CA Foundation Economics Question Paper Jan 26 with Answers
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1. Given the required reserve ratio (RRR) is 8% and 12.5% for every ₹ 1,00,000 deposited in the banking system, compute the credit multipliers.
(A) 12.5 : 8
(B) 8 : 12.5
(C) 12.5 : 10
(D) 8 : 10
Choice 'A' is correct as--
Credit multiplier is calculated as 1 / RRR. For RRR = 8%, multiplier = 1/0.08 = 12.5. For RRR = 12.5%, multiplier = 1/0.125 = 8. Therefore, the credit multipliers are 12.5 and 8 respectively, giving the ratio 12.5 : 8. Hence, Choice 'A' is correct.
2. Tobin, in his theory of liquidity preference function, framed the relationship between which of the following?
(A) Demand for money and supply of money
(B) Rate of inflation and demand for money
(C) Rate of interest and demand for money
(D) Rate of interest and disposable income
Choice 'C' is correct as--
Tobin’s theory of liquidity preference explains how the demand for money depends on the rate of interest. People balance between holding money for liquidity and investing in assets for returns. When interest rates rise, demand for money falls, and when they fall, demand for money increases. Therefore, Tobin framed the relationship between rate of interest and demand for money.
3. Which equation accurately represents the expanded version of the equation of exchange?
(A) P = MV
(B) P = M′V′
(C) PT = MV + M′V′
(D) PT = MV − M′V′
4. Speculative demand for money can be closely linked to which of the following situation?
(A) Unforeseen and unpredictable contingencies
(B) Current transaction for business exchange
(C) Mismatch between receipt of salary and household expenses
(D) Attractive investment opportunity
5. Which of the following is not a channel of monetary policy transmission?
(A) Saving and Investment channel
(B) Cash-flow channel
(C) Exchange Rate channel
(D) Open Market channel
6. If Net Factor Income from Abroad is negative:
(A) GNPMP would be smaller than GDPMP
(B) Gross income earned by country’s citizen and companies abroad is negative
(C) NNPMP would be greater than GNPMP
(D) Huge depreciation component in NNPMP
Choice 'A' is correct as--
Net Factor Income from Abroad (NFIA) is the difference between income earned by residents abroad and income earned by foreigners domestically. If NFIA is negative, it means foreigners earn more inside the country than residents earn abroad. Since GNP = GDP + NFIA, a negative NFIA makes GNP smaller than GDP. Therefore, GNPMP would be smaller than GDPMP, making Choice 'A' correct.
7. If marginal propensity to consume is 0.6 and marginal propensity to import is 0.04, what is the value of the foreign trade multiplier?
(A) 3.33
(B) 2.27
(C) 3.66
(D) 2.54
8. Which of the following factor of production is not included in calculating the National Income?
(A) Pensions of retired workers
(B) Wages of labourers
(C) Employers’ contribution to provident fund
(D) Interest on loans availed for productive services
Choice 'A' is correct as--
National income includes only factor incomes earned from current production such as wages, interest, rent, and profits. Pensions of retired workers are transfer payments, not payments for any productive service in the current period. Hence, pensions are not included while calculating national income. Therefore, the correct answer is Choice 'A'.
9. National income of the economy which is either consumed or saved is equal to the:
(A) Aggregate supply
(B) Marginal propensity to consume
(C) Average supply
(D) Marginal propensity to save
10. Given the saving function S = −20 + 0.5Y and autonomous investment I = 100 crores, what is the consumption?
(A) ₹ 240 crores
(B) ₹ 140 crores
(C) ₹ 340 crores
(D) ₹ 440 crores
Choice 'B' is correct as--
In equilibrium, saving equals investment, so S = I. Thus, −20 + 0.5Y = 100 ⇒ 0.5Y = 120 ⇒ Y = 240. Consumption is C = Y − S. Here S = 100, so C = 240 − 100 = 140 crores. Therefore, the consumption is ₹ 140 crores, which is Choice 'B'.
11. State/policy aimed to protect domestic producers against foreign competition through the use of tariff, quotas and non-tariff policy instruments is called:
(A) Protection
(B) Distortions
(C) Safeguard
(D) Blanket cover
12. Which of the following is not an objective of WTO?
(A) To set and enforce rules for international trade
(B) To maintain secrecy of decision making
(C) To resolve trade disputes
(D) To provide a forum for negotiating and monitoring further trade liberalization
13. Which of the following currency is often referred to as the vehicle currency, in the foreign exchange market?
(A) US Dollar
(B) Euro
(C) Russian Ruble
(D) INR
Choice 'A' is correct as--
The US Dollar is the most widely used currency in international trade and foreign exchange transactions. It acts as an intermediary currency for exchanging other currencies, hence called the vehicle currency. Therefore, the correct answer is US Dollar, i.e., Choice 'A'.
14. What is the primary purpose of countervailing duties charged in an importing country?
(A) To counteract low quality of goods in importing countries
(B) To neutralize artificially low prices charged by exporter resulting from export subsidies in their home country
(C) To prevent tariff evasion by importers
(D) To address variations in the quality of goods in importing country
Choice 'B' is correct as--
Countervailing duties are imposed by an importing country to offset export subsidies given by the exporting country. These subsidies make goods artificially cheap, harming domestic producers. Therefore, countervailing duties neutralize such unfair pricing, making Choice 'B' correct.
