1 Basic Concepts of Economics

1)In 2000 The Economist estimated that only_____ of

some 360 million internet users are in Africa
A)60 million
B)10 million
C)3 million.
D)0.1 million

2)in a competitive economy a worker on some income

equivalent______
A) to the amount of brain drain
B)marginal utility
C)marginal product.
D)the substitutability duty of labour to capital

3)the marginal product model assumes that____

A)individuals pay the full cost of their education.
B)government subsidizes schooling
C)educated persons migrate more
D)capital and unskilled Labour are complements

4)Gunnar Myrdal argues that a major barrier to high

labour productivity is ____
A)due to a lack of education
B)A Class system in which the elite or
contemptuous of manual work.
C)upper and middle class westerners
D)The lack of bargaining power by cheap labour

5)Of the 57 million people dying worldwide in 2002___

was from stroke and heart disease and ___from cancer
disproportionately from dcs
A)17 million 7 million.
B)7 million 0.7 million
C)3 million 1 million
D)0.5 million 5 million

6) which of the following is not true about child mortality?

A)about 18% of the world's that are among children less
than 5 years old
B) more than 98% of child deaths were in LDC
C) more worldwide child mortality rates increased
from 1990 to 2002.
D) 19 of the 20 countries with the highest child mortality
were in Africa

7 )the disease burden could be measured by

calculating____combining yours lost through premature
death and from living with disability
A) mortality adjusted lifelong
B) premature living age
C)life mortality fertility ratio
D )disability adjusted life years.

8) which of the following is true about HIV AIDS?

A)women comparison of HIV positive adults in the sub-
sahara
B)AIDS infection rates in Africa are highest among
uburn high income skilled men and their partners
C)in 2001 40 million people with HIV AIDS lived in sub-
saharan Africa
D)since 1981 120 million people have died of AIDS
A)A and b only.
B)C and d only
C)A B and C only
D)A B C and D only
9) which of the following is not true about education in
LDCs?
A)public expenditure for student for higher education is
about 10 times as high as for primary education
B)the expansion of primary education redistributes
benefits from the rich to the poor
C)economist unanimously agree that LDCs should
put greater priority on primary education.
D)boys are sent to school for more often than girls

10)Simon S kuznets argues that the major stock of an

economically advanced country is not its physical capital
but
A) natural resources
B)body of knowledge.
C)Land
D)quantity of labour

11)labour productivity is higher in DC such as Japan and

Germany that in LDC due to____
A) higher formal education and training
B)better health and physical condition of the labour
force.
C)both A and B are correct
D)none of the above is correct

12)The emigration of highly skilled people from the

developing countries is known
A) the brain drain
B) human capital detoriation
C)productivity
D)labour degradation
13) which of the following is not true?
A)development generally improve the health system,
while better health increases productivity, social
Cohesion, and economic welfare
B) life expectancy is probably the best single indicator of
National Health levels
C) life expectancy in Africa increased steadily from
1994 to 2003 3 due to better health care
D) yes there are growing inequalities in investment in
health worldwide

14)by 2010, the u.s. census Bureau expects life

expectancy in the to Southern African countries of
Botswana and South Africa to be_________
A) 30 to 40 years, about the same as in 1995
B) 30 to 40 years, of fall of more than 10 years from
1995
C) 50 to 60 years, about the same as in 1995
D) 70 years, and increase from 1995

15) Laspeyres type indexes use weights from____

A) current period
B)base period
C)forecasting
D)future year

16))The formula to calculate paaschers price index is (o

is the base year and n is the given year)_____
A)P=ΣPnqn/Σpoqn
B)P=ΣPoqo/pnqn
C)P=ΣPnqo/Σpoqo
D)P=ΣPnqn/Σpoqo
17) Tuvalu is composed of mine Corel atolls along a 360
Mile chain InfolineAsia.they gain independence in 1978
full stop the former Ellis Island Sir home to 9700 people
full stop if GNP of Tuvalu is 300 million in 2005, GNP
per capita is______
A) 9700*(1978/2005)
B)300/360
C)30000000/9700
D)32.333

18)If GDP for Barbados 260 million in 2005 and its

population is 260000, GDP per capita is ____
A)1000
B)260
C)0.001
D)259740

19) If GNP per capita at constant prices for microstate of

29000 people located on the Rhine river between
Switzerland and Austria is US$ 555 and US $560 in
2004 and 2005 respectively the real economic growth
from 2004 to 2005 is
A)5
B)0.901%
C)0.090%
D)0.991%

20) economic growth from current year to previous year

is given by___
A)[(GDPc-GDPp)/GDPp]*100
B)[(GDPc-GDPp)*GDPp]*100
C)GNPc-(GDPp*100)
D)[GDPp-GDPc]*100
21)all of the following are high income countries except
____
A) Singapore
B) UK
C) Japan
D) South Africa

22) which of the following countries is not a low income

country?
A) Indonesia
B)India
C) Malaysian
D)Nigeria

23)economic development refers to

A)economic growth
B)economic growth plus changes in output
distribution and economic structure
C)improvement in the well being of the Urban population
D)sustainable increases in Gross National product

24) is GNP for Vatican City, the smallest country in the

world is 200 million euros in your 2001 and its
population is 890, GNP per capita is ________
A) 2002- 890
B) 200 / 890
C) 200 000 000 / 890
D) 200

25) If GDP for pulao a small country near South East of

the Philippines is 130 million in 2002 and its population
is 20000, GDP per capita is_______
A)6500
B)30
C) 0.0065
D) 650

26) if GNP per capita at constant prices for Ghana is

US$ 360 and US$ 364 in 1996 and 1997 respectively,
the real economic growth 1996 to 1997 is______
A) 4 %
B) 1.11 %
C) 0.011 %
D) 11%

27) is GDP for Maldives is $435 million in 2002 and the

GDP per capita $ 1576.087, the population of the
country must be_______
A)276000
B)1576.086
C)0.276
D)3.623

28) the formula to calculate economic growth from 2001

to 2002 is given by
A)[(GDP2002+GDP2001)/GDP2001]*100
B) [(GDP2002-GDP2001)*GDP2001]*100
C) [(GDP2002-GDP2001)/GDP2001]*100
D) [GDP2001+GDP2002]*100
29) which of the following countries is not a low income
country?
A)Ethiopia
B) Rwanda
C)Somalia
D) Singapore

30) all of the following are high income countries except

_______
A)the United Kingdom
B)Singapore
C)Japan
D)Hungary

31)which of the following country is not a high income

country
A)Canada
B) United States
C)Mexico
D) Australia

32) all of the following are low income countries

except________
A) United Arab Emirates
B)Armenia
C) Sudan
D)Bangladesh

33)one classification of development levels used by the

World bank divides countries into three groups on the
basis of GNP per capita. they are
A) NIC, OPEC and G7
B) low income middle income and high income
C) south east, North East and South West
D) Asia, America and Europe

