UGC NET Paper 2 Commerce Mock Test - 3 - UGC NET MCQ

The correct answer is to promote cross border investment in developing countries.

• The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank Group.
• MIGA  mandate is to promote cross-border investment in developing countries by providing guarantees (political risk insurance and credit enhancement) to investors and lenders.
• MIGA  guarantees protect investments against noncommercial risks and can help investors obtain access to funding sources with improved financial terms and conditions.

​World Bank composed of 5 institutions:​​

• World Bank is headquartered at Washington and established in the year 1945
• The president of the World Bank Group is David Malpass.
• There are 189 members of the world bank.
• World Banks important publications are Ease of Doing Business Report, World Development Report and Human Capital Index.
  The current president of the World Bank is Ajay Banga. He began his five-year term on June 2, 2023.

Key Points The statement USA's exports were labor-intensive and imports were capital-intensive explains the Leontief paradox in international business.

The Leontief paradox is a contradiction of the Heckscher–Ohlin theory of international trade. The Heckscher–Ohlin theory predicts that countries will export goods that are intensive in the factors of production that they are abundant in. For example, the United States is abundant in capital, so it should export capital-intensive goods. However, the Leontief paradox found that the United States actually exported labor-intensive goods and imported capital-intensive goods.

There are a number of possible explanations for the Leontief paradox. One explanation is that the United States has a comparative advantage in the production of high-tech goods, which are often labor-intensive. Another explanation is that the United States has a large domestic market, which allows it to produce goods at a lower cost than other countries.

The Leontief paradox has important implications for international trade theory. It suggests that the Heckscher–Ohlin theory is not a complete explanation of international trade. It also suggests that other factors, such as technology and economies of scale, can also play a role in determining the pattern of international trade.

Additional Information Here are some other possible explanations for the Leontief paradox:

The United States has a high level of productivity in labor-intensive industries.
The United States has a high level of investment in human capital, which makes its labor force more productive.
The United States has a strong domestic market, which allows it to produce goods at a lower cost than other countries.
The United States has a favorable trade policy, which makes it easier for its exports to compete in foreign markets.
The Leontief paradox is a complex issue, and there is no single definitive explanation for it. However, it is an important paradox that has challenged our understanding of international trade.

The correct answer is Bangladesh.

Key Points

• In IMF's latest World Economic Outlook, Bangladesh has overtaken India in GDP per capita.
• Generally, countries are compared on the basis of GDP growth rate, or on absolute GDP.
• For the most part since Independence, on both these counts, India’s economy has been better than Bangladesh.
• GDP Per capita calculation involves the overall population and is arrived at by dividing the total GDP by the total population.
• Reasons for India's poor performance 
  • Bangladesh the economy has been growing rapid GDP growth rates since 2004.
  • India’s population grew faster (around 21%) than Bangladesh population (just under 18%).
  • The relative impact of Covid-19 on the two economies in 2020. While India’s GDP is set to reduce by 10%, Bangladesh is expected to grow by almost 4%.

Additional Information

• IMF(International Monetary Fund) established in 1945 and headquartered in Washington.
• IMF Managing Director is Kristalina Georgieva.
• Presently IMF has 190 member countries.

The correct answer is Gross error.

Key Points

Gross error

• ​It is caused by careless handling of experimental set up.
• These types of error mainly comprise of human mistakes in reading instruments and recording and calculating.
• Computational mistakes, incorrect adjustment, and improper application of instruments can lead to gross errors.
• It can be avoided by taking thorough care and verifying the calculations and observations.

Additional Information

Systematic errors  ​

• They occur as a result of a flaw in the experiment design or apparatus.
• Since there is a flaw in the design set up, it cannot be reduced by conducting repeat trials.
• They can cause the measured values to be consistently higher or lower than the actual value.
• They can also be divided into following-
  • Environmental Errors
  • Observational Errors
  • Instrumental Errors

Random errors

• ​They occur irregularly and hence are random.
• They can arise due to random and unpredictable fluctuations in experimental conditions such as unpredictable fluctuations in temperature, voltage supply, mechanical vibrations of experimental set-ups, etc.
• These errors can be reduced by calculating the mean and median of the number of repeated measurements.
• It cannot be eliminated, but it can be controlled by using larger sample sizes and efficient statistical analysis..

