Economics

Class 12th
Board Year Questions
MICROECONOMICS
Unit 1 Introduction

Q.1) Give two examples of micro economic study. 1

Q.2) Give the meaning of opportunity cost. 1
Q.3) What is a market economy? 1
Q.4) Give the meaning of an economy. 1
Q.4) What does a rightward shift of PPC indicate? 1
Q.5) The Government has started promoting foreign capital. What is the economic value in 1
the context of PPF?
Q.6) Why does an economic problem arise? Explain 3
Q.7) Explain the central problem of the economy. 3
Q.8) Explain the problem of ‘what to produce’. 3
Q.9) Why is PPC concave? Explain. 4
Q.10) What is MRT? Explain with the help of an example. 4
Q.11) Production in an economy is below its potential due to unemployment. Government 4
starts employment generation schemes. Explain its effect using production possibilities
curves.
Unit 2 Consumer’s Equilibrium and Demand

Q.1) When is the demand of a commodity said to be inelastic? 1

Q.2) Define an indifference curve. 1
Q.3) What is law of demand? 1
Q.4) Why is demand for water inelastic? 1
Q.4) Define budget set. 1
Q.5) What is market demand? 1
Q.6) When the demand for a good said to be inelastic? 1
Q.7) Define utility. 1
Q.8) What is meant monotonic preferences? 1
Q.9) Give the meaning of inelastic demand. 1
Q.10) Distinguish between a normal good and an inferior good. Give example in each case. 3
Q.11) How is the price elasticity of demand of a commodity affected by the number of its 3
substitutes? Explain.
Q.12) Distinguish between ‘increase in demand’ and ‘increase in quantity demanded’ of a 3
commodity.
Q.13) Distinguish between ‘decrease in demand’ and ‘decrease in quantity demanded’ of a 3
commodity.
Q.14) Explain any two factors that affect the price elasticity of demand. 3
Q.15) Explain the law of DMU with the help of a utility schedule. 3
Q.16) Goods X and Y are substitutes. Explain the effect of fall in price of Y on demand for 3
X.
Q.17) Given price of a good, how does a consumer decide as to how much of that good to 3
buy?
Q.18) 8 unit of a good are demanded at a price of Rs. 7 per unit. Price elasticity of demand is 3
(-1). How many units will be demanded if the price rises to Rs.8 per unit? Use
expenditure approach of price elasticity of demand to answer this question.
Q.19) When the price of a good changes to Rs.11 per unit, the consumer’s demand falls from 3
11 units to 7 units. The price elasticity of demand is (-1). What was the price before
change? Use expenditure approach of price elasticity of demand to answer this
question.
Q.20) When the price of a good rises from Rs. 10 to Rs. 12 per unit, its demand falls from 25 3
units to 20 units. What can you say about price elasticity of demand of the good
through the ‘expenditure approach’?
Q.21) When the price of a commodity falls by Rs. 2 per unit, its quantity demanded increases 4
by 10 units. Its price elasticity of demand is (-) 1. Calculate its quantity demanded at
the price before change which was Rs. 10 per unit.
Q.22) A consumer consumes only two goods X and Y. State and explains the conditions of 4
consumer’s equilibrium with the help of utility analysis.
Q.23) Explain conditions determining how many units of a good consumer will buy at a 4
given price.
Q.24) Derive the law of demand from the single commodity equilibrium condition “Marginal 4
Utility = Price”
Q.25) Explain how the demand for a good is affected by prices of its related goods. Give 4
examples.
Q.26) Define an Indifference curve. Explain why an indifference curve is downward sloping 4
from left to right.
Q.27) Define MRS. Explain why an indifference curve is convex? 4
Q.28) Define an indifference map. Explain why an indifference curve to the right shows 4
higher utility level.
Q.29) A consumer buys 20 units of a good at a price of Rs. 5 per unit. He incurs an 4
expenditure of Rs. 120 when he buys 24 units. Calculate price elasticity of demand
using the percentage method. Comment upon the likely shape of demand curve based
on this information.
Q.30) When the price of a good is Rs. 7 per unit, a consumer buys 12 units. When price falls 4
to Rs. 6 per unit, he spends Rs. 72 on the good. Calculate price elasticity of demand
using the percentage method. Comment on the likely shape of demand curve based on
this measure of elasticity.
Q.31) The price elasticity of demand is (-) 0.4. If its price increases by 5 percent, by what 4
percentage will its demand falls? Calculate.
Q.32) How is price elasticity of demand affected by: (i) Number of substitute available for 4
the good; (ii) Nature of the good?
Q.33) A consumer consumes only two goods X and Y and is in equilibrium. Show that when 4
the price of goods X rises, the consumer buys less of good X. Use utility analysis.
Q.34) Given the price of a good, how will a consumer decide as to how much quantity of that 4
good to buy? Use utility analysis.
Q.35) How does change in the price of a substitute good affect the demand of the given 4
good? Explain with the help of an example.
Q.36) Give the meaning of “inferior” good and explain he same with the help of an example. 4
Q.37) How does change in the price of a complementary good affect the demand of the given 4
good? Explain with the help of an example.
Q.38) Explain the causes of a rightward shift in demand curve of a commodity of an 6
individual consumer.
Q.39) Explain the conditions of consumer’s equilibrium in case of (i) single commodity and 6
(ii) two commodities. Use utility approach.
Q.40) Use indifference curve approach; explain the conditions of consumer’s equilibrium. 6
Q.41) State and explain the features of indifference curve. 6
Q.42) Explain the three properties of indifference curve. 6
Q.43) Explain the concept of indifference MRS by giving an example. What happens to MRS 6
when consumer moves downwards along the indifference curve? Give reason for your
answer.
Q.44) What are monotonic preferences? Explain why is an indifference curve(i) Downward 6
sloping from left to right and (ii) convex.
Q.45) Explain how do the following influence demand for a good: (I) rise in income of the 6
consumer, (ii) Fall in price of the related goods.
Q.46) Explain consumer’s equilibrium with the help of indifference curve analysis. 6
Q.47) Explain the various degrees of price elasticity of demand. Use diagram. 6
Q.48) Explain the concept of ‘MRS’ with the help of a numerical example. Also explain its 6
behaviour along an indifference curve.
Unit 3 Producer Behaviour and Supply

