InterviewSolution
Saved Bookmarks
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.
| 3451. |
Distinguish between stock and flow. Give an example of each. |
| Answer» Solution : A stock variable is measured at one specific TIME, and represents a quantity existing at that point in time (say, December 31, 2004), which may have accumulated in the past. A flow variable is measured over an interval of time. Therefore a flow would be measured per unit of time (say a year). Flow is ROUGHLY analogous to rate or speed in this sense. For example, U.S. nominal gross domestic product refers to a total number of dollars spent over a time period, such as a year. Therefore it is a flow variable, and has units of dollars/year. In contrast, the U.S. nominal capital stock is the total VALUE, in dollars, of equipment, BUILDINGS, inventories, and other real assets in the U.S. economy, and has units of dollars. | |
| 3452. |
Free samples distributed by a business enterprise for advertisement will not be included in national income. |
| Answer» Solution :TRUE. Such FREE samples are part of intermediate CONSUMPTION expenditure. | |
| 3453. |
Market for a good is in equilibrium. The supply of the good 'Increases'. Explain the chain of effects of this change. |
Answer» Solution :When the market is in equilibrium, this implies that the market demand is equal to the market supply at the equilibrium POINT. Now, in case the market supply increases, this LEADS to a rightward shift in the market supply curve. This is because, an increase in supply refers to a RISE in the supply of the given commodity due to change in factors other than price. Thus, in the given case the supply curve will shift towards right. As a result, there will exist a situation of EXCESS supply at the equilibrium point. This can be shown in the following diagram.  As the market supply increases, the initial supply shifts rightwards to the new supply curve `S_(2)S_(2)` from `S_(1)S_(1)`. Not at the initial market price of `OP_(1)`, there exists excess supply. Due to the excess supply, some of the existing firms are ready to sell the output at comparatively lower prices to increase their sale, THEREFORE, the market price will tend to fall. The fall in the market price will continue until it reaches `OP_(2)`. The new market equilibrium will occur at point `E_(2)`, where the new market supply curve intersects the initial demand curve. The total quantity supplied will be equal to the quantity demanded at `Oq_(2)` and the new equilibrium price will fall to `OP_(2)`. |
|
| 3454. |
Explain 'Paradox of Thrift'. Hint: The 'Pardox of Thrift' is an economic theory, propounded by J.M Keynes. Accordings to Keynes, when people start saving money instead of spending it, in response to growing cercons about a recession, they actually make the recession worse Rise in MPS means a fall in MPC. When MPC falls, aggregate consumptions in the economy falls. It leads to rise in inventory of producers. To clear the unwanted increase in inventory, firms would plan to reduce the production. It will reduce the demand for factor services and factor incomes. As a result the total volume of saving genreated in the economy would fail (or remain unchanged). This theory is referred as a paradox because the theory seems to be beneficial, but is actually deterimental(disadvantageous) for the economy. |
|
Answer» Solution : The 'Pardox of Thrift' is an economic THEORY, propounded by J.M Keynes. Accordings to Keynes, when PEOPLE start saving money instead of spending it, in RESPONSE to growing concerns about a recession, they actually make the recession worse .Rise in MPS means a fall in MPC. When MPC falls, aggregate consumption in the economy falls. It leads to rise in inventory of producers. To clear the unwanted INCREASE in inventory, firms would plan to reduce the production. It will reduce the demand for factor services and factor incomes. As a result the total volume of saving generated in the economy would fall (or remain unchanged). This theory is REFERRED as a paradox because the theory seems to be beneficial, but is actually deterimental(disadvantageous) for the economy. |
|
| 3455. |
Define national income |
| Answer» SOLUTION :National income is the sum of FACTOR incomes ACCRUING to the residents of a COUNTRY | |
| 3456. |
Which of the following flowchart correctly represents the relationship between Domestic concepts ? |
|
Answer»
|
|
| 3457. |
