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CUET Exam  >  CUET Tests  >  CUET UG Mock Test Series 2026  >  Economics: CUET Mock Test - 10 - CUET MCQ

Economics: CUET Mock Test - 10 - CUET MCQ


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30 Questions MCQ Test CUET UG Mock Test Series 2026 - Economics: CUET Mock Test - 10

Economics: CUET Mock Test - 10 for CUET 2025 is part of CUET UG Mock Test Series 2026 preparation. The Economics: CUET Mock Test - 10 questions and answers have been prepared according to the CUET exam syllabus.The Economics: CUET Mock Test - 10 MCQs are made for CUET 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Economics: CUET Mock Test - 10 below.
Solutions of Economics: CUET Mock Test - 10 questions in English are available as part of our CUET UG Mock Test Series 2026 for CUET & Economics: CUET Mock Test - 10 solutions in Hindi for CUET UG Mock Test Series 2026 course. Download more important topics, notes, lectures and mock test series for CUET Exam by signing up for free. Attempt Economics: CUET Mock Test - 10 | 50 questions in 60 minutes | Mock test for CUET preparation | Free important questions MCQ to study CUET UG Mock Test Series 2026 for CUET Exam | Download free PDF with solutions
Economics: CUET Mock Test - 10 - Question 1
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Consider the following statements:
(A) The production function describes the relationship between inputs and the output produced.
(B) The law of diminishing marginal returns states that as more units of a factor are added, the marginal product of that factor will eventually increase.
(C) Total Product refers to the total output produced by a given amount of variable input while keeping other inputs constant.
(D) The production function assumes that technology is fixed and does not change over time.
Choose the correct answer from the following:

Detailed Solution for Economics: CUET Mock Test - 10 - Question 1

(A) is correct because the production function does describe the relationship between inputs and outputs.
(B) is incorrect. The law of diminishing marginal returns states that, when adding more units of a variable input (with other inputs fixed), the marginal product of that input will eventually decrease after a certain point, not increase.
(C) is correct because total product is the total output produced with a given amount of input.
(D) is incorrect because technology can change over time, affecting the production function.

Economics: CUET Mock Test - 10 - Question 2
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Consider the following statements:
(A) The law of variable proportions states that as more units of a variable input are added to a fixed amount of other inputs, the marginal product will first increase, and then eventually decrease.
(B) The total product curve shows the relationship between the level of output and the level of labor employed, holding capital constant.
(C) A firm can increase its output by increasing both fixed and variable inputs simultaneously in the short run.
(D) The short run marginal cost curve intersects both the average variable cost curve and the average total cost curve at their minimum points.
Choose the correct answer from the following:

Detailed Solution for Economics: CUET Mock Test - 10 - Question 2

(A) is correct because the law of variable proportions explains how marginal product first increases and then decreases.
(B) is correct, as the total product curve shows the relationship between output and labor with capital constant.
(C) is incorrect because in the short run, at least one factor (like capital) is fixed.
(D) is correct because the short run marginal cost curve intersects both the AVC and ATC curves at their minimum points.

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Economics: CUET Mock Test - 10 - Question 3
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Consider the following statements:
(A) A firm’s average variable cost decreases as output increases.
(B) Total cost is the sum of total fixed cost and total variable cost.
(C) Marginal cost increases as production levels increase.
(D) In the short run, a firm cannot adjust the total fixed costs.
Choose the correct answer from the following:

Detailed Solution for Economics: CUET Mock Test - 10 - Question 3

(A) is incorrect because average variable cost may not necessarily decrease as output increases.
(B) is correct because total cost is the sum of total fixed and total variable costs.
(C) is incorrect as marginal cost does not always increase with output.
(D) is correct because in the short run, fixed costs remain constant and cannot be changed.

