12th Standard Economics: Previous Year Mixed Test

Explanation. J.M. Keynes, through his General Theory (1936), laid the foundation of modern macroeconomics, so he is called its father.

Explanation. A flow variable is measured over a period of time. Income is earned per period, whereas money supply, foreign exchange reserves and assets are stocks measured at a point of time.

Explanation. NNP stands for Net National Product, i.e. GNP minus depreciation.

Explanation. Any addition to income is either consumed or saved, so ΔC/ΔY + ΔS/ΔY = 1, i.e. MPC + MPS = 1.

Explanation. Keynes focused on short-run equilibrium, famously remarking that in the long run we are all dead.

Explanation. The Reserve Bank of India has its central office in Mumbai (moved from Calcutta in 1937).

Explanation. Irving Fisher presented the transactions version of the quantity theory (MV = PT) in his book 'The Purchasing Power of Money' in 1911.

Explanation. The central bank controls money supply and credit, so it is the monetary authority; fiscal policy is handled by the government.

Explanation. As per RBI norms, a loan becomes a Non-Performing Asset when interest or principal remains overdue for 90 days.

Explanation. FDI is allowed (with limits) in pharmaceuticals, banking and insurance, but atomic energy is a prohibited sector for FDI in India.

Explanation. India launched the New Economic Policy of liberalisation, privatisation and globalisation in July 1991.

Explanation. SDRs, created by the IMF in 1969 as an international reserve asset, are popularly called paper gold.

Explanation. The World Bank (IBRD) is headquartered in Washington D.C., USA.

Explanation. GST is an indirect tax on the supply of goods and services, so it is the equivalent of (and replaced) sales tax.

Explanation. Fiscal policy aims at price stability, economic growth and full employment, so all the options are its objectives.

Explanation. Sulphur dioxide and nitrogen oxides released into the air combine with water vapour to form acid rain, so it results from air pollution.

Explanation. The 17 Sustainable Development Goals adopted by the UN in 2015 are to be achieved by 2030 (Agenda 2030).

Explanation. France is the classic example of indicative planning, where the plan guides the private sector without compulsion; Russia followed imperative planning.

Explanation. The Prime Minister of India is the ex-officio Chairperson of NITI Aayog.

Explanation. Sir Francis Galton first used the term regression in his study of the heights of parents and their children (regression towards the mean).

Explanation. Multiplier k = 1/(1 − MPC) = 1/(1 − 0.5) = 1/0.5 = 2.

Explanation. Data collected first-hand by the investigator through questionnaires are primary data.

Explanation. Income tax is paid by the person on whom it is levied, so its burden cannot be shifted; excise, service tax and customs duty are indirect taxes.

Explanation. A slow, gradual rise in the price level is called mild (creeping) inflation.

Explanation. Keynes wrote "The General Theory of Employment, Interest and Money" (1936); Capital is by Karl Marx and Wealth of Nations by Adam Smith.

Explanation. The Protection of the Environment Operations Act was enacted in 1997.

Explanation. NITI Aayog, which replaced the Planning Commission in 2015, stands for National Institution for Transforming India.

Explanation. The modern theory of international trade (Ohlin) is based on factor endowments; absolute and comparative cost theories are classical theories.

Explanation. k = 1/(1 − MPC), and since MPC + MPS = 1, 1 − MPC = MPS, so k = 1/MPS as well.

Explanation. Alkali (saline-alkaline) soils are found mainly in the Indo-Gangetic plains of North India, so all the options apply.

Explanation. The terms micro and macro economics were first used by Ragnar Frisch in 1933.

Explanation. The Gandhian Plan (1944, S.N. Agarwal) stressed agriculture, cottage industries and a decentralised rural economy.

Explanation. Primary deficit is the fiscal deficit excluding interest payments: PD = FD − Interest payments. Option (c) defines revenue deficit.

Explanation. On 8 November 2016 the old ₹ 500 and ₹ 1000 notes were demonetised; ₹ 200 and ₹ 2000 notes were introduced afterwards.

Explanation. The classical theory of employment rests on Say's Law of Markets: supply creates its own demand.

Explanation. The IMF and the World Bank were created at the Bretton Woods Conference held in 1944.

