Practice questions macro Ch 1-10

  

1. Which of the following statements is correct about government spending?    (1) 
   1. When a government spends more than it can collect as revenue, it incurs a revenue expenditure
   2. When a government spends more than it can collect as revenue, it incurs a capital expenditure
   3. When a government spends more than it can collect as revenue, it incurs a budget deficit
   4. When a government spends more than it can collect as revenue, it incurs a budget surplus
2. Which of the following statements is true about the fiscal deficit?            (1)
   1. It is the difference between the total expenditure and receipts of a government excluding interest
   2. It is the difference between the total expenditure and receipts of a government excluding spending
   3. It is the difference between the total expenditure and receipts of a government excluding borrowings
   4. It is the difference between the total expenditure and receipts of a government excluding taxes
3. Which of the following statements is true about the primary deficit in a government’s budget? (1)
   1. The primary deficit is zero when the revenue deficit is zero
   2. The primary deficit is zero when the net interest payments are zero
   3. The primary deficit is zero when the fiscal deficit is zero
   4. The primary deficit is zero when the fiscal deficit is equal to the interest payment
4. Which of the following statements is correct about direct taxes?    (1)
   1. The direct taxes are collected from the income earners
   2. The direct taxes are collected from the producers on the goods or services produced by them
   3. The direct taxes are collected from the sellers on the goods or services sold by them
   4. The direct taxes are collected from the buyers on the goods or services bought by them

5. Which of the following statements is not accurate about non-tax revenue receipts?    (1)

1. 1. Disinvestment, external grants and dividends & profits are examples of non-tax revenue receipts
   2. Disinvestment, dividends & profits are examples of non-tax revenue receipts
   3. Disinvestment and external grants are examples of non-tax revenue receipts
   4. Goods and Services Tax is an example of a non-tax revenue receipt

6.  Money can be used to transfer purchasing power from the present to the future. Which specific function of money is this called?  (1)

a. store of value     b. unit of account    c. medium of exchange d. double coincidence of wants

7. “The value of all goods and services can be expressed in monetary units.” On the basis of the given statement, identify the function performed by money:   (1)

a. Medium of exchange              b. Store of Value

c. Unit of account                        d. Means of a standard of deferred payments

8. Credit cards are excluded from all measures of the quantity of money because they are not really a method of payment, but a method of deferring payment. When you buy a meal with a credit card, the bank that issued the card pays the restaurant the amount that is due. At a later date, you will have to repay the bank, perhaps with interest. For this, you might use the money in your demand deposits, and that money is included in the economy's stock of money.   (1)

Which of the following can happen with an increased use of credit cards in an economy?

a. increase in money supply                        b. decrease in money supply

c. increase in money demand                      d. decrease in money demand

9. Read the following statements -Assertion (A) and Reason(R). Choose one of the correct alternatives given below:

• Assertion (A): Demand Deposits are considered a convenient mode of payment for the execution of even high-value transactions.
• Reason(R): Demand Deposits are non-withdrawable in nature and cannot be withdrawn against the issue of cheques and other similar instruments of payment.

a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

c. Assertion (A) is true but Reason (R) is false.

d. Assertion (A) is false but Reason (R) is true.

10. Money supply in India may increase if, ____________(Choose the correct alternative)  (1)

1. Reserve Bank of India(RBI) injects more money into circulation
2. Commercial banks expand their credit operation
3. Tax rates are reduced by the Central Government
4. Reserve Bank of India increases the Bank Rate

a. 1, 2, and 3 are correct                                              b. 2, 3, and 4 are correct

c. 1, 3, and 4 are correct                                              d. 1, 2, and 4 are correct

11. What is real flow?

12. Explain the relationship between MPC and multiplier with the help of an example.  (3) 

13. What is money supply. Discuss its measures.             (4) 

14. State whether the following statements are true or false. Give reason (4)
(i) When Marginal Propensity to Consume is greater than Marginal Propensity to Save, the value of investment multiplier will be greater  than 5.
(ii) The value of Marginal Propensity to Save can never be negative

(iii) When Marginal Propensity to Consume is greater than Marginal Propensity to Save, the value of investment multiplier will be greater  than 5.

(iv) The value of Marginal Propensity to Save can never be negative.                                        

15. Explain national income determination through the two alternatives approaches. Use diagram.  (6)

16. Mention whether the following Items to be Included or Excluded in National Income with Reasons.                                            (6)

A. Transport expenses by a firm.

B. Purchase of equipment’s for installation in a factory.

C. Payment of Death duty.

D. Entertainment tax received by the government.

E. Salaries paid to Russians working in Indian Embassy in Russia.

F. Capital gains to Indian residents from sale of shares of a foreign company.

17. How do commercial banks create deposits? Explain by taking an example of Fresh deposits = Rs.  10000   and LRR as 20%.                                            (6)