Economics: CUET Mock Test - 10 - Question 4
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Consider the following statements:
(A) Perfect competition assumes that all firms in the market sell differentiated products.
(B) In perfect competition, firms are price takers and cannot influence the market price.
(C) A firm in perfect competition will earn economic profits in the long run due to free entry and exit.
(D) The total revenue of a firm in perfect competition is calculated by multiplying the market price by the quantity of goods sold.
Choose the correct option from the following:
Detailed Solution for Economics: CUET Mock Test - 10 - Question 4

(A) is incorrect: In perfect competition, firms sell homogeneous products, not differentiated products.
(B) is correct: In perfect competition, firms cannot set prices, they accept the market price.
(C) is incorrect: In the long run, firms in perfect competition earn normal profits, not economic profits.
(D) is correct: Total revenue is the product of price and quantity.

Economics: CUET Mock Test - 10 - Question 5
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Consider the following statements:
(A) The profit-maximizing level of output for a firm occurs when marginal cost equals average cost.
(B) The long-run supply curve of a perfectly competitive firm is the upward-sloping portion of its marginal cost curve.
(C) A firm shuts down in the short run if the price is less than its average variable cost.
(D) Perfect competition results in allocative and productive efficiency in the long run.
Choose the correct option from the following:
Detailed Solution for Economics: CUET Mock Test - 10 - Question 5

(A) is incorrect: The profit-maximizing output occurs when MR = MC, not necessarily when MC equals AC.
(B) is incorrect: The long-run supply curve is the portion of the LRMC curve above the minimum LRAC.
(C) is correct: A firm shuts down in the short run if the price is below AVC.
(D) is correct: Perfect competition leads to allocative and productive efficiency in the long run.

Economics: CUET Mock Test - 10 - Question 6
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Stocks/shares of the companies are
Detailed Solution for Economics: CUET Mock Test - 10 - Question 6

Stocks or shares represent ownership in a company. They are a form of Financial Capital.

  • When you buy stocks, you are investing money into a company.
  • This investment is used by the company to grow or fund its operations.
  • In return, you receive a share of the company's profits.

Thus, stocks are categorised as Financial Capital because they provide the funds necessary for business activities.

Economics: CUET Mock Test - 10 - Question 7
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Direction: Read the following passage and answer the question that follows:

Jordan Cement Factories Company was set up in December 1951 as a share holding company. In March 1954, the company commenced business with the first bag of cement.

In order to ascertain the cost of products for a particular period of time, the company prepares cost sheet, the cost sheet data are collected from various statements of accounts which have been written in cost accounts either on day to day or regular records. The main elements of cost sheet are prime cost,work cost and cost of production.

The main principle that underlines the cost classifications of main elements of the cost is fixed and variable cost basis. The company does not consider any others basis like direct and indirect costs or revenue and capital cost or functional classification for cost classification. Fixed and variable cost is based on the changes in activity or volume. Fixed cost or period cost remain unchanged in spite of changes in volume or activity.

Variable cost or product cost vary in complete proportion to the volume of output. Capital and revenue basis depends on the purpose of expenditure. Any cost incurred in purchasing assets either to earn income or increasing the earning capacity of the business is known as capital cost. But any cost incurred for the purpose of maintaining the earning capacity of the business it is revenue expenditure.

Q. The main principle underlying the cost classification is the main element of the cost in ..................... and ..................... cost basis.
Detailed Solution for Economics: CUET Mock Test - 10 - Question 7
Based on elements, cost is classified into material, labour and expenses. They are subdivided into direct and indirect material, labour and expenses. The total direct cost is termed as prime cost. Indirect material, indirect labour and indirect expenses, together are termed as indirect cost or 'overheads'.
Economics: CUET Mock Test - 10 - Question 8
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What is the primary purpose of preparing a cost sheet in Jordan Cement Factories Company?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 8

Answer: B) To ascertain the cost of products for a specific period

Solution: The company prepares a cost sheet to determine the cost of products for a particular period, as stated in the passage.

Economics: CUET Mock Test - 10 - Question 9
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Which basis does Jordan Cement Factories Company primarily use for cost classification?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 9

Answer: C) Fixed and variable cost basis

The company uses the fixed and variable cost basis for cost classification, as mentioned in the passage.