34)the World bank GNP per capita classification for low

income, middle income and high income countries
respectively is________
A) less than $ 900,$900-$9000 and more than $9000.
B) less than$ 5000, $5000 -$15000 and more than
$15000
C) less than $100,$100-$1000 and more than $1000
D) less than $ 50000,$50000-$150000 and more than
$150000

35) a study of how increases in the minimum wage rate

will affect the national unemployment rate is an example
of
A) descriptive economics
B)normative economics
C)macroeconomics
D)microeconomics

36) aggregate supply is the total amount______

A) of goods and services produced in an economy
B) produced by the government
C) of products produced by a given industry
D) of labour supplied by all households

37) the total demand for goods and services in an

economy is known as_____
A) aggregate demand
B) National demand
C) Gross National Product
D) economy wide demand
38) deflation is______
A) an increase in the overall level of economic activity
B) an increase in the overall price level
C) a decrease in the overall level of economic activity
D) a decrease in the overall price level

39) a recession is
A) A period of declining prices
B) A period during which aggregate output declines
C) A period of declining unemployment
D) A period of falling trade volumes
40) involuntary unemployment means that
A) people are not willing to work at the going wage rate
B)at the going wage rate, there are people who want
to work but cannot find work
C) there are some people who will not work at the going
wage rate
D) there is excess demand in the labour market

41) a cut in the income tax rate design to encourage

household consumption is an example of
A) expansionary demand side policy
B) contractionary demand side policy
C) expansionary supply side policies
D) contractionary supply side policy

42)a cut in the tax rate designed to reduce the cost of

capital and hence encourage business investment is an
example of
A) expansionary demand side policy
B) contractionary demand side policy
C) expansionary supply side policy
D) contractionary supply side policy

43) macroeconomics is the branch of economics that

deals with______
A) the economy as a whole
B) imperfectly competitive markets
C) only the long run adjustments to equilibrium in the
economy
D)The functioning of individual industries and the
behaviour of individual decision making units business
firms and households
44)a group of modern economist who believe that price
and wage rigidity do not provide the only rationally for
macroeconomic policy activism are called_______
A) New Keynesians
B) Keynesians
C) Monetarists
D) the classical School

45) microeconomic theory that emphasized the theories

of tennis and be emphasized the classical theory
developed as the result of the failure of
A)economic theory to explain the simultaneous
increases in inflation and unemployment during the 1970
B) fine tuning during the 1960
C) the economy to grow at a rapid rate during the 1950
D)the classical model to explain the prolonged
existence of high unemployment during the Great
depression

46)Keynes believed falling wages were not a solution to

persistent unemployment because
A) falling wages demoralized workers
B)this would reduce the purchasing power of
labourers as consumers.This in turn would begin
firms prospects of selling more goods, hence
inducing them to cut their investment and hence
labour demand
C) the unemployment was caused by frictional and
structural factors
D) wages would fall more than required to clear the
labour demand

47)the practice of using fiscal and monetary policy to

stabilize the economy is known as______
A) fine tuning of demand
B) monetarism
C) Laissez for economics
D) supply side economics

48)according to classical models, the level of

employment is determined primarily by______
A) interest rates
B) the level of prices
C) the level of aggregate supply in the economy
D) the level of aggregate demand for goods and
services

49) according to Keynes the level of employment is

determined by____
A) interest rates
B) the level of
C) the level of aggregate supply in the economy
D) the level of aggregate demand for goods and
services

50) according to the classical model,

unemployment____
A)could not persist because wages would fall to
eliminate the excess supply of labour
B) could persist for long periods of time because wages
are not flexible
C) could be eliminated only through government
intervention
D) could never exist

51)aggregate demand refers to the total demand for all

domestically produced goods and services in an
economy generated from_______
A) the household and government sectors
B) the household sector
C) all sectors accept the rest of the world
D) all sectors including the rest of the world
2. Demand analysis and forecasting

Economics chapter 2

1)many states in last year's have introduced user

charges in public hospitals because of that that_____
A) the difference between the treatment cost in
B) the treatment cost of
C) percentage of patients taking treatment in public
D)the treatment cost in public hospitals has
decreased which of the above statements is not
correct?

2)the rate of growth of Indian economy during last 3

years has been 8 % at this rate the GNP will be double
in______
A) 12 years
B) 9 years
C)15 years
D) 10 years

3) for equitable development it is necessary that

A) proportionate benefit to all classes
B) main benefit goes to rich persons
C) main benefit goes to poor persons
D) main benefit goes to middle classes

4) bank rate in India is determined by

A) government
B)commercial banks
C) Reserve Bank of India
D) cooperative banks

5) the economy will be in equilibrium if

A) I=S
B)Y=C
C) I>C
D)I=<C

6) the factors affecting the elasticity of demand of a

commodity
A) availability of substitute
B) possibility of postpone in consumption
C) share of Expenditure
D) whether the person is educated or uneducated
Which of the above factor is wrong?

7) the biggest producer of

A) Madhya Pradesh
B) Rajasthan
C) Uttar Pradesh
D) Maharashtra

8) the biggest producer of gram in Indians

A) Maharashtra
B) Uttar Pradesh
C) Madhya Pradesh
D) none of the states

9) the function of money is / are

A) medium of exchange
B) measure of value
C) store
D) all of these

10) the main factor behind the increase in global

temperature is the emission of CO2 is greater than the
earth's capacity to absorb it. the share in total Amazon
of CO2 is the highest of
A) China
B) India
C) America
D)Soviet Russia

11) the utility from a bundle of goods will be maximum

when the marginal utility of each commodity is equal to
the price X the marginal utility of money / this was stated
by
A) Marshall
B) Adam Smith
C) Hicks
D) none of these

12)when relative change in demand is equal to change

in price, the price elasticity of demand will be
A) unit
B) less than one
C) greater than one
D) infinity

13) suppose money income in the year 2000 was 5 lakh,

which increased 10 lakh in the year 2008 but during the
same Period, there was a price increase of 20 % then
increase in real income was_____
A) 8 to 33 lakh
B) 363 lakh
C) fifty one lakh
D) none of these
14) to obtain maximum satisfaction, the following
equation must be satisfy F1/ F2 is equal to P1 / P2
where F1 and F2 indicate marginal utility and P1 and P2
indicates their prices
A) above equation is correct
B) above equation is wrong
C) above equation indicates minimum, not maximum
satisfaction
D) none of the above

15) inferior goods means

A) when demand remains constant, though price
increased
B) when demand decreases with increase in price
C) when demand decreases with decrease in price
D) demand remains the same with decrease in price

16) there are some misconceptions about Monopoly.

which one of the following?
A) Monopoly firm price to earn
B) Monopoly firm always
C) marginal income of monopoly firm is equal to
D) none of the above

17) which of the following statements is true?

