!! JAC HACK !!

Objective Type Questions

(Economics) 1
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Subjective Type Questions

(Economics) 1
 1. Define Macroeconomics ?

Ans :- Macroeconomics is the branch of economics that studies

the behavior and performance of an economy as a whole,
focusing on aggregate variables such as GDP, inflation,
and unemployment

2
 2. What is an intermediate good?

Ans :- An intermediate good is a product that is used as an input in

the production of another good or service.

3
 3. What is average product?

Ans :- Average product refers to the total output produced per unit
of a variable input, such as labor or capital.

4
 4. What do you mean by market ?

Ans :- A market is a platform where buyers and sellers interact to

exchange goods and services.

5
 5. Define money.

Ans :- Money is a medium of exchange, a unit of account, and a store

of value that facilitates economic transactions.

6
 6. What do you understand by Revenue Receipt?

Ans :- Revenue Receipt refers to the income earned by the

government from various sources, such as taxes, fees, and
dividends.

7
 7. What is meant by import-substitution ?

Ans :- Import-substitution refers to a trade policy where a country

promotes the production of domestic goods and services to
replace imported goods.

8
 8. What do you understand by law of demand?

Ans :- The law of demand states that, ceteris paribus, the quantity
demanded of a good or service increases as its price
decreases.

9
 9. Differentiate between short run production function and
long run production function.

Ans :- Average product refers to the total output produced per unit
of a variable input, such as labor or capital.

10
 10. Mention three features of perfect competition market?

Ans :- Three features of perfect competition market are:-

* Many buyers and sellers
* Free entry and exit
* Homogeneous products

11
 11. Differentiate between Gross Domestic Product (GDP)
and Gross National Product (GNP)?
Ans :- GDP (Gross Domestic Product) measures the total value of
goods and services produced within a country's borders,
while GNP (Gross National Product) measures the total
value of goods and services produced by a country's
citizens, regardless of where they are located.

12
 12. Money is the medium of exchange. Explain it.

Ans :- Money acts as a medium of exchange by facilitating

transactions between buyers and sellers.

13
 13. What do you understand by effective demand?

Ans :- Effective demand refers to the demand for a good or service

that is backed by the willingness and ability to pay for it.

14
 14. Write down the objective of government budget.

Ans :- The objective of government budget is to allocate resources

efficiently, redistribute income, and stabilize the economy.

15
 15. Explain the concept of inflationary gap

Ans :- Inflationary gap:- Occurs when aggregate demand exceeds

the available supply of goods and services, leading to
inflation.

16
 16. Explain the three stages of law of variable proportion.

Ans :- The three stages of the law of variable proportions are:-

• Diminishing returns to scale
• Increasing returns to scale
• Negative returns to scale

17
 17. How is price determined under monopoly market?

Ans :- Under monopoly market, the price is determined by the

intersection of the marginal revenue and marginal cost
curves.

18
 18. Explain the Product method and Income method of
calculation of National Income.?
Ans :- The Product method calculates national income by
summing up the value of all goods and services produced,
while the Income method calculates national income by
summing up all incomes earned by factors of production.

19
19. Explain the Balanced budget, Surplus budget and Deficit budget ?

Ans :- • Balanced budget: government revenue equals

government expenditure.

• Surplus budget: government revenue exceeds

government expenditure.

• Deficit budget: government expenditure exceeds

government revenue

20
20. What is meant by the economic problem 'what is to produce?'
Ans :- The economic problem "what to produce" refers to the
decision of what goods and services to produce with limited
resources.

21
21. When does the situation of excess demand arise in the market ?
Ans :- Excess demand arises when the quantity demanded of a
good or service exceeds the quantity supplied at a given
price.

22
 22. How the bank make profit?

Ans :- Banks generally make money by borrowing money from

depositors and compensating them with a certain interest
rate.

23
 23. Define Marginal revenue.

Ans :- Marginal revenue is the additional revenue earned by

selling one more unit of a good or service.

24
 24. What is meant by recession ?

Ans :- Recession refers to a period of economic decline, typically

defined as a decline in GDP for two or more consecutive
quarters.

25
 25.What do you mean by Revenue receipts of government ?

