BUSINESS ECONOMICS

Full Syllabus Test-3

Total Marks: 100

1. What is the origin of the term 'Economics'?

a) Latin word 'Aequus'

b) Greek word 'Oikonomia'

c) Arabic word 'Iqtisad'

d) Sanskrit word 'Arthashastra'

2. How is Business Economics defined, and what is its other commonly used term?

a) The study of business policies using quantitative techniques; Organizational Economics

b) The application of economic analysis for business decisions; Corporate Economics

c) The use of quantitative techniques for consumer behavior; Microeconomic Strategies

d) The study of consumer and firm behavior in markets; Managerial Economics

3. What characterizes positive or pure science in economic theory?

a) It involves value judgments and prescribes courses of action.

b) It analyzes cause and effect relationships objectively without value judgments.

c) It is prescriptive in nature, suggesting the desirability of economic behavior.

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d) It primarily focuses on describing the economic behavior of individuals.

4. Which of the following is NOT one of the four basic economic problems?

a) What to produce?

b) How to produce?

c) When to produce?

d) For whom to produce?

5. What is the primary driving force in a capitalist economic system?

a) Social welfare

b) Government control

c) Profit motive

d) Equality

6. What is the role of the Central Planning Authority in a socialist economy?

a) It encourages profit-motive and self-interest.

b) It limits consumer choices.

c) It determines socio-economic goals and major economic decisions.

d) It promotes income inequality.

7. Which of the following statements is correct?

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a) Micro economics is important for study of a particular household and a particular firm

b) Macro economics is important for study of economic conditions of a country

c) None of the above

d) Both a and b

8. In the demand function Qx = 45 + 2Y + 1Pr – 2PX, what does the term Y represent?

a) Quantity demanded of product X

b) Price of the commodity

c) Money income of the consumer

d) Price of related goods

9. Why does the market demand curve slope downwards to the right?

a) Due to the law of diminishing marginal utility

b) Due to the law of increasing marginal utility

c) Due to changes in preferences

d) Due to fluctuations in market conditions

10. What is the income effect?

a) The decrease in demand due to a decrease in real income

b) The increase in demand due to a decrease in real income

c) The decrease in demand due to an increase in real income

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d) The increase in demand due to an increase in real income

11. Which effect explains the situation where certain goods become more attractive as their
prices increase, serving as status symbols for enhancing social prestige?

a) Snob effect

b) Giffen effect

c) Veblen effect

d) Conspicuous consumption effect

12. What is the point elasticity of demand?

a) The elasticity of demand for a specific point on the demand curve.

b) The total elasticity of demand across the entire demand curve.

c) The elasticity of demand when the price changes by a finite amount.

d) The elasticity of demand when the price changes by an infinitesimally small amount.

13. How is total revenue (TR) calculated?

a) TR = Price + Quantity sold

b) TR = Price × Quantity sold

c) TR = Price / Quantity sold

d) TR = Quantity sold / Price

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14. Which of the following is an example of complementary goods?

Commodity A Complementary Good B

Solar panels Batterie

Coffee Tea

Shoes Handbags

T-shirts Ice cream

a) Coffee and Tea

b) Shoes and Handbags

c) Solar panels and Batteries

d) T-shirts and Ice cream

15. Which aspect of utility declines with the increase in the consumption of a good
according to the law of diminishing marginal utility?

a) Total utility

b) Average utility

c) Marginal utility

d) Extra utility

16. What does consumer surplus measure?

a) The total amount of money consumers spend on goods and services.

b) The benefits buyers receive from participating in a market.

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c) The profits earned by consumers from buying and selling in a market.

d) The government revenue generated from consumer transactions.

17. Which approach is used for explaining consumer demand in the ordinal utility approach?

a) Cardinal utility approach

b) Marginal utility analysis

c) Indifference curve analysis

d) Marshall's utility analysis

18. What is the most important constraint that consumers face in deciding what to
consume?

a) Time constraint

b) Resource constraint

c) Budget constraint

d) Quantity constraint

19. What does the law of supply state?

a) The quantity of a good produced and offered for sale will decrease as the price of the
good rises.

b) The quantity of a good produced and offered for sale will remain constant regardless of
the price.