A) product differentiation is not necessary in
monopolistic competition
B) monopolistic competition normally requires
product differentiation
C)there is no reaction from others if one under
monopolistic competition decreases price
D)with perfect elastic demand, price decrease under
monopolistic competition decreases total revenue

18) equilibrium means

A) no tendency to change with time
B) changes in all variables with time
C)other combinations of variable represent better
situation
D) change in one variable, others remaining constant

19) gross national product is equal to

A) Gross National Product -import
B) GDP- net factor income from abroad
C) Gross Domestic +Product imports
D) Gross National +Product Exports

20) entrepreneurial activity is performed

A) by rich persons
B) who works under conditions of certainty
C) who works only on the basis of past experiences
D) who works under conditions of uncertainty

21) which of the following is included in

macroeconomics
A) equilibrium of the firm
B) price determination of a commodity
C) trade cycle theory
D) price determination of LPG in India

22) trade off means

A) simultaneous increase in two
B) increase in one variable, keeping the other constant
C) decrease in other variable with increase of one
D) none of the above

23) which of the following represents equilibrium?

Total TotalReali-Plan-Natio-Con-sed Ned sum- Sav-
Invest-Inco-tion ING mentme
A)600 500 100 75
B)500 425 75 75
C)400 350 50 75
D)700 550 150 75

24) in a country in which the demand for land is greater

than the supply
A)There will be no price for marginal land
B)Marginal land will also have
C)Only fertile land will have
D)There will be no price even for fertile land

25) a firm will suffer loss

If the price is less then average fixed cost + average
variable cost
A)If the price is less than variable cost
B)If the price is less than average fixed cost
C)If the price is more than average fixed cost +average
D)variable cost

26) If the amount of hundred crore is invested in an

economy and if marginal propensity to consumers 008
then increase in national income will be
A)80crore
B)300crore
C)500crore
D)None of these

27) The Great Depression of thirties gave birth to the

theory of
A)Says law of market
B)Full employment equilibrium
C)That real wages determine the supply of labour
D) Keynesian theory of Employment
28) if the total cost of production of 400 units is rupees
8000 and of 399 units is rupees 7990 comma then the
production is under
A)Law of increasing returns to the scale
B)Law of decreasing returns to scale
C)Law of constant returns to scale
D)None of the above

29) income from taxes is divided

A)States income from taxes is shared by centre
B)Income of some taxes of the centre is shared by
C)States and the centre have independent sources of
income and no sharing
D)None of the above

30) Central Bank in India is

1.Central Bank of India
2.State Bank of India
3.Bank of India
4. Reserve Bank of India

31) which of the following does not come under

1. macroeconomics
2. Price determination of LPG in India
3.Theory of depression
4.Functions of central bank in India

32) macroeconomics suffers from

1.All theories are influenced by generalisation
2.The analysis employs the technique of partial analysis
3.Deals with large quantities
4.Relates to determination of total employment and total
income
33) the movement from non Pareto Tuperrito equilibrium
is desirable because
1.It increases the production of first commodity
without adversely affecting the production of
second
2.It increases the production of second commodity more
than it decreases the production of first
3.it increases the production of first commodity more
than if decreases the production of second one
4.None of the above

34) inflation means

1.When the prices of necessities increase
2.When the general price increases for a long period
3.When there is a seasonal fluctuations in prices
4.When the prices of luxury is increased

35) speculative demand for money and interest rate are

related
1.Inverse relationship
2.Direct relationship
3.No relationship in this
4.None of these

36) when the demand for money increases for

investment
1.Will decrease the multiplier effect
2.Adversely affect the consumption
3.Interest rate will remain unchanged
4.The increase in interest rate will depend upon the
slope of investment curve

37) disinflation means

1.When increase in prices in the long run
2.When the prices increased due to export
3.When the increase in prices is more than average
4.When increased prices decrease.

38) transaction demand curve for money

1.It is parallel to x axis
2.It moves upward with income
3.It moves downward
4.None of these.

39) if any firm uses only two factors of production

namely labour and capital which of the following
equations represent minimum cost of production
1.MPPL/PL=MPPK/PK
2.MPPL×PL=MPPK×PK
3.MRPL=MRPK
4.MPPL:MPPK.

40) devaluation of money means

1.Decrease in purchasing power of money
2.Increase in purchasing power of money
3.Decrease in external value of money
4.None of the above

41) money supply could be increased

1.Central Bank purchases government securities
2.Central Bank sells government securities
3.Cash reserve ratio of banks is increased
4.Commercial banks increase the Amount deposited
with the central bank

42) minimum wage should be determined

1.Less than prevailing wage rates
2.Higher than equilibrium rate in die market
3.Minimum physical and social needs may be
fulfilled
4.None of the above

43) pigous concept of equilibrium firm is a

completely new concept, having nothing to do with
marshallian representative firm
1.Revised version of marshallian representative firm
2.Marshalls representative firm
3.is a revised version pigous of equilibrium firm
4.None of the above.

44) under monopolistic competition excess capacity

means
A) excess capacity under the condition of making loss
B) difference between profit maximizing production
and minimum cost production
C)optimum and maximum profit giving production
difference between the two
D) none of the above

45) law of variable proportions means

1.Simultaneous change in the proportion of input
2.Keeping one input constant while changing
3.Reducing other inputs and increasing only one input
4.None of the above.

46) under monopolistic competition in long run

1.Firm will always on earn Monopoly profit
2.Firm might earn normal profit only
3.Firm will always earn normal profit
4.None of the above
47) bankers bank in India is
1.International Monetary Fund
2.World Bank
3.Industrial Development Bank of India
4.Reserve Bank of India

48) the ratio of exchange between two goods in the

indifference curve analysis is shown bye
1.Priceline
2.Price consumption curve
3.Income consumption curve
4.From indifference curve.

49) say’s law states that_____

1.Supply creates its own demand
2.Demand creates its own supply
3.There is no such thing as a free lunch
4.Macroeconomic policy activism is essential to ensure
full employment.

