Question 1

Q1. Which of the following is considered a leakage in the circular flow of income?

Accepted Answer

Option D: Savings. Savings reduce current consumption expenditure from the income flow and are therefore treated as leakages.

Question 2

Q2. In the long run, all costs are:

Accepted Answer

Option B: Variable. In the long run, firms can change all factors of production. Therefore, all costs become variable.

Question 3

Q3. Which of the following correctly defines inflation?

Accepted Answer

Option B: Continuous rise in general price level. Inflation refers to a sustained increase in the overall price level of goods and services in an economy.

Question 4

Q4. Which of the following is a capital receipt in the government budget?

Accepted Answer

Option C: Recovery of loans. Recovery of loans reduces government assets and is classified as a capital receipt.

Question 5

Q5. If Average Product is rising, then Marginal Product will be:

Accepted Answer

Option C: Greater than Average Product. Average Product rises when Marginal Product exceeds Average Product.

Question 6

Q6. A rise in the price of mobile phones leads consumers to buy fewer phone covers. Mobile phones and phone covers are:

Accepted Answer

Option C: Complementary goods. Complementary goods are used together. Lower demand for phones reduces demand for covers.

Question 7

Q7. A bank creates additional credit of Rs. 90,000 when the initial deposit is Rs. 1,00,000 and reserve ratio is 10%. The total deposits created in the banking system will be:

Accepted Answer

Option C: Rs. 10,00,000. Credit Multiplier = 1 / Reserve Ratio Multiplier = 1 / 0.1 = 10 Total deposits = 1,00,000 x 10 = Rs. 10,00,000.

Question 8

Q8. Which of the following will shift the supply curve of a commodity to the right?

Accepted Answer

Option C: Improvement in technology. Improved technology reduces production cost and increases supply, shifting the supply curve rightward.

Question 9

Q9. A consumer spends entire additional income on consumption. In this case, MPC will be:

Accepted Answer

Option C: 1. If all additional income is consumed, marginal propensity to consume equals 1.

Question 10

Q10. Which of the following is an example of autonomous consumption?

Accepted Answer

Option B: Consumption even at zero income. Autonomous consumption occurs even when income is zero, often financed through savings or borrowing.

Question 11

Q11. Assertion (A): Under monopolistic competition, firms sell differentiated products. Reason (R): Firms under monopolistic competition face a downward-sloping demand curve.

Accepted Answer

Option A: Both A and R are true, and R is the correct explanation of A. Product differentiation gives firms some market power, causing demand curves to slope downward.

Question 12

Q12. Assertion (A): An increase in CRR reduces money supply in the economy. Reason (R): Commercial banks can lend a smaller proportion of deposits.

Accepted Answer

Option A: Both A and R are true, and R is the correct explanation of A. Higher CRR forces banks to keep more reserves with RBI, reducing lending and money creation.

Question 13

Q13. Read the following case carefully: The government launches a large rural employment programme during an economic slowdown. Workers employed under the programme spend their incomes on goods and services. Which concept best explains the rise in national income?

Accepted Answer

Option B: Multiplier effect. Government spending raises income and consumption, creating successive rounds of income generation through the multiplier effect.

Question 14

Q14. Read the passage carefully: India's exports of software services increased significantly due to global demand. As a result, foreign exchange earnings rose sharply. Which component of Balance of Payments is directly affected?

Accepted Answer

Option B: Current account only. Exports of services are recorded in the current account of Balance of Payments.

Question 15

Q15. A producer notices that after employing the sixth worker, total output rises from 240 units to 250 units. Marginal Product of the sixth worker is:

Accepted Answer

Option C: 10 units. Marginal Product = Change in Total Product = 250 - 240 = 10 units.

Question 16

Q16. Which of the following situations reflects deficient demand?

Accepted Answer

Option C: Aggregate demand is less than aggregate supply. Deficient demand occurs when aggregate demand is insufficient to purchase the economy's output at full employment.

Question 17

Q17. A country experiences continuous rise in imports of luxury goods. Which is the most likely effect?

Accepted Answer

Option C: Deterioration in current account balance. Higher imports increase outflow of foreign exchange and may worsen the current account balance.

Question 18

Q18. In a perfectly competitive market, if market price is Rs. 15 and minimum AVC is Rs. 18, the firm should:

Accepted Answer

Option C: Shut down production in the short run. When price falls below minimum AVC, the firm cannot recover variable costs and should shut down.

Question 19

Q19. If investment increases by Rs. 400 crore and MPC = 0.75, the increase in equilibrium income will be:

Accepted Answer

Option D: Rs. 1,600 crore. k = 1 / (1 - MPC) Multiplier = 1 / (1 - 0.75) = 4 Increase in income = 4 x 400 = Rs. 1,600 crore.