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c) The quantity of a good produced and offered for sale will increase as the price of the good
rises.

d) The quantity of a good produced and offered for sale is unrelated to its price.

20. During a recession, economies experience increased unemployment and a reduced level
of income. How would a recession likely to affect the market demand for new cars?

a) Demand curve will shift to the right.

b) Demand curve will shift to the left.

c) Demand will not shift, but the quantity of cars sold per month will decrease.

d) Demand will not shift, but the quantity of cars sold per month will increase.

21. Which factor of production refers to natural resources and is considered a free gift of
nature?

a) Labor

b) Capital

c) Land

d) Entrepreneurial ability

22. Which form of capital refers to physical goods such as buildings, plants, and machines?

a) Circulating capital

b) Real capital

c) Human capital

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d) Intangible capital

23. According to Frank Knight, what is the reward for bearing uncertainties in business?

a) Fixed salary

b) Bonus

c) Profit

d) Dividends

24. How does economic profit differ from accounting profit?

a) Economic profit includes only explicit costs.

b) Economic profit includes both explicit and implicit costs.

c) Economic profit is higher than accounting profit.

d) Economic profit considers only implicit costs.

25. What are the decisions the enterprise has to make regarding the "4 P's" in marketing?

a) Product, Place, Profit, Personnel

b) Promotion, Packaging, Production, Price

c) Product, Promotion, Price, Place

d) Policy, Plan, Production, Profit

26.

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Quantity of labour Total Product (TP) Average Product Marginal Product

(AP) (MP)

1. 100 100 100

2. 210 105 110

3. 330 110 120

4. 440 110 110

5. 520 --- 80

What is the Average Product (AP) when the quantity of labor is 5?

a) 104.0

b) 100.0

c) 75.0

d) 67.3

27. Refer table of question 26.

If the quantity of labor increases from 4 to 5, how much does the Total Product (TP)
increase?

a) 80

b) 510

c) 440

d) 110

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28. What does constant returns to scale mean in the context of a production function?

a) Output increases more than proportionately with an increase in inputs

b) Output increases less than proportionately with an increase in inputs

c) Output increases in the same proportion as the increase in inputs

d) Output remains constant regardless of changes in inputs

29. Why are sunk costs considered irrelevant in future business decisions?

a) They are based on past commitments

b) They can be recovered in the future

c) They are fixed costs

d) They are synonymous with incremental costs

30. At the point where average cost is minimum, what is the relationship between marginal
cost (MC) and average cost (AC)?

a) MC is equal to AC

b) MC is less than AC

c) MC is more than AC

d) MC is unrelated to AC

31. The marginal cost for a firm of producing the 8th unit of output is 25. Average cost at the
same level of output is 20. Which of the following must be true?

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a) Marginal cost and average cost are both falling

b) Marginal cost and average cost are both rising

c) Marginal cost is rising and average cost is falling

d) It is impossible to tell if either of the curves are rising or falling

32. What marks the lowest level of economic activity in a business cycle?

a) Expansion

b) Peak

c) Trough

d) Recovery

33. During war times, how does the production of war goods affect the overall economic
activity?

a) It leads to expansion in economic activity

b) It diverts resources, causing a fall in production of other goods

c) It has no impact on economic activity

d) It triggers a boom in the business cycle

34. What are variables that change after real output changes called?

a) Leading indicators

b) Concurrent indicators

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c) Lagging indicators

d) Coincident indicators

35. Which commodities fall under the category of the market period or very short period?

a) Durable goods

b) Perishable goods like vegetables and fruits

c) Industrial machinery

d) Precious metals

36. What characterizes perfect competition in terms of the number of sellers and products?

a) Many sellers offering differentiated products

b) Many sellers selling identical products

c) A single seller producing for many buyers

d) One seller with a differentiated product

37. Can a competitive firm earn profits in the short run?

a) No, competitive firms can only incur losses

b) Yes, competitive firms can earn supernormal profits, normal profits, or incur losses
depending on cost conditions

c) Yes, competitive firms always earn supernormal profits

d) No, competitive firms can only earn normal profits

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38. What characterizes a monopoly market?

