QUESTIONS FOR SLOW LEARNERS

1. Define economics.
Ans Economics is a subject matter that focus on rational management of scarce resourse
in a manner such that our economic welfare is maximized.
2. Define micro economics.
Ans Economic problems relating to individual economic units

3. Define macroeconomics.
Ans : Economic problems relating to economy as a whole.
4. State reasons why does an economic problem arises.
Ans : 1) Resources are scarce .2) Resources have alternative uses.
5. What is meant by production possibility curve?
Ans : PPC show the different combination of two goods which can be produced with
given technology and resources.
6. What does the slope of PPC shows?
Ans : Slope of PPC shows marginal opportunity cost.
7. Give one reason for rightward shift in PPC.
Ans : When resourses are increased.
8. Define opportunity cost.
Ans : Value of the factor in its next best alternative use.
9. Define marginal opportunity cost or MRT.
Ans : MOC is the rate at which output of GOOD-Y is to be sacrificed for every
additional unit of GOOD-X. it refers to the slope of PPC.
10. Define Marginal utility.
Ans. Utility from consumption of one additional unit of a copmmodityic.
MUn = TUn TUn-1

11. What is SC ?
Ans. Acurve that shows various combinations of two goods that give a consumer equall level of
satisfaction.

12.Why is IC convex to the origin?

Ans. Due to diminishing MRS .

13.What is a budget line ?

Ans.A line that shows various combinations of two goods that a consumer can purchase from
spending his entire income.
14. What is individual demand?
Ans. Demand for a commodity by single consumer.
15. Give two causes of rightward shift in demand curve?
Ans. Decrease in price of complementary goods. Increase in price of substitute goods.
16. What causes upward movement of demand/
Ans. Increase in price of commodity.
17 What is shape of demand curve in case of perfectly inelastic demand?
Ans. Vertically straight line.
18 Write formula of measuring elasticity of demand .
Ans. Ed = Q/p * P/Q.
19 Write two factor affecting elasticity &^ demand?
Time Period , Availability & Substitutes.
20. What a production function/
Ans. Technology relationship between physical inputs and physical output.
21. Define marginal product?
Ans. Output produced by one additional unit of input (L).
22. What is maginal cost?
Ans. Cost of producing one additional unit of commodity.
MCn = TVCn TVCn 1
Q.23 Define supply?
Ans. Quantity supplied of a commodity at various price levels in a given period of time.
Q.24 What is individual supply?
Ans. Supply of a commodity by single firm.

Q.25 Define market supply?

Ans. Sum of individual supplies.
Q.26 What is the supply shape of supply curve?
Ans.Upward sloping.
Q.27 Whatcuased downward movement? Supply
Ans.Decrease in price of commodity.
Q.28 What is elasticity of supply?
Ans.Ratio of percentage change in price.
Q.29 Supply curve is upward sloping beging from X axis what is elasticity?supply
Ans. Inelastic supply.
Q.30. What cause in leftward shift in supply curve?
Ans.Increase in taxes by gow, icrease in price outputs.
Q. 31.Supply curve in upward sloping at 40. What is elasticity of supply.
Ans.supply may be inelastic,elastic or curve elastic.
Q. 32.Write two factor affecting elasticity of supply?
Ans.Timeperiod,cost of production,nature good.
Q.33. What do you mean by producer equilibrium?
Ans.A situation where producer get max.profit.
Q.35.What happens to equilibrium price of demand increase?
Ans.equilibrium price increase
Q.36.define perfect comprttion market.
Ans.A marketwhaen there are large no. of buyer and seller homogeneous goods at the same
price.
Q.37 What is the shape of demand curve of perfect competition market?
Ans. Horizontal straight line.

Q.38 In which market forms, firm and price taker?