(a) Explain 'standard of deferred payement'function of money . (b) Can yhou imagine business activities of today without this function of money? |
|
Answer» Solution :(a) Refer tosection 5.3.2 B for detail a. (b) Money serves as a standard of future payments . Modern business is BASED on this FUNCTION to a great extent. We cannot imagine tody's modern WITHOUT money as money facilitates the borrowing and lending acitvites through financial institutions. To facilitte transactions in advanced economic activities, "standard of deferred payments" function PLAYS very important ROLE. |
|
| 3458. |
_______ incomes are not included in national income as there is no corresponding flow of goods and services. |
|
Answer» |
|
| 3459. |
What can be the minimum value of investment multiplier? |
| Answer» Solution :The minimum VALUE ofinvestment multiplier (K) can be ONE. It is possible when MPC=0 | |
| 3460. |
There are various sources of income a teacher has, such as, (i) He can earn Rs. 40000 from teaching in school. (ii) He can earn Rs. 50000 by tuition/coaching (iii) He earns Rs. 60000 by writing the help book guides. What is the opportunity cost of his teaching in school? Why should he choose teaching profession? |
|
Answer» SOLUTION :Opportunity COST of teaching is the writing of BOOKS. He should choose teaching profession because it provides maximum social WELFARE. VALUE: Social welfare |
|
| 3462. |
What is balance of trade? |
| Answer» SOLUTION :Balance of trade is the difference between exports and imports of GOODS(visible). | |
| 3463. |
What is double coincidence of wants? |
| Answer» SOLUTION :It refers to SIMULTANEOUS FULFILMENT of mutual WANTS of buyers and SELLERS | |
| 3464. |
An economy achieves "productiveefficiency" when: |
|
Answer» RESOURCES are employed in their most highly valued uses. |
|
| 3465. |
Distinguish between current account and capital account of BOP account. |
| Answer» Solution :CURRENT account records (i) EXPORT and import of goods, (ii) export and import of services and (III) unilateral transfers. As against it capital account records capital transfers in the form of (i) borrowings, (ii) SALE of assets and (iii) change in stock of gold and reserves of foreign currency. | |
| 3466. |
What are retained earnings ? |
| Answer» Solution :Retained EARNING refer to that PART of the PROFIT which is KEPT as reserve after paying the corporate tax and dividends out of total PROFITS. | |
| 3467. |
What happens to domestic currency when there is depreciation of domestic currency? |
| Answer» Solution :Domestic currency BECOMES cheaper and EXCHANGE RATE becomes higher. | |
| 3468. |
Explain the concept of Inflationary Gap. Explain the role of Repo Rate in reducing this gap. ORExplain the concept of Deflationary Gap and the role of 'Open Market Operations' in reducing this gap. |
|
Answer» Solution :Due to the excess of aggregate demand, there exists a difference (or gap) between the ACTUAL level of aggregate demand and full employment level of demand. This difference is termed as inflationary gap. This gap MEASURES is termed as inflationary gap. This gap measures the amount of surplus in the level of aggregate demand. Graphically, it is represented by the vertical distance between the actual level of aggregate demand `(AD_(E))` and the full employment level of output `(AD_(F))`. In the figure, EY denotes the aggregate demand at the full employment level o output and FY denotes the actual aggregate demand. The vertical distance between these two represents inflationary gap. That is, FY-EY=FE (Inflationary Gap) Let us understand the situation of excess demand and concept of inflationary gap with the help of the following figure.  In the figure, `AD_(1)` and AS represents the aggregate demand curve and aggregate supply curve respectively. The economy is at full employment equilibrium at point 'E', where `AD_(1)` intersects AS curve. At this equilibrium point, OY represents full employment level and EY is aggregate demand at the full employment level of output. Let us suppose that the actual aggregate demand for output is FY, which is higher than EY. This implies that actual aggregate output demanded by the economy FY is more than the potential (full employment) aggregate output EY. Thus, the economy is facing surplus demand. This situation is termed as excess demand. As a result of the excess demand, inflationary gap arises. The inflationary gap is measured by the vertical distance between the actual aggregate demand