Q.1) Define fixed cost. 1

Q.2) What causes a downward movement along a supply curve? 1
Q.3) What is meant by ‘increase’ in supply? 1
Q.4) Define supply. 1
Q.4) What is the behaviour of AFC as output increases? 1
Q.5) What is the behaviour of AR in a market in which a firm can sell more only by 1
lowering the price?
Q.6) Give two examples of fixed costs. 1
Q.7) Give two examples of variable costs. 1
Q.8) Define marginal cost. 1
Q.9) Define variable cost. 1
Q.10) What is market supply of a product? 1
Q.11) Explain the meaning of ‘increase in supply’ and ‘increase in quantity supplied’ with 3
the help of a schedule.
Q.12) At a price of Rs. 5 per unit of commodity A, total revenue is Rs. 800. When its price 3
rises by 20 percent, total revenue increases by Rs. 400. Calculate its price elasticity of
supply.
Q.13) Price of commodity A is Rs. 10 per unit and total revenue at this price is Rs. 1,600. 3
When its price rises by 20 percent, total revenue increases by Rs. 800. Calculate its
price elasticity of supply.
Q.14) Total revenue at a price of Rs. 4 per unit of a commodity is Rs. 480. Total revenue 3
increases by Rs. 240 when its price rises by 25 percent. Calculate its price elasticity of
supply.
Q.15) Given below is the cost schedule of a firm. Its AFC is Rs. 20 when it produces 3 units. 3
Output:- 1 2 3
AVC 30 28 32
Calculate its MC and ATC at each given level of output.
Q.16) Give examples; Explain the meaning of cost in economics. 3
Q.17) Draw AR and MR curves in a single diagram of a firm which can sell more units of a 3
good only by lowering the price of that good. Explain.
Q.18) Draw AVC, ATC and MC curve in a single diagram and explain. 3
Q.19) An individual is both the owner and the manager of a shop taken on rent. Identify 3
implicit cost and explicit cost from this information. Explain.
Q.20) A producer borrows money and opens a shop. The shop premise is owned by him. 3
Identify implicit cost and explicit cost from this information. Explain.
Q.21) A producer invests his own savings in starting a business and employs a manager to 3
look after it. Identify implicit cost and explicit cost from this information. Explain.
Q.22) A firm’s revenue rises from Rs. 400 to Rs. 500 when the price of its product rises from 3
Rs. 20 per unit to Rs. 25 per unit. Calculate its price elasticity of supply.
Q.23) The price elasticity of supply of a good is 0.8. its price rises by 50 percent. Calculate 3
the percentage increase in supply.
Q.24) Complete the following table:
 Units of Labour AP(Units) MP(Units)
1 8 -
2 10 -
3 - 10
4 9 -
5 - 4
6 7 -

Q.25) Explain how technological progress is a determinant of supply of a good by a firm. 3

Q.26) Explain how input prices are a determinant of supply of a good by a firm. 3
Q.27) Why is AR always equal to price. 3
Q.28) Complete the following table: 4

Output (Units) AVC (Rs.) TC (Rs.) MC (Rs.)

1 - 60 20
2 18 - -
3 - - 18
4 20 120 -
5 22 - -

Q.29) Commodity X and Y have equal price elasticity of supply. The supply of X rises from 4
400 units to 500 units due to a 20 percent rise in price. Calculate the percentage fall in
supply of Y if its price falls by 8 percent.
Q.30) The price elasticity of supply of commodity X and Y are equal. The price X falls from 4
Rs. 10 to Rs. 8 per unit and its quantity supplied falls by 16 percent. The price of Y
rises by 10 percent. Calculate the percentage increase in its supply.
Q.31) From the following table find out the level of output at which the producer is in 4
equilibrium. Use MR, Mc approach. Give reason for your answer.

Output (Units) AR (Rs.) TC (Rs.)

