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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.
| 201. |
Higher MCP will cause higher level of production and income. |
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| 202. |
Why does national income include only final goods ? |
| Answer» Solution :Intermediate goods are not included in the national income to avoid double counting. The VALUE of intermediate goods is already included in the final goods. If the value of intermediate goods is added again, it will LEAD to double counting . For example, the value of SHIRT (final good) INCLUDES the value of cloth (intermediate good). So, if we include the value of cloth along with the value of shirt, it will lead to double counting of cloth. | |
| 203. |
Explain the producer's equilibrium. |
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Answer» Solution :A producer is SAID to be in equilibrium when he PRODUCES that level of OUTPUT at which his profits are MAXIMUM. Producer.s equilirium is also KNOWN as profit maximisation situation. |
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| 204. |
The value of US Dollar $1 has gone down from Rs. 73 "to Rs. 70 . It means that : |
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Answer» Indian rupee has APPRECIATED |
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| 205. |
How much is the marginal propensity to save in an economy in which marginal propensity to consume is 0.75? |
| Answer» SOLUTION :`MPS=1-MPS=1-0.75=0.25` | |
| 206. |
State with reason if the following statements are true or false: (i) At a grand family get-together party you go on eating and eating since you have not a pay. (ii) As we consume more units of a commodity , our total Utility from its consumption keeps falling. |
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Answer» Solution :False : For free goods , a CONSUMER will limit his Consumer will limit his consumption of a commodity to a POINT where the point of full satisfaction is reached . Consumption beyond this point will only generate DISUTILITY . False : As we CONSUME more units of a commodity , it.s marginal utility keeps on diminishing. Total Utility keeps on rising , but at a diminishing rate till marginal utility become zero. |
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| 207. |
Define aggregate demand. State its components. |
| Answer» Solution :Aggregate demand refers to the total demand for final goods and services in the economy.There are 4 components of aggregate demand1. HOUSEHOLD consumption demand (C)2. Private investment demand (I)3. Government demand for goods and services (G)4. NET export demand (X-M) | |
| 208. |
How does bank rate help in expanding or conracting credit in an economy? or What is a bank rate policy? How does it work as a method of credit control ? or Briefly explain how does a central bank control credit creation by commerical bank by changing the bank rate ? |
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| 209. |
Devaluation ofcurrency means : |
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Answer» Reduction in the value of DOMESTIC CURRENCY by the market forces |
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| 210. |
Flexible exchange rate is determined by the government |
| Answer» Solution : FALSE . It is determined by foces of demand and supply of DIFFERENT CURRENCIES in the FOREIGNEXCHANGE MARKET. | |
| 211. |
An American company has ordered readymade garments from an Indian company. What will be the impact on their total import expenditure of the American company as increase in the foreing exchange rate ? |
| Answer» SOLUTION :It will reduce the totalimport EXPENDITURE of the American COMPANY as increase in the foreign exchangerate will raise the purchasing power of the company. It MEANS, with same amount of dollars, more goods can be purchased from India. | |
| 212. |
Name the broad categories of transactions recorded in the 'capital account' of the Balance of Payments Accounts. OR Name the broad categories of transactions recorded in the 'current account' of the Balance of Payments Accounts. |
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Answer» Solution :The following are the three broad categories of transactions recorded under capital account of BOP. Foreign direct investment (FDI) and portfolio investment : Foreign Direct Investment refers to the investment in the assets of a foreign country. By investing, the government or any resident of domestic country owns the control over the asset of the foreign country. On the contrary, Portfolio Investment refers to the investment in the assets of a foreign country without any control over that asset. FDI and Portfolio Investment cause an inflow of foreign EXCHANGE into the country. Thus, they are recorded as positive items in the Capital Account of BOP. It should also be noted that FDI and Portfolio Investment are the non-debt CREATING capital transactions. 2. Loans and Borrowings : Loans and borrowings by a country from the foreign countries or from the international money market are recorded in the Capital Account of the BOP. These borrowings can be in the FORM of commercial borrowings or in the form of assistance. When a countryborrows with the CONSIDERATION of assistance, the transaction would involve a lower rate of interest as compared to the prevailing market rate of interest. As against this, commercial borrowings involve open market rate of interest. Loans and borrowings result in inflow of foreign exchange into the country. Hence, they are recorded as positive items in the Capital Account of BOP. Unlike FDI and Portfolio Investments, loans and borrowings are debt creating capital transactions. 