Question 1

Q1. Which of the following is treated as an intermediate good?

Accepted Answer

Option B: Milk bought by a tea shop for making tea. Milk used by a tea shop is used for further production and is therefore an intermediate good. Final goods are directly consumed by users.

Question 2

Q2. The demand curve of a perfectly competitive firm is:

Accepted Answer

Option C: Perfectly elastic. A perfectly competitive firm is a price taker and can sell any quantity at the prevailing market price, making its demand curve perfectly elastic.

Question 3

Q3. Which of the following is NOT a function of commercial banks?

Accepted Answer

Option C: Issuing currency notes. Currency notes are issued by the Reserve Bank of India, not by commercial banks. Commercial banks mainly accept deposits and provide loans.

Question 4

Q4. When marginal product starts declining but remains positive, total product:

Accepted Answer

Option C: Continues rising at a diminishing rate. As long as marginal product is positive, total product increases. However, when MP declines, TP rises at a decreasing rate.

Question 5

Q5. Which of the following is an example of revenue expenditure of the government?

Accepted Answer

Option C: Payment of salaries to government employees. Revenue expenditure includes recurring expenses such as salaries, pensions, and subsidies that do not create assets.

Question 6

Q6. A consumer's income rises from Rs. 40,000 to Rs. 50,000 per month, and his demand for branded shoes increases significantly. The shoes are most likely:

Accepted Answer

Option C: Normal goods. Demand for normal goods increases with rise in income. Branded shoes are generally treated as normal goods.

Question 7

Q7. A firm sells 100 units at Rs. 20 each. When sales increase to 110 units, total revenue rises to Rs. 2,310. Marginal revenue is:

Accepted Answer

Option C: Rs. 31. Initial TR = 100 x 20 = Rs. 2,000 New TR = Rs. 2,310 MR = Change in TR / Change in quantity = 310 / 10 = Rs. 31.

Question 8

Q8. RBI purchases government securities in the open market. What will be the immediate effect?

Accepted Answer

Option B: Credit availability increases. When RBI buys securities, money flows into the banking system, increasing liquidity and lending capacity.

Question 9

Q9. A rise in the price of petrol reduces the demand for cars. Petrol and cars are:

Accepted Answer

Option C: Complementary goods. Complementary goods are used together. A rise in petrol prices reduces demand for cars because using cars becomes costly.

Question 10

Q10. A country's exports are rising faster than imports. This situation will most likely lead to:

Accepted Answer

Option B: Trade surplus. When exports exceed imports, the country experiences a trade surplus in the balance of trade account.

Question 11

Q11. Assertion (A): Under perfect competition, firms earn only normal profits in the long run. Reason (R): Free entry and exit of firms eliminate abnormal profits.

Accepted Answer

Option A: Both A and R are true, and R is the correct explanation of A. Abnormal profits attract new firms, increasing supply and reducing profits. Losses cause firms to exit. Hence only normal profits remain.

Question 12

Q12. Assertion (A): Fiscal deficit indicates total borrowing requirements of the government. Reason (R): Fiscal deficit excludes borrowings and other liabilities.

Accepted Answer

Option C: A is true, but R is false. Fiscal deficit reflects government borrowing needs. The reason is incorrect because fiscal deficit actually represents borrowings.

Question 13

Q13. Read the following case carefully: The government reduced income tax rates to increase disposable income of consumers during an economic slowdown. Which macroeconomic objective is primarily targeted?

Accepted Answer

Option B: Increase in aggregate demand. Lower taxes increase disposable income and consumption expenditure, raising aggregate demand during slowdown.

Question 14

Q14. Read the passage carefully: A textile company replaces workers with advanced machines. Production increases significantly, but employment falls. Which type of unemployment is most likely created?

Accepted Answer

Option C: Structural unemployment. Structural unemployment occurs when workers lose jobs due to technological changes or mismatch of skills.

Question 15

Q15. If MPC = 0.75, the value of multiplier is:

Accepted Answer

Option C: 4. k = 1 / (1 - MPC) Substituting MPC = 0.75, k = 1 / (1 - 0.75) = 4.

Question 16

Q16. Which of the following transactions is included in domestic income but not in national income?

Accepted Answer

Option B: Income earned by a foreign company operating in India. Domestic income includes income generated within domestic territory, even if earned by foreign residents.

Question 17

Q17. A producer increases all inputs in the same proportion and output rises more than proportionately. This reflects:

Accepted Answer

Option C: Increasing returns to scale. When output increases more than the increase in inputs, the production process shows increasing returns to scale.

Question 18

Q18. Suppose the price elasticity of demand for a good is greater than 1. A fall in price will likely:

Accepted Answer

Option B: Increase total revenue. For elastic demand (Ed > 1), percentage increase in quantity demanded exceeds percentage fall in price, raising total revenue.

Question 19

Q19. The government imposes higher taxes during high inflation. This policy aims to:

Accepted Answer

Option B: Reduce purchasing power. Higher taxes reduce disposable income and consumption expenditure, helping control inflationary pressure.