a) Multiple sellers with identical products

b) Single seller with differentiated products

c) Multiple sellers with close substitutes

d) Single seller with no close substitutes

39. What does the Theory of Games analyze in the context of oligopolists?

a) Production techniques

b) Marketing strategies

c) Rational behavior in conflicts

d) Economic growth

40. What is collusive oligopoly?

a) When firms in the oligopoly market compete fiercely with each other

b) When few firms in the oligopoly market come to a common understanding or collusion

c) When there is no competition among oligopoly firms

d) When oligopoly firms follow a perfect competition model

41. What is the strategy where a dominant firm in an oligopoly market accepts the presence
of fringe firms and sets the price to maximize its profit, considering the fringe firms'
behavior?

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a) Barometric price leadership

b) Cartel price setting

c) Price collusion

d) Price-leadership by dominant firm

42. What is a market situation in which there are only two firms in the market?

a) Monopsony

b) Oligopsony

c) Duopoly

d) Bilateral monopoly

43. When ______________________________, there will be allocative efficiency meaning

a) MC = MR

b) MC = AC

c) MC = AR

d) AR = MR

44. What was the major context that triggered economic reforms in India in 1990?

a) Surge in oil prices

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b) Fiscal initiatives for economic growth

c) Tightening of import restrictions

d) Low foreign exchange reserves

45. What led to the establishment of NITI Aayog in India?

a) The success of the Planning Commission

b) The emphasis on public investment-led development

c) Neoliberal ideologies and a focus on market orientation

d) The expansion of the planning system

46. What is the current status of India in terms of its livestock sector?

a) India is the second-largest producer of milk in the world.

b) India has the world's largest cattle herd (buffaloes).

c) India is the largest producer of eggs globally.

d) All of the above.

47. What is the unique experience of India in terms of its economic development process?

a) India experienced a shift from the primary sector to the secondary sector.

b) India bypassed the services sector and focused on industrial growth.

c) India bypassed the secondary sector and experienced a shift from agriculture to the
services sector.

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d) India followed a traditional economic development process with a focus on agriculture.

48. During the major reforms in the 1980s, what was the purpose of de-licensing in

industries?

a) To restrict the growth of industries

b) To increase government control over industries

c) To provide flexibility and allow rapid changes in the product mix

d) To promote protectionism in the economy

49. The post independence economic policy was rooted in -

a) A capitalist mode of production with heavy industrialization

b) social and economic redistribution and industrialization directed by the state

c) social and economic redistribution through private sector initiatives

d) Industrialization led by private entrepreneurs and redistribution by state

50. What is identified as one of the weaknesses of the NITI Aayog?

a) Limited role in the budgeting process

b) Excessive autonomy

c) Strong independence and power

d) None of the above

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51. Why is Disposable Personal Income considered a key economic indicator?

a) It reflects the total income of a nation

b) It indicates the level of government spending

c) It measures the money available for individual consumption or savings

d) It represents the gross output of an economy

52. How is Private Income calculated?

a) Private Income = Factor income from net domestic product - Net factor income from
abroad

b) Private Income = Factor income from net domestic product accruing to the private sector
+ Net factor income from abroad + National debt interest + Current transfers from
government + Other net transfers from the rest of the world

c) Private Income = Gross Domestic Product (GDP) - Taxes

d) Private Income = Disposable Personal Income – Savings

53. What is the first step involved in the Value Added Method of measuring national
income?

a) Calculating the gross output of producing enterprises

b) Identifying producing enterprises and classifying them into different sectors

c) Summing up the net value added at market prices

d) Classifying industries based on their total sales revenue

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54. When Net Exports are positive, what does it indicate about a country's trade balance?

