Prelims Revision Series | Economy | Basics of Economy | 05

April 21, 2023

Which of the following is/are merits of capitalism:
1. Efficient Use of Resources.
2. No economic fluctuations.
3. Incentives for Hard work.
4. Production of non essential goods.
Which of the statements given is/are correct?

(A) 1 and 3 only
(B) 2 and 3 only
(C) 1 and 4 only
(D) 3 and 4 only

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Answer: (a)

Consider the following statements:
1. Stock refers to a quantity of a commodity measured at a point of time.
2. Flow variables are measured over a period of time.
Which of the statements given below is/are correct?

(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) None

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Answer: (c)

Stock refers to a quantity of a commodity measured at a point of time.
In macro economics, money supply, unemployment level, foreign exchange reserves, capital etc. are examples of stock variables.
Flow variables are measured over a period of time.
National Income, imports, exports, consumption, production, investment etc. are examples of flow variables.

Which of the following statement(s) is/are correct?
1. Globalism is also termed as ‘Extended Capitalism’.
2. The term was coined by Manfred Steger to denote the new market ideology that connects nations together through international trade.
Select the answer using the codes:

(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

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Answer: (c)

Which of the following statements is/are correct?
1. The words ‘micro’ meaning and ‘macro’ were coined by Ragnar Frisch.
2. Macroeconomics in its modern form, began with “The General Theory of Employment, Interest and Money”.
Select the answer using the codes:

(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

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Answer: (c)

The subject Economics is classified into two branches, namely, Micro Economics and Macro Economics.
Ragnar Frisch, a Norwegian economist and the co-recipient of the first Nobel Prize in Economic Sciences coined the words ‘micro’ meaning small and ‘macro’ meaning large in the year 1933.
However, macroeconomics in its modern form, began with John Maynard Keynes and his book “The General Theory of Employment, Interest and Money” published in 1936.

Which of the following is/are correct?
1. Human Development Index emphasizes that people capabilities should be the ultimate criteria for assessing the development of a country.
2. The social and economic dimensions of a country are based on the health of people, their level of education attainment and their standard of living.
Select the answer using the codes given below:

(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) None

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Answer: (c)

Which of the following is correct?
1. Micro Economics takes into account small components of the whole economy.
2. Macro Economics deals with general price-level in any economy.
Select the answer using the codes given below:

(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

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Answer: (c)

Which of the following is/are correct?
1. Market Price = Factor Price + Indirect Taxes – Subsidies.
2. GNP = GDP - depreciation.
Select the answer using the codes given below:

(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

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Answer: (a)

Consider the following statements:
1. Veblen good denotes the non-luxury and inferior products with very little or no substitutes.
2. Giffen good is a good for which demand rises as the price rises because of its exclusive nature and appeal as a status symbol.
Select the correct statement(s) using the code given below:

(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

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Answer: (d)

Veblen good is a good for which demand rises as the price rises because of its exclusive nature and appeal as a status symbol.
According to the Giffen good definition, it denotes the non-luxury and inferior products with very little or no substitutes. Some examples of it are wheat, potatoes and Rice.

Consider the following statements:
1. GNP = C + I + G + (X–M) + NFIA.
2. In 1867-68 for the first time Dadabhai Naoroji ascertained the Per Capital Income.
Select the correct statement(s) using the code given below:

(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

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Answer: (c)

Which of the following is correct according to the Engel’s Law?

(A) The proportion of total expenditure incurred on food items declines as total expenditure goes on increasing.
(B) The proportion of total expenditure incurred on food items increases as total expenditure goes on increasing.
(C) The proportion of total expenditure incurred on food items remains constant as total expenditure goes on increasing.
(D) None of the above.

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Answer: (a)

The pillars of Gross National Happiness are?
1. Environmental conservation.
2. Equitable socio-economic development.
3. Good governance.
4.Preservation and promotion of culture.
Select the answer using the codes given below:

(A) 1, 3 and 4 only
(B) 2, 3 and 4 only
(C) 1, 2 and 3 only
(D) 1, 2, 3 and 4

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Answer: (d)

The four pillars of GNH’s are

sustainable and equitable socio-economic development
environmental conservation
preservation and promotion of culture
good governance.

Consider the following statements:
1. The concept ‘Division of Labour’ was introduced by the Adam Smith.
2. Division of labour reduces the possibility of labour to find alternative avenues of employment.
Which of the above given statement(s) is/are correct?

(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

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Answer: (c).

The concept ‘Division of Labour’ was introduced by the Adam Smith in his book ‘An enquiry into the nature and causes of wealth of nations’.
Division of labour means dividing the process of production into distinct and several component processes and assigning each component in the hands of a labour or a set of labourers.
Narrow specialization reduces the possibility of labour to find alternative avenues of employment. This results in increased unemployment.

Which of the following are the characteristics of Capital:
1. Highest mobility.
2. Lasts over time.
3. It is a passive factor of production.
4. Involves present sacrifice to get future benefits.
Which of the above given statement(s) is/are correct?

(A) 1, 2 and 3 only
(B) 2, 3 and 4 only
(C) 1, 3 and 4 only
(D) 1, 2, 3 and 4

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Answer: (d)

Identify the sectors of a Two Sector Model?

(A) Households and Firms
(B) Private and Public
(C) Internal and External
(D) Firms and Government

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Answer: (a)

Consider the following statements:
1. Capital consists of those kinds of wealth other than free gifts of nature.
2. Labour is a passive factor of production.
Which of the above given statement(s) is/are incorrect?

(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

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Answer: (b)

According to Marshall, ’Capital consists of those kinds of wealth other than free gifts of nature, which yield income’.
Labour is more perishable than other factors of production.
Labour is an active factor of production. Neither land nor capital can yield much without labour.