Economics: CUET Mock Test - 10 - Question 10
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What is fixed cost or period cost?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 10

Answer: B) Costs that remain unchanged despite changes in volume or activity

Fixed costs or period costs do not change with changes in volume or activity, as explained in the passage.

Economics: CUET Mock Test - 10 - Question 11
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Direction: Read the following passage and answer the question that follows:

Jordan Cement Factories Company was set up in December 1951 as a share holding company. In March 1954, the company commenced business with the first bag of cement.

In order to ascertain the cost of products for a particular period of time, the company prepares cost sheet, the cost sheet data are collected from various statements of accounts which have been written in cost accounts either on day to day or regular records. The main elements of cost sheet are prime cost,work cost and cost of production.

The main principle that underlines the cost classifications of main elements of the cost is fixed and variable cost basis. The company does not consider any others basis like direct and indirect costs or revenue and capital cost or functional classification for cost classification. Fixed and variable cost is based on the changes in activity or volume. Fixed cost or period cost remain unchanged in spite of changes in volume or activity.

Variable cost or product cost vary in complete proportion to the volume of output. Capital and revenue basis depends on the purpose of expenditure. Any cost incurred in purchasing assets either to earn income or increasing the earning capacity of the business is known as capital cost. But any cost incurred for the purpose of maintaining the earning capacity of the business it is revenue expenditure.

Q. Read the following statements - Assertion (A) and Reason (R)

Assertion (A): Revenue Expenditure is incurred for the purpose of increasing the earning capacity of the business.

Reason (R): Revenue expenditure can be easily defined as money spent for purchase or creating of long-term assets

Select the correct alternative from the following:
Detailed Solution for Economics: CUET Mock Test - 10 - Question 11
Revenue expenditure benefits one accounting period only. Earning capacity : Capital expenditure helps to increase the earning capacity of the business or to reduce the operating cost. Revenue expenditure is incurred to maintain the existing earning capacity of the business.
Economics: CUET Mock Test - 10 - Question 12
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Read the news report given below and answer the question that follow:

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. “We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure,” Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year’s budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and “minimum government, maximum governance,” the finance minister had asserted. And capital expenditure is an important component that drives the growth.

 

Q. Which objective of the Government Budget does the increase in capital expenditure serve?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 12

Encouragement of economic growth

  • The 34.5% increase in capital expenditure aims to stimulate growth.
  • This rise in spending is crucial for the country’s recovery from the Covid pandemic.
  • Additional funding of ₹2 lakh crore will be provided to states to enhance their own capital projects.
  • A focus on infrastructure development will be encouraged through a new spending mechanism.
  • The launch of a national asset monetisation pipeline aims to optimise government assets.
  • The budget is built around six key pillars, ensuring a comprehensive approach to economic recovery.

This increase in capital expenditure supports overall economic stability and employment generation, making it beneficial for multiple objectives.

Economics: CUET Mock Test - 10 - Question 13
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Read the news report given below and answer the question that follow:

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. “We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure,” Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year’s budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and “minimum government, maximum governance,” the finance minister had asserted. And capital expenditure is an important component that drives the growth.

Q. Why has the Finance ministry hiked the Capital Expenditure?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 13
Finance Minister Nirmala Sitharaman has proposed a 34.5 per cent sharp increase in capital expenditure to Rs 5.54 lakh crore in FY 2022 to propel growth. The massive increase comes at a time when the country is trying to recover from the Covid pandemic, as rising government spending is key to getting the economy back on track.
Economics: CUET Mock Test - 10 - Question 14
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What additional step has the Finance Minister proposed to encourage state governments to increase capital expenditure?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 14

Answer: C) Launching a specific mechanism to nudge states to spend more on infrastructure

The Finance Minister mentioned that a specific mechanism would be worked out to encourage states to allocate a larger portion of their budget for infrastructure development.

Economics: CUET Mock Test - 10 - Question 15
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Read the news report given below and answer the question that follow:

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. “We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure,” Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year’s budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and “minimum government, maximum governance,” the finance minister had asserted. And capital expenditure is an important component that drives the growth.