3. Banking Capital Transactions : Another form of Capital Account transactions are banking capital transactions. Such transactions refer to the transactions of external financial assets and liabilities of the commercial banks and co-operative banks that operate as authorised dealers in the foreign exchange market. OR The following are the broad categories of transactions recorded under current account of BOP. 1. Export and import of goods : The transactions of a country in the form of export and import of goods is recorded in the current account of the BOP. This record of export and import of goods is also called the 'Balance of Visible Trade'. The export of goods is recorded as a positive item in the Current Account of BOP. This is because exports results in the inflow of foreign exchange into the country. On the other hand, imports of goods are recorded as negative items in the Current Account of BOP, as they result in an outflow of the foreign exchange from teh country. 2. Export and import of services : Another component of the Current Account is the export and import of services. The record of export and import of services is also called the 'Balance of invisible trade'. Similar to the export of goods, export of services is also recorded as positive items in the Current Account of BOP. As against this, the import of services is recorded as negative items in the Current Account of BOP. The following are some of the major services that are included in the Current Account of BOP. (a) Shipping services, insurance and banking services, etc. (b) Income from investment (i.e. income from profits and dividends) (c ) Foreign travel (d) Miscellaneous transactions such as royalties, consultancy services, TELEPHONE services, etc. 3. Unilateral Transfers : Unilateral transfers refer to the one-sided transfers such as gifts, donations, grants from foreigngovernments, etc. A country makes such transfers to the rest of the world as well as receives transfers from the rest of the world. Receipts of unilateral transfers are recorded as positive items in the Current Account of BOP, while payments of unilateral transfers are recorded as negative items in the Current Account of BOP. |
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| 213. |
When total demand for a commoditywhose price has fallen increases, it is due to : |
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Answer» 1.income EFFECT |
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| 214. |
The sum of rent, royalty, interest and profits is called _______ . |
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| 215. |
What is the function of households in the circular flow ( two- sector model) ? |
| Answer» Solution :Households supply FACTOR services to the firms and SPEND their entireincome on the CONSUMPTION of GOODS and services produced by firms. | |
| 216. |
Explain the concept of money supply |
| Answer» Solution :The money supply (or money stock) is the TOTAL value of money available in an economy at a POINT of TIME. There are several ways to define "money", but standard measures usually INCLUDE currency in circulation and demand deposits (depositors' easily accessed assets on the books of FINANCIAL institutions). | |
| 217. |
State any six precautions which must be taken while estimating factor income. |
| Answer» Solution :1. transfer payments are not included in estimating NATIONAL INCOME2. imputed rent of self occupied HOUSES are to be included in calculating national income3. illegal money through smuggling etc.are not included as they cannot be easily estimated.4. windfall GAINS are not included in this method.5. indirect taxes are not included while estimating national income at factor cost.6. income equal to the value of production for self consumption should be estimated and included in the measure of national income.. | |
| 218. |
Appreciation of Indian currency occurs when more rupees are to be paid for a UK pound. |
| Answer» Solution :FALSE because in case of appreciation value of domestic CURRENCY increases in relation to the value of a BRITISH POUND. Therefore, less RUPEES are to be paid for a British pound. | |
| 219. |
What will be the efect of a rise in the bank rate fon money supply? |
| Answer» SOLUTION :MONEY supply will REDUCE as there is contraction of CREDIT | |
| 220. |
Giving reasons , categorisethe followinginto revenue receipts and capital receipts : (i) Recovery of loans , (ii) Corporation tax , (iii) Dividends on investments made by government , (iv) Sale of a public sector undertaking. |
| Answer» SOLUTION :Refer ITEMS categorised as REVENUE and CAPITAL RECEIPTS. | |
| 221. |
Explain the following functions of the central bank: Bank of issue, (ii) Bankers's Bank |
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| 222. |
Would he central bankneed to intervene ina managed floating system ? Explain why |
| Answer» Solution : In a managed floating system, foreign exchange rate is determined by market forces. However, the central bank needs to intervene in this system in order to RESTRICT the FLUCTUATIONS in the exchange rate WITHIN CERTAIN limits. The aim is to keep exchange rate close to desired TARGET values. For this, central bankmaintains reserves of foreign exchange to ensure that the exchange rate stays within targeted value. | |
