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Economics: CUET Mock Test - 2 - CUET MCQ


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30 Questions MCQ Test CUET Mock Test Series - Economics: CUET Mock Test - 2

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Economics: CUET Mock Test - 2 - Question 1

Budget is a statement of actual annual receipts and expenditures of the government.

Economics: CUET Mock Test - 2 - Question 2

______ is known as import substitution.

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

The correct answer is Inward looking trade strategy

Key Points

1. Inward looking trade strategy

  • Inward-looking trade strategy is also known as import substitution.
  • Its main aim is to produce goods domestically which are imported to our nation.
  • Here, the government protects domestically produced goods from foreign competition.
  • This policy protects imports in two forms, tariffs and quotas.

2. Outward looking trade strategy

  • An outward-looking strategy calls for a direct transition from a simple, open trade policy to vigorous promotion of manufactured exports by all internationally tolerated means, without going through an in-between phase of high protection.
Economics: CUET Mock Test - 2 - Question 3

Given the saving function S = -20 + 0.2 Y and autonomous investment (I) = Rs. 100 million. the equilibrium level of consumption would be:

Detailed Solution for Economics: CUET Mock Test - 2 - Question 3

The correct answer is 500.

Key Points Autonomous investment:

  • It refers to an investment which is not dependent on the level of income in the economy.
  • Its main purpose is to increase the welfare in the economy.

Saving function:

  • The saving function is dependent on the rate of interest.
  • It has a positive relationship with the rate of interest.
  • When income is zero, there is some consumption and that amount resorts through savings.
  • Y=C+S
  • People spend some proportion of their income on consumption and the remaining on saving.

Consumption function:

  • Consumption is dependent on income.
  • when income increases, consumption also increases.
  • Y=C+S

Additional Information

In this question, S = -20 + 0.2Y
I=100
Savings =investment,
-20 + 0.2Y = 100
0.2Y = 120
Y = 120/0.2
Y = 600
Also, Y = C+S,
putting the value of Y in the saving function
S = 100, Y = 600
C = 600 - 100 = 500
Hence, the equilibrium level of consumption is 500. The saving function S = -20 + 0.2 Y and autonomous investment (I) = Rs. 100 million.
Economics: CUET Mock Test - 2 - Question 4

Which of the following is not a type of equilibrium?

Detailed Solution for Economics: CUET Mock Test - 2 - Question 4

A body is said to be in equilibrium when it comes back to its original position after it is slightly displaced from its position of rest. In general, the following are the three types of equilibrium :

Stable equilibrium:

  • A body is said to be in stable equilibrium if it returns back to its original position after it is slightly displaced from its position of rest
  • This happens when some additional force sets up due to displacement and brings the body back to its original position
  • A smooth cylinder, lying in a curved surface, is in stable equilibrium

Unstable equilibrium

  • A body is said to be in an unstable equilibrium if it does not return back to its original position, and heels farther away after slightly displaced from its position of rest
  • This happens when the additional force moves the body away from its position of rest
  • A smooth cylinder lying on a convex surface

Neutral equilibrium

  • A body is said to be in a neutral equilibrium, if it occupies a new position (and remains at rest in this position) after slightly displaced from its position of rest
  • This happens when no additional force sets up due to the displacement
  • A smooth cylinder lying on a horizontal plane is in neutral equilibrium

Therefore, negative equilibrium is not a type of equilibrium.

Economics: CUET Mock Test - 2 - Question 5
Stagflation refers to
Detailed Solution for Economics: CUET Mock Test - 2 - Question 5
The correct answer is High inflation rate and slow economic growth.
Key Points
  • High inflation combined with economic stagnation is referred to as "stagflation." While prices rise due to inflation, buying power falls. Imagine paying 50 euros a week for the same groceries. You'll start to get less value for your money as prices rise.
  • An economic cycle known as stagflation is characterised by weak growth, a high unemployment rate, and inflation. This confluence is particularly challenging for economic officials to manage because trying to address one of the issues can make another worse.
  • Stagflation is worse than a recession since it indicates that both inflation and unemployment are at historically high levels.
  • Home values frequently increase over time while mortgage rates stay the same. Home fees will be higher for consumers without fixed-rate mortgages. The high inflation seen during Stagflation will increase the value of real estate owned by homeowners who purchase homes using mortgages.

Hence, Stagflation refers to high inflation rate and slow economic growth.

