Explore topic-wise InterviewSolutions in Current Affairs.

Answer is (A) 2009

C) 1 – b, 2 – d, 3 – e, 4 – a, 5 – c

(C) Ramakrishna Paramahamsa

Answer (B) Bengali

Answer (C) Both A & B

True

Because under perfect competition AR = MR, while under monopoly AR > MR. While equilibrium in both cases is struck when MR = MC.

(A) Europeans

Answer is (B) 2002

(A) human rights

(D) All the above

(D) All the above

The UNO was established in 1945

Answer is (A) 2002

Answer is (D) 86

(D) 1 – d, 2 – e, 3 – b, 4 – c, 5 – a

(D) Government departments

Answer is (C) 2005

(i) In shifting cultivation, parts of the forest are cut and burnt in rotation. Seeds are sown in the ashes. Such plots are cultivated for a couple of years and then left follow to regain fertility.

(ii) Europeans discouraged practice of shifting cultivation:

a. Considered the practice harmful for the forests.

b. Lands used for shifting cultivation could not be used to grow trees for railway timber.

c. Danger of the flames spreading and burning valuable timber.

d. Difficulty in the calculation of taxes.

When in an oligopoly market firms cooperate with each other in determining price and output, it is called collusive oligopoly.

No. A firm under monopolistic competition has partial control over the price owing to product differentiation.

True

In a situation of excess supply, supply is more than demand. Excess supply forces the market price to slide down to its equilibrium level. In a situation of excess demand, demand is more than supply. Shortage of supply shall push the price to its equilibrium level.

Yes. Because price of the product is given to a firm under perfect competition.

A perfectly competitive firm faces a perfectly elastic demand curve. 

Monopolistic Competition

Under perfect competition, the price is determined by the industry. It is due to the fact that there are large number of buyers and sellers of homogeneous products under perfect competition. No single seller by changing his supply can influence the Price.

A monopolist is the only seller and himself determines price of his product. He is a price maker. There is no challenge to his price decisions as there are no competitive firms in the market and there are no close substitutes of his product. Barriers to the entry of new firms further strengthens his position as a price maker.

It will remain constant.

The buyers treat the goods produced by different firms as homogenous so that all buyers are willing to pay the same price for the product of all producers of the good. So, no producers is in a position to charge a higher price of the product it producers. A uniform price prevails in the market.

Detailed Answer:

In a perfectly competitive market, buyers treat the product produced by different firms as homogenous. So they are willing to pay the same price for products of different firms. No firm, therefore, can charge a price higher than the market determined Price.

On the other hand, the number of firms in the industry is so large that any individual firm, through its action, can not influence the market price. They have to take the price determined at the industry level as given. So, the firms are considered to be price takers. 

Under perfect competition, the price is determined by intersection of demand and supply curve of the industry as a whole. So, the industry is called the price maker.

Both AR and MR curves are indicated by the same line. And, it is a horizontal straight line parallel to the X-axis.

An important feature of a perfect competition is freedom of entry and exit to the firms. An entrepreneur who has the necessary capital and skill can start any business of his choice. In every industry, new firms are therefore opened from time to time.

Similarly in a market of perfect competition, any existing producer is free to close down his business if he so choose. As a result, some firms are going out of industry. Since there is no hindrance to the entry of new firms and exit of existing firms, the total number of firms under perfect competition remains very large.

Price remains the same, equilibrium quantity decreases. 

It is equal to the producer’s excess earning over the opportunity cost. 

Law of diminishing marginal utility states that as more and more units of a commodity are consumed, marginal utility derived from every additional unit must decline.

The two conditions are : 

(i) The ratio of marginal utility to price is same in case of all the goods consumed. Suppose the consumer consumes only two goods x and y then 

MU_x / P_x=MU_y / P_y  

(ii) Marginal utility has a tendency to fall as more and more units are consumed.

Oligopoly refers to a market situation in which there are a few firms selling homogenous or differentiated products.

Features of Perfect Competition are:

• A large number of buyers and sellers
• Homogenous product
• Freedom of exit and entry
• Absence of selling costs
• Absence of transportation cost

When Marginal Cost is rising and Average Variable Cost is falling, Marginal cost lies below the Average Variable Cost. MC is less than AVC.

Correct option is (b) The managers.

Yes, I do agree with the statement. 

• Optimum population means there is a balance between population growth and the availability of natural resources. 
• If the population grows faster then there will be a shortage of food supply, low employment opportunities, etc., and pressure will be there on the economic growth of the country. 
• It will create social and economic imbalances in the economy. 
• Whereas optimum population will lead to balance in social and economic growth resulting in faster growth of the country. 
• Thus, an optimum population contributes to the economic development of a country.

Fixed cost is parallel to X-axis because it remains constant at all levels of output.

Selective/Qualitative measures of monetary policy/ Credit control:

• Qualitative measures are those measures which are selected by RBI based on the impact of credit for development of certain sectors or segments of the economy.
• These measures have unique impact on certain sector and unlike quantitative measures do not impact all sectors present of the economy.

1. Collateral security:

When bank lends money to individual, it demands some asset as mortgage for security of the loan. This is known as collateral security.

• This security can be jewelry, fixed deposits, car, house, land, etc.
• The bank asks for such assets against the loan because if the borrower is not able to pay back the loan amount, bank uses this asset to recover the dues.
• The type of security that the bank demands various from person to person. For example, a poor farmer may get a loan from bank with almost no or less security whereas, a rich businessman may have to keep more as security with the bank to get loan.
• RBI promotes and encourages commercial banks to take such steps so that all the segments of people in India can attain the benefit of bank credit.