50)the aggregate supply(AS) curve and aggregate

demand(AD) curve in a realistic keynesian world are
1.AD:Fully horizontal AD:downward-sloping
2.AS: horizontal only till the full capacity level; AD:
downward sloping
3.AS: vertical; AD; upward sloping
4.AS: horizontal; AD: vertical

51) Rapid increases in the price level during periods of

recession or high unemployment are known as
A) slump
B)stagnation
C) stagflation
D) inflation
3.Cost Concepts, Risk Analysis and Decision
Making
1) The underlying reason production possibilities
Frontier are likely to bowed out rather than linear is
a. Choices have consequences
b. There is always an opportunity
c. Some resources and people can be better
used producing one would rather than other
d. There is always some level of unemployment
2)The optimization assumption suggest that people
make
a. Irrational decisions
b. Unpredictable decisions
c. Decisions to make themselves as well off as
possible
d. Decisions without thinking very hard
3) the fact that we are operating at a point inside a
bowedd out production possibilities Frontier power
indicates that is.
a. Scarcity
b. Constant opportunity cost
c. Unemployment
d. Increasing opportunity cost
4)if the production possibilities Frontier is not bowed out
but a line, indicates there is
a. Scarcity
b. Constant opportunity cost
 c. Unemployment
d. Increasing opportunity cost
5) the fact that the production possibilities Frontier is
bored out indicates there is
a. Scarcity
b. Constant opportunity cost
c. Unemployment
d. Increasing opportunity cost
6) using figure given below you can tell that
a. There is increasing opportunity
b. There is unemployment
c. Where is constant opportunity cost
d. The technology does not exist to produce 6 units of
soda and one unit of pizza
7) using figure given below you can tell that
a. The technology does not exist to produce 4 units of
soda and one unit of pizza
b. There is unemployment
c. There is increasing opportunity cost
d. The technology does not exist to produce 3
units of soda and 3 unit of pizza
8)the fact that we cannot operate at a point outside a
production possibilities Frontier indicates there is
a. Scarcity
b. Constant Opportunity cost
c. Unemployment
d. Increasing opportunity cost
9) using figure given below you can tell that
a. There is increasing opportunity cost
b. There is unemployment
c. There is constant opportunity cost
d. The technology does not exist to produce 90 units
of soda and two units of pizza
10) using figure given below you can tell that
a. The technology does not exist to produce 130 units
of soda and one unit of pizza
b. There is unemployment
c. there is constant opportunity cost
d. The technology does not exist to produce 90
units of Soda and 3 units of pizza
11) using figure given below you can tell that
a. There is increasing opportunity cost
b. There is unemployment
c. There is constant opportunity cost
d. What technology does not exist to produce 10 units
of Soda one unit of pizza
12) using figure given below you can tell that
a. The technology does not exist to produce 5
units of soda and 3 units of pizza
b. There is unemployment
c. There is increasing opportunity cost
d. The technology does not exist to produce 10 units
of soda and one unit of pizza and one unit of pizza
13) which of these are not relevant costs?
 a. Incremental and sunk
b. Sunk and committed
c. Committed and incremental
d. Opportunity and committed
14) a building contractor has carried out a survey with a
cost of £5000 so that he can put it in a bid to build a new
factory he has paid£ 3000 sofa which survey cost a
relevant to his bid?
a. £2000 still to pay
b. £5000 total survey cost
c. None
d. £3000 already paid
15) a Supermarket is considering running a promotion
on one of its washing powder brands. By doing this, it
will not be able to run a campaign on it shampoo brands
comma which would have generated a contribution of
£50000. What type of cost in is £50000?
a. Marginal
b. Direct
c. Activity
d. Opportunity
16) in a proper capital budgeting analysis we evaluate
incremental _______cash flows
a. Accounting
b. Operating
c. Before tax
d. Financing
17) all of the following influence capital budgeting cash
flows except
a. Choice of depreciation method for tax purposes
b. Economic length of the project
c. Projected sales revenues for the project
d. Sunk cost of the project
18) the basic capital budgeting principles involved in
determining relevant after tax incremental operating
cash floors require a store_______
a. Include sunk cost, but ignore opportunity cost
b. Include opportunity cost, but ignore sunk cost
c. Ignore both opportunity cost and sunk cost
d. Include both opportunity and sunk cost
19) interest payments, principal payments, and
cash_________the typical budgeting cash flow
analysis_______flows.
a. Included in financing
b. Excluded from financing
c. Included in operating
d. Excluded from operating
20) under the MACRS system comma and employing
the half year convention, a piece of machinery Falling In
The 10 year property class would generally be
depreciated over
a. Fewer than 10 recovery years
b. 10 recovery
c. 10.5 recovery years
d. 11 recovery years
21) fixed cost is divided to contribution margin per unit to
calculate
a. Fixed output
b. Variable output
c. Break even number of units
d. Total number of units
22) contribution margin percentage is 30 % and selling
price is $5000 then contribution margin per unit is
a. $900
b. $1200
c. $1500
d. $1600
23)contribution margin is $13000 and total variable cost
is $7000 then total revenue is
a. 6,000
b. 6000
c. 20,000
d. 20000
24) selling price is$5000 and contribution margin per
unit is$1000 then contribution margin percentage
a. 12%
b. 20%
c. 5%
d. 15%
25) revenue is $15000, total variable cost is$5000 and
fixed cost$2000 then operating income is
a. $4000
 b. $8000
c. $5000
d. $3000
26) there are three fundamental cost/ volume / profit
(CVP) relationships. Which of the following is not one of
these?
a. Profit total =revenue- total cost
b. Contribution= total revenue -variable cost
c. Contribution =total cost -variable cost
d. Total cost= variable cost+ fixed cost
27) cvp contribution / volume / profit analysis does not
assume that
a. The behaviour of cost and revenues is not linear
b. Total cost are divided into fixed and variable cost
c. Output is the only factor affecting cost
d. There is no uncertainty

28) at the break even point which of the following

relationships does not hold true?
a. Sales value =fixed cost / contribution to sales
ratio%
b. Number of units =fixed cost / contribution per unit
c. Profit = contribution +fixed cost
d. Contribution= fixed cost
29) a product has a selling price of £ 10 and a marginal
cost of£ 5 Sales for march £100000 and fixed cost for
March are £20000 How many products are sold at the
break even point?
a. 3000
b. 10000
c. 4000
d. 2000
30) a product has a selling price£10 and marginal cost
of £5.Sales for March are 100000 and fixed cost for
March are £ 20000 What is the profit for March?
a. £30000
b. £50000
c. £40000
d. £20000
31) a company's sales for September are £500000 and
its variable cost of sales is£ 200000 if its break even
sales are £ 300000 what is the profit for September?
a. £300000
b. £120000
c. £180000
d. £200000

32) which of the following statements is not one of the

bases of activity-based Costing (ABC)
a. Products consume activities
b. Activities cause costs
c. Activities can be managed
d. Products cause costs
33) Throughput accounting (TA) is a relatively new
development in management accounting .In TA ,
Throughput is defined as,
a. Sales revenue less direct materials cost
b. Sales revenue less direct labour costs
c. Direct labour plus direct materials costs
d. Sales revenue plus, direct labour costs

