Business Economics - Mock Test
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Questions and Answers

What happens to the total variable cost (TVC) curve when the law of diminishing returns begins to operate?

  • It rises at an increasing rate (correct)
  • It rises at a decreasing rate
  • It falls at a decreasing rate
  • It falls at an increasing rate

    • What condition signifies the shut-down point for a firm?

  • P = AVC
  • TR = TVC
  • Total losses equal TFC
  • All of the above (correct)

    • Under what circumstances will a monopolistic competitor produce at the lowest point on its long-run average cost (LAC) curve?

  • Sometimes
  • Never (correct)
  • Cannot say
  • Always

    • In the context of oligopoly, what do both the Chamberlin and kinked demand curve models suggest about oligopolists?

    <p>All of the above</p> Signup and view all the answers

    What indicates the onset of diminishing marginal returns in production?

    <p>The total product curve begins to flatten out</p> Signup and view all the answers

    In India, how is agricultural income primarily calculated?

    <p>Output method</p> Signup and view all the answers

    What do savings represent in the circular flow of income?

    <p>A withdrawal into the circular flow</p> Signup and view all the answers

    Which statement about sunk costs is correct?

    <p>Sunk costs are not relevant in economic decisions</p> Signup and view all the answers

    In an oligopoly, what primarily influences price determination?

    <p>The collective behavior of a few dominant firms</p> Signup and view all the answers

    What is the minimum support price declared by?

    <p>The Cabinet Committee on economic affairs</p> Signup and view all the answers

    Who is responsible for formulating fiscal policy in India?

    <p>Finance Ministry</p> Signup and view all the answers

    What is typically the result of a lack of close substitutes in a monopoly?

    <p>A downward-sloping demand curve for the monopolist</p> Signup and view all the answers

    Which item is NOT included in the GDP calculation using the expenditure approach?

    <p>Transfer payments</p> Signup and view all the answers

    Which organization is responsible for compiling regional accounts data in India?

    <p>Central Statistical Office (CSO)</p> Signup and view all the answers

    Which policy is most likely to result in a rightward shift of the economy's aggregate demand curve?

    <p>Tax cut along with increase in public expenditure</p> Signup and view all the answers

    Which component is used for assessing regional economic performance in India?

    <p>Per Capita Income</p> Signup and view all the answers

    For government to contribute to capital formation, revenue surplus should be:

    <p>Negative</p> Signup and view all the answers

    What is the term for the ratio that relates changes in the money supply to the monetary base?

    <p>Money multiplier</p> Signup and view all the answers

    Which economic theory promotes increasing national wealth by boosting exports and limiting imports?

    <p>Mercantilism</p> Signup and view all the answers

    Which of the following is not classified as a non-tariff barrier?

    <p>Import quotas</p> Signup and view all the answers

    What economic concept explains that all markets tend to achieve the same exchange rate for a currency due to competition?

    <p>Arbitrage</p> Signup and view all the answers

    What is the primary effect of an inflationary gap?

    <p>Raises the general price level</p> Signup and view all the answers

    Which component of monetary policy is used to address excess demand in the economy?

    <p>Increasing the cash reserve ratio (CRR)</p> Signup and view all the answers

    How often is the RBI mandated to publish a monetary policy report?

    <p>Every three months</p> Signup and view all the answers

    Which department is responsible for managing public financial management in the central government?

    <p>The department of expenditure</p> Signup and view all the answers

    The Liquidity Trap is most closely related to which of the following?

    <p>Monetary Policy</p> Signup and view all the answers

    What is the equilibrium level of output?

    <p>5000</p> Signup and view all the answers

    Which of the following examples represents an intermediate good?

    <p>Baseball uniform purchased by a team</p> Signup and view all the answers

    What is the value of the Investment Multiplier when the saving function is represented as S = -60 + 0.2Y?

    <p>4</p> Signup and view all the answers

    How can national income accountants avoid multiple counting?

    <p>By only counting final goods</p> Signup and view all the answers

    What does Gross Investment refer to?

    <p>Net Investment plus replacement investment</p> Signup and view all the answers

    If a bank has deposits of INR 50,00,000 and a reserve requirement of 10%, what are its excess reserves?