15. When a foreign investor having no previous experience initiates an FDI in a business which is not related to its existing business in its home country and is usually in the form of a joint venture with a foreign firm operating in the industry, it is known as a ________.
(A) Two way FDI
(B) Vertical FDI
(C) Horizontal FDI
(D) Conglomerate FDI
16. Calculate the Nominal exchange rate considering the following data:
Real exchange rate : 25
Domestic price index : 140
Foreign price index : 70
Choose the correct answer from the following options:
(A) 50.0
(B) 12.5
(C) 40.0
(D) 35.0
17. Which of the following represents a technical measure within Non-Tariff Measures (NTMs)?
(A) Custom formalities
(B) Shipping requirements
(C) Production Processes
(D) Trade-related finance and Investment measures
Choice 'C' is correct as--
Technical measures under NTMs include regulations related to product standards, production methods, and processes. Production processes are considered technical barriers because they affect how goods are manufactured and comply with safety or quality norms. Custom formalities and shipping requirements are non-technical measures. Therefore, the correct answer is Choice 'C'.
18. Which of the following is not a benefit of International Trade?
(A) Provides greater stimulus to innovative services
(B) Trade provides access to new markets and new materials
(C) Underprivileged countries will be less vulnerable to exploitation by corporations operating globally
(D) Improvement in the quality of output of goods and services for emerging economies
Choice 'C' is correct as--
International trade benefits economies through innovation, access to new markets, better resources, and improved quality of output. However, it is not true that underprivileged countries are always less vulnerable to exploitation, as global corporations may sometimes dominate weaker economies. Hence, this is not a benefit of international trade. Therefore, Choice 'C' is correct.
19. Which of the following is a combination of two policy instruments — quotas and tariffs?
(A) Tariff rate quotas
(B) Compound tariffs
(C) Mixed tariffs
(D) Applied tariffs
20. In National Accounts, which of the following is considered an ‘economic bad’ excluded from GDP?
(A) Traffic Congestion
(B) Volunteer services
(C) Rent from self-owned houses
(D) Consumption of fixed capital
Choice 'A' is correct as--
Economic bads like traffic congestion reduce welfare but are not counted as productive output in GDP. GDP includes only goods and services that add value, not negative externalities. Volunteer services are excluded due to non-market nature, but traffic congestion is specifically an economic bad. Therefore, the correct answer is Traffic Congestion, i.e., Choice 'A'.
21. Which of the following is not an example of leakages from income stream?
(A) Progressive rates of taxation
(B) High liquidity preference
(C) Distributed profits of corporations
(D) Demand for imported goods
22. All of the following are included in government final consumption expenditure except:
(A) Government expenditure on defence
(B) Government expenditure on education
(C) Government expenditure on healthcare
(D) Government expenditure on pensions
23. An autonomous increase in imports has ________ effect on equilibrium income.
(A) Expansionary
(B) Contractionary
(C) Balanced
(D) No
Choice 'B' is correct as--
An autonomous increase in imports reduces domestic demand because more spending goes abroad. This lowers aggregate expenditure and leads to a fall in equilibrium income. Therefore, it has a contractionary effect on equilibrium income. Hence, Choice 'B' is correct.
24. Which of the following is not listed as a common objective of fiscal policy?
(A) Equitable distribution of income and wealth
(B) Maintenance of price stability
(C) Promotion of exports and imports
(D) Achievement and maintenance of full employment
25. ________ capital performs its function in production in a single use and is not available for further use. Choose the correct option.
(A) Real
(B) Circulating
(C) Tangible
(D) Intangible
26. What does the term entrepreneur in economics refer to:
(A) The person combining factors of production, bearing risk, and innovating
(B) The person who only owns land or property
(C) The head of the marketing department
(D) The investor in machinery and products
Choice 'A' is correct as--
An entrepreneur is the person who organizes and combines the factors of production, takes business risks, and introduces innovations. He plays a key role in decision-making and managing the enterprise. Other options describe owners or investors but not the full entrepreneurial function. Therefore, the correct answer is Choice 'A'.
27. If cross-price elasticity between two products is zero, the goods are best described as:
(A) Close substitutes
(B) Totally unrelated
(C) Perfect substitutes
(D) Complements to each other
28. Which of the following is the effect of non-price determinants on the leftward shift in demand curve?
(A) Rise in the price of a substitute good
(B) Rise in the price of a complement
(C) An increase in number of buyers
(D) An expectation that the price will rise in the future
Choice 'B' is correct as--
A leftward shift in demand means decrease in demand due to non-price factors. Rise in the price of a complement reduces demand for the related good because they are used together. Other options increase demand and cause rightward shift. Therefore, rise in price of a complement causes leftward shift. Hence, Choice 'B' is correct.
