Part “A” - Macroeconomics

Unit-1 National Income and Related Aggregates

1. Fill in the blanks:

____________________ =NDPMP + NFIA – NIT
(a) GNPMP (b)GNPFC (c) NNPFC (d) GDPFC

2. The study of Macroeconomics includes :

(a) Theory of Employment (b) Theory of National Income
(c) Theory of Money (d) All of these

3. Flow of Goods & Services is

(a) Real Flow (b) Money Flow (c) Interest Flow (d) None of these

4. Which of these is an example of Stock Variable

(a) Income (b) Money Expenditure (c) Capital Formation (d) Wealth

5. Which of the following is not a flow variable

(a) Capital (b) Income (c) Investment (d) Depreciation

6. The withdrawals from circular flow of income is known as

(a) Injections (b) Leakage (c) Investment (d) None of these

7. Process of value addition is associated with which phase of circular flow

(a) Phase of Expenditure (b) Phase of Income Generation
(c) Phase of Production (d) None of these

8. Which sector of economy is known as “Owner of Production” or “Owner of Factors of Production”

(a) Household Sector (b) Producer Sector (c) Government Sector (d) External Sector

9. Real and Money flow has ___________________relationship

(a) Direct (b) Inverse (c) Circular (d) External

10. “Consumption of Fixed Capital” is a common term used to indicate

(a) Revenue (b) Profits (c) Interest (d) Depreciation

11. A thread which is used by a tailor is an example of

(a) Intermediate Goods (b) Final Goods (c) Capital Goods (d) Consumer Goods

12. Due to setting up of factory near residential area increase_____but decreases .

(a) Welfare, GDP (b) GDP, welfare (c) Both (a) and (b) (d) None of the above

13. Final goods used by producers are known as

(a) Intermediate Goods (b) Final Goods (c) Capital Goods (d) Consumer Goods

14. The consumer goods that can directly satisfy the needs & wants of a consumer as and when they are
performed are known as:
(a) Durable Goods (b) Non-Durable Goods (c) Semi-Durable Goods (d) Services

15. A change in stock is a part of

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(a) Income (b) Inventory Investments (c) Fixed Investments (d) Depreciation

16. Net Investment = Gross Investment - _______________________.

(a) Inventories (b) Intermediate Goods (c) Depreciation (d) None of these

17. Which of the following are included in national income?

I. Dress provided by a firm to its employees
II. Selling of a second-hand car
III. Fee paid by parents to schools
(a) Only I (b) I & II (c) I & III (d) All of the above

18. International organizations like WHO, IMF etc. in India are considered as:
(a) Normal Resident of India (b) Non Resident of India
(c) Both (a) & (b) are correct (d) both (a) & (b) are incorrect

19. Match the following

1. Net Indirect Tax A. Market Price less Net Indirect Tax
2. Factor Cost B. Net plus Depreciation
3. Gross C. Indirect Tax Paid less Subsidies
(a) 1-C, 2-A, 3-B (B) 1-A, 2-B, 3-C (c) 1-B, 2-A, 3-C (d) 1-C, 2-B, 3-A

20. Incomes of self-employed people where it becomes difficult to segregate such income on the basis of
various factors of production, then such incomes are included in estimation of national income under the
_____________________ category.
(a) Non-Factor Income (b) Transfer Income (c) Mixed Income (d) Variable Income

21. National Income is sum of the factor incomes accruing to

(a) Nationals (b) Economic Territory (c) Residents (d) Both Residents and Non Residents

22. Depreciation of fixed capital assets refers to

(a) Normal wear & tear (b) Foreseen/expected obsolescence
(c) Both (a & b) (d) unforeseen/unexpected obsolescence

23. Goods which are purchased for resale are

(a) Final Goods (b) Capital Goods (c) Intermediate Goods (d) None of these

24. Fall in the value of assets due to expected obsolescence is

(a) Capital Loss (b) Depreciation (c) Shut Down Point (d) All of these

25. Normal resident of India is

(a) An official working in Indian embassy in America (b) Indian visiting Japan as tourist
(c) Indian working in W.H.O. located in India (d) All of these

26. Salary paid to worker is an example of

(a) Transfer Income (b) Government Revenue (c) Factor Payment (d) None of these

27. Aggregate used for domestic income is

(a) NDPFC (b) NNPFC (c) GNPMP (d) NNPMP

28. A car purchased by dealer of cars is

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(a) Consumer Goods (b) Intermediate Goods (c) Final Goods (d) None of these

29. Circular flow is of __________________ types.

(a) 04 (b) 02 (c) 03 (d) All of these

30. Quantity measured at a point of time is known as ________________ quantity.

(a) Stock (b) Flow (c) Variable (d) Both (a) & (c)

31. Which activity results in value addition?

(a) Consumption (b) Exchange (c) Production (d) Investment

32. Basic economic activity is

(a) Production (b) Investment (c) Consumption (d) All of these

33. Choose the correct equation from the following:

(a) GDPMP = NNPFC + Depreciation (b) NDPFC = NNPFC + Net Indirect Taxes
(c) GNPMP = GDPMP + Net Factor Income from Abroad (d) NNPFC = NDPMP + Depreciation

34. The value of real GDP will be ___________when nominal GDP is ₹840 and price index is 120.
(a) ₹7 (b) ₹700 (c) ₹720 (d) ₹960

35. The aggregates of expenditure method sum up to form _______.

(a) NNPMP (b) NNPFC (c) GDPMP (d) GNPFC

36. From the following, which type of goods are ready for the use by their final users?
(a) Intermediate goods (b) Final goods (c) Capital goods (d) All of the above

37. Which one of the following statements is correct?

(a) Market price + Net indirect taxes = Factor cost (b) Market price – Net indirect taxes = Factor cost
(c) Both (a) and (b) (d) None of these

38. Goods purchased for the following purpose are final goods:
(a) For satisfaction of wants (b) For investment in firm
(c) Both (a) and (b) (d) None of these

39. Which of the following makes GDP an inappropriate index of welfare?

(a) Non- monetary transactions (b) Externalities
(c) Composition and distribution of GDP (d) All of these

40. Operating surplus =

(a) Rent+Interest+Profit (b) COE+ Mixed Income Of Self- Employed
(c) COE + Rent + Interest + Profit (d)COE + Rent + Interest + Profit+ Mixed Income Of Self- Employed

ASSERTION AND REASON

41. Read the following statements-Assertion (A) and Reason (R). Choose one of the correct alternatives given
below:
Assertion (A): Car purchased by a taxi driver to use it as a taxi is an example of consumer good.
Reason (R): Consumer goods are those goods, which directly satisfy the wants of consumers.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
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(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false
(d) Assertion (A) is false but Reason (R) is true

42. Read the following statements-Assertion (A) and Reason (R). Choose one of the correct alternatives given
below
Assertion (A): Fees paid to a chartered accountant by a firm is called as mixed income of self-employed
Reason (R): Fees paid to chartered accountant by a firm will not be included in the national income estimation
because it is treated as intermediate expenditure of the firm.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A ) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

43. Read the following statements-Assertion (A) and Reason (R). Choose one of the correct alternatives given
below
Assertion (A): Goods that meant for final use and will not pass through any more stages for production or
transformation is called a final good.
Reason (R): It will not under go any further transformation at the hands of any producer, but many such final goods
are transformed during their consumption.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true

44. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative given below.
Assertion (A): Real GDP is better index of economic growth than the nominal GDP
Reason (R): The index of real GDP always reflects a change in the level of output.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of the Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

45. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative given below.
Assertion (A): Domestic income is a territorial concept.
Reason (R): Domestic income includes the value of final goods and services in the entire world
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of the Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

46. Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative given below.
Assertion (A): GDP deflator measures the change in average level of prices of all the goods and services.
Reason (R): GDP deflator is the ratio of nominal GDP to real GDP of current year
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of the Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

STATEMENT BASE QUESTION ANSWERS

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47. Read the following statements carefully: Choose one of the correct alternatives
Statement 1: Stock Variables are measured at a point of time.
Statement 2: Flow Variables and Stock Variables are same.
(a) Statement 1 is true and statement 2 is false
(b) Statement 1 is false and statement 2 is true
(c) Both the statements are true
(d) Both the statements are FALSE

48. Read the following statements carefully: Choose one of the correct alternatives
Statement 1: National income is an example of flow variable.
Statement 2: 'Flow variable' refers to any economic variable, which is measured during a period.
(a) Statement 1 is true and statement 2 is false
(b) Statement 1 is false and statement 2 is true
(c) Both statements 1 and 2 are true
(d) Both statements 1 and 2 are false

49. Read the following statements carefully: Choose one of the correct alternatives
Statement 1: Domestic product can be more than national product.
Statement 2: Consumption of fixed capital is added to gross domestic income to obtain national income.
(a) Statement 1 is true and statement 2 is false
(b) Statement 2 is true Statement 1 is false
(c) Both statements 1 and 2 are true
(d) Both statements 1 and 2 are false.

50 Read the following statements carefully: Choose one of the correct alternatives
Statement 1: -GDP at MP is the difference between total of gross domestic product at market price and net indirect
tax.
Statement 2: - GDP at MP is the sum of net domestic product at market price and depreciation.
(a) Statement 1 is true and statement 2 is false
(b) Statement 1 is false and statement 2 is true
(c) Both statements 1 and 2 are true
(d) Both statements 1 and 2 are false

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 UNIT 2- MONEY AND BANKING
Read the following statements-Assertion (A) and Reason (R), and select the correct alternative in each case:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason(R) is false.
(d) Assertion (A) is false but Reason(R) is true.

1. Assertion (A): With introduction of money as a common unit of value, the market for sale and purchase of assets
has considerably expanded.
Reason (R): Common unit of value (in terms of money) has facilitated comparison of market value of different
asserts.

2. Assertion (A): Central bank provides loans to the commercial banks in the situation of financial distress.
Reason (R): Central bank can order the government to help the bank facing the financial crisis.

3. Assertion (A): Currency created by the Central Bank Is called bank Money.
Reason (R): Central Bank of a country has monopoly over the currency issue. It has the sole responsibility of
printing and putting in circulation all types of currency notes (with a few exceptions).

4. Assertion (A): An increase in Legal Reserve Deposit Ratio increases the credit creation power of the commercial
banks .
Primary deposits
Reason (R): Credit creation = 𝐿𝑒𝑔𝑎𝑙 𝑅𝑒𝑠𝑒𝑟𝑣𝑒 𝑅𝑎𝑡𝑖𝑜 X 1

5. Assertion (A): Currency notes and coins are called fiat money.
Reason (R): RBI is responsible for giving the bearer of the currency equal purchasing power.

6. Assertion (A): Currency notes and coins are called legal tenders.
Reason (R): They cannot be refused by any citizen of the country for settlement of any kind of transaction.

7. Assertion (A): Money supply is a flow variable.

Reason (R): Money supply is the total stock of money in circulation among the public at a point of time.

8. Assertion (A): Reverse repo rate is the rate at which the Central Bank lends funds to banks.
Reason (R): When Reverse Repo Rate is raised, it encourages the commercial banks to park their funds with the
central bank.

9. Assertion (A): To increase the money supply in the economy, Central Bank reduces the margin requirement.
Reason (R): Decrease in margin requirements enhances the borrowing capacity of public, which raises the money
supply in the economy.

10. Assertion (A): Demand deposits are not legal tenders.

Reason (R): Demand deposits are the deposits which can be easily withdrawable on demand, by cheque or
otherwise by the depositor from his bank account

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11. Assertion (A): Besides central bank, commercial banks are the other type of institutions which are a part of the
money-creating system of the economy.
Reason (R): Commercial banks accept deposits from the public and lend out part of these funds to those who want
to borrow.

12. Assertion (A): Quantitative tools include Margin Requirement by the central bank in order to make commercial
banks discourage or encourage lending.
Reason (R): Quantitative tools control the extent of money supply by changing the Cash Reserve Ratio (CRR) or
Statutory Liquidity Ratio (SLR) or Bank Rate or Repo Rate or Reverse Repo Rate, or through Open market
operations (OMO).

13. Assertion (A): Credit creation is inversely related to money multiplier.

Reason (R): Credit creation Initial deposits Money Multiplier (1/LRR) With the same initial deposit total credit
creation decreases with a decrease in the value of money multiplier.

14. Assertion (A): The Reserve Bank of India acts as a lender of last resort.
Reason (R): It provides funds to commercial banks when they are unable to meet their financial requirements.

15. Assertion (A): High Statutory Liquidity Ratio (SLR) limits the capacity of banks to create credit.
Reason (R): With Higher SLR Banks are required to maintain a larger portion of their net demand and time liabilities
in liquid assets.

16. Assertion (A): Commercial banks cannot lend the entire amount of deposits they receive.
Reason (R): Banks are required to maintain a portion of their deposits as reserves with the central bank.

17. Assertion (A): The Cash Reserve Ratio (CRR) is a monetary policy tool used to control inflation.
Reason (R): A higher CRR reduces the liquidity available for lending by commercial banks.

18. Assertion (A): Open market operations are used by the central bank to regulate liquidity in the economy.
Reason (R): Open market operations involve the buying and selling of foreign currency by the central bank.

19. Assertion (A): The bank rate is a tool used to influence the money supply in the economy.
Reason (R): It is the rate at which commercial banks borrow funds from the central bank.

20. Assertion (A): Higher the CRR, lower the capacity of the commercials banks to create credit
Reason (R): Credit multiplier is the reciprocal of CRR.

21. Assertion (A): Notes and Coins are the only source of money supply in the economy.
Reason (R): Demand deposits with commercial bank is also a component of money supply.

22.Match the following items given in column A with those in column B

Column A Column B
(i) Money supply (a) highly liquid
(ii) Demand deposits (b) FIAT money
(iii) Legal tender money (c) Fiduciary money
(iv) Non-legal tender money (d) Components of money supply
(v) Currency and demand deposits (e) Stock variable.

23. Read the chart carefully.

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On the basis of the above chart answer the following question:
Choose the correct alternative to be filled in given blank.
(a) Demand deposits of the people with the commercial banks
(b) Demand deposits of the people with the RBI
(c) Demand deposits of international financial institutions
(d) None of these

24. From the following functions of the Central Bank, identify the odd one out
(a )A (b) B (c) C (d) D

Functions of
central bank

A- Controller of C-Currency D- Banker to the

B- Banker's bank
money supply authority public

In the following questions, Statement 1 is followed by Statement 2. Mark the correct choice
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and statement 2 is false.
(d) Statement 2 is true and statement 1 is false.

