow interest flow money flow none of these. Answer :A

Discussion

2135.	Can there be a fiscal deficit in a government budget without a revenue deficit ? Explain.
Answer» Solution :Yes , it is possible in the FOLLOWING situations : (i) When revenue budget is BALANCED and CAPITAL budget shows a DEFICIT . (II) When there is a surplus in the revenue budget but the deficit in capital budget is greater than the surplus.

Discussion

2136.	Classify the following as factor income or transfer income : (i) Old age pension. (ii) Salary received by Amit from a company. (iii) Financial help to earthquake victims. (iv) Rent received from buildings. (v) Wages received from employer. (vi) Birthday gift received from a relative. (vii) Rent free accommodation from employer. (viii) Donations received by a charitable trust.
Answer» Solution :Factor income : (II), (iv), (V), (vii), Transfer income : (i), (III), (vi), (VIII)

Discussion

2137.	Government incurs expenditure to popularize Yoga among the masses. Analyse its impact on gross domestic product and welfare of the people
Answer» SOLUTION :Government expenditure on popularising yoga raises GDP because it is government's final consumption expenditure. It also raise welfare of the people because YOGIC exercises may improve HEALTH and THUS raises efficiency of the people

Discussion

2138.	CRR and SLR are opposite of each other.
Answer» Answer :False as both are complementary to each other. A FALL in these RATIOS CAUSE a fall in LRR.

Discussion

2139.	Is exports of goods an autonomous item?
Answer» SOLUTION :YES, it is an autonomous ITEM as it is determined by the motive of PROFIT maximisation.

Discussion

2140.	Distinguish between cooperative and non-cooperative oligopoly.
Answer» SOLUTION :

Discussion

2141.	Which of the following is a component of capital account of BOP?
Answer» Export and import of GOODS Export and import of services Unilateral transfers SALE of assets to FOREIGNERS ANSWER :D

Discussion

2142.	what is themeantby acentralbanks? Why is theknowas theapex body ?
Answer» Solution :The Central Bank, also known as National Bank or RESERVE Bank in some countries, is an apex monetary authority in a country. It REGULATES the commercial banking system and acts as watchdog and regulator of other BANKS of a country. A Central Bank of a country acts as a BANKER and FINANCIAL adviser to the government.

Discussion

2143.	Under flexibleexchnange rate system , each country fixes its value of currency in terms of some external standard
Answer» SOLUTION : FALSE. It happens in CASE of fixed EXCHANGE rate system. Under Flexible exchange rate system , value of currency is DETERMINED by the market.

Discussion

2144.	Find out the maximum profit position of a producer by comparing his MC and MR on the basis of the following data:
Answer» SOLUTION : The producer will be in EQUILIBRIUM when MR = MC. It occurs at 4 units of output where both MR and MC are EQUAL to 7

Discussion

2145.	Undistributed profits are also known as :
Answer» RETAINED earnings corporate savings general reserves all of these. Answer :D

Discussion

2146.	Organic farming is preferred because it :
Answer» IMPROVES soil fertility Less use of INSECTICIDES and pesticides Both (a) and (b) Neither (a) nor (b) ANSWER :C

Discussion

2147.	What will be the effect on imports if forign exchange rate increases ?
Answer» Solution : It will LEAD to falls in IMPORTS as foreign goods have BECOME costlier for Indians.

Discussion

2148.	Which one of the following statements is true to the relationship between marginal cost function and average cost function?
Answer» If MC is greater than ATC, ATC is FALLING. ATC CURVE INTERSECTS MC curve at MINIMUM MC. MC curve intersects ATC curve at minimum ATC. If MC is less than ATC, ATC is increasing. Answer :c

Discussion

2149.	' In a two -sector , national product is equal to income. " Comment.
Answer» Solution :In a two -SECTOR model , the national product , in TERMS of money value of goods and service produced, is distributed among the productive factors .It means, total money value of output is GIVEN to factors of production in the form of rent, wages, interest and profit for factor services. So national product (value of the goods and services produced) is EXACTLY EQUAL to national income (income generated).

