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Test: Money Market and Capital Market structure in India- 3 - B Com MCQ


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10 Questions MCQ Test - Test: Money Market and Capital Market structure in India- 3

Test: Money Market and Capital Market structure in India- 3 for B Com 2024 is part of B Com preparation. The Test: Money Market and Capital Market structure in India- 3 questions and answers have been prepared according to the B Com exam syllabus.The Test: Money Market and Capital Market structure in India- 3 MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Money Market and Capital Market structure in India- 3 below.
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Test: Money Market and Capital Market structure in India- 3 - Question 1
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Why is deficit financing considered a risky method of capital formation?

Detailed Solution for Test: Money Market and Capital Market structure in India- 3 - Question 1
Deficit financing can be risky because if not carefully managed, it can lead to inflationary pressures in the economy. When the government injects additional money into circulation without a corresponding increase in production, it can cause prices to rise, leading to inflation.
Test: Money Market and Capital Market structure in India- 3 - Question 2
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Which of the following is a factor that influences the power to save in an economy?

Detailed Solution for Test: Money Market and Capital Market structure in India- 3 - Question 2
The power to save in an economy depends on factors like the average level of income and the distribution of national income. Higher levels of income and greater income equality tend to lead to higher levels of savings.
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Test: Money Market and Capital Market structure in India- 3 - Question 3
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What is the primary purpose of capital formation in an economy?

Detailed Solution for Test: Money Market and Capital Market structure in India- 3 - Question 3
Capital formation refers to the process of creating a stock of capital goods such as machines, tools, factories, and equipment that can be used for future production. This process involves saving and investing resources to build up the productive capacity of the economy, leading to increased production and economic growth.
Test: Money Market and Capital Market structure in India- 3 - Question 4
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What is the role of deficit financing in capital formation?
Detailed Solution for Test: Money Market and Capital Market structure in India- 3 - Question 4
Deficit financing involves the creation of new money to finance government expenditure. This can be a source of capital formation if the government uses the newly created money to invest in real capital goods such as infrastructure projects, factories, and other productive assets.
Test: Money Market and Capital Market structure in India- 3 - Question 5
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In a developing economy, what is the primary factor that determines the level of investment or capital formation?
Detailed Solution for Test: Money Market and Capital Market structure in India- 3 - Question 5
The size of the market for goods is a primary factor that determines the level of investment or capital formation in a developing economy. A larger market provides scope for profitable investment and encourages entrepreneurs to invest in the production of goods.
Test: Money Market and Capital Market structure in India- 3 - Question 6
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Which determinant of inducement to invest is of greater importance for entrepreneurs?
Detailed Solution for Test: Money Market and Capital Market structure in India- 3 - Question 6
The determinant of inducement to invest that is of greater importance for entrepreneurs is the marginal efficiency of capital (prospective rate of profit). Entrepreneurs are more likely to invest when they anticipate higher profits from their investments.
Test: Money Market and Capital Market structure in India- 3 - Question 7
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How can disguised unemployment contribute to capital formation?
Detailed Solution for Test: Money Market and Capital Market structure in India- 3 - Question 7
Disguised unemployment refers to the situation where more workers are engaged in a task than are actually needed. Transferring surplus agricultural workers to productive projects can contribute to capital formation, as these workers can be utilized in creating various forms of infrastructure and capital assets.
Test: Money Market and Capital Market structure in India- 3 - Question 8
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What role does the public sector play in capital formation?
Detailed Solution for Test: Money Market and Capital Market structure in India- 3 - Question 8
The public sector can contribute to capital formation by using the profits generated by public undertakings for further investment. These profits can be reinvested in building real capital goods, such as infrastructure, factories, and equipment, which contribute to economic growth.
Test: Money Market and Capital Market structure in India- 3 - Question 9
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What is the purpose of mobilizing savings in the process of capital formation?
Detailed Solution for Test: Money Market and Capital Market structure in India- 3 - Question 9
Mobilizing savings involves making the saved resources available for investment by entrepreneurs. This step ensures that the resources saved by households are used to create capital goods and contribute to economic growth and development.
Test: Money Market and Capital Market structure in India- 3 - Question 10
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Why is a well-developed capital market important for capital formation?
Detailed Solution for Test: Money Market and Capital Market structure in India- 3 - Question 10
A well-developed capital market facilitates the efficient mobilization and transfer of savings from individual investors, banks, investment trusts, and other financial institutions to entrepreneurs and businesses that require funds for investment. This ensures that the resources saved by households are directed towards productive investment activities.
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