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ABM Module A Economics – 100 Questions

Q.1

Which economist defined the Economics as “Enquiry into Nature and Causes of Wealth of Nations”

Ans

Adam Smith – father of Economics

 

Q.2

“Economics is study of mankind in the ordinary business of life”. Who defined like this?

Ans

Alfred Marshal

 

Q.3

Which economist called Economics as “Science of Human Welfare”?

 

Ans

Alfred Marshal

 

Q.4

Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses. Therefore economics is study of means and ends. Which economist gave this definition of Economics?

Ans

Lionel Robbins.

 

Q.5

Study of behavior of Individual, Household, Firm or Company is Economics as defined by Robbins.

 

Ans

Micro

 

Q.6

Study of behavior of Industry, Economy of entire country, whole world like inflation, deflation, Income, Saving, Investment, GDP and Employment is called Economics

Ans

Macro

 

Q.7

Economy in which Private firms make major decisions is called

 

Ans

Capitalist Economy or Market Economy

 

Q.8

Economy in which Govt plays major role is called

 

Ans

Socialist Economy or Command Economy

 

Q.9

Which type of economy India is?

 

Ans

Mixed economy in which both Pvt. sector and Govt. sector play important role.

 

Q.10

How will you define Laisez-Fair economy?

 

Ans

It is extreme case of market economy in which Govt. does not interfere in economic decisions.

Q.11

What is the slope of Demand curve?

 

Ans

It is negative because of the fact that price and quantity demanded have inverse relationship. Price rises and Quantity demanded falls and vice-versa. We can also say that Demand Curve falls downward from left to right.

Q.12

With rise in Income, demand rises and Demand curve shifts upward. This is called

 

in

demand. (Increase/Extension)

 

Ans

Increase

 

Q.13

With fall in price, demand rises on the same demand curve. This is called

 

in

demand. (Increase/Extension)

 

Ans

Extension

 

Q.14

In

case

of

Giffen

goods,

Demand

curve

is

positive

because

of

the

fact

that

Ans

Demand falls even if there is fall in price.

 

Q.15

Demand of Coffee rises with rise in the price and the curve is negative because of

inverse relationship. Tea and Coffee are (Substitute/Supplementary).

 

goods

Ans

Substitute

 

Q.16

Pen and Ink, Car and Petrol are supplementary goods. The rise in price of one item

 

results in fall of quantity demanded of other. In this case, the slope of demand curve is (Positive/Negative).

Ans

Negative

 

Q.17

Equilibrium price is the point where

 

Ans

Demand Curve and Supply curve intersect each other.

 

Q.18

The slope of supply curve is

 

(Positive/Negative).

 

Ans

Positive

 

Q.19

Demand Schedule is relationship between

 
 

i)

Demand and Quantity bought

and ii) Price and Quantity bought

Ans

Price and Quantity bought

 

Q.20

How will you define Narrow money?

 

Ans

Narrow money i.e. M1 = Currency with Public + Demand Deposits with Banks + Other deposits with RBI.

Q.21

What is M3

 

Ans

M3 is a concept of Wide money which includes M1 + Saving Deposits of Post offices + Time deposits with banking system.

Q.22

Increase in cost of production leads to inflation. Which type of Inflation is it (Demand Pull/Cost Push).

Ans

Cost Push Inflation.

 

Q.23

DA of public sector employees is determined/guided by which index?

 

Ans

Consumer Price Index for Industrial workers. (CPI-IW).

 

Q.24

What do you mean by GDP deflator?

 

Ans

It is a measure of level of prices of all new domestically produced, final goods and services in an economy.

Q.25

JM Keynes explained that Rate of Interest is determined by Demand and Supply of money. Which are 3 motives as explained by Keynes for Which people hold money?

Ans

 

1)

Transaction Motive Speculative Motive Precautionary Motive

 

2)

3)

Q.26

If

Current

rate

is

higher

than

expected

rate

in

future.

People

will

hold

more

 

(Money/Bonds)

 

Ans

Bonds

 

Q.27

Keynes believes in Two Asset Economy. Which are these?