1 12 14
2 12 26
3 12 35
4 12 52
5 12 64
6 12 70

Q.32) Define ‘market Supply’. What is the effect on the supply of a good when Govt. 4
imposes tax on the production of that good? Explain.
Q.33) What is supply schedule? What is the effect on the supply of a good when Govt. gives 4
a subsidy on the production of that good? Explain.
Q.34) An individual is both the owner and the manager of a shop taken on rent. Identify 4
implicit cost and explicit cost from this information. Explain
Q.35) A Producer borrows money and opens a shop. The shop premise is owned by him. 4
Identify implicit cost and explicit cost from this information. Explain
Q.36) A producer invests his own savings in starting a business and employs a manager to 4
look after it. Identify implicit cost and explicit cost from this information. Explain
Q.37) Explain the conditions of producer’s equilibrium with the help of a numerical example. 4
Q.38) Give the meaning of producer’s equilibrium. A producer produces that quantity of his 4
 product at which MC and MR are equal. Is he earning maximum profits? Give reason
for your answer.
Q.39) Give reasons, explain the ‘Law of Variable Proportions’. 4
Q.40) Give reasons, state whether the following statements are true or false. 6
(i) When there is diminishing return to a factor, TP always decreases.
(ii) TP will increase only when MP increases.
(iii) When MR is zero, AR will be constant.
Q.41) Give reasons, state whether the following statements are true or false. 6
(i) Increase in TP always indicates that there are increasing returns to a factor
(ii) MR is always the price at which the last unit of a commodity is sold.
(iii) When there are diminishing return to a factor, MP and TP both always fall.
Q.42) State whether the following statements are true or false. Give reason for your answer. 6
(i) When TR is constant AR will also be constant.
(ii) AVC can fall even when MC is rising.
(iii) When MP falls, AP will also fall.
Q.43) State whether the following statements are true or false. Give reason for your answer. 6
(i) When there are diminishing return to a factor, TP first increases and then
starts falling.
(ii) When MR falls to zero, AR becomes maximum.
(iii) The difference between TC and TVC falls with increase in output.
Q.44) Explain the law of variable proportions with the help of TP and MP curves. 6
Q.45) Explain producer’s equilibrium with the help of a MC and MR schedule. 6
Q.46) Explain producer’s equilibrium with the help of a MC and MR curves. 6
Q.47) From the following information about a firm, find the firm’s equilibrium output in 6
terms of MC and MR. give reasons. Also find profit at this output.

Output (units) TR (Rs.) TC (Rs.)

1 6 7
2 12 13
3 18 17
4 24 23
5 30 31
Unit 4 Forms of Market and Price Determination under Perfect Competition with
simple Application

Q.1) Define monopoly. 1

Q.2) Name the characteristics which make monopolistic competition different from perfect 1
competition.
Q.3) State one feature of oligopoly. 1
Q.4) In which market form demand curve of a firm is perfectly. 1
Q.5) When is a firm called ‘price-taker’? 1
Q.6) What is a price taker firm? 1
Q.7) Under which market form a firm a firm’s MR is equal to price? 1
Q.8) What is imperfect oligopoly? 1
Q.9) Why is a firm under perfect competition a price taker? Explain. 3
Q.10) Explain the implications of freedom of entry and exit of firms under perfect compt. 3
Q.11) Explain the implication of ‘homogenous product’ feature of perfect competition. 3
Q.12) Explain the implication of ‘perfect knowledge about market’ under perfect compt. 3
Q.13) Explain the implication large number of buyers in a perfectly competitive market. 3
Q.14) Explain why firms are mutually interdependent in an oligopoly market. 3
Q.15) Explain ‘large number of buyers and sellers’ feature of a perfectly competitive market. 3
Q.16) Explain any two features of monopoly market. 3
Q.17) Explain “freedom of entry and exit to firms in industry” feature of monopolistic 3
competition.
Q.18) Why the number of firms small in oligopoly? 3
Q.19) Explain the effect of increase in income of the buyers of a normal commodity on its 4
equilibrium price.
Q.20) Explain any three characteristics of a perfectly competitive market. 4
Q.21) Why is the AR curve of a firm under perfect competition parallel to X-axis and 4
negatively sloped under monopoly?
Q.22) At a given price there is excess demand for a good. Explain how the equilibrium price 4
will be reached. Use diagram.
Q.23) With the help of a diagram explain the effect of “decrease” in demand of a commodity 6
on its equilibrium price and quantity.
Q.24) Market for a good is in equilibrium. There is an ‘increase’ in demand for this good. 6
Explain the chain of effects of this change.
Q.25) Market for a good is in equilibrium. There is simultaneous “decrease” both in demand 6
and supply of good. Explain its effect on market price.
Q.26) Market for a good is in equilibrium. There is simultaneous “increase” both in demand 6
and supply of good. Explain its effect on market price.
Q.27) Give reasons, whether the following statements are true or false: 6
(I) A monopolist can sell any quantity he likes at a price.
(II) When equilibrium price of a good is less than its market price, there will be
competition among the seller.
Q.28) Market for a commodity is in equilibrium. Demand for the commodity ‘increase’. Explain the 6
chain of effects of its change till the market again reaches equilibrium. Use diagram.
Q.29) Market for a commodity is in equilibrium. Demand for the commodity ‘decrease’. Explain the 6
chain of effects of its change till the market again reaches equilibrium. Use diagram.
Q.30) Explain the following: 6
(i) ‘Free entry and exit’ feature of perfect competition.
(ii) ‘Differentiated product’ feature of monopolistic competition.
MACROECONOMICS

