Economics: CUET Mock Test - 8 - CUET MCQ

The correct answer is Defence.

Key Points

• Among the options, defence expenditure is not included in the developmental expenditure.
• The money spent by the government on developmental and welfare programmes is known as development expenditure.
• Developmental expenditures include expenditures on economic services, Social and community services, and grants to states.
• It helps in economic development by increasing the production and real income of the country.
• Developmental expenditure on revenue can be divided into two, developmental expenditure on revenue account and developmental expenditure on capital account.
• Social and community services, economic services and developmental assistance to states are included in it.
• Developmental expenditure has a definite objective to achieve during the plan period.
• The share of developmental expenditure is gradually decreasing.
• Expenditure on Railways, power, health, education, and Science and Technology are examples of Development expenditure.
• Non-Developmental Expenditure refers to expenditure of the government which does not directly help in the economic development of the country.

The correct option is (A) - (I), (B) - (IV), (C) - (II), (D) - (III)

Key Points

• Flexible Exchange Rate:
  • Definition: An exchange rate that is determined by the free market through supply and demand for the currency.
  • Key feature: It fluctuates based on market conditions.
  • Match: Market forces.
• Devaluation:
  • Definition: A deliberate downward adjustment to the value of a country’s currency relative to another currency, group of currencies, or standard.
  • Key feature: Typically done by the government or monetary authority.
  • Match: Government.
• Fixed Exchange Rate:
  • Definition: An exchange rate that is pegged or fixed by the government or central bank at a certain level.
  • Key feature: It does not fluctuate with market conditions; instead, it remains fixed.
  • Match: Pegged exchange rate.
• Depreciation:
  • Definition: A decrease in the value of a currency in the context of a floating exchange rate system.
  • Key feature: It occurs due to market forces and reflects changes in supply and demand.
  • Match: Floating exchange rate.

The price system in a market economy helps allocate resources by indicating where they are most needed based on demand and supply changes.

As demand rises, the price increases, which motivates producers to supply more of the good to meet the demand.

Price fluctuations are influenced by demand, supply, and external factors like government policies, international trade, and technological advancements.

When prices fall, producing the good becomes less profitable, leading producers to reduce the supply.

External factors like government regulations, international trade, and technological changes can impact the pricing and supply-demand balance.

While money functions as a medium of exchange, unit of account, and store of value, it does not inherently redistribute wealth equally.

Money simplifies trade by serving as a universally accepted medium of exchange, which eliminates the inefficiencies of bartering.

As a unit of account, money provides a standard measure for valuing and comparing goods and services.

Money as a store of value ensures that wealth can be saved and utilized in the future, as long as inflation does not erode its value.

Stability in money's value ensures that individuals and businesses can make informed decisions about savings and investments without fear of drastic changes in value.

Following are some factors which affect the price of a commodity in different countries.
One of the major factors that affects the prices of goods is the difference in taxes and import duties across countries. When dealing in commodities, or any physical good, the cost to transport them must be included, resulting in different prices when commodities from two different locations are examined. Because transaction costs exist and can vary across different markets and geographic regions, prices for the same good can also vary between markets. Legal barriers such as capital controls, or in the case of wages, immigration restrictions, can lead to persistent price differentials rather than one price. 

Tax on imports is an example of a trade barrier. Trade barriers are the boundaries set by countries while trading with other countries. With globalisation, most countries had to open their markets, and it was challenging to put physical barriers on imports. But to keep the imports low, many governments imposed taxes on them. This was done to protect the domestic industry from low-cost foreign goods and decrease the flow of foreign exchange due to imports. Thus, taxes on imports created a barrier to the import of goods and services.

The import of Chinese toys into India typically results in a greater variety of toys being available in the Indian market at relatively lower prices compared to domestically manufactured toys. This broadens the choices available to Indian consumers, often at more competitive rates. The availability of inexpensive imports from China can influence consumer behavior by providing more options across different price points, which can appeal to a wider demographic. This situation highlights the impact of global trade dynamics on local markets, where imports can either complement or compete with domestic products.

Imposing a tax on Chinese toys can make them more expensive for Indian consumers, thereby reducing their competitive pricing edge. This potentially leads to a decrease in demand for Chinese toys as they become less affordable compared to their previous market position. Consequently, Indian toy-makers may benefit from this shift, as consumers could turn to locally made toys, which might remain more affordable in comparison. This situation can foster growth and prosperity for the Indian toy industry by leveling the playing field against cheaper imported goods.

 

The study of jute industry is a macroeconomic study.