    <p>INR 5,00,000</p> Signup and view all the answers

    What will be the value of the Credit Multiplier when the Required Reserve ratio is 50%?

    <p>2</p> Signup and view all the answers

    If an oligopolist incurs losses in the short run, which of the following is most likely in the long run?

    <p>The oligopolist may choose to stay in business</p> Signup and view all the answers

    In the long run, how are production costs categorized?

    <p>They primarily become variable</p> Signup and view all the answers

    Which concept involves a one-shot injection of government expenditure aimed at boosting business confidence?

    <p>Pump Priming</p> Signup and view all the answers

    What can be deduced about the New Economic Policy based on the assertion and reason provided?

    <p>Both the assertion and reason are true, and the reason explains the assertion</p> Signup and view all the answers

    From given data, calculate 'Gross value added at factor cost'. Sale is 180, Rent is 5, Subsidy is 10, Change in Stock is 15, Purchase of Raw Material is 100, and Profits are 25.

    <p>185</p> Signup and view all the answers

    What is the value of the money multiplier if the required reserve ratio is 20%, currency in circulation is 800 billion, demand deposits are 2000 billion, and excess reserves total 2 billion?

    <p>2.60</p> Signup and view all the answers

    A group of countries with a free trade agreement and a common external tariff is known as?

    <p>Custom union</p> Signup and view all the answers

    In a mixed economy, who makes decisions regarding resource allocation?

    <p>Consumers, firms, and government</p> Signup and view all the answers

    What type of elasticity is indicated when students' increased spending on discounted airfare suggests their demand becomes more responsive to price changes?

    <p>Price elastic</p> Signup and view all the answers

    What causes a shift in demand according to economic principles?

    <p>Changes in non-price factors</p> Signup and view all the answers

    When calculating arc elasticity of demand between two price points, what can we deduce about elasticity when price drops significantly?

    <p>It is greater than one</p> Signup and view all the answers

    Arc elasticity measures which aspect of demand?

    <p>Between two points on the curve</p> Signup and view all the answers

    According to J.M. Keynes, what was identified as a primary reason for the economic downturn during the Great Depression?

    <p>High levels of aggregate expenditure</p> Signup and view all the answers

    Which example best describes a zero-sum game in economic theory?

    <p>Competition for market share</p> Signup and view all the answers

    Which type of elasticity reflects a movement along the curve rather than a shift in the curve?

    <p>Price elasticity of demand</p> Signup and view all the answers

    Signup and view all the answers

    Study Notes

    Foundation Course - Paper 4: Business Economics - Mock Test

    • Question 1: Fiscal deficit is the key operational target in a budget.

    • Question 2: External debt is shown at the exchange rate applicable at the time of contracting the debt, and also at the time of expanding the debt.

    • Question 3: Plan and Non-Plan is not a classification of public expenditure.

    • Question 4: Average fixed cost curve cannot be U-shaped.

    • Question 5: The correct assumption in oligopoly is that if an oligopolist decreases his price, his rivals will not react.

    Further Questions

    • Question 6: Business cycles emerge in mixed economic systems.

    • Question 7: Exchange of second-hand goods is not included in national income calculation.

    • Question 8: The Keynesian cross diagram's point where the aggregate demand function crosses the 45-degree line represents the equilibrium level of income.

    • Question 9: Imposing a price ceiling below equilibrium price leads to shortages in the market, the problem of allocating limited supplies among consumers, and black market activity.

    • Question 10: Nationalization is the government taking full control and management from the private sector.

    • Question 11: The slope of the budget line for Nachos and Pepsi (with quantity of Nachos on the y-axis and quantity of Pepsi on the x-axis) is the price of Pepsi divided by the price of Nachos.

    • Question 12: Net domestic expenditure is consumption expenditure plus net foreign investment.

    • Question 13: Deficit financing increases the money supply.

    • Question 14: The fall in the price of a commodity, making it relatively cheaper compared to other commodities, is known as substitution effect.

    • Question 15: The marginal rate of substitution between two goods equals the ratio of their prices.

    • Question 16: Consumer surplus is the difference between the potential and actual price; there's an inverse relationship.