Economics: CUET Mock Test - 2 - Question 6
Which of the following is NOT included in the value added method of calculating national income?
Detailed Solution for Economics: CUET Mock Test - 2 - Question 6

The correct answer is Value of second-hand goods.

Key Points

  • Value Added Method
    • In a circular flow, national income is calculated using the value-added method at various phases of the production process. In the production process, it indicates the value added for each unit produced.
    • Every business adds value to the goods it purchases as an intermediary good from other firms.
    • The value of national income is the sum total of value added by all organisations.
    • The following steps are used to calculate national income using the value-added method:
      • Step 1
      • The first step is to identify and classify all value of producing enterprises in primary, secondary, and tertiary sectors.
      • Step 2
      • Next, the Gross Domestic Product at Market Prices (GDPMP) is calculated.
      • Determine the Gross Value Added at Market Price (GVAMP) of each sector for the purpose of calculating the GDPMP; i.e. ∑GVAMP = GDPMP
      • Step 3
      • Next, determine domestic income (NDPFC).
      • Value of depreciation and net indirect tax are deducted from the gross domestic product at market price (GDPMP) to calculate domestic income; NDPFC = GDPMP – Depreciation – Net Indirect Taxes
      • Step 4
      • To determine national income (NNPFC), the final step is to calculate Net Factor Income from Abroad (NFIA).
      • The NFIA is added along with the country's domestic income; National Income or NNPFC = Domestic Income or NDPFC + NFIA

Additional Information

  • Value Added
    • Value-added describes the value that a company adds to a raw material or intermediate good during the production process.
    • The difference between the value of output and the value of intermediate products is used to calculate the national income using the value-added method.

Value Added = Value of Output – Intermediate Consumption

  • The value-added method, prevents double counting, which is a major mistake while calculating national income, and therefore this method is most frequently used to estimate national income.
  • Value of second-hand goods should not be considered in national income because they are already valued in the year they were manufactured. The current flow of goods and services will be disrupted if the value of these goods is added again.
Economics: CUET Mock Test - 2 - Question 7
What needs to be subtracted from gross fiscal deficit to get gross primary deficit ?
Detailed Solution for Economics: CUET Mock Test - 2 - Question 7

Net Interest Liabilities

Key Points

  • Net Interest Liabilities:
    • Net Interest Liabilities refer to the interest payments that the government makes on its borrowed funds, minus the interest it earns on its own investments and loans given to states or others.
    • Subtracting net interest liabilities from the gross fiscal deficit gives us the gross primary deficit, which indicates the borrowing requirements of the government excluding interest payments.
    • This measure helps in assessing the fiscal health of a government by focusing on the deficit before the cost of interest on debt, providing a clearer picture of the government's fiscal policies excluding the debt servicing costs.

Additional Information

  • Revenue Expenditure:
    • It includes the day-to-day operational expenses of the government, such as salaries, subsidies, and interest payments. While important, subtracting it does not provide the gross primary deficit.
  • Recovery of Loans:
    • Refers to the money that the government recovers from loans it has previously issued. While it affects the net borrowing requirements, it is not subtracted to find the gross primary deficit.
  • Non-tax Revenue:
    • Comprises earnings from sources other than taxes, like profits from public sector enterprises, fees, etc. Although a part of the government's income, it is not relevant for calculating the gross primary deficit.
Economics: CUET Mock Test - 2 - Question 8
The RBI can influence money supply by changing ______ at which it gives loan to the commercial Banks.
Detailed Solution for Economics: CUET Mock Test - 2 - Question 8

Bank Rate

Key Points

  • Bank Rate:
    • The Bank Rate is the rate at which the central bank of a country (Reserve Bank of India for India) lends money to commercial banks.
    • It is a monetary policy instrument which central banks use to manage the money supply and interest rates in the economy.
    • Changes in the Bank Rate can influence borrowing costs for banks and ultimately affect the rates that banks offer to their customers for loans and mortgages. It can also impact savings rates.

Additional Information

  • Promissory Rate:
    • This term is not commonly used in the context of central banking or monetary policy, making it an incorrect option.
  • Lending Rate:
    • While "Lending Rate" could broadly refer to any interest rate applied on loans, it is not a specific term used by central banks for their operations with commercial banks.
  • Fixed Rate:
    • A fixed rate generally refers to an interest rate that does not change over the duration of a loan or deposit but is not specifically used to describe the rate at which central banks lend to commercial banks.
Economics: CUET Mock Test - 2 - Question 9
The book 'General Theory of Employment, Interest and Money', has been written by the distinguished economist.
Detailed Solution for Economics: CUET Mock Test - 2 - Question 9

The correct answer is 'J.M. Keynes'

Key Points

  • J.M. Keynes:
    • John Maynard Keynes was a British economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments.
    • He detailed his theories about the causes of prolonged unemployment in his seminal work, "The General Theory of Employment, Interest and Money," proposing that active government intervention is necessary to manage economic cycles.
    • The book, first published in 1936, challenged the classical economic thought of the time and laid the groundwork for modern macroeconomics.