Ans :- Revenue receipts of government refer to the income earned

by the government from various sources, such as taxes, fees,
and dividends.

26
 26. What is the meaning of devaluation of money ?

Ans :- Devaluation of money refers to a decrease in the value of a

country's currency relative to other currencies.

27
27. What is central bank? Mentions its main function with
reference of india.
Ans :- A central bank is a public institution that manages a country's
currency and credit. In India, the Reserve Bank of India (RBI) is
the central bank.
Functions of a central bank
•Currency management:
•Credit control: Regulates the money supply and credit in the
economy
•Lender of last resort: Provides loans to banks and financial
institutions in times of need
28
28. Why is short run average cost curve 'U'shaped ?
Ans :- The short-run average cost curve is U-shaped due to the
presence of fixed costs and diminishing returns to scale.

29
29. What will be the effect of increase in income of a
consumer on market equilibrium? Explain with diagram.
Ans :- An increase in income of a consumer can lead to an increase
in demand, causing the market equilibrium to shift to the
right.

30
 30. What is GDP? Write down the three identities of
calculation of GDP by three methods.
Ans :- GDP (Gross Domestic Product) measures the total value of
goods and services produced within a country's borders.
The three identities of calculation of GDP are:-
GDP = C + I + G + (X - M)
GDP = W + R + I + P
GDP = C + S + T

31
31. Define the following:
a) Repo rate b) Statutory liquidity ratio
Ans :- (a)Repo rate: the interest rate at which the central bank
lends money to commercial banks

(b) Statutory liquidity ratio: the minimum percentage of

deposits that commercial banks must hold in liquid assets

32
32. Define marginal propensity to consume (MPC) and
marginal propensity to save (MPS). Explain that MPC +
MPS = 1.
Ans :- Marginal propensity to consume (MPC) is the additional
consumption resulting from a one-unit increase in income.
Marginal propensity to save (MPS) is the additional saving
resulting from a one-unit increase in income.
MPC + MPS = 1, as the additional income is either consumed
or saved.

33
33. If the consumption function of an economy is C 150 +0.6 Y,
then calculate MPC and Multiplier.
Ans :- Given the consumption function C = 150 + 0.6Y,
MPC = 0.6 and
Multiplier = 1/(1 - MPC) = 1/(1 - 0.6) = 2.5

34
34. What do you understand by price elasticity of demand?
Show the following situations in diagrams:
(a)Perfectly elastic demand curve
(b) Perfectly inelastic demand curve
(c) Unitary elastic demand curve.
Price elasticity of demand measures the responsiveness of the quantity
Ans :-demanded to a change in price.
(a)Perfectly elastic demand curve: In this case, the demand curve is
horizontal, and a small change in price leads to an infinite change in
quantity demanded.

(b) Perfectly inelastic demand curve:In this case, the demand curve is
vertical, and a change in price does not affect the quantity demanded.

(c) Unitary elastic demand curve:In this case, the demand curve is
downward-sloping, and a 1% change in price leads to a 1% change in
quantity demanded. 35
35. What is cost? Explain that in short run, average cost is the
sum of average fixed cost and average variable cost.
Ans :- Cost refers to the expenses incurred by a firm in producing
goods and services. In the short run, average cost (AC) is the
sum of average fixed cost (AFC) and average variable cost
(AVC). AC = AFC + AVC

36
36.Write down the characteristics of perfectly competitive
market ?
Ans :- Characteristics of perfectly competitive market:-
• Many buyers and sellers
• Free entry and exit
• Homogeneous products
• Perfect information-
• No externalities

37
37.When will a perfectly competitive firm be in equilibrium ?
Show in diagram.
Ans :-

A perfectly competitive firm will be in equilibrium. when:-

* Marginal revenue (MR) = Marginal cost (MC)
* Average revenue (AR) = Average cost (AC)

Diagram: MR = MC = P = AC

38
38. How will you calculate national income from GDP? Explain.

