ECONOMIC TEST SET 1

Which of the following will not be true if exchange rates are determined according to purchasing power parity (PPP)?

If two countries have zero rate of inflation, their bilateral exchange rate will be constant

In response to a monetary shock, there will occur a overshooting of exchange rates.

The prices of goods will be the same in all the countries when converted at the going rate of exchange

Exchange rate between any two currencies will be equal to the inflation differential between the two concerned economies.

If interest rate is increased in an economy, it will-

decrease the investment expenditure in the economy

decrease the savings in the economy

decrease tax collection of government

increase the consumption expenditure in the economy

Which of the following is correct about 'comparative advantage'?

Both (a) and (c) are correct.

The situation neutralizing the edge between two companies with the right kind of comparative measures

One firm having comparative edge on the other due to its specialities

Specializing in the production of things that individuals/companies are relatively good at and trading with others who specialize in what they are relatively good at

'Williamson trade-off Model' is related to which of the following?

All of the above

Balance sheet making of an MNC

Merger of companies

Takeover of companies

What is 'winner's curse'?

None of the above.

In takeovers of companies, at times, the real benefit goes to the company, being taken over.

In mergers, usually the stronger firm gains but it pays a very high cost.

The possibility that the winning bidder in an auction will pay too much cost for an asset.

In the situation of supply of money remaining the same when there is a fall in demand of money in the economic system, there will be-

an increase in the rate of interest

an increase in the level of prices

a decrease in the rate of interest

skewflation will be seen in the economy

'A line that traces the relationship between the rates of return on bonds of different maturities' is called

Coupling of Rates

Yield Curve

Marginal Line

Profit Indifference

Consider the following statements about 'hidden price rise' and select the correct code:

1. A situation of reduction in quality or amount of a product offered at an unchanged price

2. A situation of increase in indirect taxes on goods, which compromises on the quality of the goods offered for sale

Neither 1 nor 2

Only 1

1 and 2 both

Only 2

In the case of agricultural goods if the government fixes the price above the market-clearing price together with banning exports and buys up surpluses in production, which one of the following will characterise the market outcome?

Consumers pay more for foods while producers get lower revenues.

Consumers gain but whether producers gain it cannot be said.

Consumers pay more for their food while producers get higher revenues.00

Consumers get cheaper foods while producers get higher revenues.

Consider the following statements and select the 'normative' ones regarding policy making by a democratic government:

1. India spent Rs. 50,000 crore on welfare schemes.

2. India should do more to promote irrigation.

3. India's reservation policy needs expansion.

4. Express Highways are serving economic purpose.

2 and 3

1 and4

3 and 4

1 and 2

What is correct about 'opportunity cost'?

The amount of money that today's assets will cost in future

None of the above

The cost of something in terms of alternatives that had to be given up but could have been chosen instead

The total amount of money spent on searching an opportunity

Two firms are competing against each other in a mature market with no expansion in the market size-one increasing its sales at the cost of the other's sale. This situation can be best described as

Constant market theory

Zero-sum game

None of the above

Indifference market

Consider the following statements and select the correct code about a 'market economy':

1. Government facilitates the private sector's choice of produced goods and ' services.

2. Price mechanism is usually not allowed due to welfare reasons

Both 1 and 2

Only 1

Only 2

Consider the following statements and select the correct code:

1. Nominal Capital of a company is the limit up to which the company can issue capital through shares.

2. Subscribed Capital of a company is that part of the Authorised Capital, which has been paid or committed by the shareholders to contribute.

2 is correct

1 is correct.

Neither 1 nor 2 is correct.

1 and 2 are correct.

Which of the following statements relates to the trade in 'invisibles'?

Trade in services, such as project reports, business process outsourcing, etc.

Share trading in the companies, which are registered abroad

Specialised trading in financial assets

Trade in illegal items, such as drugs

What does a long-run 'Phillips curve' show?

The level of unemployment at which expectations of and the actual outcome for inflation will be the same

The rate of inflation at which structural and frictional unemployment will be eliminated

The rate of inflation at which unemployment will be in equilibrium

The rate of unemployment at which inflation will fall

One among the following is 'a measure of the degree of seller concentration in a market that takes into account the total number of firms in the market and their relative size distribution'.

Gini Coefficient

Krugman Curve

Herfindahl Index

Friedman Index

Which of the following is not a reason why unexpected inflation is generally considered undesirable?