Unit 1 National Income and Related Aggregates

Q.1) What is nominal GDP? 1

Q.2) Define flow variables. 1
Q.3) Define stock variables. 1
Q.4) Define capital goods. 1
Q.4) Give one example of “externality” which reduces welfare of the people. 1
Q.5) Explain the circular flow of the income. 3
Q.6) Distinguish between intermediate products and final products. Give examples. 3
Q.7) Explain how distribution of GDP is its limitation as a measure of economic welfare. 3
Q.8) Explain the basis of classifying goods into intermediate and final goods. Give suitable 3
examples.
Q.9) Distinguish between real and nominal GDP. 3
Q.10) Distinguish between consumer goods and capital goods. Which of this are final 3
goods?
Q.11) Explain how distribution of GDP is its limitation in taking GDP as an index of welfare. 3
Q.12) Calculate GVAfc 3

Particular
1. Units of output sold (units) 1,000
2. Price per unit of output RS. 30
3. Depreciation RS. 1,000
4. IC RS. 12,000
5. Closing Stock RS. 3,000
6. Opening stock RS. 2,000
7. Excise RS. 2,500
8. Sales tax RS. 3,500

Q.13) Calculate NVAfc 3

Particular
1. Units of output sold (units) 2,000
2. Price per unit of output RS. 10
3. Depreciation RS. 600
4. IC RS. 10,000
5. Net changes in stock RS. (-) 50
6. Subsidy RS. 500
7. Import duty RS. 400

Q.14) What are externalities? Give an example of a positive externality and its impact on 3
welfare of the people.
Q.15) Giving reason classify the following into intermediate products and final products: 4
1. Furniture purchased by a school.
2. Chalks, duster, etc. purchased by a school.
Q.16) Giving reason classify the following into intermediate products and final products: 4
1. Computer installed in an office.
 2. Mobile sets purchased by a mobile dealer.
Q.17) Giving reason identify whether the following are final expenditure or intermediate 4
expenditure:
1. Expenditure on maintenance of an office building.
2. Expenditure on improvement of a machine in a factory.
Q.18) Giving reason explain how should the following be treated in estimating national 4
income:
1. Expenditure on fertilizers by a farmer.
2. Purchase of tractor by a farmer.
Q.19) Giving reason explain how should the following be treated in estimating national 4
income:
1. Payment of bonus by a firm.
2. Payment of interest on a loan taken by an employee from the employer.
Q.20) Giving reason explain how should the following be treated in estimating national 4
income:
1. Interest paid by banks on deposits by individuals.
2. National debt interest.
Q.21) Calculate “sales” from the following data: 4

Particular RS. In lakhs

1 Net value added at factor cost 560
2 Depreciation 60
3 Change in stock (-)30
4 Intermediate cost 1000
5 Exports 200
6 Indirect taxes 60

Q.22) Calculate “sales” from the following data: 4

Particular RS. In lakhs

1 Net value added at factor cost 1300
2 Consumption of fixes capital 80
3 Change in stock -50
4 Intermediate cost 700
5 Exports 50
6 Subsidy 60

Q.23) How will you treat the following while estimating domestic factor of India? Give 6
reason for your answer.
1. Remittances from non-resident Indians to their families in India.
2. Rent paid by the embassy of Japan in India to a resident Indian.
3. Profits earned by branches of foreign bank in India.
Q.24) How will you treat the following while estimating national income of India? Give 6
reason for your answer.
1. Salaries received by Indian residents working in Russian Embassy in India.
2. Profits earned by an Indian bank from its branches abroad.
3. Entertainment tax received by the government.
Q.25) How will you treat the following while estimating national income of India? Give 6
reason for your answer.
1. Salaries paid to Russians working in Indian Embassy in Russia.
 2. Profits earned by an Indian company from its branches in Singapore.
3. Capital gains to Indian residents from sale of shares of a foreign company.
Q.26) Calculate GNPFC from the following data by (a) Income method (b) expenditure 6
method:

Particulars Rs. In CR.

1 Private final consumption exp. 1000
2 Net domestic capital formation 200
3 Profits 400
4 Compensation of employees 800
5 Rent 250
6 Govt. final consumption exp. 500
7 Consumption of fixed capital 60
8 Interest 150
9 Net current transfer from rest of the world -80
10 NFIA -10
11 Net exports -20
12 NIT 80

Q.27) From the following data calculate GNPFC by (a) income method (b) expenditure 6
method.

Particulars Rs. In CR.

1 Net domestic capital formation 500
2 Compensation of employees 1850
3 Consumption of fixed capital 100
4 Govt. final consumption exp. 1100
5 Private final consumption exp. 2600
6 Rent 400
7 Dividend 200
8 Interest 500
9 Net exports -100
10 Profits 1100
11 NFIA -50
12 NIT 250

Q.28) How will you treat the following while estimating national income of India: 6
1. Dividend received by an Indian from his investment in share of a foreign
company.
2. Money received by a family in India from his relatives working abroad.
3. Interest received on loans given to a friend for purchasing a car.
Q.29) From the following data, calculate (a) GDPFC and factor income to abroad. 6

Particulars Rs. In CR.

1 COE 800
2 Profits 200
3 Dividends 50
4 GNPMP 1400
 5 Rent 150
6 Interest 100
7 Gross domestic capital formation 300
8 Net fixed capital formation 200
9 Change in stock 50
10 Factor income from abroad 60
11 NIT 120

Q.30) Calculate NNPFC and GNDI from the following: 6

Particulars Rs. In CR.