Explanation. The primary sector uses natural resources directly: agriculture, forestry, fishing and mining. Construction and industry are secondary; trade is tertiary.

Explanation. The balance of payments has three components: current account, capital account and official settlement account.

Explanation. According to the SAARC Charter, the summit of heads of state or government is held once in two years.

Explanation. NABARD was established on 12 July 1982 on the recommendation of the CRAFICARD (B. Sivaraman) Committee.

Explanation. Every extra unit of income is either consumed or saved, so ΔC/ΔY + ΔS/ΔY = 1, i.e. MPC + MPS = 1.

Explanation. GST is an indirect tax on the supply (sale) of goods and services, so it is equivalent to a sales tax, not a direct tax like income or corporation tax.

Explanation. Structural unemployment arises from changes in the structure of the economy (technology, demand patterns), which happen in a dynamic, changing society.

Explanation. In a capitalist economy the means of production are owned and controlled by private individuals; a mixed economy has both public and private sectors and a socialist economy has state ownership.

Explanation. When both variables increase together or decrease together, the correlation is positive; movement in opposite directions is negative correlation.

Explanation. Atomic energy is a strategic sector reserved for the government, so FDI is prohibited in it, while pharmaceuticals, banking and insurance allow FDI within limits.

Explanation. The central bank issues currency and controls money supply and credit, so it is the monetary authority; fiscal policy is handled by the government.

Explanation. Inflation is a persistent rise in the general price level, which reduces the value of money; falling prices is deflation.

Explanation. APC is the ratio of total consumption to total income: APC = C/Y.

Explanation. ASEAN's six dialogue partners are India, China, Japan, South Korea, Australia and New Zealand; North Korea is not one of them.

Explanation. The Planning Commission of India was set up in March 1950; the First Five Year Plan began in 1951.

Explanation. Prolonged exposure to loud noise damages the ear, so hearing loss is an effect of noise pollution.

Explanation. J.M. Keynes, through his General Theory (1936), founded modern macroeconomics; Adam Smith is the father of economics.

Explanation. The exchange rate is the price of one currency in terms of another, determined by demand and supply in the foreign exchange market.

Explanation. Under the income method, national income is the sum of all factor incomes: rent, wages, interest and profit.

Explanation. The term "econometrics" was coined by Ragnar Frisch in 1926.

Explanation. SDRs, created by the IMF in 1969 as an international reserve asset, are popularly called "paper gold".

Explanation. Short-term (annual) plans are revised every year as part of a rolling plan, so they are known as rolling plans.

Explanation. In classical theory, if savings exceed investment the rate of interest falls (and vice versa) until savings equal investment, so interest-rate flexibility ensures equality.

Explanation. Irving Fisher popularised the quantity theory of money (MV = PT) in his book "The Purchasing Power of Money" in 1911.

Explanation. The Finance Commission, constituted under Article 280, recommends how tax revenues and grants are transferred from the Union to the States.

Explanation. NITI Aayog, which replaced the Planning Commission in 2015, stands for National Institution for Transforming India.

Explanation. Classical economists held that interest is the reward for saving (abstinence or waiting); the interest rate brings saving and investment into equality.

Explanation. Buying bonds or shares of a foreign company without gaining control is Foreign Portfolio Investment; the other three give ownership and control of productive assets abroad, which is FDI.

Explanation. The Physical Quality of Life Index (Morris D. Morris) combines literacy, infant mortality and life expectancy to measure economic development rather than mere growth of output.

Explanation. Macro economics studies aggregates such as national income, output and employment, so it is also called Income Theory; Micro economics is called Price Theory.

Explanation. Public debt can be redeemed through a sinking fund, terminal annuity (repayment in instalments), conversion of loans and other methods, so all the options are correct.

Explanation. The Classical theory of employment rests on J.B. Say's Law of Markets: supply creates its own demand, so there can be no general overproduction or unemployment.

Explanation. The USA (America) is the classic example of a capitalist economy; India is a mixed economy, while Russia and China are associated with socialism.

Explanation. Recurring ups and downs in economic activity are called the trade (business) cycle; boom, recession and recovery are only its phases.

