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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.
| 3301. |
What can be the maximum value of multiplier? |
| Answer» Solution :The MAXIMUM VALUE of investment MULTIPLIER (k) can be infinity. it is possibile when MARGINAL propensity to CONSUME(MPC)=1 | |
| 3302. |
Calculateinvestmentexpenditure from thefollowingdate about an economy whichis in equilibrium :(set 1) {:("National income ",=,1","000),("Marginal propensityto save ",=,0.25),("Autonomous consumption expenditure ",=,200):} Calculate autonomous consumption from th following date about an economy which is in equilibrium .(set 2) {:("National income ",=,1200),("Marginalpropensity to save ",=,0.20),("investmentexenditure ",=,100):}Calculatemaeginal propensity to consumefromthe followingdateabout an economy whichis inequilibrium .(set 3) {:("National income ",=,1500),("Autonomous consumption Expenditure ",=,300),("investmentExpenditure ",=,300):} |
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Answer» AUTONOMOUSCONSUMPTION expenditure =140) ( marginalpropensityto consume =0.6) |
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| 3303. |
What is the relationship between marginal propensity to save and multiplier? |
| Answer» SOLUTION :The higher themarginalpropensityto save (MPS) , thelowerthe VALUE of multiplier ,i.e. there is an inverse relationship between the investment multiplier(K) and Marginal propensity to consume (MPS).K =1/MPS | |
| 3304. |
Visist to foreign countries for sightseeeing etc.by the people of inida is no the rise. What will be its likely impact of foreign exchange rarte and how ? |
| Answer» Solution :Visist to foreign countries will RAISE the demand for foreign EXCHANGE . Supply of foreign exchange remaining UNCHANGED rae is LIKELY to rise | |
| 3305. |
What is meant by problem of double counting ? How can this problem be avoided ? |
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Answer» SOLUTION :The problem of DOUBLE counting arises when the VALUE of certain goods and services are counted more than once while estimatingNational Income by Value Added METHOD. This happenswhen the value of intermediate goods is countedin the estimationof National Income alongwith the final value of goods and services. Two methods to avoid the problem of double counting : (i) To count only the value of final products. (ii) To count only the value added which equals value of output less intermediate consumption. |
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| 3306. |
Give reasons for the following statements: (i) A perfectly competitive firm is a price-taker. (ii) Product differentiation is a characteristic feature of a monopolistic competitive market. (iii) A monopolist cannot fix both the quantity that he likes to produce and the price at which he would like to sell. |
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Answer» Solution :(i) In a perfectly competitive MARKET there are a large number of producers of a product. All of them produce a HOMOGENEOUS product. Therefore, all the firms have to sell at the same price. This price is determined by industry demand and supply. (ii) In a monopolistic competitive market there is a large number of producers. But each of these producers produces a product which is somewhat different from what others do. At least, the producers make all the attempts to influence the consumer with the idea that their product is BETTER than the product of the rival producers. (iii) A monopolist is faced with a downward sloping CURVE. He can sell a larger QUANTITY at a lower price, or alternatively, he may charge a higher price and be satisfied with lower quantity. He has to make a choice between the two alternatives. |
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| 3307. |
If the marginal propensity to consume is greater than marginal propensity to save, the value of the multiplier will be (Choose the correct alternative) (a) greater than 2 (b) less than 2 (c) equal to 2 (d) equal to 5 |
| Answer» SOLUTION :(a) GREATER than 2 | |
| 3308. |
Purchases of goods and services by the government in domestic market and abroad. |
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Answer» |
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| 3309. |
Commercial banksdo notcontribute to theamount of money supplyin theeconomyas theydonot have the powerto issuecurrency defend or refute. |
| Answer» SOLUTION :The givenstatementis REFUTED COMMERCIAL banks contributeto theamount of MONEY supply money supply in theeconomy through credit CREATION . | |
| 3310. |
Which of the following is not considered a factor income ? |
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Answer» Rent |
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| 3311. |
Define marginal propensity to consume. |
| Answer» SOLUTION :MPC is the RATIO of CHANGE in consumption EXPENDITURE `(DeltaC)` to change in income `(DeltaY)`. | |
| 3312. |
Are the following statements true or false ? Give reasons. Gross investment can be equal to net investment . |
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Answer» |
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| 3313. |
Cashreserve ratio andstatutoryliquidity ratioare fixedby thecommercialbanksthemselves. |
| Answer» SOLUTION :FALSE: They are FIXED by CENTRALBANK | |