a) The country is a net importer

b) The country is a net exporter

c) The country has a trade deficit

d) The country has a trade surplus

55. The basis of distinction between market price and factor cost is

a) net factor income from abroad

b) net indirect taxes (i.e., Indirect taxes - Subsidies)

c) net indirect taxes (i.e., Indirect taxes + Subsidies)

d) depreciation ( consumption of fixed capital)

56. How is ex ante Aggregate Demand (AD) calculated in a two-sector economy?

a) AD = C + I + G + (X - M)

b) AD = C + I

c) AD = C + S

d) AD = I + G

57. What is a "deflationary gap" or "recessionary gap" in the context of the Keynesian
model?

a) A situation where aggregate demand exceeds the full employment level of output

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b) A situation where aggregate demand is equal to the full employment level of output

c) A situation where aggregate demand is less than the full employment level of output

d) A situation where the economy is experiencing hyperinflation

58. What does resource allocation refer to in an economy?

a) The unlimited wants of society members

b) The optimal use of available resources among various uses

c) The total production of goods and services

d) The government's control over resources

59. Who introduced the term "fiscal federalism"?

a) Jawaharlal Nehru

b) Richard Musgrave

c) Mahatma Gandhi

d) John Maynard Keynes

60. What does Article 293 of the Indian Constitution relate to?

a) Grants for any public purpose

b) Loans for any public purpose

c) Taxes levied and collected by the union but assigned to the states

d) Duties levied by the union but collected and appropriated by the states

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61. What is market power or monopoly power?

a) The ability of a firm to lower the market price of a good or service

b) The ability of a firm to profitably raise the market price of a good or service over its
marginal cost

c) The ability of a firm to produce goods and services efficiently

d) The ability of a firm to operate in a perfectly competitive market

62. In what year did Paul A. Samuelson publish his paper 'The Pure Theory of Public
Expenditure' introducing the concept of public goods?

a) 1942

b) 1954

c) 1968

d) 1975

63. What is moral hazard in the context of economics?

a) A situation where externalities result in market inefficiencies

b) Shifting costs from one economic agent to others after a market exchange

c) A scenario where all economic agents are well-informed about market conditions

d) Actions taken before making a market exchange

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64. What is the main objective of the Competition Act, 2002 in India?

a) To encourage collusion among producers

b) To impose social costs on consumers

c) To promote and sustain competition in markets

d) To restrict the entry of new firms into the market

65. Which ministry exercises control over revenue matters related to direct and indirect
union taxes in India?

a) Ministry of Commerce and Industry

b) Ministry of Finance

c) Ministry of External Affairs

d) Ministry of Home Affairs

66. Which of the following is an example of a capital receipt for the government?

a) Tax revenues

b) Non-tax revenues

c) Earnings from disinvestment and debt

d) None of above

67. What is the relationship between fiscal deficit and primary deficit?

a) Primary deficit is a component of fiscal deficit

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b) Fiscal deficit is a component of primary deficit

c) They are unrelated concepts in government finance

d) Primary deficit is the same as fiscal deficit

68. According to Article 266(1) of the Constitution of India, what is the scope of the Public
Account?

a) All government expenditures

b) Fund flows related to government acting as a banker

c) Corporate financial transactions

d) Private savings accounts

69. Which of the following is a statement submitted along with the budget as a requirement
of FRBM Act

a) Annual Financial Statement

b) Macro -Economic Framework Statement

c) Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement

d) (b) and (c) above

70. What is the opposite of contractionary fiscal policy?

a) Expansionary fiscal policy

b) Austerity fiscal policy

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c) Neutral fiscal policy

d) Monetary policy

71. Which group of economists later endorsed and developed the quantity theory of
money?

a) Keynesian economists

b) Neoclassical economists

c) Behavioral economists

d) Post-Keynesian economists

72. According to Keynes, what is the primary focus of the Speculative motive for holding
money?

a) Immediate spendability for transactions

b) Earning interest on long-term investments

c) Safeguarding against unforeseen events

d) Gaining profits through market speculation

73. According to Friedman, what are the factors affecting the demand for money as an
asset?

a) Speculative motive and precautionary motive

b) Permanent income and relative returns on assets

c) Transactions motive and speculative motive

d) Keynesian motive and liquidity preference motive

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74. What is "fiat money"?