The correct answer is the classical perspective.

Key Points Classical perspective:

• Scientific management, administrative management, and bureaucratic management are all part of the classical approach to management.
• The classical approach is characterized by a focus on increasing efficiency and productivity through the use of standardized processes, hierarchical organizational structures, and clear lines of authority and communication.
• This approach emerged in the late 19th and early 20th centuries and is often associated with the work of early management thinkers such as Frederick Taylor, Henri Fayol, and Max Weber. The classical approach is still influential today, particularly in large organizations and in fields such as manufacturing and operations management.

Additional Information Behavioral Perspective- The behavioral approach to management is a management viewpoint that emerged in the mid-20th century as a response to the limitations of the classical approach. It emphasizes the importance of understanding human behavior in organizations and using this understanding to motivate employees, enhance their job satisfaction, and improve organizational performance.

Systems Perspective-  The systems approach to management is a management viewpoint that emphasizes the importance of viewing organizations as complex systems made up of interconnected parts. This approach recognizes that every organization is composed of numerous interrelated subsystems that work together to achieve common goals. The systems approach focuses on how these subsystems interact with each other and with the external environment, and how changes in one part of the system can affect the rest of the organization.

Quantitative Perspective- The quantitative approach to management is a management viewpoint that emphasizes the use of mathematical and statistical models, computer simulations, and other quantitative techniques to help managers make more informed decisions. This approach uses data and analysis to identify patterns, trends, and relationships that can be used to improve organizational performance.

Hence, the correct answer is Classical Perspective.

The correct answer is 1926.

Key Points

Trade Union Act 1926:

• The Trade Union Act was passed in the year 1926 in India.
• The main objective of the Act was to provide legal recognition and protection to registered trade unions and their activities.
• The Act defined a trade union as "any combination, whether temporary or permanent, formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen, or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business, and includes any federation of two or more trade unions".
• The Act also laid down certain provisions related to the registration, rights, and liabilities of trade unions.

Mercosur: South America’s Fractious Trade Bloc:

1. Mercosur is an economic and political bloc comprising Argentina, Brazil, Paraguay, Uruguay, and Venezuela.
2. Created during a period when longtime rivals Argentina and Brazil were seeking to improve relations, the bloc saw some early successes, including a tenfold increase in trade within the group in the 1990s.
3. However, many experts say Mercosur has since failed to live up to its ambitions of integrating the region.

​Key Points

How Mercosur Works:

1. Mercosur was created in 1991 when Argentina, Brazil, Paraguay, and Uruguay signed the Treaty of Asuncion, an accord calling for the “free movement of goods, services, and factors of production between countries.”
2. The four countries agreed to eliminate customs duties, implement a common external tariff of 35 percent on certain imports from outside the bloc, and adopt a common trade policy toward outside countries and blocs.
3. The charter members hoped to form a common market similar to that of the European Union and even considered introducing a common currency.

Therefore, Mercosur, a South American Trade block is a Common market.

Additional Information

Free trade area:

1. It is a group of countries that have mutually agreed to limit or eliminate trade barriers among them.
2. They tend to promote free trade and the international division of labor, though the provisions of the agreement and the resulting scope of free trade is subject to politics and international relations.
3. They have benefits and costs, and corresponding boosters and opponents.

Common Market:

1. A common market is a formal agreement where a group is formed among several countries in which each member country adopts a common external tariff.
2. In a common market, countries also allow free trade and free movement of labor and capital among the members of the group.
3. It iis a name for the European Economic Community or European Union, used especially in the 1960s and 1970s.