34) A structured approach to determining the cost at

which a proposed product with specific functionality and
quality must be produced in order to generate the
desired level of profitability at the products anticipated
selling price best defines
a. Benchmarking
b. Target costing
c. Manufacturing resource planning (MRPII)
d. Life cycle costing
35) thetechniquesbused to measure the difference
between actual costs incurred withing each of the
processes of manufacturing/supply of goods/,services,
and the equivalent costs if there were no failures withing
each of the processes best describes
a. Kaizen
b. Total quality management (TQM)
c. Life cycle costing
d. Cost of quality (COQ)
36) AT breakeven point there is
 a. Profit
b. Loss
c. No profit or loss
d. None of these
37) at breakeven point
a. Total expenses =Total revenue
b. Total expenses > total revenue
c. Total expenses< total revenue
d. Any of the above
38) in any organisation,profits depends mainly upon
a. Production cost
b. Production output
c. Revenue
d. All of the above
39) there are various methods to reduce cost of
production,except
a. Increase in production output
b. Reduction in number of rejectios
c. Maintaining maximum inventory levels
d. Producing standardized products
40). The following assumptions are made in case of
break even analysis, except all fixed costs are fixed
a. All fixed costs are fixed
b. All variables costs are fixed
c. The prices of input factors are constant
d. Volume of production and volumes of sales are
equal
41) The breakeven point is obtained at intersection of
a. Total revenue and total cost line
b. Total cost and variable cost line
c. Variable cost and fixed cost line
d. Fixed cost and total cost line
42) margin of safety is equal to
a. Actual sales-sales at breakeven point
b. Actual sales + sales at breakeven point
c. Actual sales × sales at breakeven point
d. Actual sales/ sales at breakeven point
43) To increase margin of safety, the following
measures can be taken
a. Increase in sales price
b. Increase the output
c. Reduce the fixed and variable cost
d. Which of the following is/are true?
∑ Only a
∑ Only a and
∑ B and c
∑ All of the above
44) Angle of incidence is the angle at which
a. Total revenue line intersects the total cost line
b. Total cost line intersects the variable cost line
c. Variable cost line intersects fixed cost line
d. Fixed cost line intersects total revenue line
45) contribution per unit is equal to
 a. Selling price per unit-variable cost per unit
b. Selling cost per unit +variable cost per unit
c. Selling cost per unit× variable cost per unit
d. Selling cost per unit/variable cost per unit
46) The quani required to have desired pofit is
a. (Fixed cost +desired profit)/ contribution per
unit
b. (Fixed cost – desired profit)/contribution per unit
c. (Fixed cost × desired profit )/ contribution per unit
d. (Fixed cost /( desired profit × contribution per unit)
47) an industry is selling a product for rs 10 per unit the
fixed cost for assets isbrs 40000 with variable cost of rs
6 per unit. How many units should be produced to break
even?
a. 8000
b. 10000
c. 12000
d. 14000
48) which one of the following is not a condition of the
insured
a. Losses must be under the control of the insured
b. The insured hazard must be Geographically
widespread
c. The probability of a loss should be predictable
d. Losses must result from an intentional action by
the insured person
49) the data for an industrial unit is as follows
Fixed cost of assets=rs 20000
Sales price per unit =rs 08
Variable cost=rs 6000
Contribution for 6000 units=rs 12000
The sales volume for break even is
a. 8000
b. 10000
c. 12000
d. 40000
50) risks that insurance fims will not assume are called
a. Uninsurable risks
b. Insurable risk
c. Endorsements
d. Pure risks
51) cost for injury or death due to hazards at the
workplace area covered under______insurance
a. Product liability
b. Life
c. Malpractice
d. Public liability
52) insurance that provides protection for a stated period
of time he is defined as______insurance
a. Straight life
b. Single payment
c. Term
d. Whole life
53) a method for reducing the cost of health care by
offering the services of doctors and hospitals at discount
rates or giving breaks in co-payments and deductibles is
offered by
a. A major medical plan
b. Medicare
c. Health care insurance
d. A preferred provider organisation
 4. Money and Capital Market In India
Q. 1. Transaction cost of trading of financial instruments
in centralized market is classified as
a) flexible costs
b) low transaction costs
c) high transaction costs
d) constant costs
Ans : b

2. In primary markets, property of shares which made it

easy to sell newly issued security is considered as
a) increased liquidity
b) decreased liquidity
c) money flow
d) large funds
Ans : a

3. Money market where debt and stocks are traded and

maturity period is more than a year is classified as
a) shorter term markets
b) capital markets
c) counter markets
d) long-term markets
Ans:b

Q. 4. Type of market in which securities with less than

one year maturity are traded is classified as
a) money market
b) capital market
c) transaction market
d) global market
Ans :a
Q. 5. In capital markets, major suppliers of trading
instruments are
a) government and corporations
b) liquid corporations
c) instrumental corporations
d) manufacturing corporations
Ans : a

Q. 6. Funds transferred usually for a day between

financial institutions are classified as
a) federal funds
b) bankers funds
c) debt funds
d) secured funds
Ans :a

Q. 7. Process of issuing treasury bills is classified as

a) treasury trading auction
b) treasury fund auction yr
c) treasury bills auction.
d) treasury bills transfer
Ans: c

Q. 8. Obligations that are issued by US governments

and are obligated for short term are classified as
a) bankers treasury
b) treasury bills
c) treasury funds
d) secured treasury
Ans:b

Q. 9. Promissory notes issued by company for short

term fund raising and are unsecured are classified as
a) unsecured notes
b) debt paper
c) term paper
d) commercial paper
Ans : d

Q. 10. Drafts which are backed up by banks and are

payable to seller of products or services are classified as
a) banker acceptance
b) secured acceptance
c) unsecured acceptance
d) economic acceptance
Ans : a
11.Financial markets are used for trading:
a) both real assets and financial assets.
b) the goods and services produced by a firm.
c) securities, such as shares of BCE.
d) the raw materials used in manufacturing.
Ans:c

Q.12. All but one of the following is a service provided to

corporations by financial markets and intermediaries?
a) payments services
b) contracts to manage risk
c) liquidity
d) real investments
Ans : d

Q.13. The term "capital structure" refers to:

a) the choice between equity and debt financing
b) the length of time needed to repay debt.
c) whether the firm invests in capital budgeting projects.
d) which specific assets the firm should invest in.
Ans : a

Q.14. The primary distinction between securities sold in

the primary and secondary markets is the:
a) riskiness of the securities.
b) price of the securities.
c) previous issuance of the securities.
d) profitability of the issuing corporation.
Ans c

Q.15. The money market is a(an) market, while the

capital market is a(an) market.
a) investment; liquidity
b) short-term; long-term
c) liquidity; financial institution
d) long-term; short-term
Ans : b