for output and the potential (or full employment level aggregate demand. In other words, the distance between FY and EY, i.e. FE represents the inflationary gap. Reporate refers to the rate at which the central BANK lends to the commercial bank. In such inflationary gap, the central bank would increase repo rate. An increase in the repo rate increases the cost of borrowings for the commercial banks. This discourages the demand for loans and borrowings. Thereby, the consumption expenditure falls, and hence aggregate demand falls. OR Due to the deficiency in the aggregate demand, there exists a difference (or gap) between the actual level of aggregate demand and full employment level of demand. This difference is termed as deflationary gap. This gap measures the amount of deficiency in the level of aggregate demand. Graphically, it is represented by the vertical distance between the aggregate demand at the full employment level of output `(AD_(E))`and the actual level of aggregate demand `(AD_(f))`. In the figure below, EY denotes the aggregate demand at full employment level of output and CY denotes the actual aggregate demand. The vertical distance between these two represents deflationary gap. That is, EY-CY=EC (Deflationary GAP) Let us understand the situation of deficit demand and concept of deflationary gap with the help of the following figure.  In the figure, `AD_(1)` and AS represents the aggregate demand curve and aggregatesupply curve. The economy is at full employment equilibrium at point 'E', where `AD_(1)` intersects AS curve. At this equilibrium point, OY represents the full employment level of output and EY is the aggregate demand at the full employment level of output. Let us suppose that the actual aggregate demand for output is only CY, which is lower than EY. This implies that actual aggregate output demanded by the economy CY falls short of the potential (full employment) aggregate output EY. Thus, the economy is facing a deficiency in demand. This situation is termed as deficit demand. As a result of the deficit demand, deflationary gap arises. The deflationary gap is measured by the vertical distance between the potential (or full employment level) aggregate demand and the actual aggregate demand for output. In other words, the distance between EY and CY, i.e. EC represents the deflationary gap. To CORRECT deflationary gap, the central bank purchases the securities in the market, thereby, INCREASING the flow of money and subsequently enhancing the purchasing power of the people. The higher purchasing power increases the aggregate demand. |
|
| 3469. |
Production of petrol and diesel driven vehicles : |
|
Answer» RAISES walfare |
|
| 3471. |
What are the four factors of production and what are the remunerations to each of these called ? |
| Answer» SOLUTION :`|{:("Factors of production",,"Remuneration paid"),("Land",,"Rent"),("LABOUR",,"Wages/salaries"),("Capital",,"INTEREST"),("Entrepreneur",,"Profit"):}|` | |
| 3472. |
What is formalemployment . What constitutesformal employment sector in India ? |
|
Answer» Solution :Formal employment refers to those employedpersonswho enjoy social securitybenefits during the periodof employment and after. The major forms of social securitybenefits are provident fund, GRATUITY,pension, MATERNITY benefits etc. In India all those who are EMPLOYED in public sector NAD those private sectorestablishments whichhave 10 workers or more are treated to be in formal employment. |
|
| 3473. |
Explain the 'currency authority' functionof central bank. |
|
Answer» Solution : Central Bank has the sole authority for issue of currency in the country. In India, Reserve Bank of India (RBI) has the sole right of issuing paper currency NOTES (except one-rupee notes and coins, which are issued by Ministry of Finance).All the currency issued by the Central Bank is its monetary liability, i.e. Central Bank is obliged to back the currency with assets of equal VALUE, to enhance the PUBLIC confidence in paper currency. Advantages of Sole Authority of Note issue with RBI: (i) It leads to uniformity in note circulation.(ii) It gives the central bank power to influence money supply because currency with public is a part of money supply.(iii) It enables the government to have supervision and CONTROL over the central bank with respect to issue of notes.(iv) It ENSURES public faith in the currency system.(v) It helps in stabilization of internal and external value of currency. |