1 Saving of non- departmental enterprises 50
2 Income from property and entrepreneurship accruing to the government 70
administrative departments
3 Personal tax 90
4 National debt interest 20
5 Retained earnings of private corporate sector 10
6 Current transfers payment by the government 40
7 Consumption of fixed capital 60
8 Corporation tax 30
9 NIT 80
10 Net current transfers from the rest of the world -10
11 Personal disposable income 1000

Q.31) Calculate NNPFC and GNDI from the following: 6

Particulars Rs. In CR.

1 Net current transfers to the rest of the world -5
2 Private final consumption expenditure 500
3 Depreciation 20
4 NFTA -10
5 Govt. final consumption expenditure 200
6 NIT 100
7 Net domestic fixed capital formation 120
8 Net imports 30
9 Change in stocks -20

Q.31) Find out GNPMP and NNDI from the following: 6

Particulars Rs. In CR.

1 Opening stock 50
2 Private final consumption expenditure 1,000
3 Net current transfers to abroad 5
4 Closing stock 40
5 NFTA -10
6 Govt. final consumption expenditure 300
7 Consumption of fixed capital 30
8 Net imports 20
9 Net domestic fixed capital formation 150
Q.32) Find out NNPFC and NNDI from the following: 6

Particulars Rs. In CR.

1 Factor income from abroad 15
2 Private final consumption expenditure 600
3 Consumption of fixed capital 50
4 Govt. final consumption expenditure 200
5 Net current transfers to abroad -5
6 Net domestic fixed capital formation 110
7 Net factor to abroad 10
8 Net imports -20
9 NIT 70
10 Change in stock -10

Q.33) Find out NNPMP and GNDI from the following: 6

Particulars Rs. In CR.

1 Net current transfers from abroad -10
2 Wages and salaries 1000
3 NFTA -20
4 SSS contribution by employers 100
5 NIT 80
6 Rent 300
7 Depreciation 120
8 Corporation tax 50
9 Dividend 200
10 Undistributed profits 60
11 Interest 400

Q.34) Find out GNPMP and net current transfers from abroad 6

Particulars Rs. In CR.

1 NIT 35
2 Private final consumption exp. 500
3 NNDI 750
4 Closing stock 10
5 Govt. final consumption exp. 150
6 Net domestic fixed capital formation 100
7 NFTA -15
8 Net imports 20
9 Opening stock 10
10 Consumption of fixed capital 50

Q.35) Calculate National Income from the following data: 6

Particular RS. In Crores

1 Private final consumption expenditure 900
2 Profit 100
 3 Govt. Final consumption expenditure 400
4 NIT 100
5 Gross domestic capital formation 250
6 Change in stock 50
7 NFIA -40
8 Consumption of fixed capital 20
9 Net imports 30

Q.36) Calculate net national disposable income from the following data: 6

Particular RS. In Crores

1 GDPMP 2000
2 Net current transfers to ROW -200
3 NIT 150
4 Net factor income to abroad 60
5 National debt interest 70
6 Consumption of fixed capital 200
7 Current transfers from Govt. 150

Q.37) Calculate National Income and Net National disposable income from the following: 6

Particular RS. In Crores

1 Net change in stocks 50
2 Govt. Final consumption exp. 100
3 Net current transfers to abroad 30
4 Gross domestic fixed capital formation 200
5 Private final consumption exp. 500
6 Net imports 40
7 Depreciation 70
8 NFTA -10
9 NIT 120
10 Net capital transfers to abroad 25

Q.38) How should the following be treated in estimating the national income of a country? 6
You must give reason for your answer.
1. Taking care of aged parents.
2. Payment of corporate tax
3. Exp. on providing police services by the government.
Q.39) Calculate NNPMP and GNDI from the following 6

Particular RS. In Crores

1 Closing stock 10
2 Consumption of fixed capital 40

3 Private final consumption exp. 600

4 Exports 50
5 Opening stock 20
6 Govt. Final consumption expenditure 100
 7 Imports 60
8 Net domestic fixed capital formation 80
9 Net current transfers to abroad -10
10 NFTA 30

Q.40) Calculate NNPFC and Gross National disposable income from the following: 6

Particular RS. In Crores

1 SSS contribution by employees 90
2 Wages and salaries 800
3 Net current transfers to abroad -30
4 Rant and royalty 300
5 NFTA 50
6 SSS contribution by employers 100
7 Profits 500
8 Interest 400
9 Consumption of fixed capital 200
10 NIT 250
Unit-6 Money and Banking