Q.16. The minimum, acceptable rate of return on

corporate investments is determined by:
a) investors in financial markets.
b) information from accounting statements.
c) the financial manager.
d) the senior managers of the company.
Ans : a

17. While corporations provide shareholders returns

from ----------, capital markets provide returns to
shareholders from------------ ?
a) capital gains; dividends
b) appreciation; capital gains
c) dividends; capital gains
d) eamings; capital appreciation
Ans : c

Q.18. Owners of mutual funds own----------- and are

called ----------------?
a) deposits; depositors
 b) bonds; bondholders
c) shares; shareholders
d) IOU's of mutual funds; creditors
Ans : c

Q.19. Common stock of corporations may be listed on

stock exchanges or traded:
a) over-the-counter.
b) by brokers who own an inventory of shares from
which they buy/sell.
c) between directors of the corporation.
d) between insiders of companies.
Ans:d

Q. 20. All but one of the following is known as a financial

market?
a) foreign exchange market
b) pension fund market
c) money market
d) fixed-income market
Ans : b

Q. 21. Financial markets evaluate the performance of

publicly traded corporations
a) constantly.
b) quarterly when financial statements are filed with the
OSC.
c) annually, when the annual report is issued.
d) as requested by the managers of the corporations.
Ans : a

Q.22. The first time a security is sold it is in the market---

----; subsequent trading of the security is in the ----------
market.
a) money; capital
b) capital; money
c) banking; secondary
d) primary; secondary
Ans:d

Q. 23. As new information is available, financial markets

a) reflect this new information immediately in the
prices of securities traded.
b) publish this information.
c) provide the information to financial intermediaries.
d) decide how best to tell the public.
Ans : a

24. When shareholderAsells its Nortel stock to

shareholder B in the secondary market, such as on the
Toronto Stock Exchange, how much money is received
by Nortel?
a) Nortel will receive most of the funds, except for
commissions.
b) Nortel will receive nothing.
c) Nortel will receive only the commissions on the sale o'
stock.
d) Nortel will receive a portion of the funds for every
stock traded on the secondary market.
Ans :b .

Q. 25. The most important service provided by mutual

funds to mutual fund investors is:
a) the opportunity to buy corporate securities at a
discounted price.
b) high expenses and trading costs which increase the
rate of return for investors.
c) diversification.
d) a higher than average rate of return.
Ans :C

Q. 26. Which of the following is not a characteristic of a

money market instrument?
a) liquidity
b) long maturity
c) liquidity premium
d) b and c
Ans : d

Q.27. Which one of the following is not a money market

instrument?
a) a Treasury bill
b) a Eurodollar account
c) commercial paper
d) a Treasury bond
Ans d

Q. 28. T-bills are financial instruments initially sold by ---

--------to raise funds.
a) commercial banks
b) the U. S. government
c) state and local governments
d) agencies of the federal government
Ans : b

Q. 29. The bid price of a T-bill in the secondary market

is
a) the price at which the dealer in T-bills is willing to sell
the bill.
b) the price at which the dealer in T-bills is willing to
buy the bill.
c) greater than the asked price of the T-bill.
d) never quoted in the financial press.
Ans : b

Q. 30. Commercial paper is a short-term security issued

by --------- to raise funds.
a) the Federal Reserve Bank
b) commercial banks
c) large, well-known companies
d) the New York Stock Exchange
Ans :c

Q. 31. Deposits of commercial banks at the Federal

Reserve Bank are called --------------
a) bankers' acceptances
b) repurchase agreements
c) time deposits
d) federal funds
Ans : b

Q. 32. The interest rate charged by banks with excess

reserves at a Federal Reserve Bank to banks needing
overnight loans to meet reserve requirements is called
the------------
a) prime rate
b) discount rate
c) federal funds rate
d) call money rate
Ans : c

Q. 33. Which of the following is true regarding a firm's

securities?
a) Common dividends are paid before preferred
dividends.
b) Preferred stockholders have voting rights.
c) Preferred dividends are usually cumulative.
d) Preferred dividends are contractual obligations.
Ans : c

Q. 34. The price-weighted index constructed with the

three stocks is
a) 30 b) 40 c) 50 d) 60
Ans : b

Q. 35. The value-weighted index constructed with the

three stocks using a divisor of 100 is
a) 1.2 b) 1200 c) 490 d) 4900
Ans : c

Q.36. Who signs One rupee note in India?

a) RBI Governor b) RBI Deputy Governor
c) Finance Secretary d) Prime Minister
Ans :c

37. Reserve bank of India was established on

a) '1stApril, 1935 b) 1st April, 1936
c) 1st 'April, 1937 d) 1stApril, 1938
Ans :A

Q.38. Which among the following body promoted

securities Trading Corporation of India Limited (STCI)
jointly with the Public sector Banks?
a) SEBI c) IDBI Ltd.
b) Reserve bank Of India d) ICICI Ltd

Q.39. Mutual funds are regulated in India by which

among the following?
a) RBI b) SEBI
c) Stock exchanges d) RBI and SEBI both
Ans : b

Q. 40. Which among the following body authorizes the

credit limit to the National Co-operative Marketing
Federation?
a) RBI c) NABARD
b) Department of Agriculture d) Department of Finance
Ans C

Q.41. Which of the following are money markets

instruments?
I) Treasury 8% 2011.
II) National Savings Certificates.
III) A 3-month certificate of deposit.
IV) A treasury bill with 7 days to maturity.
V) A 14-day repurchase agreement of Treasury 8%
2007.
a) 3, 4 and 5 b) 1, 3 and 4
c) 1,2 and 5 d) 2 and 4
Ans: a

Q.42. Which among the following body finalizes the

market-borrowing programmers of State Governments in
India?
a) State Governments b) RBI
c) Union Ministry of Finance d) Planning
CommissionAns : d

Q. 43. 3-month CDs are trading at a discount rate of 5

3/8, while 1-month CDs are trading at a rate of 5 5/8.
The difference in rates is:
a) 0.5 basis points. b) 25 basis points.
c) 0.25 basis points. d) 0.025 percent.
Ans : b
Q.44. The price of a newly issued 91-day £100,000
treasury is £98,750. The rate of discount is
a) 5% c) 1.25%
b) 1.26% d) 5.25%
Ans a

Q.45. If 3-month interest rates are 5%, the price of a

newly issued 91-day CD for £100,000, paying 5.25%,
will be:
a) £100,050 b) £105,250
c) £105.000 d) £100,062
Ans : d

Q.46. In which of the following states, maximum Coast

Guard stations have been established in India?
a) Foreign Trade promotion Board
b) Department of Commerce
c) RBI
d) SEBI
Ans : c

Q. 47. Which of the following is not a Eurocurrency?

a) US$ held in Tokyo.
b) Japanese ¥ held in New York
c) French francs held in Paris.
d) French francs held in New York.
Ans:c