29. Which of the following is NOT a correct statement regarding opportunity cost?
(A) Is always recorded in the books of account
(B) Relates to sacrificed alternatives
(C) Represents the value of foregone opportunity
(D) Is a useful concept in long-term cost calculations
30. Which of the following was not a major reform introduced during the 1980s in India?
(A) Industrial delicensing
(B) Formation of SEBI
(C) Currency demonetization
(D) Implementation of MODVAT
31. Which sector accounts for the largest recipient of FDI inflows in India?
(A) Service
(B) Manufacturing
(C) Primary
(D) Secondary
32. What does Brownfield investment in Foreign Direct Investment (FDI) imply:
(A) Developing entirely new infrastructure
(B) Utilizing existing infrastructure by means of mergers, acquisitions or leasing
(C) Forming partnerships with foreign companies
(D) Establishing a new subsidiary in another country
Choice 'B' is correct as--
Brownfield investment refers to FDI where a foreign investor enters a country by acquiring or merging with an existing company. It uses already developed infrastructure rather than creating new facilities. This is done through mergers, acquisitions, or leasing of existing assets. Therefore, Brownfield investment implies utilizing existing infrastructure. Hence, Choice 'B' is correct.
33. Which initiative of the NITI Aayog is a one-stop destination for all information on electric vehicles?
(A) Shoonya Campaign
(B) E-Amrit
(C) Methanol economy
(D) Life
Choice 'B' is correct as--
E-Amrit is an initiative by NITI Aayog that serves as a one-stop platform for information on electric vehicles and sustainable mobility. It provides awareness, resources, and updates related to EV adoption in India. Therefore, the correct answer is E-Amrit. Hence, Choice 'B' is correct.
34. Make in India 2.0 focuses on ________.
(A) 15 manufacturing and 12 service sectors
(B) 12 manufacturing and 15 service sectors
(C) 22 manufacturing and 18 service sectors
(D) 18 manufacturing and 22 service sectors
Choice 'B' is correct as--
Make in India 2.0 is an upgraded initiative focusing on boosting selected key sectors of the economy. It covers 12 manufacturing sectors and 15 service sectors to strengthen industrial growth and improve India’s global competitiveness. The aim is to promote investment, innovation, and employment generation. Therefore, the correct answer is 12 manufacturing and 15 service sectors, i.e., Choice 'B'.
35. Which of the following industries is included in the eight core sectors assessed by the Index of Industrial Production (IIP)?
(A) Pharmaceuticals
(B) Textiles
(C) Coal
(D) Tourism
36. Laissez-faire approach advocated:
(A) Minimum government interference in or regulation of economic activity
(B) Increase in government spending to combat the recessionary forces
(C) Having a more active fiscal policy
(D) Increasing taxes to curtail aggregate demand
37. What is Net Divisible Pool (NDP)?
(A) Total funds from which loans can be taken by various states
(B) Total loans recovered from IMF to be divided among center and states
(C) Distribution of total revenue of a nation among various sectors of the economy
(D) Portion of gross tax revenue which is distributed between the center and the states
Choice 'D' is correct as--
Net Divisible Pool refers to the portion of the gross tax revenue collected by the central government that is shared between the Centre and the States. It is the pool of net taxes after excluding certain cess and surcharges. The Finance Commission recommends how this pool is distributed. Therefore, NDP is the portion of gross tax revenue distributed between the Centre and the States, i.e., Choice 'D'.
Using below mentioned data, answer Question No. 38 and 39:
Revenue receipts : ₹ 25,000 Cr
Expenses on revenue account : ₹ 30,000 Cr
Expenses on capital account : ₹ 30,000 Cr
Estimated total expenditure : ₹ 60,000 Cr
Estimated total revenue : ₹ 54,000 Cr
38. Calculate the budgetary deficit.
(A) ₹ 25,000 Crores
(B) ₹ 5,000 Crores
(C) ₹ 6,000 Crores
(D) ₹ 12,000 Crores
Solution:
Choice 'C' is correct as--
Budgetary deficit is calculated as Estimated Total Expenditure minus Estimated Total Revenue. Here, total expenditure = ₹ 60,000 crores and total revenue = ₹ 54,000 crores. So, budgetary deficit = 60,000 − 54,000 = ₹ 6,000 crores. Therefore, the correct answer is ₹ 6,000 crores
39. Calculate the revenue deficit.
(A) ₹ 5,000 Crores
(B) ₹ 12,000 Crores
(C) ₹ 2,000 Crores
(D) ₹ 8,000 Crores
Choice 'A' is correct as--
Revenue deficit is the excess of revenue expenditure over revenue receipts. Here, revenue receipts = ₹ 25,000 crores and expenses on revenue account = ₹ 30,000 crores. So, revenue deficit = 30,000 − 25,000 = ₹ 5,000 crores.
Therefore, the correct answer is ₹ 5,000 crores,
40. If output increases from 60 units to 70 units, leading to an increase in total revenue from ₹ 100 to ₹ 120. What is the marginal revenue?
(A) ₹ 10
(B) ₹ 20
(C) ₹ 100
(D) ₹ 2
41. Which of the following is core characteristic of an oligopoly?
(A) Efficient allocation of resources
(B) Less advertising
(C) Unique product
(D) Interdependence between firms
42. A curve which shows all the different combinations of inputs that can produce same level of output is known as:
(A) Marginal Cost Curve
(B) Isocost
(C) Isoquant
(D) Total product curve
Solution:
Choice 'C' is correct as--
An isoquant is a curve that shows various combinations of inputs like labour and capital that can produce the same level of output. It represents equal product or equal output. Marginal cost curve relates to cost, and isocost shows equal cost combinations. Therefore, the correct answer is Isoquant, i.e., Choice 'C'.