Additional Information

  • Adam Smith:
    • Often referred to as the "Father of Economics," Adam Smith was a Scottish economist and philosopher who wrote "The Wealth of Nations," laying the foundations of classical free market economic theory.
    • His work does not directly relate to the theories presented in "The General Theory of Employment, Interest and Money."
  • A.C. Pigou:
    • Arthur Cecil Pigou was an English economist, known for his work in welfare economics and for the Pigou Effect, a concept in monetary economics.
    • Though a contemporary of Keynes, his economic viewpoints differed, and he did not author "The General Theory of Employment, Interest and Money."
  • David Ricardo:
    • A British political economist, Ricardo was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith, and John Stuart Mill.
    • He is known for his theory of comparative advantage, which justifies free trade policies but was not involved in the writing of Keynes’s seminal work.
Economics: CUET Mock Test - 2 - Question 10
Which is not the way to attain sustainable development ?
Detailed Solution for Economics: CUET Mock Test - 2 - Question 10

Sticking to methods to promote inequality

Key Points

  • Sticking to methods to promote inequality:
    • This approach directly contradicts the principles of sustainable development, which aim to balance social equity, environmental health, and economic viability.
    • Sustainable development seeks to meet the needs of the present without compromising the ability of future generations to meet their own needs, which inherently includes reducing inequalities.
    • Methods promoting inequality can exacerbate social divisions, economic disparities, and hinder the overall well-being of communities and the environment.

Additional Information

  • Spread of Awareness:
    • Creating awareness about sustainable practices is essential for changing behaviors and encouraging more people to adopt lifestyles and business practices that are environmentally friendly and socially equitable.
  • Use of traditional practices:
    • Many traditional practices are inherently sustainable, as they have evolved over generations to be in harmony with the local environment and utilize resources efficiently.
  • Use of cleaner fuel:
    • Switching to cleaner fuels from fossil fuels reduces greenhouse gas emissions, improves air quality, and is a crucial step towards reducing the impact of climate change, making it a key component of sustainable development.
Economics: CUET Mock Test - 2 - Question 11
At a particular price level, when aggregate demand for final goods equals aggregate supply of final goods, the product market reaches to its _______.
Detailed Solution for Economics: CUET Mock Test - 2 - Question 11

The correct answer is 'Equilibrium level'

Key Points

  • Equilibrium level:
    • In economics, the equilibrium level occurs when the aggregate demand for final goods equals the aggregate supply of final goods in the product market.
    • This equilibrium signifies a state of balance where there is no inherent force within the economy that leads to a change in the level of output or employment in the short run.
    • At this point, the economy is stable, and unless external factors disrupt this balance, the quantity supplied will equal the quantity demanded.

Additional Information

  • Ex-ante consumption:
    • Refers to the intended or planned consumption by households. While it relates to aggregate demand, it is not a direct indicator of the market reaching its equilibrium.
  • Autonomous consumption:
    • Is the level of consumption that occurs when income is zero; it is consumption that does not depend on income. This concept is crucial for understanding consumption patterns but does not directly relate to market equilibrium.
  • Investment multiplier:
    • Describes the effect of an increase in investment on the overall level of income and output in the economy. While important for understanding how investments affect the economy, it is not a term that directly describes the equilibrium in the product market.
Economics: CUET Mock Test - 2 - Question 12

Central Budget is presented in India on ______every year by the Finance Minister.

Detailed Solution for Economics: CUET Mock Test - 2 - Question 12

Budget is presented every year on first working day of February.

Economics: CUET Mock Test - 2 - Question 13

In India _______ type of taxes are generally of no or little significance due to their very low revenue yield to government?

Detailed Solution for Economics: CUET Mock Test - 2 - Question 13

Paper taxes are almost not available in India.

Economics: CUET Mock Test - 2 - Question 14

Production of goods which are socially harmful are discouraged by..............

Detailed Solution for Economics: CUET Mock Test - 2 - Question 14

Heavy taxes are imposed on production of those goods which are socially not desirable.