Q.1) Define bank rate. 1

Q.2) State the components of money supply. 1

Q.3) Define CRR. 1
Q.4) Define money supply. 1
Q.5) What are demand deposits? 1
Q.6) What is a central bank? 1
Q.7) What are time deposits? 1
Q.8) State any three points of difference between Central Bank and Commercial Banks. 3
Q.9) Explain the ‘lender of last resort’ function of the central bank. 3
Q.10) Explain the ‘banker to the government’ function of the central bank. 3
Q.11) Explain central bank’s function as currency authority. 3
Q.12) Explain the significance of the ‘store of value’ function of money. 3
Q.13) Explain the problem of double coincidence of wants faced under barter system. How 3
has money solved it?
Q.14) Explain the significance of the ‘Unit of Account’ function of money. 3
Q.15) Explain the significance of the ‘Standard of Deferred Payment’ function of money. 3
Q.16) State the four functions of money. Explain any one of them. 4
Q.17) Explain any two functions of money. 4
Q.18) Explain the process of money creation by Commercial Banks. 4
Q.19) How do changes in bank rate affect money creation by Commercial Banks? Explain. 4
Q.20) Explain the components of LRR. 4
Q.21) Explain ‘banker’s bank’ function of Central Bank. 4
Q.22) Explain the ‘banker to the government’ function of the central bank. 4
Q.23) How do Commercial banks create deposits? Explain. 4
Q.24) Explain ‘banker’s bank’ function of Central Bank. 4
Q.25) Explain the ‘banker to the government’ function of the central bank. 4
Unit-7 Determination of Income and Employment

Q.1) What is meant by excess demand in Macroeconomics? 1

Q.2) What can be the minimum value of investment multiplier? 1
Q.3) If investment multiplier is 1, what will be the value of MPC? 1
Q.4) Give the meaning of autonomous consumption. 1
Q.5) Define involuntary unemployment. 1
Q.6) Give the meaning of ex-ante saving. 1
Q.7) Give the meaning of ex-ante investment. 1
Q.8) Give the meaning of aggregate demand. 1
Q.9) Give the meaning of deflationary gap. 1
Q.10) What is excess demand in Macroeconomics? 1
Q.11) What is full employment? 1
Q.12) Define inflationary gap. 1
Q.13) Complete the following table: 3

Income Savings MPC APS

0 -12 - -
20 -6 - -
40 0 - -
60 6 - -

Q.)14 Complete the following table: 3

Income Savings MPC APC

0 -6 - -
20 -3 - -
40 0 - -
60 3 - -

Q.15) Complete the following table: 3

Income Savings MPC APC

0 -6 - -
20 -3 - -
40 0 - -
60 3 - -
Q.16) Given that the nation income is Rs. 80 crore and consumption expenditure Rs. 64 3
crore, find out APS. When income rises to Rs. 100 crore and consumption
expenditure to Rs. 78 crore, what will be the APC and MPC?
Q.17) If national income is Rs. 50 crore and savings is Rs. 5 crore, find out the APC. When 3
income rises to Rs. 60 crore and savings to Rs. 9 crore, what will the APC and the
MPS?
Q.18) Explain the relationship between investment multiplier and MPC. 3
Q.19) Outline the steps taken in deriving saving curve from the consumption curve. Use 3
diagram.
Q.20) Find national income from the following: 3
 Autonomous consumption = Rs. 100
MPC =0.80
Investment = Rs. 50
Q.21) Find investment from the following: 3
Autonomous consumption = Rs. 100
MPC =0.75
National income = Rs. 500
Q.22) Find consumption expenditure from the following: 3
Autonomous consumption = Rs. 100
MPC =0.70
National income = Rs. 1,000
Q.23) State whether the following statements are true or false. Give reason for your answer. 4
1. When MPC is greater than MPS the value of investment multiplier will be
greater than 5.
2. The value of MPS can never be negative.
Q.24) Give reason, state whether the following statements are true or false: 4
1. APS is always greater than zero.
2. Value of multiplier varies between zero and infinity.
Q.25) Calculate investment exp. from the following data about an economy which is in 4
equilibrium:
National income = 1000
MPS = 0.20
Autonomous consumption exp. = 100
Q.26) Calculate autonomous consumption exp. from the following data about an economy 4
which is in equilibrium:
National income = 500
MPS = 0.30
Investment exp. = 100
Q.27) Calculate MPC from the following data about an economy which is in equilibrium: 4
National income = 2000
Autonomous consumption exp. = 200
investment exp. = 100
Q.28) Given consumption function C= 100+0.75Y and investment exp. is 1000. Calculate: 6
1. Equilibrium level of national income
2. Consumption exp. at equilibrium level of national income.
Q.29) What changes will take place to bring an economy in equilibrium if: 6
1. Planned savings are greater than planned investment.
2. Planned savings are less than planned investment.
Q.30) In an economy 75 percent of increase in income is spent on consumption. Investment 6
is increased by Rs. 1000 crore. Calculate:
1. Total increase in income
2. Total increase in consumption.
Q.31) Explain the role of the following in correcting ‘deficient demand’ in an economy: 6
1. Open market operations
2. Bank rate.
Q.32) Explain the role of the following in correcting ‘excess demand’ in an economy: 6
1. Bank rate
2. Open market operations.
Q.33) Explain the concept of ‘excess demand’ in macroeconomics. Also explain the role of 6
open market operations in correcting it.
Q.34) Explain the concept of ‘deficient demand’ in macroeconomics. Also explain the role 6
of bank rate in correcting it.
Q.35) C= 100+0.4Y is the consumption function of an economy, where C is consumption 6
exp. and Y is National Income. Investment expenditure is 1,100. Calculate:
1. Equilibrium level of National Income
2. Consumption exp. at equilibrium level of national income.
Q.36) In an economy S= -100+0.6Y is the saving function. Where S is saving and Y is 6
national income and investment expenditure is 1100. Calculate:
1. Equilibrium level of National Income
2. Consumption exp. at equilibrium level of national income.
Q.37) C= 50+0.5Y is the consumption function of an economy, where C is consumption 6
exp. and Y is National Income. Investment expenditure is 1,100. Calculate:
1. Equilibrium level of National Income
2. Consumption exp. at equilibrium level of national income.
Q.38) Complete the following table: 6