 

Ans

Money and Bonds

 

Q.28

In two asset economy, the demand for money by the people depends how they decide

to balance their portfolio between

and

 

Ans

Money and Bonds

 

Q.29

Keynes explains that Rate of Interest is determined by Demand and Supply. Demand is affected by Liquidity Preference. This is why, Keynes theory is called

Ans

Liquidity Preference Theory.

 

Q.30

This theory also explains that Higher Nominal Rate of Interest and Lower will be

 

Ans

Demand for Speculative purpose.

 

Q.31

Higher Nominal Income will lead to more

 

Ans

Portfolio Investment.

 

Q.32

What are names of Curves in Hicks-Hanson Synthesis?

 

Ans

IS (Investment Saving Curve) and LM (Liquidity Money Supply) curve.

 

Q.33

IS Curve is Demand Curve, has negative slope and is derived from Classical theory.

 

Similarly explain LM Curve.

 

Ans

LM curve id Supply curve has positive slope and is derived from Keynes’ Liquidity Preference Theory.

Q.34

Production capacity is fully utilized and profits are maximized. This period is known as

Ans

Boom

Q.35

Demand comes down from peak. Supply exceeds demand stocks start piling up.

Producers give

up

plan

to

expand.

This

situation

is

called

(Recession/Depression)

 

Ans

Recession

Q.36

Rise of Unemployment, Fall in general demand and Cost is not covered by the price.

This situation is called

(Recession/Depression)

 

Ans

Depression

Q.37

Workers come forward to work at lower wages, Consumption starts, banks are prepared to sanction easy loans and demand starts increasing. This is the situation of (Recovery/Inflation)

Ans

Recovery

Q.38

State of Rising Prices is called

 

Ans

Inflation

Q.39

Classify the Industrial Sector in 4 categories.

 

Ans

1. Manufacturing

2. Mining

2. Electric generation 3. Gas and water supply

 

Q.40

Business Cycle is also known as

 

Cycle.

Ans

Economic Cycle

Q.41

Growth rate of GDP in India.

 

Ans

1950-80-------------3.5%

 

2010-11-------------8.4%

2011-12-------------6.5%

2012-13-------------4.9%

2013-14-------------4.7%

2014-15-------------5.4% (Projected)

 

Q.42

Agriculture is basically Primary Sector, Industry is Secondary Sector and Services are

classified under

sector.

Ans

Tertiary sector.

Q.43

What is growth of GDP (Sector wise) in the year 2011-12

 

Ans

Agriculture--------2.8%

Industry -----------3.4%

Services-----------8.9%

Aggregate--------6.5%

( In 2012-13, GDP growth is 4.9% and in 2013-14, it is 4.7%)

 

Q.44

What is share of GDP sector wise in the year 2011-12

 

Ans

Agriculture and allied activities---------14% Industry -------------------------------------20% Service-------------------------------------- 66%

 

Q.45

What is domestic Saving Rate in the year 2011-12 and 2012-13

 

Ans

34% of GDP(2011-12) & 30.1% (2012-13)

 

Q.46

There is complete transformation of India’s economy. The share of Agriculture in the GDP of the country has come down from 38% in 1980-81 to 14% in 2011-12. What is position of share of service sector.

Ans

It has increased from 34% in 1950-51 to 45% in 1980-81 and 64% in 2010-11 and 66% in 2011-12 and 67% in 2012-13

Q.47

Liberalization process started and Economic Reforms ushered in the year-----------

Ans

1991

Q.48

Narsimham Committee submitted report in 1988 and the same was implemented in the year 1991. Which two major reforms were introduced in Financial sector?

Ans

1. Capital adequacy

2. Asset Classification and Provisioning norms.

Q.49

What is full form of BCSBI?

Ans

Banking Code and Standard Board of India. It has introduced “Code of Conduct” in the banks.

Q.50

What reforms have been brought in the money market?

Ans

1. CD and CP

2. LAF (Repo and Reverse Repo transactions)

3. MSF (Marginal Standing Facility)

4. CBLO (Collateralized Borrowing and Lending Obligations)

5. IRS (Interest Rate Swaps) and FRA (Forward Rate Agreement)

Q.51

What reforms have been brought in G-Sec market?