Question 20

Q20. Which of the following best explains the central problem "for whom to produce"?

Accepted Answer

Option C: Distribution of goods and services among people. The problem "for whom to produce" concerns distribution of national output among different sections of society.

Mock Test 05 Performance Solutions

Detailed Question Analysis

Q1. Which of the following is considered a leakage in the circular flow of income?

Q2. In the long run, all costs are:

Q3. Which of the following correctly defines inflation?

Q4. Which of the following is a capital receipt in the government budget?

Q5. If Average Product is rising, then Marginal Product will be:

Q6. A rise in the price of mobile phones leads consumers to buy fewer phone covers. Mobile phones and phone covers are:

Q7. A bank creates additional credit of \(\mathrm{Rs.\ 90,000}\) when the initial deposit is \(\mathrm{Rs.\ 1,00,000}\) and reserve ratio is 10\(\%\). The total deposits created in the banking system will be:

Q8. Which of the following will shift the supply curve of a commodity to the right?

Q9. A consumer spends entire additional income on consumption. In this case, \(\mathrm{MPC}\) will be:

Q10. Which of the following is an example of autonomous consumption?

Q11. Assertion (A): Under monopolistic competition, firms sell differentiated products. Reason (R): Firms under monopolistic competition face a downward-sloping demand curve.

Q12. Assertion (A): An increase in \(\mathrm{CRR}\) reduces money supply in the economy. Reason (R): Commercial banks can lend a smaller proportion of deposits.

Q13. Read the following case carefully: The government launches a large rural employment programme during an economic slowdown. Workers employed under the programme spend their incomes on goods and services. Which concept best explains the rise in national income?

Q14. Read the passage carefully: India's exports of software services increased significantly due to global demand. As a result, foreign exchange earnings rose sharply. Which component of Balance of Payments is directly affected?

Q15. A producer notices that after employing the sixth worker, total output rises from 240 units to 250 units. Marginal Product of the sixth worker is:

Q16. Which of the following situations reflects deficient demand?

Q17. A country experiences continuous rise in imports of luxury goods. Which is the most likely effect?

Q18. In a perfectly competitive market, if market price is \(\mathrm{Rs.\ 15}\) and minimum AVC is \(\mathrm{Rs.\ 18,}\) the firm should:

Q19. If investment increases by \(\mathrm{Rs.\ 400\ crore}\) and \(\mathrm{MPC}\) = 0.75, the increase in equilibrium income will be:

Q20. Which of the following best explains the central problem "for whom to produce"?

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Mock Test 05 Performance Solutions

Detailed Question Analysis

Q1. Which of the following is considered a leakage in the circular flow of income?

Q2. In the long run, all costs are:

Q3. Which of the following correctly defines inflation?

Q4. Which of the following is a capital receipt in the government budget?

Q5. If Average Product is rising, then Marginal Product will be:

Q6. A rise in the price of mobile phones leads consumers to buy fewer phone covers. Mobile phones and phone covers are:

Q7. A bank creates additional credit of \(\mathrm{Rs.\ 90,000}\) when the initial deposit is \(\mathrm{Rs.\ 1,00,000}\) and reserve ratio is 10\(\%\). The total deposits created in the banking system will be:

Q8. Which of the following will shift the supply curve of a commodity to the right?

Q9. A consumer spends entire additional income on consumption. In this case, \(\mathrm{MPC}\) will be:

Q10. Which of the following is an example of autonomous consumption?

Q11. Assertion (A): Under monopolistic competition, firms sell differentiated products. Reason (R): Firms under monopolistic competition face a downward-sloping demand curve.

Q12. Assertion (A): An increase in \(\mathrm{CRR}\) reduces money supply in the economy. Reason (R): Commercial banks can lend a smaller proportion of deposits.

Q13. Read the following case carefully: The government launches a large rural employment programme during an economic slowdown. Workers employed under the programme spend their incomes on goods and services. Which concept best explains the rise in national income?

Q14. Read the passage carefully: India's exports of software services increased significantly due to global demand. As a result, foreign exchange earnings rose sharply. Which component of Balance of Payments is directly affected?

Q15. A producer notices that after employing the sixth worker, total output rises from 240 units to 250 units. Marginal Product of the sixth worker is:

Q16. Which of the following situations reflects deficient demand?

Q17. A country experiences continuous rise in imports of luxury goods. Which is the most likely effect?

Q18. In a perfectly competitive market, if market price is \(\mathrm{Rs.\ 15}\) and minimum AVC is \(\mathrm{Rs.\ 18,}\) the firm should:

Q19. If investment increases by \(\mathrm{Rs.\ 400\ crore}\) and \(\mathrm{MPC}\) = 0.75, the increase in equilibrium income will be:

Q20. Which of the following best explains the central problem "for whom to produce"?

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