Income (Rs.) Consumption (Rs.) MPS APS

0 80
100 140 0.4 -
200 - - 0
- 240 - 0.20
- 260 0.8 0.35

Q.39) Complete the following table: 6

Income (Rs.) Saving (Rs.) APC MPC

0 -40 - -
50 -20 - -
100 0 - 0.6
150 30 0.8 -
200 50 - -

Q.40) Complete the following table: 6

Consumption (Rs.) Saving (Rs.) Income MPC

100 50 150 -
175 75 - -
250 100 - -
325 125 - -

Q.41) When is an economy in equilibrium? Explain with the help of Saving and Investment 6
functions. Also explain the changes that take place in an economy when the economy
is not in equilibrium. Use diagram.
Q.42) Outline the steps required to be taken in deriving the Consumption Curve from the 6
given Saving Curve. Use diagram.
Unit-8 Govt. Budget and the Economy

Q.1) Why is repayment of loan a capital expenditure? 1

Q.2) Why are borrowings a capital receipts? 1
Q.3) Define a Govt. budget. 1
Q.4) How is primary deficit calculated? 1
Q.5) Define a tax. 1
Q.6) Give two examples of indirect tax. 1
Q.7) What is a Govt. budget? 1
Q.8) Define fiscal deficit. 1
Q.9) How can a Govt. budget help in reducing inequalities of income? Explain. 3
Q.10) How can a Govt. budget be helpful in altering distribution of income in an economy? 3
Explain.
Q.11) Distinguish between Revenue Exp. and Capital Exp. in a govt. budget. Give examples. 3
Q.12) Distinguish between Revenue deficit and Capital deficit. 3
Q.13) Explain any one objective of govt. budget. 3
Q.14) Is the following a revenue receipt or a capital receipt in the context of govt. budget and 3
why?
1. Tax receipts
2. Disinvestment.
Q.15) Distinguish between: 4
1. Direct tax and indirect tax
2. Revenue deficit and fiscal deficit.
Q.16) Distinguish between: 4
1. Direct tax and indirect tax
2. Capital receipts and Revenue receipts.
Q.17) Giving reason classify the following into direct and indirect tax: 4
1. Wealth tax
2. VAT
Q.18) Explain the ‘allocation of resources’ objective of Govt. budget. 4
Q.19) Explain the ‘redistribution of income’ objective of Govt. budget. 4
Q.20) From the following data about a Govt. budget, find out (a) Revenue deficit, (b) Fiscal 4
deficit and (c) Primary deficit.

Particular Rs. In Arab

1 Capital receipts and borrowings 95
2 Revenue expenditure 100
3 Interest payments 10
4 Revenue receipts 80
5 Capital expenditure 110

Q.21) Explain ‘Revenue deficit’ in a Govt. budget. What does it indicate? 4

Q.22) Tax rates on higher income group have been increased. Which economic value does it 4
reflect? Explain.
Unit-9 Balance of Payments

Q.1) State two sources of supply of foreign exchange. 1

Q.2) Define foreign exchange rate. 1
Q.3) Define meaning of managed floating exchanged rate. 1
Q.4) How can increase in foreign direct investment affect the price of foreign exchange? 1
Q.5) What is ‘managed floating’ exchange rate? 1
Q.6) List the items of the current account of BOP account. Also define BOT. 3
Q.7) Explain the meaning of deficit in BOP. 3
Q.8) Giving two examples explain the relation between the rise in price of a currency and its 3
demand.
Q.9) Distinguish between devaluation and depreciation of domestic currency. 3
Q.10) State the components of capital account of BOP. 3
Q.11) State the components of current account of BOP. 3
Q.12) What does BOP account show? Name the two parts of the BOP account. 3
Q.13) When price of a foreign currency rises, its demand falls. Explain why. 3
Q.14) When price of a foreign currency rises, its supply also rises. Explain why. 3
Q.15) Explain the effect of appreciation of domestic currency on imports. 3
Q.16) Distinguish between BOT and balance on current account. 3
Q.17) Distinguish between ‘autonomous’ and ‘accommodating’ BOP transactions. 3
Q.18) When foreign rate in a country is on the rise, what impact is it likely to have on imports 3
and how?
Q.19) Explain the effect of appreciation of domestic currency on exports. 3
Q.20) Foreign exchange rate in India is on the rise recently. What impact is it likely to have 3
on exports and how?
Q.21) Explain the meaning and two merits of fixed foreign exchange rate. 4
Q.22) Explain two sources each of demand and supply of foreign exchange. 4
Q.23) Explain the distinction between autonomous and accommodating transactions in BOP. 6
Also explain the concept of BOP deficit in this context.
 2015 Questions

SECTION A
1 Define indifference curve. 1

2 If due to fall in the price of good X, demand for good Y rises, the two goods are : 1
(Choose the correct alternative)
(a) Substitutes
(b) Complements
(c) Not related
(d) Competitive

3 If Marginal Rate of Substitution is increasing throughout, the Indifference Curve will be 1

(Choose the correct alternative)
(a) Downward sloping convex
(b) Downward sloping concave
(c) Downward sloping straight line
(d) Upward sloping convex

4 Giving reason comment on the shape of Production Possibilities Curve based on the following 1
schedule :
Good X (units) Good Y (units)
0 30
1 27
2 21
3 12
4 0

5 What is likely to be the impact of ‘‘Make in India’’ appeal to the foreign investors by the Prime
Minister of India, on the production possibilities frontier of India ? Explain. 3
OR
What is likely to be the impact of efforts towards reducing unemployment on the production potential
of the economy ? Explain.