|
| 3474. |
An account indicating a systematic reco'rd of all economic transactions between residents of a country and residents of foreign countries during a period of account is called ____Account |
|
Answer» BALANCE of TRADE |
|
| 3475. |
Under which a firm's marginal revenue is always equal to price |
| Answer» Solution :Under perfect competition MARGINAL REVENUE is ALWAYS equal to price | |
| 3476. |
What is equilibrium point ? |
| Answer» Solution :EQUILIBRIUM point is the point of intersection of the demand CURVE and SUPPLY of COMMODITY . | |
| 3477. |
Oligopolistic industries are characterized by- |
|
Answer» A few dominant firms and SUBSTANTIAL barriers to entry. |
|
| 3478. |
What are the revenue receipts ? |
| Answer» Solution :Revenue receipts REFER to those receipts of the government which do not CREATE any liability for the government or CAUSE any REDUCTION in the assets of the government . Revenue receipts consist of tax revenue and non-tax revenue (e.g., FEES , licence fees , fines and penalties etc.) | |
| 3479. |
Give an example each of inter-dependence between Microeconomics and Macroeconomics. |
|
Answer» Solution :(i) MICRO depends on Macro. Investment in ONE industry depends upon the level of investment in the economy as a whole. (ii) Macro depends on Micro. National income in MACROECONOMICS is the sum total of incomes EARNED at the micro-level. |
|
| 3480. |
If the consuption function in an economy is C=50+0.75Y andthe autonomous investmenet is 30 crore, calculate the equilibrium level of income. |
|
Answer» Solution :Rs.320 CRORE Hint. At EQUILIBRIUM AD=AS Since AD=C+I,and AS=Income (Y) `THEREFORE Y=C+I Rightarrow Y=(50+.075Y)+30, Find Y` |
|
| 3481. |
Defines excess demand. |
| Answer» Solution :EXESS DEMAND refers to a situation when `AD gt AS` CORRESPONDING to the full employment LEVEL of output in the economy. Here, Actual `AD gt "Required" AD`. | |
| 3482. |
Value of marginal propensity to save can never be negative. |
| Answer» Solution :True. : SINCE MPS = `DeltaS//DELTAY`, The INDIVIDUAL may at THA most spend the entire `DeltaY` so that `DeltaS=0`. So, MPS can at the most be zero. | |
| 3483. |
What is the behaviour of (a) Average Fixed Cost and (b) Average Variable Cost as more and more units of a good are produced ? OR Define Average Revenue. Show that Average Revenue and Price are same. |
|
Answer» Solution :(a) Average Fixed COST in defined as the fixed cost PER unit of output produced. It is derived by dividing the total fixed cost produced. That is,  As more and more units of output are produced, the shape of AFC becomes that of rectangular hyperbola. That is, AFC is downward sloping rectangular hyperbola. This is because at any point on AFC CURVE, if AFC is multiplied by corresponding unit output, then we get TFC. For example, at point A in the above figure, AFC is Rs.2.5 and corresponding output produced is 2 units, hence, TFC is Rs. (i.e. `Rs.2.5xx2`) (b) Average Variable Cost is defined as the variable cost per unit of output produced. It is derived by dividing the Total Variable Cost by quantity of output produced. That is,  AVC is a U-shaped curve, That is, as output increases, the AVC curve falls and reaches its minimum point 'K' and then rises up. The reason behind the U-shape of AVC curve is the Law of Variable Proportion. OR Average Revenue (AR) is defined as revenue earned per unit of output sold. AR is same as that of PRICE (P) of the output (Q). Algebraically, `AR=(TR)/(Q)` where, TR is total revenue Q=Output We know that TR = `PxxQ` `THEREFORE AR=(PxxQ)/(Q)implies AR=(PxxcancelQ)/(cancelQ)` AR=P Thus, AR is always equal to the price of the output. |
|
| 3484. |
What is meant by the assumption, other things remaining the same, on which law of supply is based ? |
Answer» Solution :It is based on certain assumptions. If these assumptions fulfil in the economy, Law of supply states that POSITIVE relationship exists between price of the commodity and quantity supplied of that commodity.  "Other things being CONSTANT (ceteris paribus), based on the price of the commodity" is called law of supply. It means due to RISE in price of a commodity its quantity supplied also rises and vice-versa. The assumptions are asunder : (a) Price of other commodity remains constant. (b) Technology of production should not change. (C ) Cost of production remains costant. (d) Goal of the firm remains constant. (e ) TAXATION policy of the government should not change. 
