Economics: CUET Mock Test - 7 - CUET MCQ

The correct answer is FDI.

• FDI(Foreign Direct Investment) is not a component of Current account.
• Current account composed of
  • Exports
  • Imports
  • Trade Balance
  • Invisibles(Services, Transfer, Income)
• ​Capital Account composed of
  • ​External assistance
  • External Commercial Borrowings
  • Banking Capital of the non-resident
  • Foreign Direct Investment
  • Foreign Portfolio Investment

Additional Information

• Both the capital account and current account is the part Balance of payment.
• Balance of Payment is the systematic record of all its economic transactions(both government and private transactions) with the outside world in a given year.

The correct answer is Balance of Payment.

Key Points

• Balance of Payment (BOP) of a country can be defined as a systematic statement of all economic transactions of a country with the rest of the world during a specific period usually one year.
• The balance of payments includes both the current account and capital account.
• The current account includes a nation's net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments.
• The capital account consists of a nation's transactions in financial instruments and central bank reserves.
• The balance of payments (BOP) summarizes all transactions that a country's individuals, companies, and government bodies complete with individuals, companies, and government bodies outside the country.
• These transactions consist of imports and exports of goods, services, and capital, as well as transfer payments, such as foreign aid and remittances.

Additional Information

• A letter of credit is the most well-known method of payment in foreign/international trade.
• Under an import letter of credit, the importer's bank guarantees to the supplier that the bank will pay mentioned amount in the agreement, once the supplier or exporter meets the terms and conditions of the letter of credit.
• This method of payment plays an intermediary role to help complete the trade transaction. The bank deals only in documents and does not inspect the goods themselves.

Important Points

• Letters of Credit are issued subject to the Uniforms Customs & Practice for Documentary Credits (UCPDC) (UCP). This set of rules is produced by the International Chamber of Commerce (ICC).
• Merits of import include the Introduction of new products to the market. Many businesses in India and China tend to produce goods for the European and American markets and reducing costs. Another major benefit of importing is reducing manufacturing costs.
• Merits of export access to more consumers and businesses, diversifying market opportunities, and expanding the lifecycle of mature products.

The correct answer is the USA.

Key Points

• Trade surplus refers to a situation when the value of exports is greater than imports.
• Trade deficit refers to a situation when the amount of imports exceeds exports.
• India's overall trade deficit, including both goods and services, has increased to USD 103.63 billion in 2018-19 from USD 84.45 billion in 2017-18.
• Since 2014-2015 India has consistently run a trade surplus with the USA and UAE.
• India has a trade deficit continuously since 2014-15 concerning other major trading partners i.e. China, Saudi Arabia, Iraq, Germany, Korea RP, Indonesia, and Switzerland.

Additional Information

The correct answer is Interest Rate.

Key Points

• Interest Rate does not form part of the fiscal policy of a country.
• Fiscal policy is the use of government revenue collection (mainly taxes but also non-tax revenues such as divestment, loans) and expenditure (spending) to influence the economy.
• The above objectives are met in the following ways:
  • Consumption Control – This way, the ratio of savings to income is raised.
  • Raising the rate of investment.
  • Taxation, infrastructure development.
  • Imposition of progressive taxes.
  • Exemption from the taxes provided to the vulnerable classes.
  • Heavy taxation on luxury goods.
  • Discouraging unearned income.
• Fiscal and monetary policy are the key strategies used by a country's government and central bank to advance its economic objectives.

Additional Information

• Fiscal deficit = Total expenditure – Total receipts excluding borrowings
  • This implies that fiscal policy is used to stabilize the economy over the course of the business cycle.
  • In India, Fiscal Policy is formulated by the Ministry of Finance.
  • Fiscal policy is playing an important role in the economic and social front of a country.
  • Traditionally, fiscal policy is concerned with the determination of state income and expenditure policy. ​

The correct option is B) (A) and (B) Only'.

Key Points

• Change in autonomous consumption will lead to a change in the equilibrium level of income.
  • This is true.
  • Autonomous consumption refers to the consumption expenditure when income is zero. It is a component of aggregate demand.
  • Any change in autonomous consumption directly affects aggregate demand (AD), leading to a shift in the aggregate demand curve.
  • This shift results in a change in the equilibrium level of income, as the economy moves to a new equilibrium where aggregate demand equals aggregate supply.
• Change in autonomous consumption will lead to a change in aggregate demand.
  • This statement is also true.
  • Aggregate demand (AD) is composed of consumption, investment, government spending, and net exports (AD = C + I + G + NX).
  • Since autonomous consumption is a part of the consumption component, any change in it directly influences the overall level of aggregate demand.
  • Therefore, a change in autonomous consumption necessitates a change in aggregate demand.
• Change in Investment.
  • This statement is incorrect in this context.
  • Change in autonomous consumption does not directly cause a change in investment (I).
  • Investment decisions are influenced by factors such as interest rates, expected returns, and economic outlook, rather than directly by autonomous consumption.
• Change in marginal propensity to consume.
  • This statement is incorrect in this context.
  • The marginal propensity to consume (MPC) is the ratio of the change in consumption to the change in income.
  • A change in autonomous consumption does not directly alter the MPC, as it is more about how consumption changes with income, not the initial level of consumption without income.