| 223. |
Define domestic income (NDP_(FC)). |
| Answer» Solution :It refers to the net value ADDED (NVA) of all the FINAL goods and services produced within the DOMESTIC territory of a COUNTRY earned by factors of production during a PERIOD of one year. | |
| 224. |
The balance of trade shows a deficit of Rs 5,000 crore and the value of imports of goods are Rs 9,000 crore. What is the value of exports of goods ? |
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Answer» `= -5,000 + 9,000 = Rs 4,000` CRORE |
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| 225. |
Increase in the stock of inventories is included in the estimation of national income. |
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| 226. |
Borrowing in governmentbudget is : |
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Answer» REVENUE DEFICIT |
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| 227. |
Calculate the value of multiplier if the MPS is : (a) 0.40, (b) Equal to MPC |
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Answer» Solution :(a) Multiplier (k) `=(1)/(MPS)=(1)/(0.40)=2.5` (B) If MPS = MPC , then MPS = 0.5[:. MPS + MPC = 1] Multiplier (k) `= (1)/(MPS)= (1)/(0.5)=2` |
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| 228. |
Compare between perfect competition and monopolistic competition. |
Answer» SOLUTION :
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| 229. |
Items not included in the estimation of nation income |
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Answer» SALE of SECOND HAND goods |
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| 230. |
Give the meaning of equilibrium quantity. |
| Answer» SOLUTION :TH quantity bought and sold at the EQUILIBRIUM price is CALLED equilibrium quantity. | |
| 231. |
State any three points of distinction between Central Bank and Commercial Banks. |
| Answer» Solution :The FOLLOWING are the differences between CENTRAL bank and commercial bankThe bank, which MONITORS, regulates and CONTROLS the financial system of the economy is known as Central Bank. The financial institution which receives the deposits from people and advances them money is known as Commercial Bank.Central Bank is the banker to banks, government, and financial institution, whereas Commercial Bank is the banker to the citizens.The Central Bank is the supreme monetary authority of the country. As against this, the commercial bank does not have such authority and POWERS. | |
| 232. |
A country exported goods worth Rs 600 crores, whereas, its imports amounted to Rs 700 crores.Calculate the volume of balance of trade and indicate its nature. |
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Answer» BOT is UNFAVORABLE to the extent of Rs 100 crores as imports are more than exports. |
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| 233. |
Arrange the following events of China in chronological order and choose the correct alternative: (i) Great Proletarian Cultural Revolution (ii) Great Leap Forward campaign (iii) Introduction of Economic Reforms (iv) First five year plan Choose the correct alternative : |
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Answer» II, IV , III, `i` |
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| 234. |
The firm and the industry are one and the same in …………….. . |
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Answer» PERFECT competition |
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| 235. |
In an economy C = 200 + 0.75Y is the consumption function where C is consumption expenditure and Y is national income. Investment expenditure is 4,000. Calculate equilibrium level of income and consumption expenditure. |
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Answer» Solution :Consumption function, `C = 200 + 0.75 Y`, Investment, I = 4,000 Now `Y = C + I or Y = 200 + 0.75 Y + 4,000` `Y - 0.75Y = 4,200 or 0.25Y = 4,200 RARR= 4,200 XX (100)/(15)` Income, Y = 16,800 Consumption EXPENDITURE, `C = 200 + 0.75 Y` `= 200 + 0.75 (16,800)` `= 200 + 12,600` `= 12,800` |
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| 236. |
Classify the following as final goods or intermediate goods. (i) Machine purchased by a firm. (ii) Soft drinks purchased by the school canteen. (iii) Clothes purchased by an individual. (iv) Coal purchased by a factory. (v) Electricity consumption in a business. (vi) Book purchased by a student . (vii) Books purchased by a book seller. (viii) Postage stamps purchased by a consumer. (ix) Postage stamps purchased by a business unit. (x) Exhaust fans used for making water coolers. (xi) Seeds purchased by a farmer to produce wheat. (xii) Seeds purchased for kitchen gardening . (xiii) Machines purchased by a dealer of machines. (xv) Sewing machine purchased by a housewife. |
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| 237. |
Borrowings are equivalent to : |
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Answer» REVENUE deficit |
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| 238. |
Explain the main features of barriers to the entry of firms. |
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Answer» Solution :(i) The MAIN reason why the number of firms is SMALL is that there are barriers which prevent ENTRY of firms into industry. (ii) Patents, large capital, CONTROL over the crucial raw material ETC, prevent new firms from entering into industry. (iii) Only those who are able to cross these barriers are able to enter. |