Ans

1. Ways and Means Finance i.e. loan to govt. by RBI to contain Fiscal deficit.

2. Yield on G-sec i.e. Treasury bills etc. provide benchmark for interest rates.

3. RBI does not participate in the Primary segment of G-sec market. It has become more market oriented.

Q.52

What reforms have been brought in Forex Market?

Ans

1. Exchange rate flexibility

2. EEFC, RFC and RFCD accounts

3. Liberalized Remittance Scheme (Up to USD 75000/-) per financial year.

4. Introduction of Derivatives to control risk.

5. 100% convertibility in Current account transactions and Partial convertibility in Capital account transactions.

6. Liberalization in Imports and Exports

Q.53

What reforms have been brought in Capital Market?

Ans

1. Primary and Secondary market under direct control of SEBI

2. Corporatization of Exchanges

3. Book Building system and Free pricing of shares in primary market

4. Options and Futures as derivatives introduced.

5. Indian Depository Receipt introduced.

6. Rolling settlement replaced 14 days settlement.

7. All Securities are applied on ASBA and issued in Demat form.

Q.54

What reforms have been brought in Payment and Settlement System?

Ans

1. RTGS and NEFT through INFINET

2. Mobile Banking through IMPS (Internet Mobile Payment System)

3. CTS (Cheque Truncation System)

4. ECS (Electronic Clearing Service)

Q.55

How many industries are covered with 100% FDI under automatic route?

Ans

34 industries

Q.56

What do you know about External Commercial Borrowings?

Ans

External Commercial Borrowings are medium and long term loans as permitted by RBI for the purpose of :

Fresh investments

 

Expansion of existing facilities

Trade Credit (Buyers’ Credit and Sellers’ Credit) for 3 years or more.

Automatic Rout

 

ECB for investment in Real Estate sector , Industrial sector and Infrastructure do not require RBI approval

It can be availed by Companies registered under Indian Company Act.

Funds to be raised from internationally recognized sources such as banks, Capital markets etc.

Maximum amount is USD 20 million with minimum average maturity of 3 years and USD 750 million with average maturity of 5 years. All in cost ceiling is 6M LIBOR+350 bps for ECB up to 5 years and 6M LIBOR+500 bps for ECBs above 5 years. Approval Route Under this route, funds are borrowed after seeking approval from RBI.

The ECBs not falling under Automatic route are covered under Approval Route.

Under this route, Issuance of guarantees and Standby LC are not allowed.

Funds are to be raised from recognized lenders with similar caps of all-in-cost ceiling.

Q.57

What is Fiscal Policy?

 

Ans

It is policy of Govt. spending and Govt revenues which influences the country’s economy.

Q.58

RBI’s Monetary Policy is issued

in

a year.

Ans

Once. However Bi-monthly reviews are issued by RBI.

Q.59

In order to curb inflation, what tools are adopted by RBI

Ans

Contraction of money supply by increase in Repo and Sale of Govt Securities in Open Market Operations

Q.60

What is MSF (Marginal Standing Facility).

 

Ans

Overnight lending by RBI @ 9% (1% above Repo) against purchase of Govt. Securities to the extent of 2% of DTL.

Q.61

What are the provisions of FRMB (Fiscal Responsibility and Budget Management) Act.

Ans

Act requires to place before Parliament 3 statements viz. Budget, Fiscal Policy Strategy and Macroeconomics framework.

Centre will reduce Fiscal Deficit up to 3%

 

Govt. will not borrow from RBI

for deficit financing except under exceptional

 

circumstances.

Ceiling on Govt. Guarantee @0.5% of GDP.

 

Sterilization Operations under Market Stabilization scheme.

Q.62

How will you calculate GDP?

 

Ans

Market Value of goods and services produced in a country in a financial year?

Q.63

GDP +Net factor Income from abroad = ?

 

Ans

GNP

Q.64

GNP- Depreciation = ?

 

Ans

NNP at market prices

 

Q.65

NNP at market price + Subsidy – Indirect Taxes = ?

Ans

NNP at factor cost. It is also called National Income.

Q.66

What is real National Income?

Ans

NNP at factor cost

Q.67

What is Personal Income (PI)

Ans

NI – Corporate taxes – payment for social security norms + Govt. Transfer Payments

Q.68

What is DI (Disposable Income)

Ans

PI – Personal Taxes

Q.69

How will you calculate GDP through Expenditure method?