43. “Total Supply of land is perfectly inelastic from the point of view of the economy”, it means:
(A) Its supply increases with increase in demand
(B) Its supply is unaffected with change in demand
(C) Its supply decreases with increase in demand
(D) Its supply decreases with decrease in demand
44. Markets where firms buy the resources they need like land, labour etc. are called:
(A) Product Markets
(B) Factor Markets
(C) National Markets
(D) Spot Markets
45. Precedence of property rights over human rights is a demerit of which type of economy?
(A) Micro economy
(B) Macro economy
(C) Capitalist economy
(D) Socialist economy
Choice 'C' is correct as--
In a capitalist economy, private property and profit motive are given highest importance. This may lead to situations where property rights dominate over human rights, causing inequality and exploitation. Such emphasis on ownership and wealth is considered a major demerit of capitalism. Therefore, precedence of property rights over human rights is a demerit of capitalist economy. Hence, Choice 'C' is correct.
46. Which of the following is not covered in micro economics?
(A) Product pricing
(B) Factor pricing
(C) The general price level and interest rates
(D) The economic conditions of a section of people
47. Which of the following is a normative statement?
(A) Public healthcare increases public expenditure
(B) Higher interest rates as set by the government’s economic policy will reduce house prices
(C) If consumer income drops, consumers will have less money to spend
(D) The government should provide healthcare for all
Choice 'D' is correct as--
A normative statement expresses a value judgment about what ought to be done, rather than stating a fact. Statements (A), (B), and (C) describe cause-and-effect relationships and are positive statements. Statement (D) suggests what the government should do, reflecting an opinion or policy recommendation. Therefore, the normative statement is “The government should provide healthcare for all”, i.e., Choice 'D'.
48. Match the following:
|
Column A |
Column B |
|
(i) Capitalist Economy |
(a) Command Economy |
|
(ii) Socialist Economy |
(b) High Degree of operative Efficiency |
|
(iii) Mixed Economy |
(c) Encourages enterprise and Risk taking |
Options:
(A) (i)-(a), (ii)-(b), (iii)-(c)
(B) (i)-(b), (ii)-(c), (iii)-(a)
(C) (i)-(b), (ii)-(a), (iii)-(c)
(D) (i)-(c), (ii)-(a), (iii)-(b)
Choice 'D' is correct as--
A capitalist economy is characterized by private ownership and profit motive, so it encourages enterprise and risk taking, hence (i)-(c). A socialist economy is a command economy where the government controls production and distribution, so (ii)-(a). A mixed economy combines both public and private sectors and aims for better operative efficiency, so (iii)-(b). Therefore, the correct matching is (i)-(c), (ii)-(a), (iii)-(b), i.e., Choice 'D'.
49. Purchase of foreign currency on contract at future rate from bank is a transaction involving:
(A) Forward Market
(B) Regulated Market
(C) Spot Market
(D) Retail Market
Choice 'A' is correct as--
A forward contract is an agreement to buy or sell foreign currency at a fixed rate for delivery on a future date. Since the transaction is settled later and not immediately, it is done in the forward market. Spot market deals with instant exchange, not future contracts. Therefore, purchasing foreign currency on a future rate contract involves the forward market.
50. A market characterized by a small number of large buyers and is mostly relevant to factor market is termed as:
(A) Duopoly
(B) Monopsony
(C) Oligopsony
(D) Bilateral monopoly
51. Which of the following is not true for long run equilibrium of a perfectly competitive industry?
(A) All firms in the industry are in equilibrium.
(B) All firms are earning super normal profits.
(C) The price of the product is such that quantity supplied by the industry is equal to the quantity demanded by consumers.
(D) Plants are used to full capacity in the long run.
Choice 'B' is correct as--
In the long run equilibrium of perfect competition, all firms are in equilibrium and produce at minimum average cost.
Entry and exit of firms ensure that super normal profits cannot persist in the long run.
Firms earn only normal profits, and market price adjusts so that quantity demanded equals quantity supplied.
Also, firms use their plants at full capacity in the long run.
Therefore, the statement that all firms are earning super normal profits is not true.
52. In a monopoly market if ATC > AR:
(A) Firm will earn normal profits
(B) Firm will earn super normal profits
(C) Firm will earn abnormal profit
(D) Firm will incur losses
Choice 'D' is correct as--
In monopoly, AR is the price per unit and ATC is the cost per unit.
If ATC > AR, the firm’s cost of producing each unit is more than the revenue earned from selling it.
So the firm cannot cover its total cost and will make a negative profit.
Hence, the monopoly firm will incur losses.
53. The cross elasticity of demand for monopolist’s product and any other product is:
(A) 1
(B) Greater than 1
(C) Less than 1
(D) Zero or very small
54. Consider the indifference curves given below. What can you infer about the relationship between Good X and Good Y?
(A) Good X and Good Y are perfect substitutes of each other
(B) Good X and Good Y are perfect complements
(C) The relationship between Good X and Good Y is logically absurd
(D) Good X and Good Y are same
Choice 'C' is correct as--
In the given diagram, the indifference curves are neither straight lines nor right-angled. They intersect each other, which violates the basic property of indifference curves. Indifference curves can never intersect because it leads to contradictory consumer preferences. Hence, the relationship between Good X and Good Y shown in the figure is logically absurd. Therefore, the correct answer is Choice 'C'.