Q. 48. On which of the following instruments is the rate

of return calculated on a 'discount basis'?
I) Certificates of deposit.
II) Interbank deposits.
III) Commercial paper.
IV) Repurchase agreements.
V) Commercial bills.
a) 1 and 3 b) 1, 3 and 4
c) 2 and 4 d) 3 and 5
Ans : d

Q. 49. A central bank wishing to reduce the rate of credit

expansion would typically:
a) buy treasury bills from the banking system at their
current price.
b) refuse reserves to the banking system.
c) sell treasury bills to the general public.
d) raise the price of repurchase agreements with the
banking system.
Ans : d

50. Who works as RBI's agent at places where it has no

office of its own?
a) State Bank of India
b) Ministry of Finance
c) Government of India
d) International Monetary Fund
Ana: a

Q.51. Which among the following is incorrect?

a) RBI is the Bank of Issue
b) RBI acts as Banker to the Government
c) RBI is Bankers Bank
d) RBI does not regulate the flow of credit—
Ans:d
 Chapter 5 - Public Finance Infrastructure

Q. 1. Which of the following is a union tax?

a) Corporation tax.
b) Taxes on agricultural income.
c) Capitation taxes.
d) Land revenues.
Ans : a

Q. 2. Which of the following is not a union tax?

a) Taxes on railway freights and fares.
b) Stamp duties on financial documents.
c) Tolls.
d) Aand b only.
Ans: d

Q. 3. Consider the following statements and identify the

right ones.
I) Central govemment does not have exclusive power to
impose tax which is not mentioned in state or concurrent
list.
II) The constitution also provides for transferring certain
tax revenues from union list to states.

a) i only c) both
b) ii only d) none
Ans: b

Q. 4. The tax levied by the union government on income

of individuals is known as
a) Personal income tax b) Interest tax
c) Wealth tax d) Corporation tax
Ans: a
a. 5. The tax on net income of companies is
a) Personal income tax
b) Interest tax
c) Wealth tax
d) Corporation tax
Ans:d

Q. 6. Consider the following statements and identify the

right ones.
I) Wealth tax is collected from productive as well as
unproductive assets
II) Estate duty was a type of inheritance tax of large
estates
a) i only b) ii only c) both d) none
Ans:b

Q. 7. Which of the following taxes is/are withdrawn or

abolished?
a) Interest tax
b) Estate duty
c) Gift tax
d) All the above
Ans:d

Q. 8. The most important source of revenue to the states

is
a) Sales tax b) Service tax
c) Excise duty d) None of the above
Ans : a

Q. 9. The tax levied on the interstate trade of goods is

a) Sales tax
b) Excise tax
C) Service tax
d) Central sales tax
Ans: d

Q.10. The difference between revenue expenditure and

revenue receipts is
a) Revenue deficit b) Fiscal deficit
c) Budget deficit d) Primary deficit
Ans: a

Q.11. The difference between total expenditure and total

receipts is
a) Fiscal deficit b) Budget deficit
c) Primary deficit d) Revenue deficit
Ans: b

Q.12. The difference between total expenditure and total

receipts except loans and other liabilities is called
a) Fiscal deficit b) Budget deficit
c) Primary deficit d) Revenue deficit
Ans: a

Q.13. The difference between fiscal deficit and interest

payment during the year is called
a) Fiscal deficit b) Budget deficit
c) Primary deficit d) Revenue deficit
Ans: c
Q.14. The Public Sector Borrowing Requirement is now
officially referred to as the:
a) PSNB. b) PSNCR. c) PSBN. d) PSND.
Ans : b

Q.15. Consider the following statements and identify the

right ones.
I) The 14th finance commission is headed by C.
Rangarajan
II) The recommendations of the commission will come
into effect from April, 1, 2015
a) i only b) ii only c) both d) none
Ans:b

Q.16. The difference between revenue deficit and grants

for creation of capital assets is called
a) Fiscal deficit b) Budget deficit
c) Effective revenue deficit d) Primary deficit
Ans:c

Q.17. A 'structural' budget deficit is one that:

a) arises because of accounting practice but has no
economic significance.
b) occurs regularly irrespective of the state of the
economy.
c) occurs when countries are in recession.
d) arises because of high capital expenditure such as
the building of new schools and hospitals.
Ans : b

Q.18. The Chancellor of the Exchequer's 'golden rule' of

the public finances is that:
a) budget deficits should be allowed when the country is
in recession but should be balanced by surpluses when
there is no recession.
b) any budget deficit must be financed by the sale of
government assets.
c) the budget should always be kept in balance.
d) over the medium term, the government should
only borrow to finance investment.
Ans : d
Q.19. The difference between the PSNB and the
PSNCR might be important because:
a) financial markets have a particular interest in the
PSNCR.
b) the PSNB allows for interest payments on the public
debt.
c) the PSNCR is closely related to the rate of growth of
the money supply, but the PSNB is not.
d) the economic effects of increasing taxes and of
selling off public assets might be different.

Q.20. The public debt of a country is not necessarily a

burden on the economy to the extent that:
a) it grows less rapidly than GDP.
b) it can be financed without adding to inflation.
c) it is paid for by borrowing abroad.
d) people receive good public services.
Ans: a
Q.21. If the public debt can be financed without adding
to inflation or causing interest rates to rise, it is said to
be:
a) sustainable.
b) in primary balance.
c) only a burden on future generations.
d) following the golden rule of the public finances.
Ans: a

Q.22. The link between the PSNCR and interest rates

may be weak because:
a) interest rates are set by the independent central bank.
b) the PSNCR is a flow not a stock.
c) the average holding time of long-term bonds is short.
d) savings grow as nominal incomes rise.
Ans: d

Q.23. Interest rate expectations have been thought to be

an important influence on bond sales because:
a) government bond-holders hold extrapolative
expectations.
b) interest rates have always been very unstable.
c) the bond market is dominated by people
interested mainly in capital gains.
d) government bond-holders are, by and large, are
income risk averse.
Ans: c

Q.24. The major disadvantage of the policy of 'leaning

into the wind' pursued by the Bank of England in the
1950s and 1960s Was that is:
A) Kept Interest rates stable and removed the possibility
of capital gains.
b) interest rates could not be used to control the
growth of the money supply.
c) it penalised those for whom interest on government
bonds was an important part of their income.
d) there was a risk that a change in policy would cause
the bond market to become unstable.