25. Statement 1. The total liability of the monetary authority (RBI) is called high powered money.
Statement 2. High powered money includes currency held by the public only.

26.Statement 1. Money is a unit of account in terms of which the value of all goods and service
Statement 2. Money is a standard unit of quoting prices of goods and services.

27. Statement1. Primary deposits are the cash deposits by general public with commercial banks
Statement 2. Secondary deposits are those deposits which arise on account of credit provided by the commercial
bank of the people.

28.Statement 1: Standard of Deferred Payments' function of money has led to the emergence of "financial market'.
Statement 2: Transfer of Value' function of money has enhanced mobility of capital across different countries.

29. Statement 1: Banks receive cash deposits from the people in the form of secondary
Statement 2: Commercial banks lend money to the people in the form of cash
30. Statement 1: Commercial banks create credit through the process of accepting deposits and advancing loans.
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Statement 2: Credit creation by banks depends on the cash reserve ratio (CRR) set by the central bank.

31. Statement 1: Open market operations refer to the buying and selling of government securities by the central
bank.
Statement 2: The Cash Reserve Ratio (CRR) is a percentage of net demand and time liabilities that banks must hold
in reserve with the RBI.

32. Statement 1: Monetary policy tools include CRR, SLR, and repo rate.
Statement 2: Monetary policy decisions in India are made by the Ministry of Finance.

33. Statement 1: Commercial banks are profit-making institutions.

Statement 2: They facilitate credit creation in the economy.

34. Two friends Akash and Amit were discussing about the features of central bank "This features saves the
commercial banks from possible breakdown"
The above-mentioned statement was given by Akash, identify the feature was he taking about.
(a) Banker's hank (b) Lender of the last resort
(c) Controller of credit (d) Financial advisor

35. "The value of all goods and services can be expressed in monetary units." On the basis of the given statement,
Identify the function performed by money.
(a) Medium of exchange
(b) Store of value
(c) Unit of account
(d) Means of standard of deferred payments

36. Ms Sakshi, an economics teacher, was explaining the concept of 'minimum percentage of the total deposits to
be kept by any commercial bank with the Central Bank of the country, as per norms and statute prevailing in the
country'.
From the following, choose the correct alternative which specifies towards by her?
a) Cash Reserve Ratio
b) Repo Rate
c) Bank Rate
d) Statutory Liquidity

37. Process of credit creation by Commercial banks comes to an end when

(a) Fresh deposits with Banks become zero
(b) Reserve Ratio becomes zero
(c) Money multiplier becomes zero
(d) Total money reserves become equal to initial deposit.

38. Money can be used to transfer purchasing power from the present to the future. Which specific function of
money is this called?
a) double coincidence of wants
b) store of value
c) unit of account
d) medium of exchange

39.Identify, which of the following is not a function of the Reserve Bank of India.
(Choose the correct alternative)
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(a) Controller of money supply
(b) Credit provider to commercial banks
(c) Central agency preparing the annual budget of the Government
(d) Issuer of currency

40. Identify which of the following is not a function of the Reserve Bank of India?
a) To act as the banker to the Government of India.
b) To act as the custodian of the gold reserve of India
c) To act as the financial advisor to the Government of India
d) To issue coins and one rupee note

41. What is the main objective of the Statutory Liquidity Ratio (SLR)?
a) To ensure the liquidity of banks
b) To control inflation
c) To promote lending by banks
d) To manage the fiscal deficit

42. If the reserve ratio is 20%, what will be the amount of total reserves after an initial deposit of 200?
(a)₹4,000 (b) ₹ 2,000 (C) ₹1,000 (d) ₹ 400

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 Unit-3 : Determination of Income and Employment

1 Assertion (A): APS can never be one or more than one.

Reason(R): APC increases with increase in income.
Choose the correct option from the following.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
2 Assertion (A): MPC of poor is more than that of rich.
Reason(R): MPC falls with successive increase in Income.
Choose the correct option from the following.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true.
3 Assertion (A): Multiplier explains how many times the income increases as a result of an increase in the
investment.
Reason (R): There is an inverse relationship between the value of marginal propensity to save and investment
multiplier.
Choose the correct option from the following.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
4 Assertion (A): Full employment is that situation in the economy when AS = AD along with fuller utilization of
the resources. But it does not mean a situation of zero unemployment in the Economy.
Reason (R): Full employment means absence of unemployment in the economy.
Choose the correct option from the following.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true
5 Assertion (A): When Investment Multiplier is 1, the value of MPC is also 1.
Reason (R): Consumption can exceed Income but Savings cannot.
Choose the correct option from the following.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
6 Assertion (A): Higher the value of Marginal Propensity to Consume, higher the value of multiplier and more
chances of economic growth and increase in National Income. This happens when marginal propensity to save
falls and marginal propensity to consume rises.

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 Reason (R): Investment generates income and this additional income causes a change in consumption.
Additional consumption expenditure generates additional income for producers of goods and services. This
process keeps repeating till the total increase in income equals the product of multiplier and change in
investment: ΔY=K x ΔI
Choose the correct option from the following.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
7 Assertion (A): Unplanned inventories accumulates when planned investment is less than planned savings i.e.
producers are left with unsold stock of goods as planned savings are more than planned investments.
Reason (R): In a situation of deficiency of AD in relation AS, Aggregate Demand is less than Aggregate Supply
when buyers (consumers and firms) are consuming less and thus spending less. It means that they are
planning to buy less than what sellers are planning to sell implying fall in marginal propensity to consume.
Choose the correct option from the following.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
8 Assertion (A): There is direct relationship between Saving and demand for goods and services in the economy.
Reason (R): As people save more and more, the demand for goods and services fall in the economy.
Choose the correct option from the following.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
9 Assertion (A): J M Keynes emphasized more on Investment.
Reason (R): As saving increases, it leads to more and more investment in the economy and hence more
demand for goods and services in the economy.
Choose the correct option from the following.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
10 Assertion (A): There is always full employment equilibrium in the economy.
Reason (R): The equilibrium in the economy, where AD=AS may strike even when there is underemployment.
Choose the correct option from the following.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
11 Assertion (A): Price has no role to play as a determinant of Aggregate Supply.
Reason (R): Proportionate increase in aggregate supply due to excess capacity of production leads to a
constant price level in the economy.
Choose the correct option from the following.