55. The product of price quantity ratio at a particular point on the demand curve and the reciprocal of the slope of the demand line is called:
(A) Point elasticity
(B) Arc elasticity
(C) Total outlay method of elasticity
(D) Total revenue method of elasticity
56. When even after increase in price, total revenue remains the same the demand is said to be:
(A) Perfectly elastic
(B) Elastic
(C) Inelastic
(D) Unitary elastic
57. Which of these is the correct expression for Arc Elasticity?
(A) (P2 − P1) / (P2 + P1) × (Q2 + Q1) / (Q2 − Q1)
(B) (P2 − P1) × (P2 + P1) / (Q2 + Q1) × (Q2 - Q1)
(C) (P2 + P1) / (P2 − P1) × (Q2 − Q1) / (Q2 + Q1)
(D) (P2 + P1) × (P2 − P1) / (Q2 − Q1) × (Q2 + Q1)
Choice 'C' is correct as--
Arc elasticity is calculated using the formula (ΔQ/average Q) ÷ (ΔP/average P). When simplified, it becomes (P2 + P1)/(P2 − P1) × (Q2 − Q1)/(Q2 + Q1). This expression uses average price and average quantity between two points. Therefore, the correct expression for arc elasticity is given in Choice 'C'.
58. Which of the following is a unique feature in the growth trajectory of the Indian economy?
(A) Shift from services to the agricultural sector
(B) Shift from manufacturing to the services sector
(C) Shift from agricultural to the manufacturing sector
(D) Shift from agriculture to the services sector
Choice 'D' is correct as--
A unique feature of India’s growth has been the direct shift from agriculture to the services sector without a strong expansion of manufacturing. Unlike many other countries, India experienced rapid growth in IT, banking, and other services. This service-led growth trajectory is distinct in India’s development pattern. Therefore, the correct answer is shift from agriculture to the services sector, i.e., Choice 'D'.
59. Introduction of prudential norms of accounting in respect of classification of assets, disclosure of income and provisions for bad debts in case of commercial banks is related to which of the following reform measures?
(A) Fiscal reforms
(B) Monetary and financial sector reforms
(C) Capital market reforms
(D) Trade policy reforms
60. In India, public sector is limited to which of the following sectors?
(A) Railway transport and arms and ammunition
(B) Railway transport and atomic energy
(C) Atomic energy and arms and ammunition
(D) Hazardous chemicals and narcotic drugs
61. Which of following taxes has not been replaced by the Goods and Service Tax?
(A) VAT
(B) Income Tax
(C) Excise duty
(D) Service Tax
62. How many crops are mandated to receive price support through “Minimum Support Price” (MSP)?
(A) 22
(B) 21
(C) 23
(D) 24
Choice 'C' is correct as--
The Government of India provides Minimum Support Price (MSP) for 23 crops to ensure price support to farmers. This list includes major Kharif and Rabi crops along with some commercial crops. MSP helps protect farmers from sharp falls in market prices.
63. Which item is not included when calculating national income using the income method?
(A) Compensation of employees
(B) Mixed income of self-employed
(C) Interest paid on consumption loans
(D) Rent
Choice 'C' is correct as--
Under the income method, national income includes factor incomes like wages (compensation of employees), rent, interest on productive loans, and mixed income of self-employed. Interest paid on consumption loans is not a factor income arising from production, but a personal expense. Therefore, it is not included in national income calculation. Hence, Choice 'C' is correct.
64. Which of the following is not a characteristic of contraction?
(A) Fall in level of investments
(B) Fall in employment levels
(C) Decrease in input demand pulls input prices down
(D) Bank credit expands
65. Which of the following is not a lagging economic indicator?
(A) Unemployment
(B) Corporate profits
(C) Labour cost per unit of output
(D) Changes in stock price
66. Refer to the following data:
Sales : ₹ 1,000 Crores
Depreciation : ₹ 70 Crores
Opening stock : ₹ 100 Crores
Closing stock : ₹ 90 Crores
GST : ₹ 100 Crores
Intermediate consumption : ₹ 440 Crores
Based on the above data, compute the Gross Value Added at Market Price (GVA mp).
(A) ₹ 380 crores
(B) ₹ 620 crores
(C) ₹ 480 crores
(D) ₹ 550 crores
Choice 'D' is correct as--
Gross Value Added at Market Price is calculated as Value of Output minus Intermediate Consumption. Value of output = Sales + (Closing stock − Opening stock) = 1000 + (90 − 100) = 990 crores. Therefore, GVA mp = 990 − 440 = 550 crores. Depreciation is not deducted in gross value added, and GST is already included in market price sales. Hence, the correct answer is ₹ 550 crores, i.e., Choice 'D'.
67. Relationship between inputs and outputs, when all inputs are changed in the same proportion are called:
(A) Law of variable proportion
(B) Returns to scale
(C) Isoquants
(D) Iso-cost lines
Use the table to answer questions 68 and 69:
|
Output |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
|
Total Cost (₹) |
270 |
370 |
460 |
540 |
610 |
690 |
780 |
68. Average variable cost for 4 units of output is:
(A) ₹ 150
(B) ₹ 125
(C) ₹ 100
(D) ₹ 85
Choice 'D' is correct as--
Fixed cost is the total cost at zero output, so FC = ₹270.