Because wages tend to catch-up with prices

Because it gives incentives for speculative activity rather than productive investment activity

Because it distorts the signals that are provided by the price mechanism

Because it redistributes income from creditors to debtors

One of the following is a correct statement, regarding the trade-off between 'inflation' and 'unemployment':

There is a short-run but not a long-run tradeoff between inflation and unemployment

There is always a trade-off between inflation and unemployment.

There is a long-run but no short-run tradeoff between inflation and unemployment.

There is a long-run trade-off between inflation and unemployment.

While operating a 'pegged exchange rate', a government must do which of the following?

None of the above.

Use its forex reserves to intervene in the forex market-foreign currency is sold when the domestic currency is in excess supply and foreign currency is bought when domestic currency is in excess demand.

Peg its currency with the strongest currency of the world on voluntary basis.

Use its forex reserves to intervene in the forex market-foreign currency is bought when the domestic currency is in excess supply and foreign currency is sold when domestic currency is in excess demand.

Select the correct statements related to the 'helicopter money', using the code given below:

1. Flow of the money in the economic system due to quantitative tapering.

2. Quantitative easing makes flow such currency in the economy.

3. Most of the central banks in the recession-hit western economies have been said to circulate such currency.

4. The term was first used in Japan

3 and 4

1 and 2

1, 3 and 4

2 and 3

Which of the following is correct about 'hedging'? Select your answer using the code given below:

1. This is an act of reducing uncertainty about future price movements.

2. It may be done in commodity, security and currency.

3. This may be done by forward sales or purchases.

1 and 2

1, 2 and 3

2 and 3

Only 1

In the context of balance of payments, 'portfolio investment' relates to

Purchase of real estate in foreign countries

Private remittances to foreign countries

Purchase of shares in foreign companies

Takeover of foreign companies

What does a short-run 'Phillips curve' show?

The rate of money-wage inflation for each level of possible unemployment and for a specific expected rate of inflation

The rate of money-wage inflation, which was already expected

None of the above

The rate of money-wage inflation that is generated at full-employmen

Which of the following will be correct if an economy follows a 'floating exchange rate' regime

The government does not need to maintain a forex reserve

For such regime to follow, the economy must maintain more foreign assets than foreign liabilities.

The exchange rate will adjust to keep the current account deficit/surplus just equal to the capital account surplus/ deficit.

The current account deficit must be maintained at the zero level by the economy.

ECONOMIC TEST SET 1

Which of the following will not be true if exchange rates are determined according to purchasing power parity (PPP)?

If interest rate is increased in an economy, it will-

Which of the following is correct about 'comparative advantage'?

'Williamson trade-off Model' is related to which of the following?

What is 'winner's curse'?

In the situation of supply of money remaining the same when there is a fall in demand of money in the economic system, there will be-

'A line that traces the relationship between the rates of return on bonds of different maturities' is called

Consider the following statements about 'hidden price rise' and select the correct code:

1. A situation of reduction in quality or amount of a product offered at an unchanged price

2. A situation of increase in indirect taxes on goods, which compromises on the quality of the goods offered for sale

In the case of agricultural goods if the government fixes the price above the market-clearing price together with banning exports and buys up surpluses in production, which one of the following will characterise the market outcome?

What is correct about 'opportunity cost'?

Two firms are competing against each other in a mature market with no expansion in the market size-one increasing its sales at the cost of the other's sale. This situation can be best described as

Consider the following statements and select the correct code about a 'market economy':

1. Government facilitates the private sector's choice of produced goods and ' services.

2. Price mechanism is usually not allowed due to welfare reasons

Which of the following statements relates to the trade in 'invisibles'?

What does a long-run 'Phillips curve' show?

One among the following is 'a measure of the degree of seller concentration in a market that takes into account the total number of firms in the market and their relative size distribution'.

Which of the following is not a reason why unexpected inflation is generally considered undesirable?

One of the following is a correct statement, regarding the trade-off between 'inflation' and 'unemployment':

While operating a 'pegged exchange rate', a government must do which of the following?

Which of the following is correct about 'hedging'? Select your answer using the code given below:

1. This is an act of reducing uncertainty about future price movements.

2. It may be done in commodity, security and currency.

3. This may be done by forward sales or purchases.

In the context of balance of payments, 'portfolio investment' relates to

What does a short-run 'Phillips curve' show?

Which of the following will be correct if an economy follows a 'floating exchange rate' regime

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