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| 239. |
Define statutory liquidity ratio. |
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| 240. |
Explain the credit creation role of commerical banks with the help of a numerical example |
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| 241. |
What is meant by margin requirement ? How can it be used to control the money supply ? Explain it with the help of an example |
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| 242. |
why does the demand for foreigncurrency fall and supply rises when its rise? Explain |
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Answer» SOLUTION :When PRICE of foreign exchange RISES, import becomes, costiller, demand for impots will falll. As a result demand for foreign currency fall When price of foreign exchange rises, becomes, cheaper for foreign buyers, BECAUSETHEY can now buy more one unit of foreign currenct. As a result demand for exports rise, LEADING ot increases in supply of foreign exchange. |
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| 243. |
The impact of imposition of new taxes is that it reduces_ to correct inflationary pressure. |
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| 244. |
If plannned savings are greater than planned investments, what will be its effect on investment? |
| Answer» Solution :EXCESS of planned savings (say, 25,000 crore) over planned Investment (say, 20,000 crore) means that EXPENDITURE in the economy is less than what producers had expected.This would result in undesired build-up of UNSOLD stock. Consequently, AD falls short of AS. Due to excess supply resulting from be stock piling of unsold goods, i.e., unintended inventories, the producers will cut down employment and will produce less. National income will fall and as a result planned SAVING will start Jailing until it becomes equal to planned investment. It is at this point that equilibrium level of income is determined | |
| 245. |
C=100+0.4 Y is theconsumptionFunction of aneconomy whereC is consumption expenditure and Y is National income , Inestmentexpenditureis 1,100 calculateEquilibrium levelof National income (ii)Consumption expenditure at equilibrium level of nationalincome (set 1) in economy s=- 100+0.6 Y is thesavingfunction,whereS issavingand Y is National income..Ifinvestmentis 1100 Calculate : (i) Equilibrium levelof National income(ii)Consumption expenditure at equilibrium levelof NAtional income.(set 2) c=50+0.5 Y is theconsumptionfuca=tion where C is consumption andY isNationalincomeand invesrmentexpenditureis 2.000 in aneconomy ,calculate(i)equilibrium levelOf (national ) income (ii) Consumpton exendditture atequilibrium levelof (National ) income(set 3) |
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Answer» {(Rs.2000;(ii) Rs.900)} {(Rs.4100;(ii) Rs.2100)} |
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| 246. |
_______ is the difference between value of goods sold to the rest of the world and value of goods imported from rest of the world. |
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Answer» Balance of payment The balance of trade is the DIFFERENCE between the value of a country's imports and EXPORTS for a given period. The balance of trade is the LARGEST component of a country's balance of payments. Economists use the BOT to MEASURE the relative strength of a country's economy. The balance of trade is ALSO referred to as the trade balance or the international trade balance. |
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| 247. |
A rich person claims that he would not pay taxes to support government's expenditure onproviding education because he has no children . Should he be exempted from tax payment ? What happens if he does not pay tax ? |
| Answer» SOLUTION :No , he should not be exempted from tax payment . A tax is a compulsory payment MADE by an individual to the government without any corresponding benefit in return . Hence it is his moral responsibility to pay tax . Government REVENUE will fall if he does not pay tax implying that he is not contributing in meeting government expenditurefor welfare purpose . As a defaulter he will be legally penalised . | |
| 248. |
What will be the effect of the followings on the Balance of Payment ? (i) Make in India programme (ii) Import of pulses |
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Answer» Solution :(i) Make in India programme will BRING FOREIGN CAPITAL into India THUS increasing SUPPLY of foreign exchange. It will improve BOP position (ii) Import of pulses will lead to outflow of foreign exchange from India. It will have adverse effect on BOP |
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| 249. |
Calcualate NDP at factor cost: {:(,,(Rs."crore")),((i),"Net domestic fixed capital formation",70),((ii),"Private final consumption expenditure",300),((iii),"Exports",20),((iv),"Consumption of fixed capirtal",10),((v),"Government final consumptiono expenditure ",100),((vi),"Closing stock",15),((vii),"Imports",3),((vii),"Opening stock",5),((ix),"Net indirect tax",80),((x),"Net factor income to abroad",(-)10):} |
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| 250. |
Explain the 'standard of deferred payment' function of money.How has it solved the related problem created by barter. |
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