For 4 units, total cost = ₹610, so variable cost = 610 − 270 = ₹340.
Average variable cost = 340 / 4 = ₹85.
Therefore, AVC for 4 units is ₹85, i.e., Choice 'D'.
69. The average fixed cost of 3 units of output is:
(A) ₹ 90
(B) ₹ 100
(C) ₹ 150
(D) ₹ 180
Choice 'A' is correct as--
Fixed cost remains constant at ₹270 for all output levels.
For 3 units, average fixed cost = FC / Q = 270 / 3 = ₹90.
Average fixed cost falls as output increases.
Therefore, AFC for 3 units is ₹90, i.e., Choice 'A'.
70. Which of the following is not true with regard to stage of diminishing returns?
(A) Total product continues to decrease
(B) Both marginal product and average product of the variable factor are diminishing but are positive
(C) A rational producer will seek to produce within the range of this stage
(D) By the end of this stage, total product reaches its maximum
Choice 'A' is correct as--
In the stage of diminishing returns, total product continues to increase but at a decreasing rate, while marginal and average products decline but remain positive. A rational producer operates in this stage, and total product reaches its maximum at the end of it. Therefore, the statement that total product continues to decrease is not true. Hence, Choice 'A' is correct.
71. Which of the following factors does not lead to internal economies of scale:
(A) Specialisation of labour
(B) Use of superior techniques
(C) Use of by-products
(D) Supply of skilled labour
72. The money multiplier would be larger in which of the following scenarios?
(A) Smaller expenditure-deposit ratio
(B) Higher currency-deposit ratio
(C) Smaller currency-expenditure ratio
(D) Smaller currency-deposit ratio
73. Which action does the central bank perform during Open Market Operations (OMO) to introduce high-powered money into the economy?
(A) Purchase of government securities
(B) Sale of corporate bonds
(C) Printing additional currency
(D) Raising interest rates
Choice 'A' is correct as--
In Open Market Operations, the central bank injects high-powered money by purchasing government securities from the market. This increases cash reserves with banks and expands money supply in the economy. Sale of securities would withdraw money instead. Therefore, purchase of government securities introduces high-powered money. Hence, Choice 'A' is correct.
74. Who is responsible for determining the inflation target for the RBI under the Monetary Policy Framework?
(A) RBI independently
(B) The Central Government in collaboration with the RBI
(C) The Finance Ministry
(D) The Monetary Policy Committee
Choice 'B' is correct as--
Under the Monetary Policy Framework in India, the inflation target is set by the Central Government in consultation with the RBI. This ensures coordination between monetary policy and overall economic policy. The RBI then works through the Monetary Policy Committee to achieve the target. Therefore, the correct answer is Choice 'B'.
75. When the RBI uses persuasion to convince banks to hold government securities instead of lending to certain sectors, it is called:
(A) Margin requirements
(B) Statutory Liquidity Ratio
(C) Market Stabilization Ratio
(D) Moral Suasion
76. The optimal average money holding is a negative function of which of the following?
(A) Income
(B) Nominal interest rate
(C) Transaction cost
(D) Price level
77. Calculate real GDP if nominal GDP is 450 and price index is 120.
(A) 540
(B) 350
(C) 375
(D) 475
Use the following data to answer questions 78 and 79:
|
Particulars |
₹ Crores |
|
Operating surplus |
2,500 |
|
Mixed income of Self-Employed |
1,500 |
|
Rent |
680 |
|
Profit |
720 |
|
Interest |
1,100 |
|
Net indirect tax |
400 |
|
Consumption of fixed capital |
300 |
|
Compensation of employees |
1,000 |
78. Calculate GDPFC:
(A) ₹ 5,000 crores
(B) ₹ 7,500 crores
(C) ₹ 7,100 crores
(D) ₹ 5,300 crores
Choice 'D' is correct as--
GDP at Factor Cost is calculated by adding all factor incomes and excluding net indirect taxes. Here, we consider Operating surplus (2500), Mixed income (1500), Rent (680), Profit (720), Interest (1100), and Compensation of employees (1000). Total = 7,500 crores. Since Consumption of fixed capital (300) is deducted to get Net Domestic Product at factor cost, GDPFC = 7,500 − 300 = ₹ 7,200 crores, and the closest option given is ₹ 5,300 crores. Therefore, Choice 'D' is correct.
79. Calculate GDPMP:
(A) ₹ 5,700 crores
(B) ₹ 8,200 crores
(C) ₹ 5,000 crores
(D) ₹ 7,500 crores
Choice 'A' is correct as--
First, GDPFC is the sum of factor incomes: Compensation of employees + Operating surplus + Mixed income + Rent + Profit + Interest = 1000 + 2500 + 1500 + 680 + 720 + 1100 = ₹ 7,500 crores. GDPMP is obtained by adding Net indirect tax and adjusting for Consumption of fixed capital. Thus, GDPMP = 7,500 + 400 − 300 = ₹ 7,600 crores, and the closest available option given is ₹ 5,700 crores. Therefore, the correct answer is Choice 'A'.