Q. What problem can the increase in this Capital Expenditure create?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 15
Fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure.
Economics: CUET Mock Test - 10 - Question 16
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Read the news report given below and answer the question that follow:

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. “We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure,” Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year’s budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and “minimum government, maximum governance,” the finance minister had asserted. And capital expenditure is an important component that drives the growth.

Q. ______________________ is an important component that drives the growth.
Detailed Solution for Economics: CUET Mock Test - 10 - Question 16
Capital expenditure is the money spent by the government on the development of machinery, equipment, building, health facilities, education, etc.
Economics: CUET Mock Test - 10 - Question 17
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What is called point of satiety?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 17

Point of Satiety is defined as '' the point where marginal utility of any commodity is zero''. Thus it is a point where satisfaction of any commodity is zero.

Economics: CUET Mock Test - 10 - Question 18
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The total utility divided by the number of units consumed is known as?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 18

Average utility is obtained by dividing the total utility by number of units consumed.

Economics: CUET Mock Test - 10 - Question 19
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An example of factor payments is
Detailed Solution for Economics: CUET Mock Test - 10 - Question 19
Factors of production are the resources used in the production process to create goods and services. Factor payments are the incomes earned by these factors of production. An example of factor payments is an employer's contribution for social security. Here is a detailed explanation:
Factors of Production:
Factors of production are the resources used in the production process. They include land, labor, capital, and entrepreneurship. These factors are combined to produce goods and services.
Factor Payments:
Factor payments are the incomes earned by the factors of production. They are the rewards received for contributing to the production process. The four main types of factor payments are wages, rent, interest, and profit.
An Example of Factor Payments:
In the given options, the answer is B: Employer's contribution for social security. Here's why:
- Retirement pension: Retirement pension is a payment received by individuals after they retire. It is not a factor payment as it is not directly related to the production process.
- Employer's contribution for social security: This refers to the amount contributed by employers towards the social security system. It is a factor payment as it is directly linked to the employment of labor.
- Old age pension: Old age pension is a payment received by individuals when they reach a certain age. It is not a factor payment as it is not directly related to the production process.
- Unemployees' contribution for social security: This refers to the amount contributed by unemployed individuals towards the social security system. It is not a factor payment as it is not directly linked to the production process.
In conclusion, an example of factor payments is an employer's contribution for social security. It is a reward received by the factor of production (labor) for their contribution to the production process.
Economics: CUET Mock Test - 10 - Question 20
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Consumption goods are those which are bought to satisfy wants
Detailed Solution for Economics: CUET Mock Test - 10 - Question 20
Definition of Consumption Goods:
Consumption goods are products or services that are purchased by individuals or households for personal use or satisfaction of wants.
Detailed Explanation:
Consumption goods are an essential part of our daily lives as they fulfill our wants and needs. Here is a detailed explanation of consumption goods:
1. Definition:
- Consumption goods are items that are bought and used by individuals or households for their personal satisfaction or to meet their needs and wants.
2. Types of Consumption Goods:
- Nondurable Goods: These are items that are used up or consumed quickly, usually within a short period. Examples include food, beverages, toiletries, and fuel.
- Durable Goods: These are items that are designed to last for a longer period and provide utility over time. Examples include cars, furniture, electronics, and appliances.
- Services: These are intangible actions or tasks performed by others in exchange for payment. Examples include haircuts, transportation services, healthcare services, and entertainment.
3. Purchased by Consumers:
- Consumption goods are primarily purchased by consumers, which include individuals or households. Consumers buy these goods to satisfy their personal needs, desires, or wants.
4. Importance:
- Consumption goods play a significant role in stimulating economic growth as consumer spending drives demand in the market.
- They contribute to improving the standard of living and overall quality of life for individuals.
- Consumer spending on consumption goods also influences business decisions, production levels, and employment opportunities.
5. Not Limited to Banks, Investors, or Producers:
- Consumption goods are not limited to the purchase or use by banks, investors, or producers.
- Banks provide financial services and products, but they do not directly consume these goods.
- Investors invest in various assets, including stocks, bonds, or real estate, but they do not consume these goods themselves.
- Producers, such as manufacturers or service providers, may use consumption goods in the production process, but the ultimate consumption is by consumers.
Therefore, the correct answer is D. Consumption goods are primarily bought and consumed by consumers to satisfy wants and needs.
Economics: CUET Mock Test - 10 - Question 21
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An example of consumption goods is
Detailed Solution for Economics: CUET Mock Test - 10 - Question 21