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 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
12 Read the following statement carefully:
Statement 1 : AD is a flow concept
Statement 2 : AD and AS are the major tools of macroeconomics analysis.
In the light of the given alternatives, choose the correct alternative from the following:
(a) Statement 1 is true and statement 2 is false.
(b) Statement 1 is false and statement 2 is true
(c) Both statements 1 and 2 are true
(d) Both statements 1 and 2 are false.
13 Assertion (A): Monetary policies are RBI policy.
Reason (R): Fiscal policies are Government policy.
Choose the correct alternatives given below:
(a) Both (A) and (R) are true and (R) is the correct explanation of (A)
(b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
(c) (A) is true but (R) is false.
(d) (A) is false but (R) is true.
14 Statement 1: When investment multiplier is 1, the value of MPC is zero.
Statement 2: When investment multiplier is zero, the value of MPC is one.
a) Statement 1 is true and statement 2 is false.
b) Statement 1 is false and statement 2 is true.
c) Both the statement is true.
d) Both the statement is false.
15 Assertion (A): If MPC is higher the value of investment multiplier will also be higher.
Reason (R): Their exist a direct relationship between MPC and the value of multiplier.
Choose the correct option from the following.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true.
16 Choose the correct pair of statement.
Column I Column II
A. Ex-ante saving I Actual savings
B. AS < AD II Some of the goods remain unsold

C. Savings III Negatively related with income

D. C=100+0.75Y IV MPS=0.25
a) A-I b) B -II c) C- III d) D - IV

17 Assertion (A): Higher the value of MPC, higher is the value of Investment multiplier
Reason (R): Investment multiplier is directly related to MPS
a. Both A and R is true and R is the correct explanation of A
b. Both A and R is correct but R is not the correct explanation of A
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 c. A is correct but R is not correct
d. A is correct but R is incorrect
18 Assertion (A): At Break-even point, consumption is equal to National Income.
Reason (R): APC falls continuously with an increase in income as the proportion of income spent on
consumption keeps on decreasing.
(a) Both A and R is true and R is the correct explanation of A
(b) Both A and R is correct but R is not the correct explanation of A
(c) A is correct but R is not correct
(d) A is correct but R is incorrect
19

With reference to the ‘Paradox of Thrift’, consider the following statements:

1. An increase in proportion of the income saved by all individuals in an economy can lead to an increase in the total
value of savings in the economy
2. An increase in proportion of the income saved by all individuals in an economy can lead to a decrease in the total
value of savings in the economy
3. An increase in proportion of the income saved by all individuals in an economy may not lead to a change in the
total value of savings in the economy
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) 1 and 3 only
(d) 2 and 3 only
20

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 Looking at slope of aggregate demand curve in the above given diagrams, (AE-AD), comment on the marginal
propensity to consume. The Marginal propensity to consume will be
a) More in panel (a)
b) More in panel (b)
c) Equal in both Panels (a) and (b)
d) Difficult to comment

21

In the above given diagrams, which panel will have higher value of investment multiplier:
a) Higher in panel (a)
b) Higher in panel (b)
c) Equal in both Panels (a) and (b)
d) Difficult to comment
22 Choose the correct alternative from the below:
Statement 1: Excess demand leads to a rise in general price level.
Statement 2: Excess demand does not affect the output level as full employment is already attained.
Alternatives:
a) Both the statements are true.
b) Both the Statements are false.
c) Statement 1 is true and statement 2 is false.
d) Statement 1 is false and statement 2 is true.
23 Choose the correct alternative from the below:
Statement 1: Voluntary unemployment may arise as a result of deficient demand.
Statement 2: Fall in consumption and investment demand may create the situation of deficient demand..
Alternatives:
a) Both the statements are true.
b) Both the Statements are false.
c) Statement 1 is true and statement 2 is false.
d) Statement 1 is false and statement 2 is true.
24 Read the following Assertion (A) and Reasons(R)
Assertion (A): Inflationary gap is the result of excess demand.
Reasoning (R): When aggregate demand is more than aggregate supply, inflationary gap is occurred.
Choose the correct option from the following.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
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 d) Assertion (A) is false but Reason (R) is true.
25 Read the following Assertion (A) and Reasons(R)
Assertion (A): Due to excess demand, employment increases in the economy.
Reasoning (R): Output level increases in the economy due to excess demand.
Choose the correct option from the following.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true.
26 Read the following Assertion (A) and Reasons(R)
Assertion (A): Bank rate increases in order to control excess demand.
Reasoning (R): Bank rate helps to control the money supply in the economy.
Choose the correct option from the following.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true.
27 Read the following Assertion (A) and Reasons(R)
Assertion (A): Increase in reverse repo rate helps to correct the excess demand.
Reason (R): The Credit creation capacity of the commercial banks can be increased by raising the reverse repo
rate.
Choose the correct option from the following.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of the Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of the
Assertion (A)
c) Assertion (A) is true but Reason (R) is false
d) Assertion (A) is false but Reason (R) is true
28 Read the following Assertion (A) and Reasons(R)
Assertion (A): Deficient demand leads to underemployment equilibrium.
Reason (R): During deficient demand, equilibrium is determined at a level less than full employment.
Choose the correct option from the following.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of the Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of the
Assertion (A)
c) Assertion (A) is true but Reason (R) is false
d) Assertion (A) is false but Reason (R) is true
29 Identify the correct sequence of alternatives given in Column II by matching them with respective items in
Column I:
Column I Column II

(a) Full Employment equilibrium (i) Inflationary gap in the economy

(b) Structural Unemployment (ii) Underemployment equilibrium
(c) Excess of demand (iii) Change in the technique of production
(d) Shortage of demand (iv) No excess capacity
A) (a)-(i), (b)– (ii), (c) – (iii), (d) – (iv)
B) (a)-(iv), (b)– (iii), (c) – (i), (d) – (ii)
C) (a)-(iv), (b) - (iii) , (c) (i) , (d) (ii)
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 D) (a)-(ii), (b)– (iv), (c) – (iii), (d) – (i)
30 Assertion (A): Output remains constant even beyond full employment equilibrium.
Reason (R) : Full employment equilibrium output is the maximum output.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false
d) Assertion (A) is false but Reason (R) is true
31

On the basis of the above diagram, what does point Q indicate?

a) Point of underemployment equilibrium
b) Point of full employment equilibrium
c) Point of over employment equilibrium
d) None of these
32 Assertion (A): In a situation of excess demand at the full employment level, there is inflation in the economy.
Reason (R): At the full employment level, even if there is more demand for goods and service, the output
cannot be increased.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true.
33 Statement-1: The inflationary gap is the amount by which the actual aggregate demand exceeds the level of
aggregate demand required to establish the full-employment equilibrium.
Statement-2: The deflationary gap is a measure of the amount of the excess of aggregate demand.
(a) Both Statement 1 & 2 are True
(b) Both Statement 1 & 2 are False
(c) Statement-1 is True but Statement-2 is False
(d) Statement-2 is True but Statement-1 is False
34 Statement-1: Deficient demand gives rise to a ‘deflationary gap
Statement-2: Deflationary gap causes the economy’s income, to decline, thus pushing the economy into an
under-employment equilibrium.
(a) Both Statement 1 & 2 are True
(b) Both Statement 1 & 2 are False
(c) Statement-1 is True but Statement-2 is False
(d) Statement-2 is True but Statement-1 is False
35 Read the following Assertion (A) and Reasons (R)
Assertion (A): During excess demand, there is no change in the level of unemployment
Page 17 of 34
 Reason (R) : At the time of excess demand, there is no involuntary unemployment
Alternatives
a) Assertion and reason are true and reason is correct explanation of assertion
b) Both assertion and reason are true but reason is not correct explanation of assertion
c) Assertion is true but reason is false
d) Assertion is false but reason is true
36 Read the following Assertion (A) and Reasons(R)
Assertion (A): Monetary measures are adopted by the central bank to control deficient demand.
Reason (R): Fiscal measures are adopted by the government through budget to control excess demand.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true.
37 In the given figure, what does the gap ‘KT’ represent?

a) Deflationary gap
b) Inflationary gap
c) Investment multiplier
d) Aggregate supply