| 3314. |
Why does the consumption function curve of an involuntary unemployed worker start from positive y-axis, even at zero level of income ? use diagram |
| Answer» Solution :Consumption function curve of an involuntary unemployed WORKER is starting from positive Y-axis because it is his autonomous consumption expenditure. Consumption can never be ZERO EVEN if his INCOME is zero because some MINIMUM level of consumption has to be maintained for survival. · | |
| 3315. |
Which of the following is not an economic activty and not included in national income ? |
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Answer» Medical services rendered by a DISPENSARY |
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| 3316. |
Economists are generally concerned about the rising Marginal Propensity to Save (MPS) in an economy . Explain why? |
| Answer» SOLUTION :Since the sum of MPC and MPS is unity (MPC+MPS=1) ,any increase in Marginal Propensity to Save (MPS) would directly lead to adecrease in Marginal Propensity to CONSUME(MPC). This means that lesser proportion of additional income is going to CONSUMPTION, which is a vital factor of AGGREGATE Demand/ Expenditure.. This may further lead to a fall in equilibrium level of income in the economy. Due to this fact, Economist are generally concerned about the rising MPS in an economy. | |
| 3317. |
The ratio of total depositsthat a commercial bankhas to keepwith ReserveBankof India is called: |
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Answer» Statutoryliquidity RATIO |
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| 3318. |
The market price of sugar rises when its demand increases. How can the supply of sugar be changed so that price of sugar remains constant? |
| Answer» Solution :The PRICE of SUGAR remains constant when demand and supply increase in the same proportion. VALUE: PROBLEM solving. | |
| 3319. |
Define commerical bank |
| Answer» | |
| 3320. |
payment of salaries to the government employees is a capital payment. |
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Answer» |
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| 3321. |
Human capital consists of : |
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Answer» ENTIRE POPULATION |
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| 3322. |
Although water is useful, yet it is cheap. On the contrary, diamond is not much of use, still it is very expensive. Give an economic reason for this paradox. |
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Answer» Solution :The economic reason for thhis paradox is scarcity. Although WATER is useful, yet it is cheap due to its abundance in the economy. Diamonds are very EXPENSIVE because they are scarce and people are ready to pay ahigh PRICE. Value: Analytic |
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| 3323. |
Discuss the significance of 45^(@) line in Keynesian Economics. |
Answer» Solution :Aggregate Supply is obtained by adding consumption and saving schedules. The straight line obtained which will ORIGINATE from point of ORIGIN will form a `45^(@)` angle there by establishing the relation of Y = C + S.   At all POINTS on `45^(@)` line, consumption is EQUAL to income. It helps under the Keynesian Economic analysis. Since the TWO variables (Consumption/Aggregate Expenditure and Income) are measured in the same units, the `45^(@)` line has a slope of one and it bisects the `90^(@)` angle formed by the two axes. |
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| 3324. |
Defing aggregate Demand(AD). |
| Answer» SOLUTION :AGGREGATE Demand (AD) refers to the total demand of final GOODS and service which all the sectors of an eonomy are PLANNING to buy at a given level of income during a period of one year AD=C+I | |
| 3325. |
Amount of fiscal deficit is equal to |
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Answer» DISINVESTMENT |
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| 3326. |
The difference between average total cost and average variable cost: |
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Answer» is CONSTANT |
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| 3327. |
Fall in the value of assets due to expected obsolescence is |
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Answer» CAPITAL loss |
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| 3328. |
What is RepoRatePolicy ? Howdoesit workdoes itas an methodof credit control? |
| Answer» Solution :Repo rate is the rate at which RBI lends to its CLIENTS generally against government securities. The increase in the repo rate will increase the cost of borrowing and lending of the BANKS which will discourage the public to borrow money and will encourage them to deposit.Banks earn their income by supplying loans to businesses out of DEPOSITS made by people and earn interest income out of such loans.When there is an increase in borrowing RATES from RBI,the banks have no option but to increase interest rates charged from businesses in order to set off increased cost of borrowed capital.So whenever repo and bank rates increase, the cost of borrowing for business houses too increases and hence incentive to further investment decreases.Such decrease in investment is primarily ADVOCATED in inflationary periods to curtail further aggregate demand in the economy, which will push prices further up.Such increase in rates therefore, lead to less loans,hence less credit creation. | |