Discussion

2150.	By spending his entire income only on two goods X and Y a consumer finds that , (MU_x) /P_x lt (MU_y)/(P_y) . Explain how will the consumer reaction.
Answer» Solution :As , we know condition for consumer equilibrium is , Necessary Condition Marginal UTILITY of last rupeespend 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 Utility of a 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_x)=(MU_y)/P_y` Putting equation (2) in (1), we get `(MU_x)/P_x =(MU_y)/(P_y)` But as given in the QUESTIONS that the ratio of marginal utility to price in case of X is lower than in case of Y.i.e, `(MU_x)/(P_x) lt (MU_y)/P_y` . It is means, marginal utility from the lest rupee spent on commodity X is less than the marginal utility from the last rupee spent on commodity Y . So, to attain the equilibrium the consumer must decrease the quantity of X which will increase the `MU_x` and increase the quantity of Y , which will decrease the `MU_y` . Decrease in quantity of X and increase in quantity of y continue TILL `(MU_x)/P_x =(MU_y)/(P_y)` .

Discussion

Explore topic-wise InterviewSolutions in .

What is meant by the law of demand?

What is the range of invesment multiplier? Clarify the relation of investment multiplier with marginal prppensity to consume (MPC) and with marginal propensity to save (MPS).

National product at current prices is higher than national product at constant prices during a period of :

All finanical insititutioncan alsobe tremedaas bankinginstitutions.

If the increase in demand is proportionately equal to the decrease in supply, equilibrium price will rise.

Define full employment in an economy. Discuss the situation when aggregate demand is more than aggregate supply at full employment income level. or What are two alternative ways of determining equilibrium level of income? How are these related?

What happens to equilibrium price of a commodity if there is an increase' in its demand and 'decrease' in its supply ?

Show that the sum of value added is equal to sum of factor incomes.

The change in the total product resulting from a change in a variable input is:

Which of the following expression is correct?

What are leakages ?

Can APC be ever zero ?

Define under-employment equilibrium

If regardless of changes in its price, the quantity demanded of a good remains unchanged, then the demand curve for the good will be:

Aggregate used for domestic income

Which of the following is not a flow ?

Purchase of new houses by consumer households.

What happens to equilibrium price of a commodity if there is an increase in its demand and 'decrease' in its supply?

In an economy, every time the income rises, 75 percent of the rise in income is spent on consumption. Now suppose in the same economy investment rises by Rs. 750 crore. Calculate : (i) change in income, (ii) change in saving.

The central problem in economics is that of

The value of multiplier is

Give an example of a positive externality and its impact on welfare of the people.

break- evenpointisstruckwhensavingis equal tozero .

There is no common unit of value in barter system .

What is high powered money?

Money is defined as:

Briefly discuss the following functions ofcentral bank:(i)Currency Authority, (ii)Banker to the Government, (iii) Bankers Bank and Supervisor.

(a) 'Devaluation and Deprecitation of currency is one and the same thing'. Do you agree? How do they affect the exports of a country? (b) What is meant by 'official reserve transrtctions'? Discuss their importance in Balance of Payments.

Find National Income from the following : Autonomous consumption = Rs. 100 Marginal propensity to consume = 0.80 Investment = Rs. 50

Flow of goods and services is

Can there be a fiscal deficit in a government budget without a revenue deficit ? Explain.

Government incurs expenditure to popularize Yoga among the masses. Analyse its impact on gross domestic product and welfare of the people

CRR and SLR are opposite of each other.

Is exports of goods an autonomous item?

Distinguish between cooperative and non-cooperative oligopoly.

Which of the following is a component of capital account of BOP?

what is themeantby acentralbanks? Why is theknowas theapex body ?

Under flexibleexchnange rate system , each country fixes its value of currency in terms of some external standard

Find out the maximum profit position of a producer by comparing his MC and MR on the basis of the following data:

Undistributed profits are also known as :

Organic farming is preferred because it :

What will be the effect on imports if forign exchange rate increases ?

Which one of the following statements is true to the relationship between marginal cost function and average cost function?

' In a two -sector , national product is equal to income. " Comment.

By spending his entire income only on two goods X and Y a consumer finds that , (MU_x) /P_x lt (MU_y)/(P_y) . Explain how will the consumer reaction.