Hence, statements (A) and (B) are correct, making the correct option '2) (A) and (B) Only'.

Public goods are non-rivalrous and non-excludable, meaning one person's use does not reduce availability for others, and they cannot be efficiently provided by the private sector.

Through taxation and subsidies, the government redistributes income to achieve a more equitable society.

Public parks are a classic example of a public good because they are non-rivalrous and non-excludable, unlike private goods such as chocolate bars.

Fiscal policy helps stabilize the economy by adjusting government spending and taxes to influence aggregate demand.

 Public goods are non-rivalrous, meaning their consumption by one individual does not reduce availability for others.

The revenue budget covers regular income and expenditure such as taxes, subsidies, and welfare payments.

The capital budget includes the government’s long-term investments, such as purchasing assets or providing loans to the public sector.

Managing the deficit and ensuring it remains sustainable over time is a key challenge for the government.

Fiscal policy involves decisions on taxes and spending to manage the government budget and ensure economic stability.

Managing the deficit helps ensure that the government’s finances are sustainable, which is essential for supporting long-term economic stability.

• (A) Perfectly elastic supply: Horizontal supply curve; infinite supply at a given price (Es = ∞). Matches with (II).
• (B) Unitary elastic supply: Supply changes proportionally with price (Es = 1), often a straight line through the origin. Matches with (III).
• (C) Perfectly inelastic supply: Vertical supply curve; supply fixed regardless of price (Es = 0). Matches with (I).
• (D) Elastic supply: Supply changes more than proportionally with price (Es > 1). Matches with (IV).
  The correct pairing is (A) - (II), (B) - (III), (C) - (I), (D) - (IV), which corresponds to option (a).

• (A) Market Equilibrium: Occurs when demand equals supply, balancing the market. Matches with (I).
• (B) Excess Demand: When demand exceeds supply at a given price, causing shortages. Matches with (II).
• (C) Excess Supply: When supply exceeds demand at a given price, causing surpluses. Matches with (III).
• (D) Equilibrium Price: The price where demand and supply are equal, clearing the market. Matches with (IV).
  The correct pairing is (A) - (I), (B) - (II), (C) - (III), (D) - (IV), which corresponds to option (b).

GDP is defined as:

• The market value of all final goods and services.
• Produced within a domestic territory.

GDP measures the market value of all the final goods and services produced within a domestic territory. This includes everything produced within the country's borders, regardless of who produces it.

• It reflects the total economic output within a specific geographic area.
• Excludes goods and services produced by residents abroad.
• Used as an indicator of a country's economic health.

RBI has four subsidiaries viz. Deposit Insurance and Credit Guarantee Corporation, DICGC; National Housing Bank; Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) and NABARD.

All the state governments imposed a land ceiling in 1960 except the North-Eastern states.

RBI has four subsidiaries viz. Deposit Insurance and Credit Guarantee Corporation, DICGC; National Housing Bank; Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) and NABARD.

The Third Five-year Plan stressed agriculture and improvement in the production of wheat, but the brief Sino-Indian War of 1962 exposed weaknesses in the economy and shifted the focus towards the defence industry and the Indian Army. In 1965–1966, India fought a War with Pakistan.

POSITIVE ECONOMICS is often referred to as "WHAT IS" economics, focusing on variables as they are. It examines the current and past occurrences in an economy to make predictions about the future.

Key points about positive economics include:

• It relies on factual data and observable events.
• For example, stating that increasing interest rates will lead to higher savings is a positive economic statement.
• Another example is how government actions affect inflation by increasing the money supply.

Economic resources are the assets which an economy may have available to supply and produce goods and services to meet the ever changing needs and wants of individuals and society as a whole.

The consumer surplus is the difference between the highest price a consumer is willing to pay and the actual market price of the good. The producer surplus is the difference between the market price and the lowest price a producer would be willing to accept. For producers, a surplus can be thought of as profit, because producers usually don't want to produce at a loss. The two together create an economic surplus.

Transfer payments are unilateral ( one sided payments ) no corresponding flow of goods and services for example: donation, old age pension, unemployment allowance etc

The functioning of the barter system requires a double coincidence of wants on the part of those who want to exchange goods or services. It is necessary for a person who wishes to trade his good or service to find some other person who is not only willing to buy his good or service, but also possesses that good which the former wants.