| 3329. |
If the price of Pepsi decreases relative to the price of Coke and 7-UP, the demand for |
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Answer» COKE will DECREASE. |
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| 3330. |
How does giving incentives for exports influence foreign exchange rate? Explain. |
| Answer» Solution :EXPORT INCENTIVES lead to increase in export of goods and services which in turn increase inflow of FOREIGN exchange. DEMAND for the foreign exchange remaining unchanged, increase in intlow (i.e., supply) of foreign exchange will cause a fall in the foreign exchange rate. | |
| 3331. |
An amount of Rs. 2500 contributed by Harish (employee of M/s Nands Enterprises) towards his own provident fund is a part of compensation of employees. |
| Answer» SOLUTION :False. Any CONTRIBUTION MADE by an employee TOWARDS any social security scheme is not a part of compensation of EMPLOYEES. | |
| 3332. |
The consumer is in equilibrium at a point where the budget line - |
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Answer» Is above an INDIFFERENCE CURVE. |
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| 3333. |
Dr Raghuram Rajan, the Governorof RBI in a speech in july 2015 warned that the world was slipping into recession. The events in Greece justified what he said. The ratio of governmentdebt-to-GDP was very high in case of Greece. (a) What in your opinion led to such an event as in Greece ? (b) Explain the chain effect. (c) What is the remedy for the above situation ? What economic value is highlighted here. |
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Answer» Solution :(a) High fiscal DEFICIT was the root cause of the fallout in Greece - but could be true for other countries as well. (b) The CHAIN effects are as follows `{:("""More borrowings"),(""downarrow),("""Higher interest rates and more interest"),(""downarrow),("Lesser amount with the government to be spent on development PROJECTS"),(""downarrow),("""Low INCOME"),(""downarrow),("""Further borrowings/eventual debt-trap"):}` (c) The remedy is to contain/limit the fiscal deficit to a manageable limit (say `3%` to `5%` G.D.P.) The economic value HIGHLIGHTED here is fiscal discipline |
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| 3334. |
What is meant by deficit in balance of payment (BOP)? |
| Answer» Solution :A deficit in BOP arises when total inflow of FOREIGN exchange on account of autonomous transactions (also called above the LINE ITEMS) falls short of total outflow of foreign exchange. Autonomous transactions are international transactions that take place due to some economic motives like earning of income and profit MAXIMISATION. | |
| 3335. |
If MPC=MPS, the value of multiplier is : |
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Answer» 0 |
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| 3336. |
Measurement of national income at current prices provides a reliable base of comparison. |
| Answer» Solution :False. National INCOME at Constant PRICES PROVIDES a reliable BASE of comparison. | |
| 3337. |
What is likely to be the impact of 'Make in India' appeal to the foreign investors by the Prime Minister of India, on the production Possibilities frontiers of India? Explain. |
Answer» SOLUTION :(i) The production possibility frontier of India shifts rightward because of .Make in India. appeal.  (ii) It is so because it attracts foreign companies or investors to set up FACTORIES in India and invest in country.s infrastructure. (III) It leads to huge CAPITAL inflow shifting the production possibility CURVE rightward as shown in the figure. |
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| 3338. |
National income is the sum of factor incomes accruing to |
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Answer» Nationals |
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| 3339. |
How is multiplier related with MPC? |
| Answer» SOLUTION :Multiplier is DIRECTLY related with the MPC. `K=(1)/(1-MPC)` | |
| 3340. |
Pension paid to employees after retirementis (choose the correct alternative) |
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Answer» TRANSFER PAYMENT |
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| 3341. |
Although india'sGDPisincreasing, butthewelfareof thepeopleis notincreasingwiththat pacedoyouthinkthatconceptof greeen GNP shouldbe followed ? |
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Answer» SOLUTION :YES, thethink CONCEPTOF greenGNPcan befollowed * greenGNP measuresnationalincomeoroutput adjustedof the depletionof naturalresourcesanddegradationof THEENVIRONMENT . *it will helpto attaina sustainableuseof naturalenvironmentandequitabledistributionof benefitsof development .A larger numbersignifiesgreater sustainability . |
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| 3342. |
A seller sells 3 diamond rings of 15000rs each. If a seller sells his 4th diamond ring, his MR becomes 13500rs. Calculate the price at which the seller sells his fourth ring. |
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Answer» Solution :TR of 3 DIAMOND ring `=15000Rsxx3=45000rs` MR of 4TH diamond ring `=13500RS` TR of 4 diamond ring `=45000rs+13500rs=58500rs` Price (AR) of 4th diamond ring =TR of 4th diamond ring `-:4` AR `=14625rs` Price of 4th diamond ring `=14625rs` |
