ECONOMICS TEST

Plagiarism Grammar Technical Knowledge Total

(%) (Poor/Average/Good) (Out of 40) (Out of 10) (Out of 50)

         

General Instructions:

 The test is of 3 hours duration. There are a total of 9 questions carrying 50 marks.

 These are to be attempted in a sequential manner.

 The medium of writing the entire test is English.

 Question numbers 1 - 8 are technical based questions with a word limit of 50-70 words.

 Question number 9 is an Article writing question with the word limit of minimum 200 words.

 The font style to be used in the test is “Times New Roman” and the font style for the same should
be “12”.

 Only Scientific Calculator is allowed. Charts, graph sheets, tables, cellular phone or other
electronic gadgets are NOT to be used during the test.

 Incomplete solutions will not be marked and will be considered as incorrect.

 We follow a “Zero Tolerance Policy” towards plagiarism (Copying content directly from the
internet or any other source). Plagiarism is to be strictly avoided.

 No extra time will be provided to any of the candidates.

 In order to proceed to the next stage, all of the following criteria need to be fulfilled by the
candidate:

Technical > 50%

Plagiarism < 20%
Grammar Average or above

All the very best!! You may now begin your test.
Q1. Explain utility maximization rule with an example. (5 marks)

Ans: Utility Maximization rule is a concept studied under the topic Consumer Behaviour.
According to this rule, in order to maximize the total utility, the consumer should spend on the items
which can provide the greatest marginal utility for every rupee they spend. The consumer should
select that good as an option which provides him greater utility on every additional unit purchased.
For Ex- If consumer X has two options to purchase two goods namely good A and good B , then he
should purchase that good which can offer him the greatest utility on every additional unit purchased
on every rupee spent on it.

Q2. What is implicit cost and explicit cost? Differentiate between economic profit and accounting
profit. (5 marks)

Ans: Explicit Cost – It is the cost associated with the business for the actual expenses incurred in
the day to day activities of business. They can arise as a result of production being done in the
business, payment of various sundry expenses and other expenses, payment of wages and salary to the
workers and co-workers etc.
Implicit Cost – Implicit cost is the cost incurred due to the use of one or more asset as a factor of
production instead of utilizing it in some other way or ignoring it out. This cost is also known as
Economic Cost. Like when capital is invested in business, then the interest so earned on it by the
owner can be said as implicit cost.

Economic Profit Accounting Profit

* When both explicit and implicit costs are being
subtracted or deducted from the total revenue
then it is called economic profit.
i.e. Net Revenue – (Implicit cost + explicit cost)
* Opportunity costs are directly involved in
calculating economic profit.
* It is defined as the net difference between the
total revenue earned and the total incurred costs.
i.e. Revenue – Cost = Accounting Profit
* Opportunity costs are not considered in
Accounting profit.
 Q3. Explain Fisher’s Quantity Theory of Money. What are its criticisms? (5 marks)
Ans: Fisher’s Quantity Theory of Money states that – “ Other things being constant , if the quantity of
money increases the relative price level also in same proportion and if money circulation declines then
prices also tends to decline. Following equation can be studied here :
MV = PT where M = quantity of money, P = price , T = net goods and services , V = transaction
velocity.
Following are the criticisms of this theory :
1. The variables being used in the theory like ( M, V, P, T) are dependent i.e. they can be changed
with the change in other variable.
2. No emphasis is given on the short run, infact only long run issues are being discussed in this
theory.
3. Does not consider trade cycle variations and fluctuations.
4. Inconsistency.

Q4. What is GNP? Explain the methods of calculating GDP. (5 marks)

I. is Gross National Product studied in calculating net national income. GNP is calculated
Ans: GNP
by subtracting NFIA (net factor income from abroad) from GDP(Gross Domestic Product) i.e.
GNP = GDP – NFIA
GDP mentioned above includes national product and all national expenditure. There are three
methods of calculating GDP which are :-
1. Income Method - Formula hereby is = Wages + Rent + Profit + Interest + Income from
Abroad.
2. Production Method – Adding money value of total goods and services with net income from
abroad.i.e.
Money value of goods and services + Income from abroad.

3. Expenditure Method – Formula is – Individual Expenditure + Government Expenditure.

Q5. Discuss how monetary and fiscal policy are used in a recessionary situation. (5 marks)

Ans: When the economy of any country faces a downward or declining period then it is referred as
Recession period. In recession the people faces a lot of economical problems which are not in interest
of them and are harmful too.
Regarding Monetary measures, the government should priorly decrease the interest rates as it will
result in relaxation in people during recession time also,
Government should also try to reduce unemployment and creating more job opportunities, which in
turn help people to cope up during the recessionary situation.
Coming to Fiscal policy, the government should keep an eye check on their spending and expenditure
and should also lowers the tax burden on the tax payers.