38

What does the point B denote in above diagram

a) C = AD. b) AD=Y c) S=I d) C=Y

Page 18 of 34
39

Above diagram shows

a) Increase in MPC b) decresae in MPC.
c) increase in income d) increase in autonomous consumption
40

In the above diagram, the value of MPC will be

a) 1/3. b). 2/3 c) 0 d) 1

41

Observe the above given diagram and pick the correct answer
If an economy, there is AD>AS, this will result in
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 a) Shift of AD towards right b) shift of AD towards left
c) decrease in employment d) increase in employment
42 Match the following
GROUP 1 GROUP 2
A) Aggregate Supply I C/Y
B) AutonomousInvestment II Expected Receipts
C) Consumption III Government Investments
D) APC IV Addition to stock of capital
E) Investment V J M Keynes

a) A-I, B-II, C-III, D-IV, E- V b) A-II, B-III, C-V, D-I, E- IV

c ) A-II, B-III, C-I, D-V, E- IV d) A-III, B-II, C-I, D-IV, E- V
43 Multiplier will be lower with which one of the following?
a) High marginal propensity to consume
b) Low marginal propensity consume
c) High marginal propensity to invest
d) Low marginal propensity to save

Page 20 of 34
 Unit-4 Government Budget and the Economy
------------------------------------------------------------------------------------------------------------------------------------------------------
1. "In the Annual Budget 2023-24, the Government of India set up disinvestment targets of 65,000 crore". Such
proceeds from disinvestment can be classified as________________ receipts in the Government Budget as it
leads to ________________ of the Government. (Choose the correct alternative)
(A) Capital, decrease in assets (B) Revenue, increase in assets
(C) Capital, increase in liabilities (D) Revenue, decrease in liabilities

2. In order to tackle the problem of rising general price level (inflation) in an economy. Government may come up
with a surplus budget to achieve the budget objective of __________________
(i) Reallocation of resources (ii) Price stability
(iii) Redistribution of income Choose the correct option from the following.
(A) (i) only (B) (iii) only (C) (ii) only (D) (i) and (iii)

3. Read the following statements - Assertion (A) and Reason (R): Choose the correct alternative among those given
the below:
Assertion (A): In the process of development, construction of dams, new schools, new plants, and repayment of
loans is essential.
Reason (R): Capital expenditure creates the assets of the government and causes reduction in the liabilities of the
government.
Choose the correct option from the following.
(A) Both A and R is true and R is the correct explanation of A.
(B) Both A and R is true but R is not the correct explanation of A.
(C) A is true but R is false.
(D) A is false but R is true.

4. Read the following statements - Assertion (A) and Reason (R): Choose the correct alternative among those given
the below:
Assertion (A): High Fiscal deficit throws a country into the debt trap and enhances foreign dependence.
Reason (R): Fiscal discipline of any country establishes the credibility of country's credit worthiness.
Choose the correct option from the following.
(A) Both A and R is true and R is the correct explanation of A.
(B) Both A and R is true but R is not the correct explanation of A.
(C) A is true but R is false.
(D) A is false but R is true.

5. “Free distribution of LPG connection to poor people is a sign of social justice”. Identify the Objective of
Government Budget' from the above-mentioned statement.
(A) Promote Economic Growth (B) Management of public enterprises
(C) Create equitable distribution of income (D) Create fluctuation in revenue of the government

6. Read the following statements carefully and choose the correct alternative:
Statement 1: Fiscal deficit is always greater than primary deficit.
Statement 2: Fiscal deficit indicates borrowing requirements of the government.
(A) Both the statements are true. (B) Both the statements are false.
(C) Statement 1 is false, but statement 2 is true. (D) Statement 2 is false, but statement 1 is true

7. From the set of statements given in column I and column II, choose the correct pair of statements:
Column I Column II
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 (A) Payments of salaries (i) Capital Expenditure
(B) Giving loan to Nepal (ii) Revenue Expenditure
(C) Getting grants from IMF (iii) Capital Receipts
(D) Providing free covid vaccine to public (iv) Revenue Receipts

8. Fiscal deficit in Government Budget indicates………

(A) Excess of capital expenditure over capital receipt (excluding borrowings)
(B) Excess of revenue expenditure over revenue receipt
(C) Borrowing requirement of the State Governments only
(D) Excess of total expenditure over revenue receipts and non-debt creating capital receipts

9. 'Govt. of India spends 2.5 crore for Olympic medalist Mirabai Chanu in 5 years; This will be categorized as
(A) Revenue Nature Income (B) Capital Nature Income
(C) Capital Nature Expenditure (D) Revenue Nature Expenditure

10. According to ‘Pradhan Mantri Garib Kalyan Anna Yojana': During the period May-November 2021, more than
1.35 crore people will be provided 5 kg free wheat/rice per person/month along with 1 kg free whole chana to
each family per month to safeguard the interest of poor section during Covid-19 pandemic.
Which objective does the government aim to satisfy with this?
(A) Economic Stability (B) Reallocation of Resources
(C) Economic Growth (D) Reducing inequalities in income and wealth

11. Assertion (A): borrowings are capital receipts but payment of interest on borrowings is revenue expenditure.
Reason (R): Borrowings creates liability but payment of interest does not reduce liability.
Choose the correct option from the following.
(A) Both Assertion (A) and Reason (R) are true, (R) is correct explanation of (A).
(B) Both Assertion (A) and Reason (R) are true but (R) is not correct explanation of (A).
(C) Assertion (A) is true and Reason (R) is false.
(D) Assertion (A) is false and Reason (R) is true.

12. Assertion (A): Through the changes in expenditure & taxes, government bring economic stability.
Reason(R): In case of deflation, the government can give tax concession or increase expenditure to leave more
disposable income in the hands of the people. In case of inflation, government can reduce its expenditure or
increase in tax rate.
Choose the correct option from the following.
(A) Both Assertion (A) and Reason (R) are true, (R) is correct explanation of (A).
(B) Both Assertion (A) and Reason (R) are true but (R) is not correct explanation of (A).
(C) Assertion (A) is true and Reason (R) is false.
(D) Assertion (A) is false and Reason (R) is true.

13. Assertion (A): The government budget of a country cannot have fiscal deficit without the existence of revenue
deficit.
Reason (R): Fiscal deficit can exist without revenue deficit, if capital budget is in deficit with balanced revenue
budget or if capital budget is in deficit in greater proportion to surplus revenue budget.
Choose the correct option from the following.
(A) Both Assertion (A) and Reason (R) are true, (R) is correct explanation of (A).
(B) Both Assertion (A) and Reason (R) are true but (R) is not correct explanation of (A).
(C) Assertion (A) is true and Reason (R) is false.
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 (D) Assertion (A) is false and Reason (R) is true.

14. Capital expenditure is that estimated expenditure of the government by which:

(A) Assets are increased (B) Liabilities are decreased
(C) Both a and b (D) Assets and liabilities do not change

15. If primary deficit is 3500 and interest payment is 500, then fiscal deficit is:
(A) 2900 (B) 4000 (C) 4100 (D) 4200

16. Which of the following conditions satisfy the concept of revenue receipt?
(A) Does not create liability (B) Does not reduce asset
(C) Create liability (D) Both (A) and (B)

17. Disinvestment is which type of receipt for the Government?

(A) Capital Receipt (B) Revenue Receipt (C) Both (A) and (B) (D) None of these

18. The sources to meet fiscal deficit are

(A) Borrowings from public (B) Borrowings from external sources
(C) Deficit financing (D) All of these

19. ______receipts are non-recurring in nature.