    • Question 17: The point where the total product curve flattens out indicates the onset of diminishing marginal returns.

    • Question 18: Sunk costs are irrelevant in economic decisions; their opportunity cost is zero.

    • Question 19: Price determination in oligopoly is influenced by the collective behavior of dominant firms.

    • Question 20: In monopoly, the lack of close substitutes results in a downward-sloping demand curve for the monopolist.

    • Question 21: Transfer payments are not included in GDP calculation.

    • Question 22: National Sample Survey Organization (NSSO) compiles and publishes regional accounts data.

    • Question 23: Poverty ratio, employment rates and per capital income are used to assess regional economic performance.

    • Question 24: Revenue surplus should be positive to contribute to capital formation.

    • Question 25: The Finance Commission's primary purpose is to allocate central taxes to state governments.

    • Question 26: Debt-to-GDP ratio evaluates the proportion of debt relative to the country's economic output.

    • Question 27: In the Cambridge equation, k represents the income elasticity of money demand.

    • Question 28: M2 is a measure of the money supply that includes M1 and other less liquid near moneys.

    • Question 29: The most favored nation (MFN) clause was introduced by the WTO.

    • Question 30: Foreign Portfolio Investment (FPI) describes capital movement.

    • Question 31: The "Make in India" initiative aims to promote local manufacturing and attract foreign investment

    • Question 32: Formulating five-year plans is a function of NITI Aayog. Facilitating cooperative federalism is also a function. Providing policy and technical advice to central and state governments is also a function of NITI Aayog

    • Question 33: ISI policy aimed to reduce dependence on foreign goods by promoting domestic industries.

    • Question 34: Consumer Price Index (CPI) measures inflation in India.

    • Question 35: In a mixed economy, resources are allocated through decisions of consumers, firms, and the government.

    • Question 36: Students' demand for airline travel being price elastic means they're responsive to price changes.

    • Question 37: A shift in demand is caused by changes in non-price factors.

    • Question 38: Calculating the elasticity of demand involves dividing the percentage change in quantity demanded by the percentage change in price.

    • Question 39: Arc elasticity measures the responsiveness of demand between two points on the demand curve.

    • Question 40: Lower aggregate expenditure is a main cause of the Great Depression according British economist JM Keynes.

    • Question 41: Prisoners dilemma a zero sum game.

    • Question 42: The price elasticity of demand measures movement along a demand curve not a shift in curve.

    • Question 43: If only part of the labor force can be dismissed, the total wages are a variable and fixed cost.

    • Question 44: When the Law of Diminishing Returns begins to operate, the total variable cost (TVC) curve rises at an increasing rate.

    • Question 45: At the shut-down point in the short run, price equals average variable cost and revenue equals variable cost.

    • Question 46: Monopolistic competitors produce at the point where the Price equals the average total cost in the long run.

    • Question 47: Oligopolists recognize their interdependence in both the Chamberlin and kinked demand models and sometimes tend to keep prices constant.

    • Question 48: Agricultural income in India is calculated using the expenditure method.

    • Question 49: Savings represent an injection into the circular flow of income.

    • Question 50: In Heckscher-Ohlin theory, factors of production are three in number.

    • Question 51: A period of expansion and contraction in the economy, measured by real GDP, is called a business cycle.

    • Question 52: Food Corporation of India (FCI) maintains a buffer stock of foodgrains.

    • Question 53: The Cabinet Committee on economic affairs declares the minimum support price.

    • Question 54: Atal Tinkering Lab is an initiative by NITI Aayog.

    • Question 55: Corporation tax, stamp duty, and customs duty are major taxes in India.

    • Question 56: The Finance Ministry formulates fiscal policy.

    • Question 57: Substantial increase in capital or revenue expenditure leads to a fiscal deficit or budgetary deficit.

    • Question 58: Tax reforms encompass policies regarding taxation and expenditure, called fiscal policy

    • Question 59: Goods and services tax (GST) was enacted by the 101st Constitutional Amendment Act of 2016

    • Question 60: When many people follow the same investment without considering advantages or disadvantages, it’s called the demonstration effect.

    • Question 61: In micro-economics, marginal costs are never U-shaped. Average cost and average fixed cost curves are U-shaped.

