Economics: CUET Mock Test - 5 - CUET MCQ

Given your request, here is the solution based on the provided CSV data row:

The correct option is 'Net National Product at Factor Cost'.

Key Points

• Net National Product at Market Price
  • This statement refers to the net value of all goods and services produced within a country at market prices, after adjusting for depreciation. While it is a measure of national income, it does not accurately reflect the income at factor cost.
• Gross National Product at Factor Cost
  • This is the total value of goods and services produced by the residents of a country, plus any product taxes (less subsidies) not included in the valuation of output, at factor cost. However, it does not adjust for the depreciation of assets like the Net National Product does.
• Net National Product at Factor Cost
  • This is the correct definition of National Income. It represents the net value of all goods and services produced within a country (after adjusting for depreciation), measured at factor cost, which means it reflects the incomes earned by factors of production like labor and capital.
  • Since it adjusts for depreciation (netting out the loss in value of assets over time) and measures income at factor cost (the cost of inputs used in production), it provides a clear picture of the country's economic performance and the income generated from its production activities.
• Gross National Product at Market Price
  • This measure accounts for the total value of all goods and services produced within a country at market prices, including net income from abroad. However, it does not subtract the depreciation of assets, making it a gross measure rather than a net measure.

Therefore, the statement that Net National Product at Factor Cost can also be called National Income is correct. Hence, Option 3 is the correct answer.

The correct option is 'A - IV, B - I, C - II, D - III'.

Key Points

• Trade includes export and import of goods is related to the Current Account.
  • The current account of a country's balance of payments includes the trade of goods and services, wherein export and import of goods are a primary component.
  • This account reflects the net amount of a country's income if it is in surplus, or spending if it is in deficit, on international trade.
• Foreign Direct Investment falls under the Capital Account.
  • Foreign Direct Investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country.
  • FDI is a part of the capital account, which records the net change in ownership of national assets.
• Net sale of service products like banking and tourism is categorized as Invisible Trade.
  • Invisible trade refers to the trade of services, as opposed to the trade of tangible goods. This includes services such as banking, insurance, and tourism.
  • It is a part of the current account, contributing to the balance of payments in ways other than the physical transfer of goods.
• The Receipts of payment without providing goods and services are known as Transfer Payment.
  • Transfer payments refer to payments made in which no goods or services are being paid for, such as welfare, financial aid, and grants.
  • These are unilateral payments made without a direct return in goods or services, but they affect the balance of payments.

Therefore the correct pairing is:
A - IV: Trade includes export and import of goods - Current Account
B - I: Foreign Direct Investment - Capital Account
C - II: Net sale of service products like banking and tourism - Invisible Trade
D - III: The Receipts of payment without providing goods and services - Transfer Payment

The correct option is '3) 5'.

Key Points

• The concept of Money Multiplier reflects the maximum extent to which the money supply can increase based on an initial deposit in the banking system.
• The Cash Reserve Ratio (CRR) is the percentage of deposits that banks are required to keep with the central bank. A CRR of 20% means that for every 100 units of currency deposited, banks must keep 20 units with the central bank and can lend out the remaining 80 units.
• Money creation or the money multiplier effect occurs when banks lend out their excess reserves. The initial deposit leads to a series of loans and deposits, creating more money in the economy than was initially deposited.
• The formula for calculating the money multiplier is 1/CRR. Therefore, with a CRR of 20% (or 0.20), the money multiplier is calculated as 1/0.20 = 5.
• This means that for every unit of currency deposited, the banking system can increase the money supply by up to 5 units through the process of lending and depositing, assuming there are no other leakages in the system.
• In the context of this question, with an initial deposit of Rs. 1000 and a money multiplier of 5, the total money creation in the economy could be up to Rs. 5000, illustrating the significant impact of the banking system on the money supply.

Additional Information

• The money multiplier is a crucial concept in monetary economics, illustrating the role of banks in the money creation process and how central banks can influence the money supply through regulatory tools like the Cash Reserve Ratio.
• Understanding the money multiplier helps in analyzing the potential impacts of monetary policy decisions on the economy, including inflation and interest rates.

The passage defines the three linkages in an open economy as the output market, financial market, and labor market.