Ans :- To calculate national income from GDP:-

GDP = C + I + G + (X - M)
National Income (NI) = GDP – Depreciation
NI = C + I + G + (X - M) - Depreciation

39
39. How does the central bank control credit in an economy ? Explain
Ans :- The central bank controls credit in an economy through:-
Monetary policy tools:
(a)Open market operations (b) Reserve requirements
(c)Discount rate (d)Repo rate
(e)Statutory liquidity ratio- (f)Credit rationing-
(f)Moral suasion

By using these tools, the central bank can influence the money
supply, interest rates, and credit availability in the economy

40
40.What do you understand by Giffen goods? Show the
demand curve for this commodity diagrammatically.
Ans :- Giffen goods are inferior goods that have a
positive relationship between price and quantity
demanded. The demand curve for Giffen goods is
upward-sloping

41
41. What do you understand by production function? Explain
with example.
Ans :- Production function is a mathematical relationship
between inputs and outputs.

Example: Q = f(L, K),

where Q is output, L is labor, and K is capital.

42
 42.If there is an increase of 8% in the price of an article, the
supply of that commodity increases by 10%, then calculate
the supply clasticity of the commodity. Write a comment on
your answer.
Ans :- (% 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒒𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝒔𝒖𝒑𝒑𝒍𝒊𝒆𝒅) 𝟏𝟎%
Supply elasticity = = = 1.25
(% 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒑𝒓𝒊𝒄𝒆) 𝟖%

Comment: The supply curve is elastic.

43
43. Write down any three questions which arc related to
macroeconomics
Ans :-
Four questions related to macroeconomics:-

• How does fiscal policy affect aggregate demand? What is the

relationship between inflation and unemployment?

• *What is the impact of monetary policy on economic growth?

• How does international trade affect a country's GDP?

44
44. "Money acts as a unit of accounting." What do you mean
by this statement?
Ans :- Money acts as a unit of accounting by providing a
standard unit of measurement for economic transactions.

45
 45. Define the financial market.
Ans :- Financial market is a platform where buyers and sellers
interact to exchange financial assets, such as stocks,
bonds, and currencies.

46
 46. Define the floating exchange rate.
Ans :-
Floating exchange rate is a system where the exchange rate is
determined by market forces, without government
intervention.

47
 47. Why is demand line negatively sloped ?
Ans :-
Demand line is negatively sloped because as price increases,
quantity demanded decreases.

48
48. What do you understand by average cost? How is it
related to marginal cost? Explain with the diagram.
Ans :-
Average cost (AC) is the total cost per unit of output. Marginal
cost (MC) is the additional cost of producing one more unit of
output. AC and MC are related, as MC intersects AC at its
minimum point.

49
49. Explain the effects of the following conditions on the market
equilibrium with a diagram:
a) Decrease in demand b) Increase in supply
c) Decrease in demand and supply at the same rate.
Ans :-
Effects of changes in demand and supply on market equilibrium:

(a)Decrease in demand : price and quantity decrease

(b) Increase in supply : price decreases and quantity increases

(c) Decrease in demand and supply at the same rate:

price remains unchanged and quantity decreases
50
50. What do you understand by national income? How is
national income calculated from GDP?
Ans :- National income is the total value of goods and services
produced within a country's borders. National income is
calculated from GDP by subtracting depreciation.

51
 51.Explain the measure of money supply in India ?
Ans :-
Measures of money supply in India:-
51.Explain the measure of money supply in India ?
(a)M1: currency with the public + demand deposits with banks

(b) M2: M1 + savings deposits with banks

(c) M3: M2 + time deposits with banks

52
52. Explain any three objectives of the government budget.

Ans :- Objectives of government budget:-

• Allocation of resources

• Redistribution of income

• Stabilization of the economy

53
53. If the consumption function in an economy is C = 25 + 0.6
Y, then calculate the value of the multiplier.
Ans :-

𝟏 𝟏
Multiplier = = 𝟏 = 2.5
𝟏−𝑴𝑷𝑪 𝟏−𝟎.𝟔

54
54. Explain the paradox of thrift.
Ans :- Paradox of thrift: an increase in savings can lead to a
decrease in aggregate demand, resulting in a decrease in
economic activity.