a) Money backed by a commodity, such as gold or silver

b) Money with intrinsic value

c) Money issued by the central bank and guaranteed by the government

d) Money representing ownership of physical assets

75. What are the three factors considered as immediate determinants of money supply in
the money multiplier approach?

a) The stock of high-powered money, the ratio of reserves to deposits, and the reserve-
deposit ratio.

b) The currency-deposit ratio, the stock of high-powered money, and the ratio of reserves to
deposits.

c) The ratio of currency to deposits, the currency-deposit ratio, and the stock of high-
powered money.

d) The reserve-deposit ratio, the stock of high-powered money, and the currency-deposit
ratio.

76) What is the primary goal of the Reserve Bank of India's monetary policy?

a) Maximizing employment

b) Achieving high economic growth

c) Managing economic fluctuations and achieving price stability

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d) Controlling fiscal policy

77. An open market operation is an instrument of monetary policy which involves buying or
selling of ________from or to the public and banks

a) bonds and bills of exchange

b) debentures and shares

c) government securities

d) none of these

78. During which historical period did Mercantilism influence economic policies in Europe?

A) 10th to 12th centuries

b) 13th to 15th centuries

c) 16th to 18th centuries

d) 19th to 20th centuries

79. How are tariffs applied to goods and services?

a) Only on exported goods

b) Only on domestic goods

c) On both imported and exported goods

d) On services but not goods

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80. What is a Compound Tariff?

a) A tariff applied only to specific goods

b) A combination of an ad valorem and a specific tariff

c) A tariff applied to services

d) A tariff calculated based on the weight of the goods

81. Provide an example of a product on which India imposed anti-dumping duties.

a) Electronics

b) Agricultural products

c) Colour-coated or pre-painted flat steel products

d) Textiles

82. What does the term "threat measures" refer to in the context of non-technical
measures?

a) Measures related to environmental protection

b) Measures related to national security

c) Anti-dumping and safeguards

d) Taxation policies

83. ___________ refer to a type of informal quota administered by an exporting country

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a specified period of time. It is imposed based on negotiations to appease the importing
country and to avoid the effects of possible trade restraints.

a) Voluntary Export Restraints (VERs)

b) SPS measures

c) Non-tariff measures (NTMs)

d) None of the above

84. A tax applied as a percentage of the value of an imported good is known as

a) preferential tariff

b) ad valorem tariff

c) specific tariff

d) mixed or compound tariff

85. Which of the following best defines Regional Trade Agreements (RTAs)?

a) Agreements within a single country

b) Agreements between neighboring countries only

c) Treaties defining rules of trade for signatory countries in a specific region

d) Agreements focused on increasing trade barriers

86. A trading bloc is characterized by:

a) A group of countries with no trade agreements among themselves.

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b) A group of countries with a free trade agreement among themselves.

c) A group of countries with trade restrictions among themselves.

d) A group of countries with only bilateral trade agreements.

87. The GATT (General Agreement on Tariffs and Trade) lost its relevance by the 1980s due
to various factors. Which of the following was NOT a reason for the decline in relevance?

a) Rapid evolution in the contemporary complex world trade scenario.

b) Substantial expansion of international investments.

c) Comprehensive coverage of intellectual property rights and trade in services by GATT.

d) Ambiguities in the multilateral system that could be heavily exploited.