    • Question 62: The most important role of the entrepreneur is innovation.

    • Question 63: Game theory, related to oligopoly, was developed by Von Neumann and Oskar Morgenstern.

    • Question 64: If the population growth rate surpasses the economic growth rate, savings tend to decrease in the economy.

    • Question 65: Macroeconomic stabilization can be achieved through fiscal and monetary policies.

    • Question 66: Fiscal federalism involves organizing and implementing development plans through different levels of government.

    • Question 67: Market failure is caused by situations like market power, externalities and public goods.

    • Question 68: The Public Debt Management Cell was created in 2016

    • Question 69: Fiscal and monetary policies influence aggregate demand and can result in shifts in the demand curve.

    • Question 70: Demand for capital assets is a more general theory.

    • Question 71: The ratio relating change in money supply to change in monetary base is the money multiplier.

    • Question 72: Mercantilism holds that encouraging exports and discouraging imports improves national wealth.

    • Question 73: Among others, complex documentation requirements & countervailing duties, are non-tariff barriers.

    • Question 74: At any given time, all markets tend to have the same exchange rate because of arbitrage opportunities.

    • Question 75: Inflationary gaps result in increased levels of output and and increased general price levels.

    • Question 76: Monetary policy can be used to correct excess demand situations, through tools like increasing repo rate or raising the cash reserve requirement.

    • Question 77: Reverse repo rate is a monetary policy tool that increases interest income.

    • Question 78: The RBI releases a monetary policy report every six months.

    • Question 79: Education subsidies and expenses are justified by considering education as merit goods, that provide positive externalities.

    • Question 80: The central and state government's public financial management systems are handled by the departments of expenditure, financial services, and economic affairs.

    • Question 81: Liquidity trap is an extreme effect of monetary policy.

    • Question 82: Intermediate goods are used in the production of other goods or services. Examples are gasoline for a ski trip or pizza purchased by a student.

    • Question 83: National income accountants avoid double counting by including only final goods in their calculations.

    • Question 84: Gross investment includes private investment plus replacement investment.

    • Question 85: If an oligopolist incurs losses in the short run, their decision in the long run is any one of staying in business, going out of business or breaking even.

    • Question 86: Fixed costs, a production component, are present even at zero output.

    • Question 87: New economic policies are in part related to deregulation, reduction in taxes and increasing market participation.

    • Question 88: 4000 is the equilibrium output according to the provided equations.

    • Question 89: The investment multiplier is 5 when the saving function is S = -60 + 0.2Y

    • Question 90: To find excess reserves, the required reserve ratio (10%) is applied to the total deposit to get the total required reserves; then excess reserves are found by subtracting required reserves from the total deposit

    • Question 91: The credit multiplier is 2 when the reserve ratio is 50%.

    • Question 92: Pump priming is a concept to boost business and investment in a downturned economy.

    • Question 93: The gross value added is calculated by considering sales, rent, subsidies, the change in stock, raw materials, etc.

    • Question 94: The money multiplier is calculated as 1 / reserve ratio, or 1/0.2 = 5. Calculating the Value of money multiplier = 800 / (800+2000) = 0.286 and 1/0.2 = 5.

    • Question 95: Money supply is proportional to the monetary base and can be directly impacted through factors like Reserve Ratio, which is a key factor determining the money multiplier.

    • Question 96: Free trade area (FTA) or custom union are groups that allow trade with fewer barriers between member countries.

    • Question 97: The National Treatment Principle (NTP) ensures that imported goods are treated same as domestic goods.

    • Question 98: Revaluation is typically applied in the context of fixed exchange rates where, in comparison with flexible, fixed exchange rates allow for more predictable economic conditions.

    • Question 99: Central banks interfere in exchange rates, which is known in India as dirty floats.

    • Question 100: The value of money, according to Cambridge equation, depends on demand from money, demand for goods and services, as well as the supply of money.

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    Foundation Course Paper 4: Business Economics Mock Test - December 2024 PDF

    Description

    Test your knowledge with this mock exam on Business Economics. The quiz covers important topics like fiscal deficit, public expenditure classifications, and oligopoly assumptions. Perfect for students preparing for Foundation Course - Paper 4.

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