55
55. Explain the factors affecting the price elasticity of
demand.
Ans :- Factors affecting price elasticity of demand:-
• Income
• Substitutes
• Time
• Necessity

56
56. The production function of a firm is Q =Lα Kβ. Explain
that the returns to scale in this production function is
measured by α + β
Ans :-

IT’s your homework

57
57. Explain the factors affecting the supply curve of the firm
in a fully competitive market.
Ans :- Factors affecting supply curve:-
• Production costs
• Technology
• Expectations
• Number of firms

58
58. Describe the product method of calculating GDPFC
(GDPFC) at instrumental cost.
Ans :- Product method of calculating GDP:-

GDP = Σ (quantity of each good x price of each good)

59
59. Explain the difference between the following:
a) Consumption cx-ante and Consumption ex-post
b) Investment ex-ante and Investment ex-post.
Ans :- Differences are :-
Consumption ex-ante Consumption ex-post
(a)
planned Consumption Actual Consumption

Investment ex-ante Investment ex-post

(B) planned investment Actual investment

60
60. What do you understand by National Income ? Describe
the expenditure method of calculating National Income.
Ans :- National income is the total value of goods and services
produced within a country's borders. Expenditure
method of calculating national income:-

National Income = C + I + G + (X - M)

61
 61. What is utility.
Ans :- Utility is the satisfaction or pleasure derived from
consuming a good or service.

62
 62. Explain economic activity.
Ans :- Economic activity refers to the production, distribution, and
exchange of goods and services.

63
 63. What is opportunity cost.
Ans :- Opportunity cost is the value of the next best alternative
that is given up when a choice is made.

64
 64. What are the expectations of the law of demand.
Ans :- Expectations of the law of demand:-
• As price increases, quantity demanded decreases
• As price decreases, quantity demanded increases

65
65.What is meant by production function .
Ans :- Production function is a mathematical relationship
between inputs and outputs.

66
 66. Explain the relationship between average cost and
marginal cost.
Ans :-
Relationship between average cost and marginal cost:-
• Marginal cost intersects average cost at its minimum point.

67
 67.Distinguish between 'Expansion of supply' and 'increase in
supply'.
Ans :-
Difference between:-

• Expansion of supply: increase in quantity supplied at

a given price
• Increase in supply: shift of the supply curve to the right

68
68.What is perfect competition? Explain the characteristics of
perfect competition.
Ans :- Perfect competition is a market structure where many
firms produce a homogeneous product, and no single
firm has market power.

69
69.Explain the producer's equilibrium with marginal revenue
and marginal cost method.
Ans :- Producer's equilibrium with marginal revenue and
marginal cost method:-
MR = MC

70
70.What is 'Price elasticity of Demand' ? Briefly explain any
two method of measuring it.
Ans :- Price elasticity of demand measures the responsiveness
of quantity demanded to a change in price.

Two methods of measuring it:-

• Percentage change method
• Point elasticity method

71
 71. What is the meaning of money supply?
Ans :- Money supply refers to the total amount of money
available in an economy.

72
 72.What is the difference between final goods and
intermediate goods?
Ans :- Difference between final goods and intermediate goods is:-

• Final goods: goods that are consumed by households

• Intermediate goods: goods that are used as inputs in the

production of other goods

73
 73. What is bank rate?
Ans :- Bank rate is the interest rate at which the central bank
lends money to commercial banks.

74
 74. Define marginal propensity to save?
Ans :- Marginal propensity to save is the additional saving
resulting from a one-unit increase in income.

75
 75.Write the feature of macro economics?

Ans :-

76
76. Distinguish between Gross Domestic Product and Gross
National Product ?
Ans :- Difference between Gross Domestic Product (GDP) and
Gross National Product (GNP):-
• GDP measures the total value of goods and services
produced within a country's borders.
• GNP measures the total value of goods and services
produced by a country's citizens, regardless of where
they are located

77
77. Distinguish between volunteer and involunter
unemployment?
Ans :-
Difference between voluntary and involuntary unemployment:-

Voluntary unemployment: workers choose not to work at the

prevailing wage rate

Involuntary unemployment: workers are unable to find work at

the prevailing wage rate

78
78. Distinguish between capital expenditure and revenue
expenditure?
Ans :- Difference between capital expenditure and revenue
expenditure:-
• Capital expenditure: expenditure on assets that last
for more than one year

• Revenue expenditure: expenditure on goods and

services that are consumed within one year

79
79. Explain the concept of inflationary gap
Ans :- Concept of inflationary gap:-
Inflationary gap occurs when aggregate demand
exceeds the available supply of goods and services,
leading to inflation

80
80.What is a progressive tax? Explain its merits and demerits.