This statement is false because:

• Macroeconomics examines the economy as a whole, focusing on aggregate measures.
• The jute industry is a specific sector, which falls under microeconomics.
• Microeconomics studies individual markets and the behaviour of economic agents.

Thus, the jute industry is not a macroeconomic study.

The study of general price level is a macroeconomic study.

The study of economics is divided into two main branches: microeconomics and macroeconomics.

• Microeconomics focuses on individual economic agents, such as consumers and producers, and how they interact in specific markets.
• Macroeconomics looks at the economy as a whole, examining aggregate measures like total output, employment, and the general price level.

Key points about macroeconomics:

• It analyses how different sectors of the economy relate to each other.
• It seeks to understand how aggregate measures are determined and how they change over time.
• Important questions include:
• What is the level of total output?
• How is total output determined?
• What causes changes in total output?
• Are resources, like labour, fully employed?
• What factors lead to unemployment?
• Why do prices fluctuate?

Thus, the general price level is indeed a crucial aspect of macroeconomics.

Utility can be measured cardinally according to Marshall, but according to Hicks (ordinal approach) we can rank our preferences so utility is not always measurable cardinally.

The Cardinal Utility approach is propounded by neo-classical economists, who believe that utility is measurable, and the customer can express his satisfaction in cardinal or quantitative numbers, such as 1,2,3, and so on.  Here, one Util is equivalent to one rupee and the utility of money remains constant.

Marginal Utility or Marginal Satiety – is the additional utility derived from the consumption of an additional unit of a commodity. Therefore, Marginal Utility = the addition made to the Total Utility by consuming one more unit of a commodity.

The Cardinal Utility approach is propounded by neo-classical economists, who believe that utility is measurable, and the customer can express his satisfaction in cardinal or quantitative numbers, such as 1,2,3, and so on.The neo-classical economist developed the theory of consumption based on the assumption that utility is measurable and can be expressed cardinally. And to do so, they have introduced a hypothetical unit called as “Utils” meaning the units of utility. Here, one Util is equivalent to one rupee and the utility of money remains constant.

Some factors of production remain fixed, leading to diminishing marginal product.

Explanation: In the short run, at least one input is fixed, leading to the law of diminishing marginal returns.

A. Total Product: Total product (definition) the total quantity of output produced by firm. marginal product (definition) is the extra or additional output resulting from one additional unit of the variable input (usually labor).

B. Total Physical Product: The total quantity of output produced by a firm for a given quantity of inputs. Total physical product is the total production of output by a firm based on the quantity of inputs used.

C. Average Product: It is defined as the output per unit of factor inputs or the average of the total product per unit of input and can be calculated by dividing the Total Product by the inputs (variable factors). Average Product = Total Product/ Units of Variable Factor Input.

D. Marginal Product: Marginal productivity or marginal product refers to the extra output, return, or profit yielded per unit by advantages from production inputs. Inputs can include things like labor and raw materials. This means that the cost advantage usually diminishes for each additional unit of output produced.

Producer's equilibrium refers to a situation where profits are maximised, i.e., the difference between total revenue and total cost is maximised, or in cases of losses, the difference is minimised, so as to minimise losses.

Explanation:


Excess demand is a situation that occurs when the market demand for a product or service exceeds the market supply. In this situation, there are more buyers willing and able to purchase a good or service than there are available units of that good or service.
Key Points:


- Excess demand occurs when the market demand exceeds the market supply.
- Market demand refers to the total quantity of a good or service that all buyers are willing and able to purchase at a given price.
- Market supply refers to the total quantity of a good or service that all sellers are willing and able to produce and offer for sale at a given price.
- Excess demand can lead to a shortage of the product, as there are not enough units available to satisfy all the buyers.
- When there is excess demand, buyers may compete with each other to purchase the limited supply, which can drive up the price of the product.
- Excess demand is an indicator of a seller's market, where sellers have more bargaining power and can potentially increase prices.
- In order to eliminate excess demand and restore equilibrium, either the market supply needs to increase or the market demand needs to decrease.
- Excess demand can be temporary or long-term, depending on the factors influencing supply and demand for the product or service.

Deficient demand refers to the situation when aggregate demand (AD) is less than the aggregate supply (AS) corresponding to full employment level of output in the economy.

Positive externalities refer to positive impact of an economic activity on the others without involving any price.

Nominal GDP is the total value of all goods and services produced in a given time period, usually quarterly or annually. Real GDP is nominal GDP adjusted for inflation. Real GDP is used to measure the actual growth of production without any distorting effects from inflation.

Real GDP is the value of final goods and services produced in a given year expressed in terms of the prices in a base year. To calculate Real GDP, we use base year prices and multiply them by current year quantities for all the goods and services produced in an economy.