Ans. Perfectly competition market.
Q.39 In which market firm in price maker?
Ans. Monopoly market.
Q.40. What is shape of demand curve is care of monopoly market?
Ans. Downward sloping inelastic.
Q.41. Why is demand curve is care of monopoly market inelastic?
Ans. Due to non-availability substuite.
Q.42. Why is demand curve under monopolistic competition market elastic?
Ans. Due to availability of close substuite.
Q.43. What is oligopoly market?
Ans. A market which has a few seller.
Q.44. What is shape of demand curve in cash of oligopoly market?
Ans. Kinked demand curve.
Q.45. What is cartel?
Ans. A text agreement among a few firm.
Q.46 Why is Ac curve U shaped?
Ans. Due to increasing and diminishing returns.
Q47 Define Marginal revenue.
Ans. Revenue from role of one additional unit of a commodity.
Q48 What is shape of MR curve in case of perfectly competitive market.
Ans. Horizontal Straight line.
Q.49 In which market AR= MR.
Ans. Perfectly competitive market.
50. What is a production function

Ans. Production function is the relationship between physical input and physical output.
51. Define total product?
Ans. It is sum total of output produced by all units of labour.
TP=AP*L
52. Define marginal product?
Ans.
Marginal product is the change in total product as a result of a unit change in the input of a
variable factor.
MPorMPP=TPn -TPn-1
Questions of 3 and 4 marks
1. What are the three central problems of an economy? Why do they arise?
Ans : 1) What to produce. 2) How to produce. 3) For whom to produce. These central
problem arises because scarcity of resources.
2. Explain the problem how to produce with the help of example.
Ans : How to produce refer to choice of technique of production. There are two types of
technique of production: (i) labour intensive technique (ii) capital intensive technique.
The choice between labour intensive and capital intensive becomes a problem because
the producers need to minimize their cost and at the same time maximize their efficiency.
3. Why production possibility curve is concave?
Ans : it is because of rising marginal opportunity cost that PPC must be concave to the
origin.
4. What does a production possibility curve show? When will it shift to the right?
Ans : it shows the different combination of two goods which can be produced with given
technology and resources. It will shift to right when resources are increased.
5. Explain the problem What to produce with the help of example.
Ans : this problem is related to (i) What goods and services are to be produced and (ii) in
what kind of goods and services are to be produced.because of fact resources are limited
every society must find an ans to these questions.
6. Explain the problem For whom to produce with the help of example.
Ans : The problem relates to the distribution of output in the economy it has two aspects
(i) Factoral distribution (ii) inter personal distribution.
7. Distinguish between a centrally planned economy and a market economy.
Ans : (i) Centrally planned economy is one in which central problems are addressed by
some central authority of the government.
(ii) Marketeconomy is free economy in which central problems are solved by
market forces of supply and demand .
8. Distinguish between microeconomics and microeconomics.

Ans : (i) microeconomics study economic variables at the level of an individual-an

individual firm and individual household
(ii) macroeconomics studies economic variables at the level of economy as wholeAD,AS,NY
9. Which factors lead to a shift of the PPC?
Ans : shift in PPC because of resourses and technology. (i) shift in PPC because resourses
are increased (ii) efficient technology is used.
Q7. Explain the relationship between marginal product and total product?

Ans. (i) when MP increases, TP increases at increasing rate.

(ii) When MP constant, TP increases at constant rate.
(iii) when MP decreases, TP increases at diminishing rate.
Q8. Complete the following table:

Units of labour

TP

40

80

110

130

140

140

130

AP

MP

Ans.
Units of
labour

TP

AP=TP/units of
labour

MP=TPn-TPn1

40

40

40

80

40

40

110

36.66

30

130

32.5

20

140

28

10

140

23.33

130

18.57

-10

Q9. Identify different stages of production and state the related law?

Units of labour:

Units of output:

12

16

18

18

14

Ans.
Units of labour

Q10.

Units of output

MP

12

16

18

18

14

-4

-6

stages
phase/stage I : increasing returns

phase/stage II : diminishing returns

phase/stage III : negative returns

What are the causes of increasing returnsto a factor?