(A) Revenue (B) Capital (C) Both (A) and (B) (D) None of these

20. Statement 1- Fiscal deficit includes borrowings to create loan

Statement 2- Fiscal deficit depicts borrowings required to meet current year budget expenditure
(A) Both are correct (B) Both are wrong
(C) Statement 1 is correct and statement 2 is wrong (D) Statement 1 is wrong and statement 2 is correct

21. Under Ujjwala Yojana, the Government of India is providing free LPG kitchen gas connections to the families
living 'below the poverty line'. Identify the objective that the government is trying to fulfill here.
(A) Allocation of resources (B) Reducing distribution of income inequalities
(C) Economic growth (D) Financial stability

22. Choose the correct alternatives to be filled in given blanks A, B and C.

(A) A- Revenue receipts, B- Capital receipts C-Government budget

(B) A- Capital receipts, B- Government budget, C- Revenue receipts
(C) A- Capital receipts, B- Revenue receipts, C-Government budget
(D) A- Government budget, B- Revenue receipts, C-Capital receipts

23. Which of the following are the objectives of government budget?

Page 23 of 34
(A) Distribution of income and wealth (B) Economic stability
(C) GDP growth (D) All of these

24-Which of the following is an example of a public good?

(A) Medicines and injections (B) Books and stationary
(C) Houses and furniture (D) Law and order

25. __________________is a revenue receipt of the government.

(A) Funds raised by the government by issuing National Saving Certificates
(B) Sale of 40% shares of a public sector undertaking to a private enterprise
(C) Profits of LIC, a public enterprise
(D) Amount borrowed from Japan for construction of Bullet Train

26. Identify which of the following statements is true?

(A) Fiscal deficit is difference between planned revenue expenditure and planned revenue receipts.
(B) Fiscal deficit is difference between total planned expenditure and total planned receipts.
(C) Primary deficit is the difference between total planned receipt and interest payments.
(D) Fiscal deficit is the sum of primary deficit and interest payment.

27. Repayment of loan is an example of

(A) Capital Expenditure (B) Nom plan Expenditure (C) Revenue Expenditure (D) Plan Expenditure

28. Identify which objective of the government budget should we use to tackle the issue depicted in the image
given below.

Alternatives:
(A) Allocation of resources (B) Reducing income inequalities
(C) Economic stability (D) Reducing regional disparities

29. Read the following statement carefully and choose the correct alternative from the following:
Statement 1: Government Budget is a detailed economic statement presented by Finance Minister.
Statement 2: Government Budget consists of financial programmes and policies of the government for the next
year.
Alternative:
(A) Both the statement are true (B) Both the statement are false.
(C) Statement 1 is true and statement 2 is false (D) Statement 2 is true and statement 1 is false

30. Assertion (A): If primary Deficit is Zero, Fiscal Deficit = Interest Payments.
Reasons (R): Primary deficit is the difference between fiscal deficit of the current year and interest payments on
the previous borrowings.
Choose the correct option from the following.
(A) Both Assertion (A) and Reason (R) are true, (R) is correct explanation of (A).

Page 24 of 34
(B) Both Assertion (A) and Reason (R) are true but (R) is not correct explanation of (A).
(C) Assertion (A) is true and Reason (R) is false.
(D) Assertion (A) is false and Reason (R) is true.

31. Identify the budgetary situation in the economy.

(A) Deficit budget (B) Surplus budget (C) Balanced budget (D) None of the above.

32. Government expenditure on midday meal scheme running in government schools is a _______________
expenditure in government budget
(A) Capital (B) Revenue (C) Normal (D) Any of these

33. List the following items as revenue and capital expenditure.

(A) Subsidies (B) Purchase of train coaches from South Korea
(C) Amount borrowed from UK repaid (D) Grants given to state government

34. The fee of the government college is a part of revenue receipts because.
(A) It creates liabilities of the government
(B) It increases assets of the government
(C) It neither creates any liability nor reduces any assets of the government
(D) It either creates liability or reduces any assets of the government

35. Which of the following is the implication of revenue deficit?

(i) A high revenue deficit shows fiscal discipline.
(ii) It shows wasteful expenditure of government on administration.
(iii) It implies that government is dis-saving.
Choose the correct option from the following.
(A) i and ii (B) i and iii (C) ii and iii (D) i,ii,and iii

36. Assertion (A): Fiscal deficit gives the better picture of the government expenditure in comparison to revenue
deficit.
Reason (R): Fiscal deficit reflects borrowings requirement of the government.
Choose the correct option from the following.
(A) Both assertion A and R is true, and R is the correct explanation of A
(B) Both assertion A and R is true, and R is not the correct explanation of A (C) A is false but R is false.
(D) A is false but R is true

37. Fill the blank area with any four objectives of government budget:

Page 25 of 34
38. Assertion (A): Expenditure on food subsidy in the budget is entered under capital expenditure head. Reason
(R): This expenditure neither created assets nor reduce the liabilities of the government.
Choose the correct option from the following.
(A) Both assertion A and R is true, and R is the correct explanation of A
(B) Both assertion A and R is true, and R is not the correct explanation of A
(C) A is false but R is false.
(D) A is false but R is true

39. A large fiscal deficit implies ______________.

(A) Very small savings (B) Investment (C) Borrowing requirement (D) No borrowing

40. Capital expenditure is that estimated expenditure of the government by which:

(A) Assets are increased (B) Liability is decreased
(C) Both (A) and (B) (D) assets and liabilities do not change

41. Match List-I with List-II :

List-I (Elements) List-II (Features)
(A) Annual Financial Statement (I) Create liabilities or reduce financial assets
(B) Capital Receipts (II) Trade surplus
(C) Capital Payment (III) Main budget document
(D) Export > Import (IV) Create financial assets or reduce liabilities

Choose the correct answer from the options given below:

(A) (A)- (I), (B) - (II), (C) - (III), (D) - (IV)
(B) (A) - (III), (B) - (I), (C) - (IV), (D) - (II)
(C) (A)- (I), (B) - (II), (C) - (IV) (D) - (III)
(D) (A)- - (III), (B) - (IV), (C) - (I), (D) - (II)

42. Read the following statements carefully and choose the correct alternative.
Statement I: Public goods are non-excludable.
Statement II : Consumption of public goods by people is of rivalrous nature.
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement I is true but statement II is false.
(d) Statement II is true but statement I is

Page 26 of 34
 43. Identify which of the following is an example of nondebt capital receipt?
(a) Financial aid from MNC for victims in flood affected area.
(b) Borrowings from International Monetary Fund (IMF).
(c) Recovery of loans from State Governments.
(d) Dividend paid by State Bank of India (SBI) to the Government

Question 44 to 49 are to be answered on the basis of given data and common knowledge:

S. No. Items Amount (Paisa/Rupee)

(i) Corporation Tax 13
(ii) Income Tax 14
(iii) Customs 3
(iv) Union Excise Duties 8
(v) Goods and Services Tax 15
(vi) Non-Tax Revenue 6
(vii) Non-Debt Capital Receipts 5
(viii) Borrowing and other liabilities 36

44. What is the percentage share of total tax revenue in government total receipts?
(a) 50%
(b) 53%
(c) 59%
(d) 45%

45. Identify which of the following is not an example of non-tax revenue?

I. Fees
II. Income Tax
III. Borrowings
IV. Grants
(a) II only
(b) II and III only
(c) II, III and IV only
(d) I and IV only

46. If government borrowings increase, which of the following statement will be incorrect for the current fiscal
year?
(a) Primary deficit will increase.
(b) Fiscal deficit will increase.
(c) Revenue deficit will decrease.
(d) Government burden for future payment will increase.

