Question 1

Q1. Which of the following is included in the calculation of National Income in India?

Accepted Answer

Option B: Salary of a government school teacher. Salary paid to a government teacher is payment for productive services and is included in national income. Transfer payments and second-hand sales are excluded.

Question 2

Q2. In macroeconomics, the value of MPC (Marginal Propensity to Consume) always lies between:

Accepted Answer

Option A: 0 and 1. MPC shows the proportion of additional income spent on consumption. Since people spend only a part of extra income, MPC lies between 0 and 1.

Question 3

Q3. Which of the following is a feature of monopolistic competition?

Accepted Answer

Option C: Product differentiation. Under monopolistic competition, firms sell differentiated products and compete through branding, quality, and advertisements.

Question 4

Q4. When Average Revenue and Marginal Revenue are equal at all output levels, the market structure is:

Accepted Answer

Option C: Perfect competition. Under perfect competition, firms are price takers. Therefore, AR = MR = Price at all output levels.

Question 5

Q5. Which of the following correctly explains "devaluation of currency"?

Accepted Answer

Option B: Fall in external value of currency by government action. Devaluation means official reduction in the value of domestic currency relative to foreign currencies by the government or central bank.

Question 6

Q6. The government increases spending on rural roads and irrigation projects. Which economic objective is primarily targeted?

Accepted Answer

Option B: Employment generation and growth. Infrastructure spending creates jobs and improves productive capacity, leading to economic growth and employment generation.

Question 7

Q7. A farmer spends Rs. 50,000 on seeds and fertilizers and sells wheat worth Rs. 80,000. The value added by the farmer is:

Accepted Answer

Option A: Rs. 30,000. Value Added = Value of Output - Intermediate Consumption = 80,000 - 50,000 = Rs. 30,000.

Question 8

Q8. If CRR is increased by the RBI, what is the likely impact on credit creation?

Accepted Answer

Option B: Credit creation decreases. Higher CRR requires banks to keep more reserves with RBI, reducing their lending capacity and credit creation.

Question 9

Q9. A consumer buys more of a good despite rise in its price because it is considered a status symbol. This violates:

Accepted Answer

Option A: Law of demand. Such goods are called Veblen goods. Higher prices may increase their desirability, creating an exception to the law of demand.

Question 10

Q10. A company increases wages of workers. As a result, workers increase spending on goods and services. This situation directly reflects:

Accepted Answer

Option A: Investment multiplier effect. Higher income raises consumption expenditure, which further increases national income through the multiplier process.

Question 11

Q11. Assertion (A): In a planned economy, the government plays an important role in resource allocation. Reason (R): Market forces alone may fail to achieve social welfare objectives.

Accepted Answer

Option A: Both A and R are true, and R is the correct explanation of A. Governments intervene in resource allocation because markets may ignore welfare, equity, and public goods.

Question 12

Q12. Assertion (A): Average fixed cost continuously falls as output increases. Reason (R): Fixed cost remains constant irrespective of output level.

Accepted Answer

Option A: Both A and R are true, and R is the correct explanation of A. Since total fixed cost remains unchanged, dividing it over larger output reduces average fixed cost continuously.

Question 13

Q13. Read the following case carefully: India experienced rising prices of essential commodities due to increase in fuel prices and transportation costs. The RBI decided to increase the repo rate. Which of the following is the most likely effect of this step?

Accepted Answer

Option B: Reduction in inflationary pressure. An increase in repo rate makes loans expensive, reducing borrowing and aggregate demand, thereby helping control inflation.

Question 14

Q14. Read the passage carefully: A country imports crude oil worth more than its exports earnings. Foreign investors also withdraw funds from its stock market. Which of the following situations is most likely to occur?

Accepted Answer

Option C: Depreciation of domestic currency. Higher imports and capital outflow increase demand for foreign currency, causing depreciation of domestic currency.

Question 15

Q15. If planned savings are greater than planned investment in an economy, then:

Accepted Answer

Option C: Output and income tend to decrease. Higher savings than investment reduce aggregate demand, leading to falling output, income, and employment.

Question 16

Q16. Which of the following situations will NOT shift the demand curve for tea?

Accepted Answer

Option D: Fall in price of tea itself. A change in the price of tea causes movement along the demand curve, not a shift. Other factors shift the demand curve.

Question 17

Q17. A firm continues producing even when it incurs losses because it can cover variable costs. In the short run, the firm should:

Accepted Answer

Option B: Continue production. A firm continues production in the short run if price covers average variable cost, helping recover part of fixed costs.

Question 18

Q18. Suppose MPC = 0.8. The value of investment multiplier will be:

Accepted Answer

Option C: 5. k = 1 / (1 - MPC) Substituting MPC = 0.8, k = 1 / (1 - 0.8) = 1 / 0.2 = 5.

