MODULE A : FUNDAMENTALS OF ECONOMICS PRACTICE QUESTIONS
1. Given, Corporation tax - Rs. 1800 Crores Income tax - Rs. 1200 Crores Union exercise tax - Rs. 1100 Crores Other non tax revenue - Rs. 1500 Crores Other taxes and duties - Rs. 1000 Crores Customs - RS. 1300 Crores External grant - Rs. 400 Crores Service tax - Rs. 750 Crores Tax of union territories- Rs. 400 Crores Interst receipt - Rs. 750 Crores Devident & profit - Rs. 900 Crores State Share - Rs. 900 Crores Receipt of union territories - Rs. 1200 Crores Transfer to NCCD ( National Calamity Contingency Fund ) - Rs. 450 Crores Calculate Gross Tax Revenue : a. Rs 6800 Crores b. Rs 7150 Crores c. Rs 7550 Crores d. Rs 8300 Crores Ans - c Solution : Gross Tax revenue = Corporation Tax + Income tax + Other Tax & Duties + Customs + Union Excise Duties +Service Tax + Taxes on Union Territories = 1800+1200+1000+1300+1100+750+400 = 7550 Crores
2. When chicken prices rise 40%, the quantity of KFC fried chicken supplied rises by 30%. Calculate the price elasticity of supply. a. 0.50 b. 0.65 c. 0.75 d. 0.85 Ans - c Solution : Price Elasticity of Supply = ( % change in quantity supplied ) _____________________ ( % change in price ) = 30/40 = 0.75
3. When the price of a commodity falls from Rs. 75 per unit to Rs. 60 per unit, the quantity supplied falls by 40%. Calculate the price elasticity of supply. a. 1 b. 1.5 c. 2 d. 2.5 Ans - c Solution : Price Elasticity of Supply = ( % change in quantity supplied ) ____________________ ( % change in price ) = 40 / ( 75 - 60 ) * 100 / 75 = 40 / 15 * 100 / 75 = 40 / 20 = 2
4. Given, Recoveries of loan and advance - Rs. 5000 Crores Misc capital receipt - Rs. 1500 Crores Market loans - Rs. 1200 Crores Short term borrowings - Rs. 1800 Crores External assistance (Net) - Rs. 450 Crores State provident fund - Rs. 600 Crores Other receipts (Net) - Rs. 1500 Crores Securities issued against small savings - Rs. 750 Crores Recoveries of short term loans and advances from states and loans to govt servants - Rs. 1200 Crores Total Non Tax Revenue - Rs. 6500 Crores Net Tax Revenue - Rs. 2500 Crores Draw down cash balance - Rs. 5500 Crores Calculate Capital Receipt ... a. Rs. 8600 Crores b. Rs. 10100 Crores c. Rs. 11600 Crores d. Rs. 12800 Crores Ans – c Solution : Capital Receipt = Non Debt Receipt + Debt Receipt Let us first calculate Non Debt Receipt Non Debt Receipt = Recoveries of loan & advances (deduct recoveries of short term loans & advance from state and loans to govt servants) + MISC Capital receipts = 5000 - 1200 + 1500 = 5300 Crores Now, let us calculate Debt receipt, Debt Receipt = Market Loans + Short Term Borrowings + External assistance(NET) + Securities issued against Small savings + State provident fund + other Receipts(Net) = 1200 + 1800 + 450 + 750 + 600 + 1500 = 6300 Crores Capital Receipt = Non Debt Receipt + Debt Receipt = 5300 + 6300 = 11600 Crores
5. At Rs. 75 demand for sugar is 800 Kg. When the price falls to Rs. 60, the demand increases to 1000 Kg. The price elasticity of demand of sugar is ...... a. 1 b. 1.25 c. 1.5 d. 1.75 Ans - b Solution : Price Elasticity of Demand = % Change in Quantity Demanded _____________________ % Change in Price Where % Change in Quantity Demanded = 200 / 800 * 100 = 25 % Change in Price = 15/75*100 = 20 Thus, Price Elasticity of Demand = 25/20 = 1.25
6. Micro-economic theory studies how an economy determines ...... (i) The price of goods, (ii) The price of services, (iii) The price of economic resources a. Only (i) and (ii) b. Only (i) and (iii) c. Only (ii) and (iii) d. (i), (ii) and (iii) Ans - d
7. Price Index used in India to calculate inflation for policy formulation is a. Consumer price index b. GDP deflator c. Wholesale price index d. Retail price index Ans - c.
8. Which of the following pairs of commodities is an example of substitutes ...... a. Coffee and milk b. Diamond and cow c. Pen and ink d. Mustard oil and coconut oil. Ans - d
9. Economic growth refers to ...... a. An increase in per capita income at current prices b. A sustained increase in per capita output c. An increase in income and output in real terms and not in money d. An increase in economic welfare Ans - b
10. Fiscal policy is related to ...... a. Exports and Imports b. Public revenue and expenditure c. Issues and circulation of currencies d. Monetary Control measures Ans - b
11. A restrictive monetary-fiscal policy is a good way to deal with ...... a. Demand—shift inflation b. Any short of inflation that occurs when the economy falls below full employment c. Demand—pull inflation d. Cost—push inflation Ans - b
12. National income differs from NNP at market prices by the amount of ...... a. Current transfers from the rest of the world b. Net indirect taxes c. National debt interest d. It does not differ Ans - b
13. For most consumers apples and oranges are substitute goods. Therefore, we would expect a rise in the price of apples to lead to ...... a. A rightward shift in the demand curve of oranges b. A leftward shift in the supply curve of apples c. A downward change in the demand curve of oranges d. A fall in the price of oranges Ans - a
14. The term 'consumer goods' is used by economists to refer to ...... a. Goods produced for consumers in a free market only. b. Goods other than free goods, whose use directly satisfies consumers wants. c. Goods produced by consumers in return for a wage. d. Goods which are used by consumers in order to earn their living Ans - b
15. Many of the basic problems of economics emerge from ...... a. Unlimited resources b. Incompetent govt c. The use of limited resources to satisfy human wants d. Unlimited wants Ans - c
16. The demand for a good is elastic if ...... a. The demand for that good increases when price falls b. A decrease in price results in a decrease in total expenditure c. The quantity demanded increases less than proportionately with the decrease in price level d. None of the above Ans - c
17. Indian Economy can be best described as ...... a. Developed economy b. Undeveloped economy c. Developing economy d. Underdeveloped Ans - c
18. The term" balance of trade" means ...... (i) Difference between exports & imports, (ii) Net Exports including merchandise, (iii) The difference between the cost of the imports and exports of a country a. Only (i) and (ii) b. Only (i) and (iii) c. Only (ii) and (iii) d. (i), (ii) and (iii) Ans - b
19. The liquidity preference arises due to ...... (i) Transaction Motive, (ii) Precautionary Motive, (iii) Speculative Motive a. Only (i) and (ii) b. Only (i) and (iii) c. Only (ii) and (iii) d. (i), (ii) and (iii) Ans - d
20. Devaluation means ...... a. Fall in Marginal utility of Money b. Fall in printing of currency c. Risk in black money d. Fall in the value of money in terms of foreign currency Ans - d