88. The World Trade Organization (WTO) is the only global international organization
dealing with the rules of trade between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the world’s trading nations and ratified in their
parliaments. The goal is to ensure that trade flows as smoothly, predictably, and freely as
possible. The principal objective of the WTO is to facilitate the flow of international trade
__________, __________, __________, and predictably.

Options:

a) Barriers; controlled, unpredictably

b) rigidly, unfairly, unpredictably

c) smoothly, freely, fairly

d) controlled, unfairly, predictably

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89. Agreement on Trade-Related Investment Measures (TRIMs) expands disciplines
governing investment measures in relation to cross-border investments. Which of the
following statements is correct regarding TRIMs?

a) TRIMs encourage countries to impose investment measures inconsistent with national

b) TRIMs prohibit countries from imposing local content requirements on investing

c) TRIMs focus on eliminating quantitative restrictions on investments.

d) TRIMs have no impact on the principle of national treatment.

90. Which principle is mentioned in GATS to ensure that discriminatory measures in service
sectors are not more severe than committed during negotiations?

a) Most-Favored-Nation Treatment

b) Transparency

c) National Treatment

d) Market Access Commitments

91. When was the Doha Round officially launched, and where was the launch event held?

a) January 2000, Geneva

b) November 2001, Doha, Qatar

c) March 2003, New York

d) July 2004, Brussels

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92. What constitutes a foreign currency transaction?

a) Any transaction involving goods or services

b) Only transactions involving borrowing or lending funds

c) Transactions denominated in or requiring settlement in a foreign currency

d) Only transactions with unperformed forward exchange contracts

93. How is Real Effective Exchange Rate (REER) calculated?

a) By dividing the nominal effective exchange rate by the inflation rate

b) By multiplying the nominal effective exchange rate by the inflation rate

c) By dividing the inflation rate by the nominal effective exchange rate

d) By dividing the nominal effective exchange rate by a price deflator or index of costs

94. What is the likely impact of currency appreciation on the trade balance?

a) Improvement in the trade balance

b) Worsening of the trade balance

c) No impact on the trade balance

d) Stabilization of the trade balance

95. What is a potential effect of currency devaluation on the price of imported

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a) It may decrease the price of imported commodities

b) It has no impact on the price of imported commodities

c) It may increase the price of imported commodities

d) It stabilizes the price of imported commodities

96. Borrowings which may take different forms include:

a) Direct intergovernmental loans

b) Loans from international institutions (e.g. World Bank, IMF, ADB)

c) Soft loans, e.g., from affiliates of the World Bank such as IDA

d) External commercial borrowing

e) Trade credit facilities

Options:

a) (a), (b), (c), (d), (e)

b) (a), (b), (d), (e)

c) (b), (c), (d), (e)

d) (a), (c), (d), (e)

97. Which of the following components are part of Foreign Direct Investment (FDI)?

a) Equity capital

b) Reinvested earnings

c) Other direct capital in the form of intra-company loans between direct investors (parent
enterprises) and affiliate enterprises

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d) All of the above

98. What distinguishes Foreign Portfolio Investment (FPI) from Foreign Direct Investment
(FDI)?

a) FPI involves ownership and control, while FDI does not.

b) FPI is concerned with the provision of services, while FDI is not.

c) FPI involves the purchase of bonds and financial instruments, while FDI involves the
acquisition of shares in foreign companies.

d) FPI primarily affects production and income generation, while FDI primarily affects
exchange rates.

99. What characterizes a conglomerate type of Foreign Direct Investment (FDI)?

a) The investor makes an investment in a business related to its existing business in the
home country.

b) It involves a joint venture with a foreign firm that operates in the same industry as the
investor's existing business.

c) The investor makes a foreign investment in a business unrelated to its existing business in
the home country.

d) It typically involves acquiring a significant stake in a competitor.

100. What contributed to the substantial changes in Overseas Direct Investments by Indian
companies (Outbound FDI)?

a) Stringent capital controls and complex procedures

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b) Increased restrictions on international investments

c) Progressive relaxation of capital controls and simplification of procedures

d) Decreased interest in international business ventures

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