Custom union:

1. A group of states that have agreed to charge the same import duties as each other and usually to allow free trade between themselves.
2. The most famous example of a customs union is the European Union (EU). Trade among the member states of the EU flows tariff-free, and regardless of which country in the EU imports a product, the same tariff is paid.

Economic Cooperation

1. Organization or ECO is an Asian political and economic intergovernmental organization that was founded in 1985 in Tehran by the leaders of Iran, Pakistan, and Turkey.
2. It provides a platform to discuss ways to improve development and promote trade and investment opportunities.

The correct answer is Increasing returns to scale

Key Points
The CES Production Function:

• The Constant Elasticity of Substitution (CES) function was established by Arrow, Chenery, Minhas, and Solow in their 1961 work.
• Three variables, Q, C, and L, and three parameters, A, θ and, α make up this function.

It may be expressed in the form:

Q = A [aC^-θ+ (l-α)L^-θ] ^-1/θ

where,

Q is the total output,

С is capital, and L is labour.

A is the efficiency parameter indicating the state of technology and organisational aspects of production

Important Points

• The CES production function is a neoclassical production function, which shows a constant elasticity of substitution.
• In other words, the percentage change in the marginal rate of technical substitution.
• Due to this there is a constant percentage change in the ratio of factors (like labour and capital) in production technology.
• If the scale parameter > 1 there will be increasing returns to scale.
• If the scale parameter < 1 there will be decreasing returns to scales.
• If the scale parameter = 1 there will be constant returns to scale (case of linear homogenous CDPF)

Chi-square test:

• A chi-square test, also written as χ2 test, is a statistical hypothesis test that is valid to perform when the test statistic is chi-square distributed under the null hypothesis, specifically Pearson's chi-square test and variants thereof.
• Pearson's chi-square test is used to determine whether there is a statistically significant difference between the expected frequencies and the observed frequencies in one or more categories of a contingency table.
• In the standard applications of this test, the observations are classified into mutually exclusive classes.
• If the null hypothesis (that in the population there is no difference between the classes) is true, the test statistic computed from the observations follows a χ2 frequency distribution.
• The purpose of the test is to evaluate how likely the observed frequencies would be assuming the null hypothesis is true.
• Test statistics that follow a χ2 distribution occur when the observations are independent and normally distributed, which assumptions are often justified under the central limit theorem.
• There are also χ2 tests for testing the null hypothesis of independence of a pair of random variables based on observations of the pairs.
• Chi-square tests often refer to tests for which the distribution of the test statistic approaches the χ2 distribution asymptotically, meaning that the sampling distribution (if the null hypothesis is true) of the test statistic approximates a χ2 distribution more and more closely as sample sizes increase

where:

Oi = an observed count for bin i

Ei = an expected count for bin i, asserted by the null hypothesis.

• Chi-square goodness of fit test determines if a sample data matches a population.

Important Points

Goodness of fit:

• The goodness of fit of a statistical model describes how well it fits a set of observations.
• Measures of goodness of fit typically summarize the discrepancy between observed values and the values expected under the model in question

Use of Chi-square test:

• The chi-squared distribution has many uses in statistics, including:
  • Confidence interval estimation for a population standard deviation of a normal distribution from a sample standard deviation.
  • Independence of two criteria of classification of qualitative variables.
  • Relationships between categorical variables (contingency tables).
  • Sample variance study when the underlying distribution is normal.
  • Tests of deviations of differences between expected and observed frequencies (one-way tables).
  • The chi-square test (goodness of fit test).

The correct answer is A-3, B-2, C-1, D-4

Key PointsSA 299 - Responsibility of Joint Auditors

SA 300 - Planning an Audit of Financial Statements

SA 510 - Initial Audit Engagements

SA 520 - Analytical Procedures

Additional InformationSA 570 - Going Concern

SA 580 - Written Representations

SA 700 - Forming an Opinion and Reporting on Financial Statements

SA 560 - Subsequent Events

Key Points

Zero interest Fully Convertible Debentures:

• These debentures are issued at a reduced price but do not have a coupon for periodic interest payments.
• Interest is applied to the difference between a bond's nominal price and issue price.
• For instance, a debt obligation with a nominal value of 100 rupees is issued at 70 rupees, and its redemption value is 100 rupees. Therefore, Rs. 30 is considered interest in this case, and it will be distributed during the life of the debenture.