Ans

C+I+G+(X-M) Consumption + Expenditure + Govt spending + Net factor income from abroad

Q.70

How will you calculate GDP through Income method?

Ans

Interest + Wages (Compensation to employees) + Rent (Property Income) + Profit

Q.71

How will you calculate Per Capita Income?

Ans

National Income / Population

Q.72

What is per capita Income of India in 2013?

Ans

$1504

Q.73

Which type of receipts are these?

1. Income tax, Service tax, Excise tax, Corporation Tax

2. Interest, Dividend, Profit and non-tax receipts

Ans

Revenue Receipts

Q.74

Which type of Receipts are these?

1. Debt Receipts such as Loans, borrowings, External Assistance, Small savings

2. Non- debt receipts such as Recovery of loans etc.

Ans

Capital Receipts

Q.75

Which type of Payments are these?

1. Expenditure on interest, defense, subsidies and expenses on general and

social services

2. Expenditure on Salary, Pension and other economic services

Ans

Revenue Payments

Q.76

Which type of Payments are these? Purchase of Tanks for defense, Loans to Private Enterprises, States, UTs and Foreign Govt. , Payments for creating infrastructure – roads, dams, bridges etc.

Ans

Capital Payments

Q.77

What is Revenue deficit?

Ans

Revenue Payments - Revenue Receipts

Q.78

What is Budgetary Deficit?

Ans

Total Payments - Total Receipts

Q.79

How Fiscal Deficit is calculated?

Ans

Total Expenditure (Revenue + Capital) - (Revenue Receipts + Non- Debt Receipts)

Q.80

What is Net Fiscal Deficit?

Ans

Gross Fiscal Deficit – Net Lending

Q.81

What is Gross Primary Deficit?

Ans

Gross Deficit – Interest Payments

Q.82

What is Net Primary Deficit?

Ans

Net Fiscal Deficit – Net Interest Payments

Q.83

What is %age of Fiscal Deficit in the year 2011-12 and 2013-14

Ans

5.9% of GDP in 2011-12

4.5% in 2013-14

( Road map to bring it further down up to 3.6% in 2015-16)

Q.84

What are Highlights of Union Budget 2013-2014

Ans

Time bound FI Mission launched on 15 th August

 

Banks permitted to raise long term funds for lending to Infrastructure.

Requirement to infuse 240000 crore as equity in our banks by 2018 as per BASEL-III

6 new DRTs to be set up

Rs. 10000 crore fund for Venture Capital in MSME sector

Gross Receipts ---------1364524 crore

Gross Payments--------1794892 crore

Fiscal Deficit-------------4.7% of GDP (4.1 %expected 2014-2015)

Revenue Deficit---------3.3% of GDP

Target for Agriculture Credit--------800000 crore.

Saving Rate ----------30.1%

Investment Rate-----34.8%

Interest Tax exempted up to -------10000 per financial year on SB accounts Income Tax Exemption limit raised to------------------Rs. 2.50 lac For Senior citizens -----------------------------------------Rs. 3.00 lac Investment limit U/S 80C rose to 1.5 lac (Prev. 1.00 lac). Deduction of Interest on HL raised from 1.50 lac to 2.00 lac Income Tax slab on taxable Income @ 10% up to 5.00 lac, 20% up to 10 lac and 30% above 10 lac + Education tax on Income tax @ 3% (2+1).

Q.85

What are conditions of Perfect Competition Market?

 

1. Large nos. of Buyers and Sellers

2. Homogeneous commodity

3. Same Price

4. Free entry and Exit of Firms

5. Average Revenue = Marginal Revenue

Q.86

What is the position of Cost Curves in Perfect Competition Market?

Ans

Both AC and MC fall, but MC is below AC

After a certain point, AC becomes constant and MC is equal to AC

When AC starts rising, MC is above AC

MC cuts AC at the lowest ebb.

Normal Profits are earned under the situation of Perfect Competition Market.

Q.87

What are the features of Monopoly

Ans

Under monopoly, there is a single seller, who is Price taker. He adopts Price discrimination to boost sales. Therefore AR and MR are falling curves. In long run, Monopolist earns Super normal profits.