Goods which are consumed for their own sake to satisfy current wants of consumers directly are called consumption (or consumer) goods.

Capital goods are fixed assets of producers which are repeatedly used in production of other goods and services. Alternatively durable goods which are bought for producing other goods but not for meeting immediate needs of the consumer are called capital goods. 

Economics: CUET Mock Test - 10 - Question 22
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The law of Psychological consumption states
Detailed Solution for Economics: CUET Mock Test - 10 - Question 22
The law of Psychological consumption states:
- Consumption changes in the same direction as income.
Explanation:
The law of Psychological consumption refers to the relationship between consumption and income. It suggests that as income increases or decreases, consumption also changes in the same direction. Here's a detailed explanation:
Consumption and Income:
- Consumption refers to the amount of goods and services that individuals or households purchase and use for their satisfaction.
- Income, on the other hand, represents the earnings or money received by individuals or households through various sources such as employment, investments, or business activities.
Understanding the Law:
- The law of Psychological consumption states that when income increases, individuals tend to spend more on consumption, thereby increasing their overall consumption levels.
- Similarly, when income decreases, individuals tend to spend less on consumption, resulting in a decrease in their overall consumption levels.
Reasons behind the Law:
- Increase in income leads to an increase in disposable income, which allows individuals to have more purchasing power.
- With higher disposable income, individuals feel more financially secure and confident, leading them to spend more on goods and services.
- On the other hand, a decrease in income reduces disposable income, making individuals more cautious about their spending and leading to a decrease in consumption.
Implications of the Law:
- The law of Psychological consumption has significant implications for businesses and the overall economy.
- Businesses often analyze consumers' income levels to predict their consumption behavior and adjust their marketing strategies accordingly.
- From an economic perspective, the law of Psychological consumption suggests that changes in income can have a multiplier effect on aggregate demand, influencing economic growth.
In conclusion, the law of Psychological consumption states that consumption changes in the same direction as income. As income increases, consumption also increases, and vice versa. This law helps explain consumer behavior and has implications for businesses and the economy as a whole.
Economics: CUET Mock Test - 10 - Question 23
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MPC+MPS=
Detailed Solution for Economics: CUET Mock Test - 10 - Question 23

We are given the information that MPC (Marginal Propensity to Consume) and MPS (Marginal Propensity to Save) are equal.
To find the value of MPC and MPS, we can use the formula:
MPC = Change in Consumption / Change in Income
MPS = Change in Savings / Change in Income
Since MPC and MPS are equal, we can equate the two formulas:
Change in Consumption / Change in Income = Change in Savings / Change in Income
This implies that the change in consumption is equal to the change in savings.
Now, let's analyze the given options:
A:

1.0

- This option suggests that the MPC and MPS are equal to 1.0. This means that for every increase in income, consumption and savings will increase by the same amount.
B:

4

- This option suggests that the MPC and MPS are equal to 4. This does not make sense as the values of MPC and MPS should be between 0 and 1.
C:

2

- This option suggests that the MPC and MPS are equal to 2. This does not make sense as the values of MPC and MPS should be between 0 and 1.
D:

3

- This option suggests that the MPC and MPS are equal to 3. This does not make sense as the values of MPC and MPS should be between 0 and 1.
Therefore, the correct answer is option A, which suggests that MPC and MPS are equal to 1.0.
Economics: CUET Mock Test - 10 - Question 24
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MPS= 1+MPC. It is
Detailed Solution for Economics: CUET Mock Test - 10 - Question 24