Answer: B
Explanation: The passage states, "The exchange rate is the price of one currency in terms of another, which facilitates international trade," clearly indicating that the exchange rate's role is to enable international trade by setting currency prices.

Answer: D
Explanation: The passage specifies, "The labor market allows workers and firms to engage across borders, though immigration laws often limit labor movement," highlighting immigration laws as a key limitation on the labor market.

The passage mentions how imports and exports influence aggregate demand by acting as leaks or injections into the economy.

The passage mentions that the exchange rate facilitates international trade, implying that international trade is a factor influencing exchange rates. It does not mention domestic market activities, inflation rates, or government monetary policies as factors affecting the exchange rate. Therefore, domestic market activities (Option B) is not mentioned in the passage.

• (A) Large number of buyers and sellers: Ensures no single buyer or seller can affect the market price (price takers). Matches with (III).
• (B) Homogeneous products: Goods are identical across firms, with no differentiation (e.g., wheat). Matches with (IV).
• (C) Free entry and exit: Firms can freely enter or leave the market without restrictions. Matches with (I).
• (D) Perfect information: All participants have complete knowledge of prices and products. Matches with (II).
  The correct pairing is (A) - (III), (B) - (IV), (C) - (I), (D) - (II), which corresponds to option (a).

(A) Total Revenue (TR): The total income from selling all units (TR = Price × Quantity). Matches with (III).
(B) Average Revenue (AR): Revenue per unit sold (AR = TR ÷ Quantity); in perfect competition, AR equals price. Matches with (I).
(C) Marginal Revenue (MR): The additional revenue from selling one more unit (MR = ΔTR ÷ ΔQ); in perfect competition, MR = Price. Matches with (II).
(D) Price Line: In perfect competition, the demand curve faced by a firm is horizontal (AR = MR = Price). Matches with (IV).
The correct pairing is (A) - (III), (B) - (I), (C) - (II), (D) - (IV), which corresponds to option (b).

(A) Profit maximisation condition: A firm maximizes profit when it produces where revenue covers costs and MR = MC, but in context, it continues producing if Price ≥ AVC. Matches with (III).
(B) Marginal Revenue = Marginal Cost: The golden rule of profit maximization is where MR = MC. Matches with (II).
(C) Shutdown Point: In the short run, a firm shuts down if Price < AVC (cannot cover variable costs). Matches with (I).
(D) Break-even Point: Occurs when Price = Average Total Cost (ATC), earning zero economic profit (normal profit). Matches with (IV).
The correct pairing is (A) - (III), (B) - (II), (C) - (I), (D) - (IV), which corresponds to option (b).

• (A) Technological progress: Improves efficiency, increasing supply (shifts right). Matches with (I).
• (B) Increase in input prices: Raises production costs, reducing supply (shifts left). Matches with (II).
• (C) Unit tax imposition: Increases costs per unit, reducing supply (shifts left). Matches with (III).
• (D) Entry of new firms: Increases market supply, shifting the supply curve right. Matches with (IV).
  The correct pairing is (A) - (I), (B) - (II), (C) - (III), (D) - (IV), which corresponds to option (a).

(A) is incorrect as no individual has unlimited resources.
(B) is correct, as scarcity forces individuals to prioritize their needs.
(C) is correct because all individuals face scarcity.
(D) is incorrect since scarcity directly impacts the allocation of resources.

The household sector significantly contributes to the economy through various means:

• Providing labour: Households supply workers to firms and the government.
• Earning wages: Individuals receive income from their jobs, which supports their spending.
• Consuming goods: Households purchase products and services, driving market demand.
• Paying taxes: Households contribute to government revenue, which funds public services.
• Saving: Households save money, which can be invested in the economy.

Overall, the household sector is essential for maintaining economic activity and growth.

The correct answer is D: Which are for final consumption.

Final goods, also known as consumer goods or finished goods, are goods that are produced for the purpose of being consumed by households or final users. They are the end products of the production process, and are not used as inputs in the production of other goods or services. Final goods include both durable goods, such as appliances and furniture, and nondurable goods, such as food and clothing.