47. Which among the following is an example of Indirect Tax?

(a) Income Tax
(b) Corporation Tax
(c) Excise Duties
(d) Gift Tax

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 48. If government borrowings for the fiscal year is ₹ 35,000 crore and interest payments are ₹ 5,000 crore then
the value of fiscal deficit will be
(a) ₹ 35,000 crore
(b) ₹ 30,000 crore
(c) ₹ 40,000 crore
(d) ₹ 7,000 crore

49. If the government increases its expenditure without increasing taxes, the likely outcome will be:
a) Increase in fiscal deficit only
b) Decrease in revenue deficit
c) Increase in fiscal deficit and public debt
d) Increase in tax receipts

50. Which of the following changes will reduce both fiscal and revenue deficits?
a) Introduction of Goods and Services Tax (GST)
b) Reduction in government subsidies
c) Increase in capital expenditure
d) Reduction in interest payments on loans

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 Unit-5 Balance of Payment and Foreign Exchange Reserves
1. In case of currency appreciation, the domestic currency becomes
(A) Less valuable (B) More valuable (C) To rise (D) Fall

2. Other things remaining the same, when in a country the market price of foreign currency falls, national income
is likely_______________________.
(A) To rise (B) To fall (C) Both (A) and (B) (D) To remain unaffected

3. When domestic currency appreciates, it benefits_______________ and harms________________.

(A) Domestic exporters, domestic importers (B) Domestic exporter, foreign importer
(C) Domestic importer, foreign exporter (D) Domestic importer, domestic exporter

4. Who will be benefitted when there is an appreciation in foreign currency in terms of domestic currency?
(A) Importers (B) Exporters (C) Both (A) and (B) (D) Neither (A) and (B)

5. The immediate (two days) exchange of one currency for another is a

(A) Forward transaction (B) Spot transaction (C) Forward transactions (D) Monthly transactions

6. In an agreement to exchange one currency for another in the three months at a fixed price the price is the
______________________.
(A) Spot exchange rate (B) Money exchange rate
(C) Forward exchange rate (D) Monthly exchange rate

7. In foreign exchange market, foreign exchange rate between Indian rupee and US Dollar changes from ₹85/1$ to
₹80/1$. This refers to
(A) Appreciation of Indian currency
(B) Depreciation of US currency
(C) Appreciation of Indian currency and depreciation of US currency
(D) Depreciation of Indian currency and appreciation of US currency

8. What will be the effect of appreciation of domestic currency?

(A) Imports will fall and exports will rise (B) Both exports and imports will fall
(C) Imports will rise and exports will fall (D) Both exports and imports will rise

9. Heading in the foreign exchange market refers to:

(A) An act of devaluation
(B) Covering a risk of fluctuation in the foreign exchange rates of future
(C) Not covering a risk of in the foreign exchange rates in future
(D) An act of revolution

10. If there is a balance of payment deficit, then in a floating exchange rate system:
(A) The external value of the currency would to fall
(B) The external value of the currency would to rise
(C) The injections from trade are greater than withdrawals
(D) Aggregate demand increase

11. An overvalued currency will have which of the following effect?

(A) Make exports and imports equally costly
(B) Make exports and imports equally cheaper
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(C) Make imports relatively more costly
(D) Make imports relatively cheaper

12. An overvalued Indian rupee in the foreign exchange market will have which one of the following consequence?
(A) Make imports cheaper and export costlier
(B) Make imports costlier and export cheaper
(C) Give protection to domestic industry again foreign competition
(D) Will improve balance of payment

13. Consider the following statements.

1. All types of physical goods imported and exported are known as invisible trade.
2. All services which are exported and imported are known as invisible items.
Which of the above statement(s) is/are correct?
(A) Only 1 (B) Only 2 (C) Both 1 and 2 (D) None of the above

14. Consider the following statements about BOP.

1. Capital transfers involve transfer of assets and liabilities.
2. Unilateral transfers include gifts, donations, etc. under the domestic territories of a country.
Which of the above statement(s) is/are correct?
(A) Only 1 (B) Only 2 (C) Both 1 and 2 (D) None of these

15. Consider the following statements.

1. The BOP account of a nation follows double-entry bookkeeping.
2. Each and every transaction has minimum two aspects/effects.
2. BOP account has two parts ‘Debits’ and ‘credits’.
Which of the above statement(s) is/are correct?
(A) Only 1 (B) Only 2 (C) Both 2 and 3 (D) all of these

16. Consider the following statements.

1. BOP account always shows equilibrium as recording point of view.
2. BOP does not present deficit.
Which of the above statement(s) is/are correct?
(A) Only 1 (B) Only 2 (C) Both 1 and 2 (D) None of these

17. Consider the following statements

1. When the credits of a BOP account are greater than debits, the BOP account will be in surplus or favourable.
2. When the credits of a BOP account are smaller than debits, the BOP will be in deficit.
Which of the above statement(s) is/are correct?
(A) Only 1 (B) Only 3 (C) Both 1 and 2 (D) None of these

18. Consider the following statements.

1. BOP account is prepared for one-year period of time.
2. BOP account is prepared for one accounting period of time.
3. BOP account is prepared for a fixed period of time
Which of the above statement(s) is/are correct?
(A) 1 and 2 (B) 2 and 3 (C) All of these (D) None of the above

19. Consider the following statements.

1. Autonomous items are also called ‘Items below the line’.
2. Export and Import of machines are the example of items above the line in BOP account.
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3. Export and Import of services are not the example of items below the line is BOP account.
Which of the above statement(s) is/are correct?
(A) Only 1 (B) Only 2 (C) Both 1 and 2 (D) None of these

20. Consider the following statements.

1. Capital transfers are the items of below the line in BOP account.
2. Unilateral transfers are the item of below the line is BOP account.
Which of the above statement(s) is/are correct?
(A) Only 1 (B) Only 2 (C) Both 1 and 2 (D) None of these

21. Match the following.

List 1 List 2
A Visibles 1 Foreign Investment and borrowing
B Invisible 2 Transportation and communications
C Capital account 3 Car and Mobiles
D Unilateral transfers 4 Grants and donations
Alternatives:
A B C D
(A) 2 1 3 4
(B) 3 2 1 4
(C) 3 4 2 1
(D) 1 2 3 4

22. Match the following.

List 1 List 2
A Economic factor for deficit in BOP 1 Leaders
B Social factor for deficit in BOP 2 Inflation
C Political factor for deficit in BOP 3 Demonstration effect
Alternatives:
A B C
(A) 1 2 3
(B) 3 2 1
(C) 2 3 1
(D) 3 1 2