2. Margin requirement:

• Margin requirement is the limit that is set by RBI for granting loans against security.
• An individual is offered only certain percentage of the total value of the asset (security) as loan.

3. Ceiling on credit:

• RBI fixes a limit on the loans that the commercial banks can give to the people.
• In other words, commercial banks cannot exceed the maximum limit (ceiling) that the RBI has fixed for specific categories.

4. Discriminatory interest rates:

• Banks charges different rate of interest on different types of loans and advances and also charges differently to different economic class of people.
• For example, the bank may charge less interest rate on the loan given to a farmer for agricultural development and may charge more interest rate on the loan given to a businessman.

There are two types of instruments or say measures of monetary policy.

(A) Quantitative measures and
(B) Qualitative measures.

(A) Quantitative measures:

1. Bank rate
2. Repo rate and reverse repo rate
3. Stabilization under emergency situation
4. Cash Reserve Ratio(CRR)
5. Statutory Liquidity Ratio (SLR)
6. Open Market Operation (OMOs)
7. Sterilization of RBI accounts against shocks arising from the excessive increase or decrease in amount of foreign exchange

(B) Qualitative measures:

1. Collateral security
2. Margin requirement
3. Ceiling on credit
4. Discriminatory interest rates

There are two types of instruments or say measures of monetary policy.

(A) Quantitative measures and
(B) Qualitative measures.

(A) Quantitative measures:

• Quantitative measures are general measures that influence the overall economy i.e. measures that have an impact on the economy in general.
• They are not bifurcated based on sectors or segments in the economy. They have a common impact in all the sectors.

(B) Qualitative measures:

• Qualitative measures are those measures which are selected by RBI based on the impact of credit for development of certain sectors or segments of the economy.
• These measures have unique impact on the certain sector and unlike quantitative measures do not impact all sectors present of the economy.

(A) Quantitative measures:

The quantitative measures of bank control are discussed below.

1. Bank rate:

• Bank rate is the rate of interest which Reserve Bank of India charges on the loans and advances that it gives to the commercial banks for long term.
• At times, the commercial banks have shortage of funds and due to this reason, they borrow money which has to be repaid back with interest within the stipulated time period.

2. Repo rate and reverse repo rate:

• When banks need money they approach RBI. The rate at which banks borrow money from the RBI by selling their surplus government securities to RBI is known as “Repo Rate.”
•  Reverse Repo rate is a short term borrowing rate at which RBI borrows money from commercial banks.
• Here, the RBI sells certain government securities to the commercial banks with an agreement of purchasing them back at a discounted rate at the end of short term period.

3. Stabilization under emergency situation:

• At times there might occur some emergency of acute shortage of cash with the commercial banks.
• Under such situations there is a special window for banks where RBI provides money to commercial banks against approved government securities.
• This rate is higher than repo rate and is known as ‘Marginal standing facility’. This helps in stabilizing the inflation under emergency situation.

4. Cash Reserve Ratio (CRR):

• Cash Reserve Ratio is the specified percentage of the total deposits of customers of the commercial bank that the bank has to maintain with the RBI.
• The increase or decrease in the rate of CRR directly effects controlling inflation and deflation respectively.

5. Statutory Liquidity Ratio (SLR):

Statutory Liquidity Ratio is the percentage of total deposits (25% or more) that the commercial banks have to maintain with RBI in form of cash, gold and government-approved securities.

6. Open Market Operation (OMOs):

• When RBI purchases or sells government securities/bond in the open market it is called Open Market Operations (OMOs).
• The sale or purchase made by RBI affects the inflation.

7. Sterilization of RBI accounts against shocks arising from the excessive increase or decrease in amount of foreign exchange:

Sterilization is a form of monetary action in which a central bank seeks to limit the effect of inflows and outflows of money supply in the economy.

(B) Qualitative measures:

1. Collateral security:

• When bank lends money to individual, it demands some asset as mortgage for security of the loan. This is known as collateral security.
• This security can be jewelry, fixed deposits, car, house, land, etc.
• RBI promotes and encourages commercial banks to take such steps so that all the segments of people especially poor in India can attain the benefit of bank credit and hence help to improve country’s economy.

2. Margin requirement:

• Margin requirement is the limit that is set by RBI for granting loans against security.
• An individual is offered only certain percentage of the total value of the asset (security) as loan.

3. Ceiling on credit:

• RBI fixes a limit on the loans that the commercial banks can give to the people.
• In other words, commercial banks cannot exceed the maximum limit (ceiling) that the RBI has fixed for specific categories.

4. Discriminatory interest rates:

• Banks charges different rate of interest on different types of loans and advances and also charges differently to different economic class of people.
• For example, the bank may charge less interest rate on the loan given to a farmer for agricultural development and may charge more interest rate on the loan given to a businessman.

Division of labour is based on one’s skills and expertise

(a) The APC falls and gets nearer in value to the MPC.

When income rises, both APC and MPC decrease, but MPC decreases more than APC.

True. The equality between aggregate demand and aggregate supply determines the equilibrium level of income and prices, which in turn determine the equilibrium level of employment.

Revenue Receipts are receipts which neither reduce assets nor create liabilities.