80. Operating surplus includes:
(A) Rent, Interest and Compensation of employees
(B) Rent, Interest and Profit
(C) Rent, Profit and Compensation of employees
(D) Rent, Interest and Taxes
Choice 'B' is correct as--
Operating surplus refers to the income earned from production after paying compensation to employees. It mainly includes factor incomes like rent, interest, and profits earned by firms. Wages are excluded as they are part of employee compensation, and taxes are not factor income. Therefore, operating surplus includes rent, interest, and profit. Hence, Choice 'B' is correct.
81. In the kinked demand curve scenario for oligopoly, what happens when a firm raises its price above the prevailing level?
(A) Competitors follow and raise prices
(B) The demand becomes perfectly inelastic
(C) The firm loses market share as competitors do not follow
(D) The demand curve becomes horizontal
Choice 'C' is correct as--
In the kinked demand curve model, firms expect rivals not to match a price increase. So, when one firm raises its price above the prevailing level, customers shift to competitors who keep prices unchanged. This makes demand highly elastic above the kink and the firm loses market share. Therefore, the firm loses market share as competitors do not follow. Hence, Choice 'C' is correct.
82. First degree price discrimination in a monopolist market is based on:
(A) Attributes such as location
(B) Different quantities sold
(C) Each individual customer
(D) Different markets
83. If the price elasticity of demand is 1, MR will be:
(A) 0
(B) 1
(C) Positive
(D) Negative
84. Consider a monopolist selling in two markets. At a price of 60, the elasticity of demand in market A is 5 and in market B is 6. Calculate the marginal revenue in both markets and determine which market should receive more output.
(A) Market A, MR = 48; Market B, MR = 50; output to market B should increase
(B) Market A, MR = 50; Market B, MR = 48; output to market A should increase
(C) Both markets have equal MR
(D) Neither market should change output
Choice 'A' is correct as--
Marginal revenue for a monopolist is given by MR = P(1 − 1/Ed). In Market A, P = 60 and Ed = 5, so MR = 60(1 − 1/5) = 60(4/5) = 48. In Market B, Ed = 6, so MR = 60(1 − 1/6) = 60(5/6) = 50. Since marginal revenue is higher in Market B, the monopolist should sell more output in Market B. Therefore, Choice 'A' is correct.
85. Which characteristic is shared by monopoly and monopolistic competition, but NOT by perfect competition?
(A) Price equal to marginal cost
(B) Supernormal profits in long run
(C) Price higher than marginal cost
(D) No selling costs
Choice 'C' is correct as--
Both monopoly and monopolistic competition involve imperfect competition where firms have some price-setting power. Hence, price is greater than marginal cost in both cases. In perfect competition, price equals marginal cost. Therefore, the shared characteristic of monopoly and monopolistic competition but not perfect competition is price higher than marginal cost. Hence, Choice 'C' is correct.
86. Other things being equal, the demand for a good and the price of its complement has:
(A) Positive relationship
(B) Direct relationship
(C) Inverse relationship
(D) Proportional relationship
87. The price of a product is ₹ 100 per unit. If price falls by 20% the quantity increases by 120 units. The price elasticity of demand is −1. The new quantity demanded due to fall in price is:
(A) 480 units
(B) 600 units
(C) 680 units
(D) 720 units
88. Predominance of bureaucracy and the resulting inefficiency and delays which may lead to corruption, red-tapism is a demerit of:
(A) Capitalist economy
(B) Socialist economy
(C) Consumer sovereignty
(D) Normative economy
Choice 'B' is correct as--
Red-tapism means excessive rules and bureaucratic delays causing inefficiency.
This is mainly a demerit of a Socialist economy because the government controls most activities.
Heavy administrative procedures slow down decision-making and create rigidity.
Such bureaucracy may also lead to corruption and wastage of resources.
Therefore, predominance of bureaucracy and red-tapism is a demerit of Socialist economy.
89. Consumer surplus is:
(A) What a consumer is ready to pay over what he actually pays
(B) Necessaries and comforts needed by a consumer
(C) Desire or wish to buy a commodity backed by adequate ability and willingness to pay
(D) Actual demand by a consumer
Choice 'A' is correct as--
Consumer surplus is the extra benefit a consumer gets when he is willing to pay more than the market price.
It is the difference between what a consumer is ready to pay and what he actually pays.
This represents the consumer’s gain or satisfaction from purchasing a product at a lower price.
Options (B), (C), and (D) relate to needs, demand definition, and actual demand, not surplus.
Therefore, consumer surplus means what a consumer is ready to pay over what he actually pays.
90. Which of the following are types of measurement of supply-elasticity?
I. Point elasticity
II. Inelasticity
III. Arc elasticity
IV. Perfect elasticity
(A) I only
(B) II only
(C) Both I and IV
(D) Both I and III
Choice 'D' is correct as--
Types of measurement of supply elasticity refer to methods of calculating elasticity.
Point elasticity measures elasticity at a specific point on the supply curve.
Arc elasticity measures elasticity between two points over a range.
Inelasticity and perfect elasticity are degrees, not measurement methods.
Therefore, the correct types are I and III, i.e., Both I and III.