Important Points

• These are zero interest fully convertible debentures will not have any interest accrued by the issuer throughout the lock-in term.
• Fully paid FCDs will, however, automatically and compulsorily convert into shares after a specified length of time.
• In case of 'Zero interest Fully Convertible Debentures', (ZFCD) return to debenture holders is available in the form of difference between the issue price of ZFCD and the market price of converted share.
• Return to debenture holders = Issue price of ZFCD - Market price of converted share.

​Hence, it can be concluded that in case of 'Zero interest Fully Convertible Debentures', (ZFCD) return to debenture holders is available in the form of difference between the issue price of ZFCD and the market price of converted share.

The correct answer is (A), (B), (D), (E) only.

Key Points Assumptions of a regression model:

• The basic assumption of the linear regression model, as the name suggests, is that of a linear relationship between the dependent and independent variables.
• Here the linearity is only with respect to the parameters.
• Another assumption is that the independent variables are not correlated with each other.
• If there is a linear relationship between one or more explanatory variables, it adds to the complexity of the model without being able to delineate the impact of each explanatory variable on the response variable.
• The residuals in the linear regression model are assumed to be independently and identically distributed

Hence, the correct answer is (A), (B), (D), (E) only.

The correct answer is (d) All of the above.

Various organizations play a crucial role in providing support and guidance to Self-Help Groups (SHGs), helping them to establish, operate effectively, and achieve their objectives. These include:

• Non-governmental organizations (NGOs): NGOs provide technical assistance, training, and capacity-building support to SHGs, helping them to develop their organizational skills, financial management practices, and income-generating activities. They also advocate for SHGs and facilitate their access to resources and opportunities.
• Government agencies: Government agencies at the central, state, and local levels provide financial support, policy guidelines, and regulatory frameworks for SHGs. They also offer training programs, skill development initiatives, and market linkages to support SHGs' economic activities.
• Banks: Banks play a significant role in providing micro-credit facilities to SHGs, enabling them to access financial resources for their micro-enterprises and income-generating activities. They also offer financial literacy programs and support SHGs in developing their financial management skills.
• Community-based organizations (CBOs): CBOs, rooted in the local communities, provide grassroots support to SHGs, understanding their unique needs and challenges. They offer guidance on local market conditions, facilitate networking opportunities, and connect SHGs to relevant resources and services

Marginal cost represents the increase or decrease in total cost which occurs with a small change in output say, a unit of output. In Cost, Accounting variable costs represent marginal cost. Differential cost is the change (increase or decrease) in the total cost (variable as well as fixed) due to change in the level of activity, technology or production process or method of production. In other words, it can be defined as the cost of one unit of product or service which would be avoided if that unit was not produced or provided. The main point which distinguishes marginal cost and differential as that change in fixed cost when the volume of production increases or decreases by a unit of production. In the case of differential cost variable as well as a fixed cost. i.e. both costs change due to change in the level of activity, whereas under marginal costing only variable cost changes due to change in the level of activity.

Statements I and II are incorrect as have not been stated in the passage. Statement III is correct as a case of fraud has been highlighted in the passage and is the main reason to link Aadhar with Taxpayers.

Convenience sampling: This method is also called chunk. Chunk means that fraction of the population being investigated neither by probability nor by judgment but on the basis of convenience. A sample is drawn from a readily available list at the convenience of the researcher.

Price-discrimination is profitable and possible if the two markets have a highly elastic demand. Price discrimination is possible when the monopolist sells in different markets in such a way that it is not possible to transfer any unit of the commodity from the cheap market to the dearer market. It is profitable when markets have high elasticity in demand.

The most common forms of marketing researches conducted in most of the firms are the measurement of market potential and the analysis of market share. The market potential is the entire size of the market for a product at a specific time.