6 Explain the significance of ‘minus sign’ attached to the measure of price elasticity of demand in
case of a normal good, as compared to the ‘plus sign’ attached to the measure of price elasticity of
supply. 3

7 In a perfectly competitive market the buyers treat products of all the firms as homogeneous. Explain
the significance of this feature. 3

8 What are the effects of ‘price-floor’ (minimum price ceiling) on the market of a good ? Use
diagram. 3

9 A consumer spends Rs. 1,000 on a good priced at Rs. 10 per unit. When its price falls by 20
percent, the consumer spends Rs. 800 on the good. Calculate the price elasticity of demand by the
Percentage method. 4
10 What is the behaviour of (a) Average Fixed Cost and (b) Average Variable Cost as more and more
units of a good are produced ? 4
OR
Define Average Revenue. Show that Average Revenue and Price are same.

11 A consumer consumes only two goods X and Y, both priced at Rs. 2 per unit. If the consumer
chooses a combination of the two goods with Marginal Rate of Substitution equal to 2, is the
consumer in equilibrium ? Why or why not ? What will a rational consumer do in this situation ?
Explain. 6
OR
A consumer consumes only two goods X and Y whose prices are Rs. 5 and Rs. 4 respectively. If the
consumer chooses a combination of the two goods with marginal utility of X equal to 4 and that of Y
equal to 5, is the consumer in equilibrium ? Why or why not ? What will a rational consumer do in
this situation ? Use utility analysis.

12 What are the different phases in the Law of Variable Proportions in terms of marginal product ?
Give reason behind each phase. Use diagram. 6

13. Explain why will a producer not be in equilibrium if the conditions of equilibrium are not met6

14. Market for a good is in equilibrium. The supply of good ‘‘decreases’’. Explain the chain of effects
of this change. 6

SECTION B
15 What is ‘aggregate demand’ in macroeconomics ? 1

16. If MPC = 1, the value of multiplier is : (Choose the correct alternative) 1

(a) 0
(b) 1
(c) Between 0 and 1
(d) Infinity

17 Primary deficit in a government budget is : (Choose the correct alternative) 1

(a) Revenue expenditure – Revenue receipts
(b) Total expenditure – Total receipts
(c) Revenue deficit – Interest payments
(d) Fiscal deficit – Interest payments

18 Direct tax is called direct because it is collected directly from : (Choose the correct alternative) 1
(a) The producers on goods produced
(b) The sellers on goods sold
(c) The buyers of goods
(d) The income earners

19 Other things remaining the same, when in a country the market price of foreign currency falls,
national income is likely : (Choose the correct alternative) 1
(a) to rise
(b) to fall
(c) to rise or to fall
(d) to remain unaffected
20 If the Real GDP is Rs. 400 and Nominal GDP is Rs. 450, calculate the Price Index (base = 100). 3
21 What are fixed and flexible exchange rates ? 3
OR
Explain the meaning of Managed Floating Exchange Rate.

22. Where is ‘borrowings from abroad’ recorded in the Balance of Payments Accounts ? Give
reasons. 3
23 Explain the ‘‘Bankers’ Bank function’’ of the central bank. 4
OR
Explain the ‘‘Bank of Issue function’’ of the central bank.

24 Currency is issued by the central bank, yet we say that commercial banks create money. Explain.
How is this money creation by commercial banks likely to affect the national income ? Explain. 4

25 An economy is in equilibrium. Calculate the Investment Expenditure from the following : 4

National Income = 800
Marginal Propensity to Save = 0.3
Autonomous Consumption = 100

26. Giving reason explain how the following should be treated in estimation of national income : 6
(i) Payment of interest by a firm to a bank
(ii) Payment of interest by a bank to an individual
(iii) Payment of interest by an individual to a bank
27. What is ‘deficient demand’ ? Explain the role of ‘Bank Rate’ in removing it. 6
OR
What is ‘excess demand’ ? Explain the role of ‘Reverse Repo Rate’ in removing it.

28. Explain how the government can use the budgetary policy in reducing inequalities in incomes. 6

29. Calculate the ‘National Income’ and ‘Private Income’ : 6

Particulars (Rs.crores)
(i) Rent 200
(ii) Net factor income to abroad 10
(iii) National debt interest 15
(iv) Wages and salaries 700
(v) Current transfers from government 10
(vi) Undistributed profits 20
(vii) Corporation tax 30
(viii) Interest 150
(ix) Social security contributions by employers 100
(x) Net domestic product accruing to government 250
(xi) Net current transfers to rest of the world 5
(xii) Dividends 50

Thanking you