Explanation. In the singular sense 'Statistics' means the science of statistical methods; in the plural sense it means numerical data. So it is used in both senses.

Explanation. On 8 November 2016, the old ₹ 500 and ₹ 1000 notes ceased to be legal tender.

Explanation. k = 1/(1 − MPC). Since MPC + MPS = 1, 1 − MPC = MPS, so k = 1/MPS as well; both (a) and (b) are correct.

Explanation. Environmental goods such as clean air and scenic beauty are not bought and sold in markets and have no market price, so they are non-market goods.

Explanation. In Fisher's equation PT = MV + M'V', MV is the supply of legal tender (currency) money and M'V' is the supply of bank (credit) money.

Explanation. BENELUX (Belgium, the Netherlands and Luxembourg) began as a customs union: free trade among members with a common external tariff.

Explanation. The International Bank for Reconstruction and Development (IBRD), set up after the Bretton Woods conference, is popularly known as the World Bank.

Explanation. Long-term (perspective) planning aims at structural changes in the economy, such as shifting the composition of output and employment from agriculture to industry and services.

Explanation. The UN adopted the 17 Sustainable Development Goals in 2015 as the '2030 Agenda', to be achieved by 2030.

Explanation. The Agricultural Refinance Corporation (later ARDC) was set up by the RBI on July 1, 1963 to refinance long-term agricultural credit; it was merged into NABARD in 1982.

Explanation. The Planning Commission of India was set up in March 1950 by a resolution of the Government of India.

Explanation. A favourable balance of trade exists when the value of exports is more than the value of imports.

Explanation. A slow, mild rise in the general price level (about 2-3% a year) is called creeping inflation.

Explanation. The Reserve Bank of India's central office has been in Mumbai since 1937.

Explanation. Keynes wrote 'The General Theory of Employment, Interest and Money' (1936). 'Capital' is by Karl Marx and 'Wealth of Nations' by Adam Smith.

Explanation. Average propensity to consume is total consumption divided by total income: APC = C/Y.

Explanation. Secondary data are collected from both published sources (reports, journals) and unpublished sources (records, files of offices).

Explanation. J.B. Say, the French economist who gave Say's law of markets, belongs to the classical school.

Explanation. Sulphur dioxide and nitrogen oxides released into the air mix with rain water to form acid rain, so it results from air pollution.

Explanation. Keynes introduced the Marginal Efficiency of Capital (MEC) in his General Theory as a determinant of investment.

Explanation. The primary functions of a commercial bank are accepting deposits and granting loans and advances.

Explanation. The GDP deflator measures the price level: it is nominal GDP divided by real GDP, multiplied by 100.

Explanation. Per capita income = National income ÷ Population of the country.

Explanation. Say's law ('supply creates its own demand') assumes a perfectly competitive, long-run economy that is always at full employment.

Explanation. Trade across national borders, between two or more countries, is external (international) trade.

Explanation. The New Development Bank was established by the BRICS countries (Brazil, Russia, India, China, South Africa), with headquarters in Shanghai.

Explanation. Economics is divided into two main branches: micro economics (individual units) and macro economics (the economy as a whole).

Explanation. As the central bank, the Reserve Bank of India acts as banker, agent and adviser to the Government.

Explanation. Modern states have moved from the laissez-faire/police state role to that of a welfare state that promotes the well-being of citizens.

Explanation. The Prime Minister of India is the ex-officio Chairperson of NITI Aayog.

Explanation. The Reserve Bank of India is the central bank; it acts as banker to the Government and also as the bankers' bank, so RBI is the answer in both language versions.

Explanation. The term 'econometrics' was coined by the Norwegian economist Ragnar Frisch in 1926.

Explanation. The Marginal Efficiency of Capital (MEC) was introduced by J.M. Keynes in his General Theory (1936).

Explanation. The Gandhian Plan (1944, S.N. Agarwal) stressed agriculture, cottage industries and a self-sufficient rural economy.

Explanation. Aggregate supply is the total income received, which is spent on consumption (C), saved (S), paid as taxes (T) and transferred abroad (Rf): AS = C + S + T + Rf.

Explanation. Atomic energy is a strategic sector in which FDI is prohibited in India; pharmaceuticals, banking and insurance allow FDI within limits.