Q.25. The sale of government bonds overseas:

a) causes a smaller increase in interest rates than the
sale of bonds to the domestic banking sector.
b) causes a smaller increase in interest rates than
the sale of bonds to the domestic private sector.
c) causes a deficit in the balance of payments.
d) causes a fall in the domestic money supply.
Ans: b
Q.26. The government prefers to sell longer-dated than
shorter-dated stock because:
a) it allows them to influence the relationship between
long and short interest rates.
b) it reduces the rate at Which the existing public
debt must be refinanced.
c) it allows the authorities to construct a time profile of
the public debt.
d) investors prefer to hold longer-dated stock. e) the
bond market is strongly segmented.
Ans: b

Q.27. The principle of judging fiscal measures by the

way they work is called:
a) Personal Finance b) Public Finance
c) Functional Finance d) Local Finance
Ans: c
Q.28. The neo?Keynesian approach to public finance is
called
a) Functional finance b) Aggregate demand
c) Global linen. d) Federal finance
Ans: a

Q.29. According to Musgrave the major functions of

public finance is:
a) Allocative function b) Distributive function
c) Stabilisation function d) All the above
Ans: d

Q.30. Who is the author of the book "The Theory of

Public Finance"?
a) Dalton c) A.R. Prest
b) R.A. Musgrave d) Harvey Rosen
Ans: b
31. The income of the government through all its
sources is called
a) Public expenditure b) public revenue
c) Public finance d) none of these
Ans: c

Q.32. The ideal system of public Finance is one where

the net benefit is
a) Maximum b) Minimum c) Zero d) Infinity
Ans : a

Q.33. Gross National Product equals:

a) Net National Product adjusted for inflation
b) Gross Domestic Product adjusted for inflation
c) Gross Domestic Product plus net property
income from abroad
d) Net National Product plus net property income from
abroad
Ans: c

Q.34. Net National Product equals:

a) Gross National Product adjusted for inflation
b) Gross Domestic Product adjusted for inflation
c) Gross Domestic Product plus net property income
from abroad
d) Gross National Product minus depreciation
Ans: d

35. The standard of living is often measured by:

a) Real GDP per capita
b) Real GDP
c) Real GDP * population
d) Real GDP plus depreciation
Ans: a

Q.36. Real national income measures:

a) Nominal national income adjusted for population
change
b) Nominal national income adjusted for unemployment
c) Nominal national income adjusted for inflation
d) Nominal national income adjusted for exchange rates
Ans: c

Q.37. Which of the following statements is true about the

circular flow?
a) Output is greater than income
b) Income is more than expenditure
c) Output is less than expenditure
d) Output equals income equals expenditure
Ans: D)

38. GDP measures:

a) A country's income
b) A country's wealth
c) Consumer spending
d) Net trade income
Ans: a

Q.39. To adjust GDP from market prices to factor cost:

a) Add indirect taxes
b) Subtract subsidies
c) Deduct indirect taxes and deduct subsidies
d) Deduct indirect taxes and add subsidies
Ans: d

Q.40. To adjust from Net National Product to Gross

National Product:
a) Add depreciation b) Deduct indirect taxes
c) Add subsidies d) Add inflation
Ans: a

Q.41. The Gini coefficient measures:

a) Income inequality b) Inflation
c) Unemployment d) Economic growth
Ans: a

Q.42. A higher GDP per capita may not mean that the
quality of life has really improved because:
a) It measures wealth not income
b) It measures Gross Domestic Product
c) It does not measure the quality of the items
Produced
d) It is only measured every five years
Ans: c

Q.43. Given a home country and a foreign country,

purchasing power parity suggests that:
a) the home currency will appreciate if the current home
inflation rate exceeds the current foreign inflation rate;
b) the home currency will depreciate if the current home
interest rate exceeds the current foreign interest rate;
c) the home currency will depreciate if the current
home inflation rate exceeds the current foreign
inflation rate.
d) the home currency will depreciate if the current home
inflation rate exceeds the current foreign interest rate;
Ans: c
Q.44. If purchasing power parity were to hold even in the
short run, then:

a.)real exchange rates should tend to decrease over

time;
b) quoted nominal exchange rates should be ,table over
time.
c) real exchange rates should tend to increase overtime;
d) real exchange rates should be stable over time;
Ans: d

Q.45. If inflation is expected to be 5 per cent higher in

the United Kingdom than in Switzerland:
a) purchasing power parity would predict that the
UK spot rate should decline by about 5 per cent;
b) the theory of purchasing power parity would predict a
moo drop in nominal interest rates in the United
Kingdom of approximately 5 per cent;
c) expectations theory would suggest that the spot
exchange rates between the two countries should
remain unchanged over the long run;
d) the efficient market hypothesis suggests that no rates.
predictions can be made under a system of freely
floating
Ans: a

Q.46. The date of settlement for a foreign exchange

transaction is referred to as:
a) Clearing date
b) Swap date
c) Maturity date
d) Value date
Ans: d
Q.47. The Purchasing Power Parity (PPP) theory is a
good predictor of
a) all of the following:
b) the long-run tendencies between changes in the
price level and the exchange rate of two countries
c) interest rate differentials between two countries when
there are strong barriers preventing trade between the
two countries
d) either b or c
Ans: b

Q.48. According to the Purchasing Power Parity (PPP)

theory,
a) Exchange rates between two national currencies will
adjust daily to reflect price level differences in the two
countries
b) In the long run, inflation rates in different countries will
equalize around the world
c) In the long run, the exchange rates between two
national currencies will reflect price level
differences in the two countries
d) None of the above.
Ans: c

Q.49. The Purchasing Power Parity should hold:

a) Under fixed exchange rate regime
b) Under flexible exchange rate regime
c) Under dirty exchange rate regime
d) Always
Ans: b

Q.50. Covered interest rate parity occurs as the result

of:
a) the actions of market-makers
b) interest rate arbitrage
c) purchasing power parity
d) stabilising speculation
Ans : b

Q. 51 . With regard to the WTO, subsidies are covered

in two separate international economic law agreements.
Which are they?
a) The GATT and the Agreement on Subsidies and
Countervailing Measures
b) The Reform Treaty and the Treaty of Rome
c) The North American Free Trade Agreement and the
Organization of American States Charter
d) The International Monetary Fund'sArticles of
Agreement and the European Central Bank's Statute
Ans: a

Q.52. Ultimately --------was replaced by the -----------

On1st jan 1995
a) GATS, WTO b) WTO, GATT
c) GATT, WTO d) IMF, GATT
Ans: c

Q.53. What is 'The Quad' at the World Trade

Organization (WTO)?
a) The coffee shop at the WTO.
b) The decision-making structure composed of the
US, the EU, Brazil and India.
c) The four most powerful countries within the WTO.
d) The four department directors within the WTO.
Ans: b

54. Which of the following is a part of Capital Account?

A) private Capital
B)Banking Capital
C) Official Capital
D) All of the above
Ans D
55. The portfolio investment by foreign institutional
Investor is Called
a) FDI
B) Fll
C) Balance of Payment
D) SDR
Ans B