23. Match the following.

List 1 List 2
A Balance of Trade 1 Can be affected exchange rate
B Balance of Payments 2 Cannot be affected exchange rate
C Favourable BOP 3 Debit equals to credits
D Unfavourable BOP 4 Unequal debits and credits
Alternatives:
A B C D
(A) 3 2 1 4
(B) 3 1 2 4
(C) 1 2 3 4
(D) 4 2 3 1

24. Match the following.

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 List 1 List 2
A Fixed exchange rate 1 Floating
B Flexible exchange rate 2 Pegged
C Spot exchange rate 3 Time
D Market exchange rate 4 Short-run
Alternatives:
A B C D
(A) 2 1 3 4
(B) 1 2 3 4
(C) 3 2 1 4
(D) 3 1 4 2

25. Which amongst the following is not correctly matched with regard to balance of payment accounts?
Options Item Nature
(A) Imports of goods and services Debit in current account
(B) Receipts of transfer payment Credit in the current account
(C) Direct investment receipts Credit in the capital account
(D) Portfolio investment redemption Debit in the current account

(26-37) In the following questions, there are two statements given. Choose the correct answer out of the following
choices.
(A) Both the statements are true (B) Both the statements are false
(C) Statement-I is true and Statement-II is false (D) Statement-I is false and Statement-II is true

26. Statement-I: Balance of Payment is an accounting statement which records all the economic transactions that
place between the residents of a country during a given period of time.
Statement- II: Current account of Balance of Payment records all the transactions that relate to assets or liabilities.

27. Statement- I: External assistance is recorded in the capital account of the Balance of Payments.
Statement-II: The Central Bank may finance a deficit in balance of payments by reducing reserves of foreign
currency.

28. Statement-I: Borrowing and lending money in international money market is a part of current account in BOP.
Statement-II: Autonomous transactions are independent of the state of country's BOP.

29. Statement-I: Since it is difficult transaction to record all which international economic transactions accurately,
therefore we have a third element of BOP (apart from the current and capital accounts) called errors and
omissions which reflects this.
Statement-II: Any international transaction which results in outflow of foreign exchange is recorded on the credit
side in the balance of payments accounts (the current account or capital account).

30. Statement-I: Any international transaction which leads to inflow of foreign exchange is recorded on the credit
side in the balance of payments accounts (the current account or the capital account).
Statement-II: While FDI involves foreign investors taking a controlling and lasting stake in productive enterprises,
portfolio investments represent holdings of minor equity (without management control) or debt through the stock
markets by foreign investors for the purpose of earning return on investment.

31. Statement-I: Trade surplus refers to the excess of the payments for the value of import of visible items over the
value of receipts of export of visible items (goods) during a year.

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Statement-II: Current account deficit signifies that the nation is a borrower from the rest of the world.

32. Statement-I: External Borrowings, e.g. External Commercial Borrowings, Short-term Debt, etc are included in
the capital account of BOP.
Statement-II: Direct Investments, e.g. Foreign Direct Investments (FDIS), Equity capital, Reinvested Earnings and
other Direct Capital Flows are included in the current account of BOP.

33. Statement-I: Portfolio Investment, e.g. Foreign Institutional Investments (Flls), Off shore Funds, etc is included
in the current account of BOP.
Statement-II: Surplus in capital account arises when capital inflows (like receipt of loans from abroad, sale of assets
or shares in foreign companies) are greater than capital outflows (like repayment of loans, purchase of assets or
shares in foreign countries).

34. Statement-I: The Reserve Bank of India (RBI) sells foreign exchange in the foreign exchange market when there
is a deficit in balance of payments.
Statement-II: The increase (decrease) in official reserves is called the overall balance of payments deficit (surplus).

35. Statement-I: Since the official reserve transactions are made to bridge the gap in the BOP, they are seen as the
accommodating transactions in the BOP.
Statement-II: Official reserve transactions are more relevant under a regime of fixed exchange rates than when
exchange rates are floating.

36. Statement-I: Outflow of foreign exchange on account of imports of goods and services, investments made
abroad etc. (total debits in the BOP accounts) represent the demand for foreign exchange in the foreign exchange
market
Statement-II: Total credits in the BOP accounts, e.g., inflow of foreign exchange for all exports of goods and
external borrowings, foreign investments, etc. represent the supply of foreign exchange in the foreign exchange
market.

37. Statement-I: Official reserve transactions are more relevant under a regime of fixed exchange rates than when
exchange rates are floating.
Statement-II: When the government increases the exchange rate (thereby, making domestic currency cheaper in
terms of a foreign currency) is called Devaluation of domestic currency.

(38-50) In the following questions, a statement of Assertion (A) followed by a statement of Reason (R) is given.
Choose the correct answer out of the following choices.
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(B) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(C) Assertion (A) is true but Reason (R) is false
(D) Assertion (A) is false but Reason (R) is true
38. Assertion (A): Trade of invisible items between two nations is a part of capital account of Balance of payment.
Reason (R): Transactions that affect the asset-liability status of a country in relation to the rest of the world are
known as capital account transaction.

39. Assertion (A): Difference between value of exports and imports of goods and services is called trade balance.
Reason (R): Trade Balance is difference between value of exports of goods and imports of goods only. It does not
include exports and imports of services.

40. Assertion (A): Profit received from investments abroad is recorded in capital account.

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Reason (R): Profits received from investments abroad is recorded in the current account since it is an investment
income (factor income). It will be recorded on the credit side of the current account since it leads to inflow of
foreign exchange.

41. Assertion (A): Import of machine is recorded in current account.

Reason (R): All imports and exports of goods are recorded in the current account, because it is simply import /
export of a good.

42. Assertion (A): Foreign investments in India will be recorded on the credit side of the capital account in the
Balance of payment account.
Reason (R): Foreign investment in India is of capital nature (increasing the asset of the country). It leads to inflow
of foreign currency of the country.

43. Assertion (A): Current account in Balance of Payments records only the exports and imports of goods and
services.
Reason (R): Current Account of Balance of Payments records unilateral transfers along with exports and imports of
goods and services.

44. Assertion (A): Borrowing from abroad are recorded in the capital account of the BOP on the debit side.
Reason (R): Borrowing from abroad are recorded in the capital account of the balance of payment on the credit
side as it results in inflow of foreign currency in the economy.

45. Assertion (A): Trade deficit is always a great cause of worry for an economy.
Reason (R): Trade deficit is a lesser cause of worry, if it reflects a rise in investment which will build the capital
stock and increase the future output of the country.

46. Assertion (A): A country with trade deficit cannot have current account surplus in its BOP.
Reason (R): Trade deficit occurs when value of goods (visible) imported is more than the value of goods (visible)
exported. Current account surplus in this situation will arise when the deficit on trade account is less than the
surplus on account of invisibles.

47. Assertion (A): Make in India will have a favorable impact on BOP position of India.
Reason (R): Make in India programme will increase supply of foreign exchange in India, causing improvement in
the balance of payments position.

48. Assertion (A): Import of Pulses will have a favorable effect on balance of Payments position of India.
Reason (R): Import of pulses will lead to outflow of foreign exchange from the country, causing adverse effect on
BOP Position.

49. Assertion (A): An increase in foreign income improves the trade balance.
Reason (R): An increase in foreign income leads to increased exports. Thus, trade balance (export of goods –
Import of goods) increases.

50. Assertion (A): Borrowing and lending money in international Money market is part of capital account in BOP.
Reason (R): Borrowing and lending money in international money market is a apart of current account in BOP.

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