The concept of cognitive dissonance is relevant to study consumer's post-purchase behaviour. The theory of “cognitive dissonance” is of great importance in consumer behaviour and marketers have lots of interest in analyzing the post-purchase behaviour of consumers experienced by them.

3 Views of Conflict: Traditional View, Human Relations View, Interactionist View of Conflict. where each view treats and manages conflict uniquely and differently.

• Organizational conflict is the discord that arises when the goals, interests, or values of different individuals or groups are incompatible and those individuals or groups block or thwart one another’s attempts to achieve their objective.
• Conflicts can occur because of the task, relationship, or process-related issues between personnel.
• Conflicts at the organization were perceived or viewed as only a negative object.
• But through the development of “organizational behavior” studies; conflict is now viewed differently and organizations now learned how to manage them.
• But, there is conflict over the role of conflict in groups and organizations.
• Changing Views of Organizational Conflict
• Attitude towards conflict in organizations has changed considerably in the last few decades.
• Once upon a time conflict was considered fully harmful and must be avoided for the betterment of the organization.
• With the passes of time, those views changed largely. Conflict is now an inevitable part of organizations. Its presence is positive in some aspects.
• Here explain the 3 different views on organizational conflicts. With continuous studies and researches in the field of organizational behavior and management, that thinking gradually changed.
• These views advocate the same concept that there are different types of conflicts and not all of them have to be bad and dysfunctional.

The following are some of Section 87A of the Income Tax Act of 1961 important points:

1. The maximum deduction allowed by this clause is Rs. 2,500 or 100% of the tax liability (whichever is lower).
2. The rebate is available on the total tax amount before the 4% educational cess.
3. Under this clause, only individuals are eligible to get a rebate. Neither businesses nor the Hindu Undivided Family may apply for this rebate.
4. Senior citizens are eligible for a rebate (individuals above the age of 60 years and below 80 years)
5. Individuals who are super senior citizens (those who are over 80 years old) are not qualified for a rebate under Section 87A.
6. This rebate is only available to Indian citizens; NRIs are not allowed rebates under Section 87A.

So, Under Section 87A of the Income Tax Act, 1961, an individual who is resident in India and whose total income does not exceed Rs. 3,50,000 is entitled to claim a rebate up to a maximum of Rs 2500.

The main objective of the International Monetary Fund (IMF) is to promote international trade.

The International Monetary Fund (IMF) is an organisation set up to promote international coope­ration and trade, to facilitate the expansion and balanced growth of international trade, to promote exchange stability and to assist in the establishment of a multi­lateral system of payments.

In the case of vertical combination, several independent businesses operating in successive stages in the same industry come together. It is also known as sequence combination, process combination or industry combination.

Hence, the correct option (D).

Key Points

Giffen Goods:

• A Giffen good refers to a good that people consume more as the price rises.
• A Giffen good is one that doesn't seem to follow the "law of demand," which states that price and quantity demanded are inversely connected, which means a fall in its price tends to reduce demand.

Important Points

• A Giffen good is one that doesn't seem to follow the "law of demand," which states that price and quantity demanded are inversely connected.
• The term comes from the Scottish writer and statistician Sir Robert Giffen (1837–1910).
• People will actually increase their demands for a Giffen good as the price increases and vice versa.
• Furthermore, a sizable portion of revenue is predicted to be spent on goods.
• The Giffen "paradox"—where the poor eat more bread as its price increases—was the famous case that Giffen used to illustrate his point.

Example of Giffen Goods:

• Assume a family consumes 10 kg of food grain (6kg bajra and 4 kg wheat) and spends ₹70.
• Wheat price = ₹10/kg Bajra = ₹5/kg.
• Present consumption is (10 x 4) + (6 x 5) = 40+30 = ₹70
• If price of Bajra falls to ₹4, for getting 10kg, the family can modify consumption as 5kg wheat and 5 kg bajra spending (5 x 4) + (5 x 10) = ₹70.
• Wheat is substituted for Bajra even when price of bajra falls.
• This is the Giffen goods concept which does not follow law of demand.