Question 19

Q19. In which of the following cases is GDP likely to rise without increase in welfare?

Accepted Answer

Option B: Increase in pollution-cleaning expenditure after industrial disaster. Expenditure on disaster recovery raises GDP but may not improve welfare because it compensates for damage already caused.

Question 20

Q20. The central problem of an economy mainly arises because:

Accepted Answer

Option C: Resources are scarce and have alternative uses. Scarcity of resources relative to unlimited wants forces economies to make choices regarding allocation.

Mock Test 02 Performance Solutions

Detailed Question Analysis

Q1. Which of the following is included in the calculation of National Income in India?

Q2. In macroeconomics, the value of \(\mathrm{MPC}\) (Marginal Propensity to Consume) always lies between:

Q3. Which of the following is a feature of monopolistic competition?

Q4. When Average Revenue and Marginal Revenue are equal at all output levels, the market structure is:

Q5. Which of the following correctly explains "devaluation of currency"?

Q6. The government increases spending on rural roads and irrigation projects. Which economic objective is primarily targeted?

Q7. A farmer spends \(\mathrm{Rs.\ 50,000}\) on seeds and fertilizers and sells wheat worth \(\mathrm{Rs.\ 80,000}\). The value added by the farmer is:

Q8. If \(\mathrm{CRR}\) is increased by the RBI, what is the likely impact on credit creation?

Q9. A consumer buys more of a good despite rise in its price because it is considered a status symbol. This violates:

Q10. A company increases wages of workers. As a result, workers increase spending on goods and services. This situation directly reflects:

Q11. Assertion (A): In a planned economy, the government plays an important role in resource allocation. Reason (R): Market forces alone may fail to achieve social welfare objectives.

Q12. Assertion (A): Average fixed cost continuously falls as output increases. Reason (R): Fixed cost remains constant irrespective of output level.

Q13. Read the following case carefully: India experienced rising prices of essential commodities due to increase in fuel prices and transportation costs. The RBI decided to increase the repo rate. Which of the following is the most likely effect of this step?

Q14. Read the passage carefully: A country imports crude oil worth more than its exports earnings. Foreign investors also withdraw funds from its stock market. Which of the following situations is most likely to occur?

Q15. If planned savings are greater than planned investment in an economy, then:

Q16. Which of the following situations will NOT shift the demand curve for tea?

Q17. A firm continues producing even when it incurs losses because it can cover variable costs. In the short run, the firm should:

Q18. Suppose \(\mathrm{MPC}\) = 0.8. The value of investment multiplier will be:

Q19. In which of the following cases is \(\mathrm{GDP}\) likely to rise without increase in welfare?

Q20. The central problem of an economy mainly arises because:

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Mock Test 02 Performance Solutions

Detailed Question Analysis

Q1. Which of the following is included in the calculation of National Income in India?

Q2. In macroeconomics, the value of \(\mathrm{MPC}\) (Marginal Propensity to Consume) always lies between:

Q3. Which of the following is a feature of monopolistic competition?

Q4. When Average Revenue and Marginal Revenue are equal at all output levels, the market structure is:

Q5. Which of the following correctly explains "devaluation of currency"?

Q6. The government increases spending on rural roads and irrigation projects. Which economic objective is primarily targeted?

Q7. A farmer spends \(\mathrm{Rs.\ 50,000}\) on seeds and fertilizers and sells wheat worth \(\mathrm{Rs.\ 80,000}\). The value added by the farmer is:

Q8. If \(\mathrm{CRR}\) is increased by the RBI, what is the likely impact on credit creation?

Q9. A consumer buys more of a good despite rise in its price because it is considered a status symbol. This violates:

Q10. A company increases wages of workers. As a result, workers increase spending on goods and services. This situation directly reflects:

Q11. Assertion (A): In a planned economy, the government plays an important role in resource allocation. Reason (R): Market forces alone may fail to achieve social welfare objectives.

Q12. Assertion (A): Average fixed cost continuously falls as output increases. Reason (R): Fixed cost remains constant irrespective of output level.

Q13. Read the following case carefully: India experienced rising prices of essential commodities due to increase in fuel prices and transportation costs. The RBI decided to increase the repo rate. Which of the following is the most likely effect of this step?

Q14. Read the passage carefully: A country imports crude oil worth more than its exports earnings. Foreign investors also withdraw funds from its stock market. Which of the following situations is most likely to occur?

Q15. If planned savings are greater than planned investment in an economy, then:

Q16. Which of the following situations will NOT shift the demand curve for tea?

Q17. A firm continues producing even when it incurs losses because it can cover variable costs. In the short run, the firm should:

Q18. Suppose \(\mathrm{MPC}\) = 0.8. The value of investment multiplier will be:

Q19. In which of the following cases is \(\mathrm{GDP}\) likely to rise without increase in welfare?

Q20. The central problem of an economy mainly arises because:

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