Ans :- Progressive tax:- A tax system where the tax rate

increases as the taxpayer's income increases

• Merits: reduces income inequality, increases government revenue

• Demerits: discourages entrepreneurship, leads to tax evasion

81
81. What is meant by disequilibrium in the balance of
payment? Explain its course .
Ans :- Disequilibrium in the balance of payments:-
Occurs when the value of imports exceeds the value of
exports

Course:
• depreciation of the currency,
• reduction in imports
• increase in exports

82
82. Distinguish between contraction of demand and decrease
in demand.
Ans :- Difference between contraction of demand and decrease
in demand:-
• Contraction of demand: decrease in demand due to a
decrease in price
• Decrease in demand: shift of the demand curve to the left

83
83.Mention the basic features of market.
Ans :- Features of a market:-
• Many buyers and sellers
• Free entry and exit
• Homogeneous products
• Perfect information

84
84.Write down the features of monopolistic compelition.

Ans :- Features of monopolistic competition:-

• Many firms producing differentiated products
• Free entry and exit
• Non-price competition

85
85. Discuss the assumptions of law of demand.
Ans :- Assumptions of the law of demand:-
• Ceteris paribus
• Rational behavior
• Diminishing marginal utility

86
86. Differentiate between substitute goods and complementary
goods.
Ans :- Difference between substitute goods and
complementary goods:-
86.Differentiate between substitute goods and complementary
• Substitute goods: goods that can be used in place of
goods.

each other
• Complementary goods: goods that are consumed to

87
87. How is the price determined under perfect competition?

Ans :- Price determination under perfect competition:- Price is

determined by the intersection of the demand and
supply curves

88
88.What is the effect of shift of demand and the shift of supply
in price?
Ans :- Effect of shift of demand and supply on price:-
• Increase in demand: price increases
• Decrease in demand: price decreases
• Increase in supply: price decreases
• Decrease in supply: price increases

89
89. What is the difference between short run and long run
production function?
Ans :- Difference between short-run and long-run production
function:-
• Short-run production function: one or more inputs are
fixed
• Long-run production function: all inputs are variable

90
90. Explain the laws of diminishing marginal utility.
Ans :- Law of diminishing marginal utility:-
• As the consumption of a good increases, the
marginal utility derived from each additional unit
decreases.

91
91.What do you mean by equilibrium price? How is it
determined in perfect competition? Explain with diagram.
Ans :- Equilibrium price:- The price at which the quantity
demanded equals the quantity supplied

92
92.How is he price determined under monopoly market?
Ans :- Price determination under monopoly:- The monopolist
sets the price and quantity of production to maximize
profits.

93
 93.What is mean by national income?
Ans :- National income:- The total value of goods and services
produced within a country's borders.

94
 94.Define macro economics.
Ans :- Macroeconomics:- The study of aggregate economic
phenomena, such as inflation, unemployment, and
economic growth.

95
 95.What is factor income?
Ans :- Factor income:- Income earned by factors of production,
such as labor and capital.

96
 96.What is balance of payment?
Ans :- Balance of payments:- A statement of a country's
transactions with the rest of the world.

97
 97.What is aggregate demand?
Ans :- Aggregate demand:- The total demand for goods and
services in an economy.

98
98.What are difference between micro economics and macro
economics?
Ans :- Difference between microeconomics and macroeconomics:-

• Microeconomics: study of individual economic units,

such as households and firms
• Macroeconomics: study of aggregate economic
phenomena

99
99. What are the difference between balance of trade and
balance of payment?
Ans :- Difference between balance of trade and balance of
payments:-
• Balance of trade: the difference between the value of
exports and imports
• Balance of payments: a statement of a country's
transactions with the rest of the world

100
100.What is government budget? What is the main features of
the government budget?
Ans :- A government budget is a financial plan for a
government's income and spending over a specific
period.

Feature :- It's a tool that helps the government achieve

its economic goals.

101