Question 20

Q20. In an economy, autonomous investment increases by Rs. 200 crore and MPC is 0.8. The increase in equilibrium income will be:

Accepted Answer

Option D: Rs. 1,000 crore. Delta Y = k x Delta I Multiplier, k = 1 / (1 - MPC) k = 1 / (1 - 0.8) = 5 Increase in income = 5 x 200 = Rs. 1,000 crore.

Mock Test 03 Performance Solutions

Detailed Question Analysis

Q1. Which of the following is treated as an intermediate good?

Q2. The demand curve of a perfectly competitive firm is:

Q3. Which of the following is NOT a function of commercial banks?

Q4. When marginal product starts declining but remains positive, total product:

Q5. Which of the following is an example of revenue expenditure of the government?

Q6. A consumer's income rises from \(\mathrm{Rs.\ 40,000}\) to \(\mathrm{Rs.\ 50,000}\) per month, and his demand for branded shoes increases significantly. The shoes are most likely:

Q7. A firm sells 100 units at \(\mathrm{Rs.\ 20}\) each. When sales increase to 110 units, total revenue rises to \(\mathrm{Rs.\ 2,310}\). Marginal revenue is:

Q8. RBI purchases government securities in the open market. What will be the immediate effect?

Q9. A rise in the price of petrol reduces the demand for cars. Petrol and cars are:

Q10. A country's exports are rising faster than imports. This situation will most likely lead to:

Q11. Assertion (A): Under perfect competition, firms earn only normal profits in the long run. Reason (R): Free entry and exit of firms eliminate abnormal profits.

Q12. Assertion (A): Fiscal deficit indicates total borrowing requirements of the government. Reason (R): Fiscal deficit excludes borrowings and other liabilities.

Q13. Read the following case carefully: The government reduced income tax rates to increase disposable income of consumers during an economic slowdown. Which macroeconomic objective is primarily targeted?

Q14. Read the passage carefully: A textile company replaces workers with advanced machines. Production increases significantly, but employment falls. Which type of unemployment is most likely created?

Q15. If \(\mathrm{MPC}\) = 0.75, the value of multiplier is:

Q16. Which of the following transactions is included in domestic income but not in national income?

Q17. A producer increases all inputs in the same proportion and output rises more than proportionately. This reflects:

Q18. Suppose the price elasticity of demand for a good is greater than 1. A fall in price will likely:

Q19. The government imposes higher taxes during high inflation. This policy aims to:

Q20. In an economy, autonomous investment increases by \(\mathrm{Rs.\ 200\ crore}\) and \(\mathrm{MPC}\) is 0.8. The increase in equilibrium income will be:

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Mock Test 03 Performance Solutions

Detailed Question Analysis

Q1. Which of the following is treated as an intermediate good?

Q2. The demand curve of a perfectly competitive firm is:

Q3. Which of the following is NOT a function of commercial banks?

Q4. When marginal product starts declining but remains positive, total product:

Q5. Which of the following is an example of revenue expenditure of the government?

Q6. A consumer's income rises from \(\mathrm{Rs.\ 40,000}\) to \(\mathrm{Rs.\ 50,000}\) per month, and his demand for branded shoes increases significantly. The shoes are most likely:

Q7. A firm sells 100 units at \(\mathrm{Rs.\ 20}\) each. When sales increase to 110 units, total revenue rises to \(\mathrm{Rs.\ 2,310}\). Marginal revenue is:

Q8. RBI purchases government securities in the open market. What will be the immediate effect?

Q9. A rise in the price of petrol reduces the demand for cars. Petrol and cars are:

Q10. A country's exports are rising faster than imports. This situation will most likely lead to:

Q11. Assertion (A): Under perfect competition, firms earn only normal profits in the long run. Reason (R): Free entry and exit of firms eliminate abnormal profits.

Q12. Assertion (A): Fiscal deficit indicates total borrowing requirements of the government. Reason (R): Fiscal deficit excludes borrowings and other liabilities.

Q13. Read the following case carefully: The government reduced income tax rates to increase disposable income of consumers during an economic slowdown. Which macroeconomic objective is primarily targeted?

Q14. Read the passage carefully: A textile company replaces workers with advanced machines. Production increases significantly, but employment falls. Which type of unemployment is most likely created?

Q15. If \(\mathrm{MPC}\) = 0.75, the value of multiplier is:

Q16. Which of the following transactions is included in domestic income but not in national income?

Q17. A producer increases all inputs in the same proportion and output rises more than proportionately. This reflects:

Q18. Suppose the price elasticity of demand for a good is greater than 1. A fall in price will likely:

Q19. The government imposes higher taxes during high inflation. This policy aims to:

Q20. In an economy, autonomous investment increases by \(\mathrm{Rs.\ 200\ crore}\) and \(\mathrm{MPC}\) is 0.8. The increase in equilibrium income will be:

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