Hence, it can be concluded that Giffen goods are those goods whose demand reduces as the price decreases.

Additional InformationLaw of Demand: Law of demand says that, when all other variables are held constant, the quantity demanded and price of any good or service exhibit an inverse relationship. It also indicates that as a certain product's value rises, demand for that thing falls; the exact opposite can also be seen.

Exceptions to the law of demand:

• Giffen Goods
• Veblen Goods
• Price changes Expectation
• Necessary Goods
• Luxury Goods
• Change in Income
• Demonstration Effect
• Consumer Negligence
• Change in Taste and Prefrence

Dividend - A dividend is a payment made by a corporation out of profits to its shareholders that is decided by the board of directors.

Dividend Distribution Tax (DDT) - The tax imposed on the dividend that a business distributes to its shareholders from its profits is known as the dividend distribution tax.

Important Points

• Currently, up to AY 2020–2021, a shareholder who receives a dividend from a domestic firm is not required to pay taxes on such payout since it is free from taxes under section 10(34) of the Act.
• However, under section 115-O @ 20.36%, the domestic firm is required to pay a Dividend Distribution Tax (DDT) in such circumstances.
• The DDT was eliminated by the Finance Act of 2020, and investors are now responsible for paying taxes.
• If the dividend is distributed on or after 01-04-2020, the provisions of Section 115-O shall not apply.

Thus, the Dividend received from an Indian company that has suffered dividend distribution tax is exempt.

​Additional Information

When Dividend Distribution Tax (DDT) is to be paid -

• DDT must be paid within 14 days of the earliest of the following events: declaration, distribution, or dividend payment.
• If the corporation does not make the payment within 14 days, interest will be charged at the rate of 1% of the DDT from the day after the day the DDT became due until it is actually paid to the government.
• Section 115P contains the provisions mentioned above.

Statement (i) is correct. The greater a firm's degree of operating leverage, the more its EBIT will vary with fluctuations in sales as it is computed by dividing the contribution by operating profit.

The higher the degree of operating leverage (DOL), the more sensitive a company's earnings before interest and taxes (EBIT) are to changes in sales, assuming all other variables remain constant. The DOL ratio helps analysts determine what the impact of any change in sales will be on the company's earnings.

Audit: Audit is an unbiased examination and evaluation of an organization's financial statements is performed to ensure that the financial records are a fair and accurate picture of the transactions they claim to represent.

Auditing is mainly performed to avoid any errors and frauds in the books of accounts so that true financial records are reflected to the public.

Chi square test' measures goodness of fit.

A chi-square test, also written as χ2 test, is a statistical hypothesis test that is valid to perform when the test statistic is chi-square distributed under the null hypothesis, specifically Pearson's chi-square test and variants thereof. Pearson's chi-square test is used to determine whether there is a statistically significant difference between the expected frequencies and the observed frequencies in one or more categories of a contingency table.

Debtor-Creditor, Agent-Principal, Licensor-Licensee, Bailor-Bailee, Pledger-Pledgee, etc. are various kinds of relationships between the banker and the customer.

Licensor-Licensee:

• When a banker provides the locker facility to a customer, the relationship between them is that of licensor and licensee or lessor and lessee.
• A bank is a licensor and the customer who hires the bank is the licensee.

Debentures:

• Section 71 of the Companies Act, 2013 permits a company to issue debentures with an option to convert debentures into shares either wholly or partially at the time of redemption.
• Provided that this conversion of the debenture to shares shall be approved by a special resolution passed at a general meeting.
• The Companies Act 1956, Section 2(12) defines debentures as, "Debenture includes debenture stock, bonds and any other securities of a company whether constituting a charge on the Company’s assets or not. Debenture means a document, which either creates a debt or acknowledges it, and any document which fulfills either of these two conditions is a debenture."
• Thus, debentures are governed by company law.