ANS. Causes of increasing returns to a factor :

1. Fuller utilization of the fixed factor : in the initial
Stages fixed factor remains under utilized. Its fuller utilization cause for greater
applicationof the variable factor. Hence initially additional units of the
variable factor add more & more to total output .
2. Increased efficiency of the variable factor : Additional
Application of the variable factor causes process based division of labour
That raises efficiency of the factor. Accordingly MP of the factor tends to

Rise.
Q11. What are the causes of decreasing returns to a factor?
3
Causes of decreasing return to a factor :
Fixity of the factor: as more & more units the variable factor continue tobe combined
with the fixed factor , the latter gets overutilized. Hence the diminishing returns.
2. Imperfect factor substitutability: factors of production are
imperfect substitutes of each other. more & more of labour cannot
be continuously used in place of additional capital.

TOPIC NATIONAL INCOME AND RELATED AGGREGATES

Q1. Difference between microeconomics and macroeconomics?
Q2. Differentiate between thefollowing:
(a)
(b)
(c)
(d)
(e)
(f)
(g)

Stock& flow
Real flow & Monetary flow.
Real stock &monetary stock.
Gross investment & Net investment.
Intermediate & final good.
Nominal GDP & Real GDP.
Injection & Leakage.

Q3. Define the following:

(a)
(b)
(c)
(d)

GNP MP (Gross national product at market price)

NNP MP (Net national product at market price)
GNP FC (Gross national product at factor cost)
NNP FC (Net national product at factor cost

Q4. Income method

Definition
Formula
Steps to be taken in income method
Precautions
Numerical

Q5. Expenditure method

Definition
Formula
Steps to be taken in income method
Precautions
Numerical

Q6. Components of NDP FC or domestic factor income?

Q7. Describe the circular flow of income in a two-sector economy?
Q8. Distinguish between factor income and transfer payments. Give suitable examples.
Q9. What is the problem of double counting? State which method is used to avoid this problem
of double counting in the estimation of national income.
Q10. Difference between domestic product and national product?
Q11. Difference between Gross domestic product at market price and net national product at
market price?
Q12.Difference between Gross domestic product at market price and net national product at
factor cost?
Q13. Define the following
(a)
(b)
(c)
(d)
(e)
(f)

National income
Domestic territory
Depreciation or consumption of fixed capital
Normal residents
Net national disposable income
Gross national disposable income

Q14. What is not included in GDP (Gross domestic product)?

UNIT 6
Q1 what are the alternative definitions of money supply in India
Ans-M1=currency with public+ demand deposits+ other deposits
M2= m1+ deposits with post office saving bank account
M4=M3 +Total deposit with post office.

Q No 2 Define the commercial bank?

ANS: Commercial banks are the institutions that mayu short term loans to business and in the
processes to creat money ?According to CULBERTSON .
QNo 3. Explain the functions of a commercial bank?
Ans: Two important functions of commercial are ,
1. Accepting deposits .
2. Advancing loans.
QN o 4. Define a central bank
Ans : Central bank is a apex institution of a country that control and regulate the moneand
financia system of a country.
Q No 5 What are the function of central bank.
Ans. 1. Issuing of notes.
2.Banker to the govt.
3. Bankers bank.
4. Lenders of last resort.
5. Control of credit.

UNIT 7
Q1. Define consumption function.
Ans. Consumption function or propensity to consume refers to the functional relationship
between consumption and national income.
Q2. What are Ex-ante savings?
Ans. Ex-ante savings refers to the amount of savings which savers plan to save at different levels
of income in the economy.
Q3.what is saving function?
Ans. Saving function refers to the functional relationship between savings and income.
Q4. Define investment.

Ans. Investment refers to the expenditure incurred on creation of new capital assets.
Q5. Define ex-ante investments.
Ans. Ex-ante investment refer to the amount of investments which investors plan to invest at
different levels of income in an economy.
Q6. Define Ex- post savings.
Ans. Ex-post savings refers to the actual savings in an economy during a year.

Relationships:
(1)

APC+APS = 1

APC= C/Y,

APS=S/Y

APC+APS= C/Y+S/Y =
=

C+S/Y

Y/Y = 1

(2) MPC+MPS = 1

MPC = C/Y

MPS = S/Y

MPC+MPS = C/Y + S/Y

=

= C+S/Y

Y/Y
=

Q7. What is investment multiplier?

Ans. Investment multiplier (K) is the ratio of increase in income (Y) due to an increase in
investment(I)
i.e,

K = Y/I

Q8. What is meant by effective demand?