Q6. Discuss about long run and short run Phillips curve. (5 marks)

Ans: Philips curve is a curve that shows the relationship between the rate of unemployment and the
situation of price rise i.e. inflation. A change in one will lead to change in the other also i.e. if inflation
changes then unemployment will be definitely affected. There are basically two types of Philips curve
viz. Short Run and Long Run Philips Curve.
Short Run Philips curve tends to explain the relationship between rate of unemployment and inflation
which are not directly related i.e. they are having inverse relationship which means if inflation rises
then unemployment will go down and vice versa. On the other hand,
Long Run Philips Curve does not show any such relationship between the abovesaid two factors.
Long run doe snot show any trade off between Inflation and Unemployment and hence not as much
better.
The curve under short run is L shaped while under long run it is vertical either from top to bottom or
bottom to top.
Q7. Explain the type of price and income elasticity for a normal good, inferior good and luxury good.
(5 marks)

Ans: In case of normal goods, the income elasticity of demand is positive means an increase in
income will lead to the increase in demand of the normal goods. A normal good can also be income
inelastic which means in increase in income, the demand for normal good falls or doesn’t change.
In case of inferior goods like Bajra, the income elasticity is negative i.e. a rise in income will lead to a
decline in the demand of inferior good and vice versa.
In case of Luxury goods, the income elasticity tends to be high i.e. a rise in income will enable a
comnsumer to buy more luxury goods. Luxury goods are Air Conditioners, branded items etc.

Q.8 Define the following terms: (5 marks)

i. Purchasing power parity
ii. Terms of Trade
iii. Fixed Exchange Rate

Ans: Purchasing Power Parity or PPP is a theory described in economics which indicates the
purchasing capacity of a country in the another country. The purchasing of currencies can vary from
country to country. A currency of one country may or may not buy the same number of items as
bought in the former country.
Terms of Trade indicates the ratio of the country’s imports rate to the country’s export rate. If the
prices of export are more than the prices of imports then it is said to be the positive terms of trade and
when the opposite happens, it will be called as the negative terms of trade.
Fixed Exchange Rate is referred to as the maintaining a currency that is common and feasible to be
traded upon by all the other countries. The work under fixed exchange rate is done by the central
government of the central bank of any country. It is a legal and statutory rate on which any country
can trade freely.
 Language Based Question

Q.9. Write down a short article on the topic “Effects of social media on the younger generation”.
(10 marks)

Ans:

Effects of Social Media on the Younger Generation

We all are living in the age of internet, where social media is highly in use. More than 70% of the
world population is using the various tools of social media like Facebook, Whatsapp, Twitter,
Instagram etc. Teenagers, adults and even senior citizens are now using all the social media tools
which can be seen and understood from both positive and negative aspects. Younger generation is
getting more addicted to the social media and in fact they invest a major portion of their time in
running the above said applications. Social Media can be quite useful if used in a good manner. One
can get to know about the various happenings around the world like new appointments, merging of the
various banks , weather updates, political issues and various environmental issues also. In this era of
Unemployment, the unemployed and the job aspirants can easily know about the current openings in
various departments and institutions. Another advantage of using social media is that one can be
updated with the latest technologies and tools which can be helpful in cost cutting and handling the
various operations effectively. Through Facebook, one can remember their pastime by connecting
with their childhood friends who are quite far. Sending of large sized files and other data has been
made convenient by the use of whatsapp, which enables quick and prompt sending and receiving of
the messages to the people in contact. Funny moments can be captured and recorded by using
Instagram. Youtube is also one of the famous tool of social media where one can watch the movies,
songs and web series without spending the hard earned money in cinemas and theatres. Social media
has proved quite useful in spreading awareness like Corona pandemic recently.

Besides all these advantages , excessive use of social media is proving harmful to the younger
generation. Bad habits are being developed in the youngsters by watching the sexual content on
youtube and google which in turn has raised many rape cases around the world. Continous and
prolonged use has made the mind dumb and productivity and creativity in the youngsters declined
over the past few years. Children are not paying the required attention in their studies and academics,
as a result of which they are not preparing well for the examinations and getting detained in the class.
Addiction to social media is not good as it can be harmful for the overall health of the youngsters and
their mind can’t develop in productivity and creativity. Younger generation should make a balance
between the real life and the internet life. They should give time to their families, friends, relatives and
near dear’s. They should understand the harmful effects of addiction to social media. In order to avoid
addiction to an extent, they can read newspaper daily in English language which will spread awareness
and make them perfect in English language also. Young generation should not all time being actively
engaged in use of social media tools and make the best efforts to avoid it, in case they have addiction
to the social media.