|
|
| 3485. |
A firm hires the services of a chartered accountant and pays fees. For the firm, payment of fees is : |
|
Answer» FINAL EXPENDITURE |
|
| 3486. |
Capital intensive technique is chosen in a |
|
Answer» 1.Labour SURPLUS ECONOMY. |
|
| 3487. |
In which sub-account and on which side of balance of payments account, will foreign investments in India be recorded? Give reasons. |
|
Answer» Foreign investment will be recorded on the credit side because these bring in foreign exchange to the ECONOMY. |
|
| 3488. |
Money is an asset and can be possedssed for use in future. |
| Answer» | |
| 3489. |
If Marginal Rate of Substitution is constant throughout, the Indifference curve will be : |
|
Answer» PARALLEL to the X - axis . |
|
| 3490. |
Explain the working of investment multiplier with the help of a numerical example |
|
Answer» Solution :INVESTMENT multiplier refers to INCREASE in national income as a multiple of a given increase in investment. Its value is determined by Mrginal Propensity to Consume The value equals : Multiplier `= (1)/(1-MPC) or (1)/(MPS)` Suppose increase in investment is Rs 1,000 and MPC = 0.8. The increase in national income is in the folloiwng sequence ** Increase in investment raises income of those who supply investment goods by Rs 1,000. This is first round increase ** Since MPC = 0.8, the income earners speed Rs 800 on consumption. This raises the income of the suppliers of consumption goods by Rs 800. This is second round increase. ** In the similar WAY the third round increase is Rs `640 = 800 xx 8`. In this way national income goes on national income goes on increasing round after round. ** The total increase in income is Rs 5,000 which equal `Delta Y = Delta I xx (1)/(1-MPC)` `Delta Y = 1,000 xx (1)/(1 - 0.8) = Rs 5,000` (Working based on table is also CORRECT ) |
|
| 3491. |
If the Nominal GDP is Rs.1,200 and Price Index (with base=100) is 120, calculate Real GDP. |
|
Answer» Solution :REAL GDP = `("Nominal GDP")/("PRICE Index")XX100` substituting the given values in the question Real GDP=`(1200)/(120)xx100` or, Real GDP = Rs.1000 |
|
| 3492. |
Large number of technical training institutions have been started by the government. State its economic value in the context of production possibility frontier. |
|
Answer» Solution :This would lead to technological innovations in the economy. When the level of technology improves PRODUCTION POSSIBILITY frontier is EXPECTED to shift to the right. There would be better utilization of the resources and the economy will move CLOSER to the production possibility frontier. Value: Economic Growth with technological innovation. |
|
| 3493. |
As margin requirements are_,borrowers tend to borrow more money from banks. |
|
Answer» |
|
| 3494. |
Purchase of securitiesin theopenmarketby the commercialbanksreduces theircreditcreditingpower . |
| Answer» Solution :TRUE : The Purchase of securities DECREASES the RESERVES of COMMERCIAL banks, which reduces their CREDIT crediting power. | |
| 3495. |
Define Indifference Map. |
| Answer» Solution :Indifference MAP is a family or collection of indifference curves that DEPICTS the different LEVELS of satisfaction and preferences of a consumer. Each indifference CURVE in an indifference map depicts a particular level of satisfaction. | |
| 3496. |
How does a central bank act as the lender ot the last resort? |
| Answer» Solution :When COMMERCIAL banks fail to meet their financial REQUIREMENTS from other SOURCES, they can APPROACH the central bank for loans and advances as the lender of the last resort. | |
| 3497. |
An indifference curve (IC) is convex to the origin because of increasing MRS_("xy") . |
| Answer» Solution :False : An IC is convex to the origin because of DIMINISHING `"MRS"_(XY)` | |
| 3498. |
Identifywhich of the following statements istrue ? |
|
Answer» Fiscaldeficitis difference between PLANNED revenueexpenditure andplanned REVENUE receipts |
|
| 3499. |
Classify the following transactions in current account or capital account: i) Purchase of shares of ITC by Microsoft. ii) Borrowing from IMF. iii) Repayment of loan by Indian government taken from Germany. iv) Remittance from abroad. v) Purchase of land in USA |
| Answer» Solution :Current account: (iv),CAPITAL account: (i), (II), (III) and (V) | |
| 3500. |
Elaborate 'economic growth' as objective of government budget. |
|
Answer» Solution :Economic growth IMPLIES a sustainable increases in real GDP of an economy i.e. an INCREASE in volume of goods and services produced in an economy. Budget can be an effective tool to ENSURE the economic growth in a country (i) If the government provides tax rebates and other incentives for productive activities, it can stimulate savings an divestment in the economy . (ii) SPENDING on infrastructure in the economy promotesthe production activities across different sectors. Government expenditure is a major factor that generates DEMAND for different types of goods and services, which induces economic growth in the economy. |
|