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| 3343. |
Explain the relationship between (i) Prices of other goods and demand for the given good. (ii) Income of the buyers and demand for a good |
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Answer» Solution :(i) Price of other goods and demand for the given good : Demand for a commodity may be affected by the prices of other goods. The other goods may be substitute goods and COMPLEMENTARY goods. Price of substitute goods: Those goods which can be used at the place of another are KNOWN as substitute goods like tea and coffee. If the price of tea increases then the demand of coffee will increases because then the demand of coffee will increases because now it is cheaper in comparison to tea on the other side, if the price of tea FALLS, the demand of tea will increases, because now it is cheaper than coffee. Price of complementary goods: Those goods which we cannot use without one another are known as complementary goods. Such as car and petrol if the price of car rises then the demand for petrol falls down. The reverse will happen when the price of car falls. (ii) Income of the buyers and demand for a goods. Income of the buyers affect the demand of goods. Generally, we can SEE when the income of buyer increases the demand increases and vice versa. The effect of increase in income is not uniform on the demand of all goods. When income increases, the demand of NORMAL goods increases and that for inferior goods decreases. The reverse of it happens when income falls |
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| 3344. |
Gross value of output refers to the market value of final goods and services. |
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Answer» |
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| 3345. |
In an economy, C=1000+0.5 Y and I=2,000, calculate : (i) Equilibrium level of income. (ii) Saving at equilibrium level of income. |
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Answer» SOLUTION :(i) `Y=C+I=1000+0.5 Y+2000=3000+0.5 Y` or `0.5 Y=3000` `Y=6000` (II) `S=Y-C=6000-(1000+0.5xx6000)`. `=6000-4000=2000`. |
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| 3346. |
Explain the concept of infaltionary gap Explain therole of Repo Rate in reducing this gap. |
| Answer» Solution :An inflationary gap is a macroeconomic concept that describes the difference between the current level of real gross DOMESTIC product (GDP) and the anticipated GDP that would be experienced if an economy is at full employment. This is ALSO referred to as the potential GDP. With an increase in the REPO rate, the market interest rates will rise too. This will lead to a decrease in consumption and investments, and ULTIMATELY a reduction in the demand. This will eventually lead to a decrease in the rate of inflation. | |
| 3347. |
Equilibrium level of income can be determined at |
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Answer» FULL employment |
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| 3348. |
Explain the distinction between the following: (a) Revenue Expenditure and Capital Expenditure in a government budget (b) Primary Deficit and Fiscal Deficit |
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Answer» Solution : Government BUDGET is defined as a statement of planned RECEIPTS and planned expenditure of the government during a fiscal year: Its major components are: REVENUE Receipts: the receipts which neither create a liability nor lead to reduction in assets. Capital Receipts : the receipts which either create a liability or lead to reduction in assets. (iii) Revenue Expenditure:the expenditure which does not lead to any creation of assets or reduction in liabilities iv. Capital expenditures : the expenditure which leads to creation of assets or reduction in liabilities. OR Objectives of Government Budget: Allocation of Resources in the economy There are many non-profitable economic activities which are not undertaken by the private sector like, water supply, sanitation, etc., but are necessarily undertaken by government in public interest. So, Government can undertake these activities in order to create social welfare. In addition government can encourage the private sector through tax concessions, subsidies, etc, to undertake certain production in public interest. Economic Stability Economic Stability means absence of large-scale fluctuation in prices. Such fluctuations create uncertainties in the economy. Government can exercise control over these fluctuations through taxes and expenditure. For example, under inflationary situations, government may discourage spending by increasing taxes or reducing its own expenditure, whereas, under deflationary CONDITIONS, government may encourage spending by giving tax concessions, subsidies, etc. |
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| 3349. |
Borrowings is a capital receipt because. |
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Answer» It CREATES a LIABILITY |
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| 3350. |
Define Ex-ante investments. |
| Answer» SOLUTION :Ex-ante INVESTMENTS refers to the amount of investments which INVESTORS plan to invest at DIFFERENT levels of income in an economy. | |