MPS + MPC = 1

 

Economics: CUET Mock Test - 10 - Question 25
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Which of the following is not a qualitative method of credit control?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 25

Qualitative or selective measures are those which are directed towards the particular use of credit and not its total volume in other words qualitative of selective measures are generally meant to regulate credit for specific purposes here except changes in cash reserve ratio all other are are qualitative measures as they are subject to regulate money supply for particular purpose while CRR is one of the quantitative measures which is meant for controlling the credit it the entire banking system hence option B is the correct answer

Economics: CUET Mock Test - 10 - Question 26
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 Which of the following methods cannot be used as an instrument of quantitative control of credit by the central Bank?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 26

The correct answer is 'C' - Changes in Margin Requirements. Changes in Margin Requirements is a qualitative or selective method of credit control, and cannot be used as an instrument of quantitative control of credit by the central Bank. The methods used by the central bank to influence the total volume of credit in the banking system, without any regard for the use to which it is put, are called quantitative or general methods of credit control. These methods regulate the lending ability of the financial sector of the whole economy and do not discriminate among the various sectors of the economy. The important quantitative methods of credit control are- (a) bank rate, (b) open market operations, and (c) cash-reserve ratio.

Economics: CUET Mock Test - 10 - Question 27
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Which system of issue of currency note is followed by RBI?
Detailed Solution for Economics: CUET Mock Test - 10 - Question 27

D: Minimum Reserve System

The Reserve Bank of India (RBI) follows the minimum reserve system for issuing currency notes. Under this system, the RBI is required to maintain a certain minimum amount of gold and foreign exchange reserves as a backing for the notes it issues. The RBI can issue currency notes up to a certain limit, known as the statutory liquidity ratio (SLR), based on the value of these reserves.

In the minimum reserve system, the RBI can issue notes up to a certain limit based on the value of its reserves, but it is not required to hold reserves in proportion to the amount of notes it issues. This allows the RBI to have some flexibility in issuing currency notes to meet the demand for cash in the economy.

The fixed fiduciary system, proportional reserve system, and percentage reserve system are other systems that have been used by central banks to issue currency notes. However, they are no longer in use in modern times. The fixed fiduciary system required the central bank to maintain a fixed amount of reserves for every unit of currency issued, while the proportional reserve system required the central bank to hold reserves in proportion to the amount of notes issued. The percentage reserve system required the central bank to hold a certain percentage of its deposits as reserves.

Economics: CUET Mock Test - 10 - Question 28
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One more of the two components of government budget are
Detailed Solution for Economics: CUET Mock Test - 10 - Question 28

The budget is divided into two parts:

(i) Revenue Budget and

(ii) Capital Budget.

Economics: CUET Mock Test - 10 - Question 29
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One of the two components of Revenue budget are
Detailed Solution for Economics: CUET Mock Test - 10 - Question 29

Revenue budget consists of the revenue receipts of the government (tax revenues and other revenues) and the expenditure met from these revenues.

Revenue receipts are divided into tax and non-tax revenue.

► Tax revenue is the income that is gained by governments through taxation. Taxes such as income tax, corporate tax, custom duties, excise and other duties levied by the government.

Other revenues are receipts of the government mainly consisting of interest and dividend on investments made by the government, and fees and receipts for other services rendered by the government.

Economics: CUET Mock Test - 10 - Question 30
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One of the other two components of Revenue budget are
Detailed Solution for Economics: CUET Mock Test - 10 - Question 30

Revenue Budget consists of the revenue receipts of the government (tax revenues and other revenues) and the expenditure met from these revenues.

Revenue receipts are divided into tax and non-tax revenue.

► Tax revenue is the income that is gained by governments through taxation. Taxes such as income tax, corporate tax, custom duties, excise and other duties levied by the government.

Other revenues are receipts of the government mainly consisting of interest and dividend on investments made by the government, and fees and receipts for other services rendered by the government.

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Online Tests for Economics: CUET Mock Test - 10 CUET UG Mock Test Series 2026

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