Ans. The level of aggregate demand required to achieve full employment equilibrium is called
effective demand.
Q9. What is Says law of market?
Ans. J.B.Say state that supply creates its own demand.
Q10. Define excess demand .
Ans. Excess demand refers to the situation when aggregrate demand is in excess of aggregrate
supply corresponding to full employment in the economy.
Q11.what are the measures to correct excesss demand?
Ans.measure to correct excess demand are :
1. Decrease in govt. spending.
2. Increase in government revenue.
3. Decrease in availability of credit.
Q12. Define deficient demand.
Ans. Deficient demand refer to a situation when AD<AS corresponding to the full employment
level of output in the economy.
Q13. What is the impact of deficient demand ?
Ans. Deficient demand causes fall in prices and fall in the output and employment level.
Q14. What are the reason for deficient demand ?
Ans. The reasons are :
(i)
(ii)
(iii)
(iv)

Fall in consumption expenditure.

Fall in investment expenditure.
Increase in imports.
Increase in tax rate.

Q15. What are the measures to correct deficient demand ?

Ans. The measures to correct deficient demand are :
(i)
(ii)
(iii)

Increase in government spending.

Decrease in government revenue.
Increase in availability opf credit.

Q16. Define Fiscal policy.

Ans. Fiscal policy refer to the budgetory policy of the government or the policy related torevenue
and expenditure of the government with a view to correct the situation of excess demand or
deficent demand in the economy.
INSTRUMENTS OF FiSCAL POLICY:
1.Government revenue : It includes
(i) . Taxes.
(ii). Public debt.
(iii). Deficit financing .
2. Government expenditure or Government spending .
It refers to governments expenditure on education ,health,administration,defence etc.
Q17. Define monetory policy.
Ans. Monetory policy refes to the policy of the central bank of a country to control money
supply and credit in the economy.
INSTRUMENT OF MONETORY POLICY:
1.Quantitative measures:
(i). Bank rate.
(ii) Open market operations.
(iii). Varying legal reserve requirements .
2. Qualitative measures:
(i).imposing margin requirement.
(ii).Moral suasion.
(iii). Selective credit control.

UNIT 8

1mark questions & answers:

Q) Define a budget.
Ans. It is an annual statement of the estimated receipts and expenditure of the government over
the fiscal year.
Q) What are the two divisions of budget.
Ans. 1) Revenue Budget 2) Capital Budget
Q) What are the two budget receipts?
Ans.1) Revenue Receipts 2) Capital Receipts
Q) What are the two types of Revenue Receipts?
Ans. 1) Taxrevenue 2) Non- Tax Revenue
Q)What are the two types of taxes?
Ans.1) Direct Taxes e.g. income tax,wealth tax
2) Indirect Taxes e.g. Sales tax,excise duty
Q) Give twoexamples of Development expenditure.
Ans. Plan expenditure of Railways& Posts.
Q) Give two examples of Non- Development expenditure.
Ans. 1) Expenditure on Defense 2) Interest Payments
Q) What are the two different concepts of budget deficit?
Ans. 1) Budget Deficit @) Revenue Deficit 3) Primary Deficit 4) Fiscal Deficit
3 or 4 markQuestions & answers
Q) Explain the objectives of govt. budget.
Ans.1) Reallocation of Resources: The govt.has to reallocate the resources to ensure social &
economic objectives.
2) Redistributive Activities: The Government redistributes income & wealth to reduce
inequalities.