Explanation. Indicative planning, where the state sets targets and guides the private sector without compulsion, was adopted by France after 1947.

Explanation. The USA (America) is the classic capitalist economy; India is a mixed economy, while Russia and China followed socialism.

Explanation. Aggregate demand = C + I + G + (X − M); government expenditure (G) is a component, whereas exports or imports alone are not.

Explanation. Trade across national boundaries is international or external trade; home/internal trade takes place within a country.

Explanation. Inflation is a persistent rise in the general price level, which lowers the value of money.

Explanation. National income is measured by three methods: the product (value added) method, the income method and the expenditure method.

Explanation. Cutting trees for timber by the logging industry is a major cause of deforestation; soil and climate stabilization are benefits of forests.

Explanation. A tax is a compulsory payment to the government with no direct return (no quid pro quo), and non-payment is a punishable offence, so all are characteristics.

Explanation. Karl Marx, author of Das Kapital, is regarded as the father of (scientific) socialism; Adam Smith is the father of economics.

Explanation. NABARD (National Bank for Agriculture and Rural Development) was established on 12 July 1982.

Explanation. The consumption function C = f(Y) shows the relationship between total consumption expenditure and total income.

Explanation. In Fisher's extended equation PT = MV + M'V', MV is the supply of legal tender money and M'V' is the supply of bank (credit) money.

Explanation. Per capita income = National income ÷ Population of the country.

Explanation. The IMF (and the World Bank) were created at the Bretton Woods Conference held in New Hampshire, USA, in July 1944.

Explanation. J.M. Keynes, through his General Theory (1936), laid the foundation of modern macro economics and is regarded as its father.

Explanation. Macro economics studies the economy as a whole through aggregates such as national income, total employment and the general price level.

Explanation. The primary sector uses natural resources directly: agriculture, forestry, fishing and mining. Construction and industry are secondary; trade is tertiary.

Explanation. J.B. Say, the French economist who gave Say's Law of Markets (supply creates its own demand), belongs to the classical school.

Explanation. A lower interest rate reduces the cost of borrowing, so people and firms borrow more and spend more on consumption and investment.

Explanation. k = 1/(1 − MPC). Since MPC + MPS = 1, 1 − MPC = MPS, so k = 1/MPS as well; both (a) and (b) are correct.

Explanation. J.R. Hicks combined the multiplier and the accelerator and first used the term 'super multiplier'. Kahn gave the employment multiplier and Keynes the investment multiplier.

Explanation. The Reserve Bank of India, set up in 1935, has had its central office in Mumbai since 1937.

Explanation. The primary functions of money are medium of exchange and measure of value. Store of value and standard of deferred payments are secondary functions; basis of credit is a contingent function.

Explanation. The National Bank for Agriculture and Rural Development (NABARD) was established on 12 July 1982.

Explanation. RRBs are Regional Rural Banks, set up from 1975 to provide credit to small farmers, artisans and rural poor.

Explanation. The exchange rate is the price of one currency in terms of another, and it is determined by demand and supply of currencies in the foreign exchange market.

Explanation. The balance of payments records all transactions with the rest of the world: visible items (goods) and invisible items (services, transfers) as well as capital flows.

Explanation. Surcharge, income tax and cess are all taxes. Fees are paid in return for a specific service, so they are non-tax revenue.

Explanation. The modern state goes beyond maintaining law and order (police/laissez-faire state) and undertakes activities for the welfare of the people, so it is a welfare state.

Explanation. Global warming is the rise in the earth's average temperature caused by greenhouse gases; among the given options only 'increasing temperature' relates to it (strictly it is the effect, but it is the intended answer).

Explanation. NITI Aayog, which replaced the Planning Commission on 1 January 2015, stands for National Institution for Transforming India.

Explanation. The Planning Commission of India was set up in March 1950; the First Five Year Plan began in 1951.

Explanation. Data collected first-hand by the investigator, e.g. through a questionnaire, is primary data; secondary data is taken from already published sources.

Explanation. In the classification of plans by time, short-term (annual) plans are used to control and adjust the economy within the long-term framework, so they are called controlling plans.