Intermediate goods, on the other hand, are goods that are used as inputs in the production of other goods or services. They are typically not sold directly to households or final consumers, but rather are used as inputs in the production process by firms. Intermediate goods include raw materials, components, and partially finished goods that are used in the production of final goods.

Final goods are typically not meant for resale or for long-term use, as they are consumed or used up by households or final users. Capital goods, such as machinery and equipment, are typically meant for long-term use, as they are not consumed or used up in the production process but rather are used over a period of time to produce other goods and services.

The most important function of a commercial bank is the creation of credit.
Therefore, money supplied by commercial banks is called credit money. Commercial banks create credit by advancing loans and purchasing securities. They lend money to individuals and businesses out of deposits accepted from the public.

The coefficient (1-b) is also known as MPS (Marginal Propensity to Save).
Explanation:
- The coefficient (1-b) represents the Marginal Propensity to Save (MPS), which is the proportion of additional income that individuals save rather than spend.
- MPS is an important concept in economics as it helps determine the relationship between changes in income and changes in consumption and saving.
- The MPS can be calculated by subtracting the Marginal Propensity to Consume (MPC) from 1. The MPC represents the proportion of additional income that individuals spend rather than save.
- In this case, the coefficient (1-b) is equivalent to the MPS because it represents the proportion of income that is saved.
- This means that for every additional unit of income, (1-b) is saved and b is consumed.
- The MPS is an important component of Keynesian economics and is used to analyze the multiplier effect and the determinants of aggregate demand.
- By understanding the MPS, economists can make predictions about the impact of changes in income on saving and spending behavior in the economy.
In summary, the coefficient (1-b) is known as the Marginal Propensity to Save (MPS) and represents the proportion of additional income that individuals save rather than spend.

Prevents Speculation in foreign exchange market: Another important merit of fixed exchange rate system is that it does away with speculation in foreign exchange markets. The advocates of fixed exchange rate system points out that the flexible and unstable exchange rate encourages speculation in foreign exchange market.

Macroeconomic analysis often simplifies the complex reality by focusing on a single imaginary commodity as a representative of the entire economy's goods and services, allowing for generalized analysis of economic trends.

Circular Income Flow in a Two Sector Economy:

In the diagram, the upper loop illustrates the flow of resources such as land, capital, and entrepreneurial ability from households to firms.

The flow of money occurs from firms to households as factor payments, which include wages, rent, interest, and profits, as indicated by the direction of the arrows.

The lower part of the diagram shows how money flows from households back to firms in the form of consumption expenditure for goods and services produced by the firms.

This creates a continuous circular flow of money or income, highlighting the interdependence of households and firms in the economy.

Answer: C.

Firms: Households own all the factors of production: land, labor, capital. These factors of production are sold to the firms to produce goods and services through factor markets.

Household: Households own all the factors of production: land, labor, capital. These factors of production are sold to the firms to produce goods and services through factor markets.

Answer: C
Explanation: The passage states, "The upper loop shows the resources such as land, capital and entrepreneurial ability flow from households to firms in the direction shown by the arrow direction," indicating that households provide resources to firms in the upper loop.

Option A is correct

The passage describes the circular flow of income in a two-sector economy, involving households and firms. It explains how resources, money, goods, and services flow between these two entities, creating a cycle of production

Answer: D

Explanation:
The passage describes the circular flow of income in a two-sector economy, illustrating how money and resources flow between households and firms through factor payments and consumption expenditure. The significance of the circular flow of income includes:

A: It reflects the structure of an economy. This is significant because the circular flow model shows how different sectors (households and firms) interact, reflecting the economy's structure.

B: It shows interdependence among different sectors. The passage highlights the interdependence between households (providing resources) and firms (producing goods and services), which is a key feature of the circular flow.

Thus, D is the correct answer, as it inaccurately describes the role of the circular flow of income.

C: It shows injections and leakages from the flow of money. While the passage does not explicitly use the terms "injections" and "leakages," the circular flow model inherently includes these concepts (e.g., consumption expenditure as an injection and savings as a potential leakage in extended models), making this a valid significance.

D: It does not help in estimation of national income and related aggregates. This is not a significance of the circular flow of income. In fact, the circular flow model is crucial for understanding and estimating national income, as it shows how income is generated and expended across sectors. National income can be measured using the income, expenditure, or production approaches, all of which are rooted in the circular flow framework. Therefore, stating that it "does not help" is incorrect and not supported by the passage or economic theory.