3) Stabilizing Activities: The Government tries to prevent business fluctuations and maintain
economicstability.
4) Managing of Public Enterprises: Government undertakes commercial activities through public
enterprise.
Q) Define Direct taxes & Indirect Taxes& give two examples each.
Ans.1) Direct Tax: Theseare those taxesleviedimmediately on the property and income of
persons and are directly paid by people to the government.
Examples: Income Tax, Wealth Tax.
2) Indirect Taxes: These are those taxesthat leviedon one person but are paid by another person.
Examples: SalesTax, Custom Duties.
Q) What arethenon-taxreceipts?
Ans. a)Commercial Revenue: Exp: Payments forpostage, Railway services.
B) Interest andDividends.
c) AdministrativeRevenue: Examples: Fees,Fines.
Q) What are the three major ways of public expenditure?
a) Revenue Expenditure &Capital Expenditure.
b) Plan Expenditure & Non- Expenditure
c) Development & Non- Development Expenditure
Q) What do you mean by Revenue Expenditure &Capital Expenditure?
Ans. It is the expenditure incurred for the normal running of government departments and
provision of various services like interest payment, subsidies.
b) Capital Expenditure: It consists mainly of expenditure on acquisition of assets like land,
building,machinery,equipmentetc.
Q) Define Balanced,surplus,& Deficit budget.
Ans. BalancedBudget: It is one where the estimated revenue equals the estimated expenditure.
b) Surplus Budget: It is one where the estimated revenue is greater than the estimated
expenditures.

c) Deficit Budget: : It is one where the estimated revenue is less than the estimated expenditures.
Q) What arethe four different concepts of budgetdeficit.
Ans. a)Budget Deficit: When budget expenditure is more than budget revenue.
Formula: B.D.= B.E. > B.R.(B.D.= Budget Deficit,B>E> = Budget Expenditure. B. R.= Budget
Revenue
b) Fiscal Deficit: It is the difference between the total expenditure of the government,the revenue
receipts plus those capital receipts which finally accrue to the government.
Formula: F.D. = B. E.-B. R. ( B.E.>B.R. other than borrowings) F.D.= Fiscal Deficit,B.E.=
Budget Expenditure,B.R. = Budget receipts.
c) Revenue Deficit: It is the excess of government revenue expenditures over revenue receipts.
Formula: R. D.= R. E.-R.R., When R.E. > R.R.,R.D.= Revenue deficit, R.E.= Revenue
Expenditure, R.R. =Revenue Receipts.
d) Primary Deficit: It is the fiscal deficit minus interest payments
Formula: P.D. = F.D.-I.P., P.D.= Primary Deficit ,F.D. = Fiscal Deficit, I.P.= Interest Payment.

UNIT 9
Q1: What do you mean by foreign exchange market?
Q2: What do you mean by disequilibrium in BOP?
Q3: Why is foreign exchange demanded?
Q4: What determines the flow of foreign exchange into the country?
Q5: What is meant by appreciation of currencies?
Q6: what is equilibrium rate of exchange?
Q7: The balance of trade shows a deficit of Rs. 600 crore, the value of export is Rs. 1000 crore.
What is value of import?
Q8: Name three such items which are not included in Balance of trade?
Q9: What are the components of Capital Account?

Q10: what is the difference between Balance of Payment and Balance of Trade?

ANSWERS
Ans1: The foreign exchange market is the market where international currencies are traded for
one another.
Ans2: Disequilibrium in BOP is means either there is surplus or deficit in Balance of payment
account.
Ans3. Foreign exchange is demanded for the following purposes:
a) Payment of international loans.
b) Gifts and grants to rest of the world.
c) Investment in rest of the world.
Ans4: Following factors contribute to the flow of foreign exchange into the country:
a) Purchase of domestic goods by the foreigners.
b) Speculative purchase of foreign exchange.
c) When foreign tourists come to India.
Ans5: Appreciation of a currency occurs when its exchange value in relation to currencies of
other country increases.
Ans6: Equilibrium exchange rate occur when supply of and demand for foreign exchange are
equal to each other.
Ans7: Balance of trade=Exports of goods imports of goods
Imports of goods = Export of goods BOP
= 1000-(-600)
=1600.

Ans8: Three items which are not included in BOT:

a) Export and import of services such as shipping, insurance and banking.

b) Interest and dividend funds.

c) Expenditure by the tourists.
Ans9: Components of Capital Account:
1) Foreign investment:
i)FDI (Foreign Direct Investment)
ii) Portfolio investment
2) Loans/borrowing:
i)
Commercial borrowing
ii)
Borrowings as external assistance.
Ans10: BoT is different from BoP. BoT records visible items only. BoP records both visible and
invisible items, besides capital transfers.