Economics: CUET Mock Test - 2 - Question 15

Surplus budget is when actual receipts exceeds estimated expenditures.

Detailed Solution for Economics: CUET Mock Test - 2 - Question 15

Surplus budget is the state where estimated receipts exceeds estimated expenditure.

Economics: CUET Mock Test - 2 - Question 16

In 2017 government of India brought an important reform in the tax system of the country by introducing GST.
Which of the following type of tax is GST?

Detailed Solution for Economics: CUET Mock Test - 2 - Question 16

GST is a type of indirect tax, as it is imposed on the production of goods and burden of this can be transferred to others.

Economics: CUET Mock Test - 2 - Question 17

Rahul dies without a legal heir. His property stands transferred to the government. The income under this head will be referred to as ‘Special assessment’.

Detailed Solution for Economics: CUET Mock Test - 2 - Question 17

It will be referred to as ‘escheat’. Special assessment is paid by those owners whose value of property has increased due to developmental activities of the government.

Economics: CUET Mock Test - 2 - Question 18

Why gift tax is considered as a paper tax?

Detailed Solution for Economics: CUET Mock Test - 2 - Question 18

Revenue from this form of tax is negligible.

Economics: CUET Mock Test - 2 - Question 19

The formula to calculate primary deficit is _______

Detailed Solution for Economics: CUET Mock Test - 2 - Question 19

Primary deficit is the excess of borrowings of current year over the interest payments of previous years.

Economics: CUET Mock Test - 2 - Question 20

Expenditure on relief of earthquake victims is

Detailed Solution for Economics: CUET Mock Test - 2 - Question 20

This kind of expenditures arises all of a sudden.

Economics: CUET Mock Test - 2 - Question 21

Choose the incorrect statement from given below

Detailed Solution for Economics: CUET Mock Test - 2 - Question 21

Government budget is prepared for upcoming fiscal year.

Economics: CUET Mock Test - 2 - Question 22

Dis-investment by the government refers to

Detailed Solution for Economics: CUET Mock Test - 2 - Question 22

Disinvestment refers to the selling of the government's stake in public sector undertakings (PSUs) and other assets. 

Economics: CUET Mock Test - 2 - Question 23

Identify revenue expenditure from the given below

Detailed Solution for Economics: CUET Mock Test - 2 - Question 23

Subsidies given by the government is a revenue expenditure as it neither reduce liability nor increase assets.

Economics: CUET Mock Test - 2 - Question 24

_______ deficit includes interest payment by the government on the past loans.

Detailed Solution for Economics: CUET Mock Test - 2 - Question 24

It is an example of revenue deficit as it do not reduce liabilities.

Economics: CUET Mock Test - 2 - Question 25

Primary deficit in a government budget will b e zero, when _______

Detailed Solution for Economics: CUET Mock Test - 2 - Question 25

Primary deficit is the difference between fiscal deficit and interest payments. Primary deficit is zero when these two are equal.

Economics: CUET Mock Test - 2 - Question 26

Budget deficit is equal to total expenditure minus total receipts.

Detailed Solution for Economics: CUET Mock Test - 2 - Question 26

Fiscal deficit and budget deficit are different. Fiscal deficit excludes borrowing while budget deficit includes borrowings.

Economics: CUET Mock Test - 2 - Question 27

Which of the following measures of meeting deficit in budget, leads to an increase in money supply in the economy?

Detailed Solution for Economics: CUET Mock Test - 2 - Question 27

In an economy, deficit financing leads to an increase in the money supply

Economics: CUET Mock Test - 2 - Question 28

 Choose the correct option from given below

Detailed Solution for Economics: CUET Mock Test - 2 - Question 28

During inflationary gap there is excess demand in the economy. So, a deficit budget is prepared.

Economics: CUET Mock Test - 2 - Question 29

If borrowings and other liabilities are reduced to the budget deficit, we get

Detailed Solution for Economics: CUET Mock Test - 2 - Question 29

Fiscal deficit is exclusive of borrowings or current financial year.

Economics: CUET Mock Test - 2 - Question 30

If primary deficit is ₹ 3,000 and interest payment is ₹ 500, the fiscal deficit is

Detailed Solution for Economics: CUET Mock Test - 2 - Question 30

Primary Deficit = Fiscal Deficit - Interest Payment 
3,000 = Fiscal Deficit - 500
Fiscal Deficit = 3,000 + 500 = ₹ 3,500

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