 

The correct answer is 'A' - Bank Rate. The important quantitative methods of credit control is (a) bank rate. The methods used by the central bank to regulate the flows of credit into particular directions of the economy are called qualitative or selective methods of credit control. Unlike the quantitative methods, which affect the total volume of credit, the qualitative methods affect the types of credit, extended by the commercial banks; they affect the composition rather than the size of credit in the economy.

 

 

 

 

To determine the type of function represented by the equation C = -c b(Y), we need to understand the variables involved and their relationships.
The equation represents the relationship between consumption expenditure (C) and the level of some other variable (Y). Let's break down the options to identify the correct answer:
A: Algebraic function of the level of capital expenditure
- The equation does not include any variable related to capital expenditure, so this option can be ruled out.
B: Algebraic function of the level of Consumption expenditure
- The equation represents consumption expenditure (C) as a function of the level of another variable (Y), making it an algebraic function of consumption expenditure.
C: Linear function of the level of Consumption expenditure
- The equation does not have a linear relationship between C and Y because of the presence of the negative sign and the variable c. So this option can be ruled out.
D: Algebraic function of the level of Investment expenditure
- The equation does not include any variable related to investment expenditure, so this option can be ruled out.
Therefore, the correct answer is B: Algebraic function of the level of Consumption expenditure.

Merit of flexible exchange rate:
There are several merits of a flexible exchange rate system, which allows the currency value to be determined by market forces rather than being fixed by the government. One of the main advantages is that it eliminates overvaluation or undervaluation of currencies. Below are the reasons why this is considered a merit:
1. Market-driven exchange rates: Under a flexible exchange rate system, the value of a currency is determined by the supply and demand in the foreign exchange market. This means that market forces play a significant role in setting the exchange rate, ensuring that it reflects the true value of the currency.
2. Automatic adjustment mechanism: Flexible exchange rates allow for automatic adjustments in response to changes in economic conditions. If a currency becomes overvalued, meaning its value is higher than its true worth, the market forces will lead to a depreciation in its value. On the other hand, if a currency becomes undervalued, the market forces will lead to an appreciation in its value. This automatic adjustment mechanism helps to prevent prolonged overvaluation or undervaluation of currencies.
3. Promotes international trade: A flexible exchange rate system can promote international trade by facilitating price competitiveness. If a country's currency becomes overvalued, its exports may become more expensive for foreign buyers, potentially reducing demand. However, with a flexible exchange rate, the currency can depreciate, making exports more affordable and stimulating trade.
4. Adjustment to external shocks: Flexible exchange rates allow countries to better adjust to external shocks, such as changes in global economic conditions or sudden shifts in international capital flows. If a country faces a negative shock, such as a decrease in export demand, a flexible exchange rate can help to restore competitiveness by depreciating the currency, thereby supporting the economy.
Overall, a flexible exchange rate system provides greater flexibility and responsiveness to market conditions. It helps to prevent overvaluation or undervaluation of currencies, promotes international trade, and allows for adjustments to external shocks. These advantages make it a desirable option for many countries.

Macroeconomics sometimes examines distinct sectors like agriculture and industry separately to better understand their unique characteristics and interrelationships, which can affect the economy in ways not captured by simplification.

B: Reserve Bank of India

In India, monetary policy is announced by the Reserve Bank of India (RBI). The RBI is the central bank of India and is responsible for implementing and managing monetary policy in the country.

Monetary policy refers to the actions taken by the central bank to influence the supply and demand of money in the economy, with the aim of achieving certain macroeconomic objectives such as price stability, full employment, and economic growth. The RBI uses various tools, such as changing the interest rates, altering the reserve requirements for banks, and engaging in open market operations, to implement monetary policy in India.

The Ministry of Finance is responsible for managing the government's finances, including preparing the annual budget, mobilizing financial resources, and formulating fiscal policy. The Planning Commission is a government body that is responsible for formulating the country's five-year plans and for coordinating the development activities of various sectors of the economy. The government refers to the executive branch of government, which is responsible for implementing the policies and laws of the country.