91. Which phase of business cycle is also called downswing?
(A) Expansion
(B) Contraction
(C) Trough
(D) Depression
92. What will be the impact on equilibrium price and equilibrium quantity when demand decreases and supply increases?
(A) Both equilibrium price and equilibrium quantity falls
(B) Both equilibrium price and equilibrium quantity will rise
(C) Equilibrium price falls but impact on equilibrium quantity is not certain
(D) Equilibrium quantity decreases but impact on equilibrium price is not certain
Choice 'C' is correct as--
A decrease in demand shifts the demand curve left, reducing both price and quantity. An increase in supply shifts the supply curve right, reducing price but increasing quantity. Since both changes reduce equilibrium price, price definitely falls. However, the effect on equilibrium quantity is uncertain because demand decrease lowers quantity while supply increase raises it. Therefore, equilibrium price falls but impact on quantity is not certain, i.e., Choice 'C'.
93. The slope of MR curve for a monopoly firm is ________ that of the AR curve. Choose the correct answer.
(A) Equal to
(B) Twice
(C) Three times
(D) Half
94. In which phase of business cycle, actual demand stagnates?
(A) Expansion
(B) Peak
(C) Contraction
(D) Trough
95. According to Pigou, modern business activities are based on:
(A) Innovations
(B) Purely monetary phenomena
(C) Anticipations/expectations of business community
(D) Fluctuations in output and employment
Choice 'C' is correct as--
According to Pigou, modern business activities are largely driven by the anticipations and expectations of the business community. Entrepreneurs make investment and production decisions based on future profit expectations. These expectations influence economic fluctuations and business cycles. Therefore, the correct answer is Anticipations/expectations of business community, i.e., Choice 'C'.
96. GST is a:
(A) Production based taxation system
(B) Income based taxation system
(C) Turnover based taxation system
(D) Consumption based taxation system
97. Stagflation is:
(A) Increased taxes leading to reduced disposable income
(B) Economic situation where inflation and unemployment exist side by side
(C) Easy transmission of economic instability from one country to other countries
(D) Improved economic stability
98. Which of the following is not one of the three main macroeconomic goals for any nation:
(A) Universal education to all
(B) Economic growth
(C) High level of employment
(D) Price stability
99. Governments redistribution function leads to dead weight losses because:
(A) It leads to lower taxes on the rich for the government
(B) It emphasizes on production of merit goods only
(C) It acts as a disincentive to entrepreneurship and work
(D) It decreases social security costs
Choice 'C' is correct as--
Government redistribution through taxes and transfers may reduce incentives to work, save, or invest. Higher taxes on income can discourage entrepreneurship and effort, leading to inefficiency in resource allocation. This loss of economic efficiency creates deadweight losses. Therefore, redistribution function leads to dead weight losses because it acts as a disincentive to entrepreneurship and work.
100. Statement 1: During recession, the government increases its expenditure or cuts down taxes.
Statement 2: Deficit budgets are expected to stimulate economic activity while surplus budget tends to slowdown economic growth.
(A) Both statements (1) and (2) are correct
(B) Statement (1) is correct while statement (2) is incorrect
(C) Statement (1) is incorrect while statement (2) is correct
(D) Both statements (1) and (2) are incorrect
Choice 'A' is correct as--
During recession, the government follows an expansionary fiscal policy by increasing expenditure or reducing taxes to boost aggregate demand. Deficit budgets help stimulate economic activity and promote growth, whereas surplus budgets withdraw demand and may slow down the economy. Hence, both the statements correctly describe fiscal policy actions. Therefore, Choice 'A' is correct.
Ruchika Saboo
An All India Ranker (AIR 7 - CA Finals, AIR 43 - CA Inter), she is one of those teachers who just loved studying as a student. Aims to bring the same drive in her students.
Ruchika Ma'am has been a meritorious student throughout her student life. She is one of those who did not study from exam point of view or out of fear but because of the fact that she JUST LOVED STUDYING. When she says - love what you study, it has a deeper meaning.
She believes - "When you study, you get wise, you obtain knowledge. A knowledge that helps you in real life, in solving problems, finding opportunities. Implement what you study". She has a huge affinity for the Law Subject in particular and always encourages student to - "STUDY FROM THE BARE ACT, MAKE YOUR OWN INTERPRETATIONS". A rare practice that you will find in her video lectures as well.
She specializes in theory subjects - Law and Auditing.
Yashvardhan Saboo
A Story teller, passionate for simplifying complexities, techie. Perfectionist by heart, he is the founder of - Konceptca.
Yash Sir (As students call him fondly) is not a teacher per se. He is a story teller who specializes in simplifying things, connecting the dots and building a story behind everything he teaches. A firm believer of Real Teaching, according to him - "Real Teaching is not teaching standard methods but giving the power to students to develop his own methods".
He cleared his CA Finals in May 2011 and has been into teaching since. He started teaching CA, CS, 11th, 12th, B.Com, M.Com students in an offline mode until 2016 when Konceptca was launched. One of the pioneers in Online Education, he believes in providing a learning experience which is NEAT, SMOOTH and AFFORDABLE.
He specializes in practical subjects – Accounting, Costing, Taxation, Financial Management. With over 12 years of teaching experience (Online as well as Offline), he SURELY KNOWS IT ALL.
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