Q.88

When a firm achieves Equilibrium i.e. position of Optimum utilization.

Ans

When Average Revenue = Marginal Revenue i.e. AR = MR

Q.89

What is Monopolistic Competition?

Ans

When large number of firms selling differentiated models of same product i.e. commodity is not homogeneous and price is also not the same. Firm achieves equilibrium when AR = MR

Q.90

What is Consumer Equilibrium

Ans

Difference between what Consumer is Willing to pay and what the consumer Actually pays.

Q.91

What is Utility?

Ans

Utility is the satisfaction derived from consumption of particular product.

Q.92

What is Marginal Utility.

Ans

Extra satisfaction derived from consumption of one additional unit.

Q93

What do you know about Elasticity of Demand?

Ans

It is responsiveness of change in demand due to change in price, income or price of other commodity. It is of 3 types: Price Elasticity, Income Elasticity and Cross Elasticity.

Q.94

What are kinds of Elasticity of Demand?

Ans

Highly Elastic Demand is when proportionate change in demand is higher than proportionate change in price. (ED>1)

Less Elastic Demand is when proportionate change in demand is lesser than proportionate change in price.(ED<1)

Unitary Elastic Demand is when proportionate change in demand is equal to proportionate change in price.(ED=1)

Perfect Elastic Demand is the situation when small change in price results into unusual large variations in Demand. (Ed=Infinite).

Perfect Inelastic Demand is the situation when there is no variation in Demand due to rise or fall in price. Demand Curve is parallel to Y axis. (Ed=0)

Q.95

Name four factors of Production.

Ans

Land, Labour, Capital Organization or Entrepreneur

Q.96

What is meant by Marginal cost?

Ans

Cost of Producing one additional unit

Q.97

Name the direct taxes. Whether these are progressive or regressive?

Ans

Direct Taxes are Income tax, Wealth Tax, Gift Tax and Estate Duty etc

The rate of tax

increases as Income rises. This is why it is called Progressive tax system.

Q.98

Why Indirect taxes like Vat, Service Tax, Excise Duty are called Regressive?

Ans

Because Rate of tax is uniform and poor people have to pay equal amount as is paid by rich people having more income.

Q.99

What is Balance of Trade?

Ans

Difference between Value of Exports and Imports Merchandise. It is unfavorable if value of Imports is more than the Value of exports.

Q.10

What is Balance of Payment?

0

 

It has two sides Receipts and Payments. It is neither favorable nor un-favorable but always Balanced. Receipts side includes Current Items and Capital Items. Similarly Payment side includes Current and Capital Items. Current Receipts Export of goods (visible), Services to rest of world such as Air, Banking and Insurance, Transfers and Income from Rest of world. Capital Receipts Foreign private loans, Inflow of banking capital, Loans by Govt, International Sale of Gold etc. Current Payments Import of goods, Services from rest of world, Transfers to rest of world, Incomes to rest of world. Capital Payments Repayment of Pvt. Loans, Outflow of banking capital, Repayment of Govt loans and loans to other countries, Purchase of Gold in international market.

Rating of India

BBB-

CAD (Current Account Deficit)

It is difference between Current Receipts and Current Payments. CAD increased to 4.7% in 2012-13. It was serious concern for India and Government took remedial steps which resulted in decrease in CAD from 4.7% to 1.7% in 2013-14.

Consumer Price Index (IW)

It is applicable in determining Dearness Allowance in banks.

Labour Bureau Shimla calculates and keeps record of it.

It includes 24 consumer items.

Base Year is 2001=100

Periodicity -Monthly

At present CPI is 252 (July 2014)

Wholesale Price Index

Office of Economic Affairs (Ministry of Commerce and Industry) calculates and circulates

It is used to measure inflation and formulation of Govt. policies.

Periodicity is monthly

Base Year is 2004-2005 = 100

At present it is 184.6 (July 2014)

RBI has recently adopted new CPI as a measure of inflation

Key Policy Rates at present:

CRR ----------------------4%

SLR-----------------------22%

Repo----------------------8%

Reverse Repo----------7% Bank Rate -------------- 9 % MSF --------------------- 9 %

-----------Compiled by Kanwal Kumar, Senior Faculty, ZTC, Ludhiana