MOCK TEST PAPER 4 Updated 03062024-1

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CA FOUNDATION

MOCK TEST PAPER

BUSINESS ECONOMICS

1. Which of the following is not within the scope of Business Economics?


(a) Capital Budgeting
(b) Risk Analysis
(c) Business Cycles
(d) Accounting Standards

2. Macro Economics is also called economics.


(a) Applied
(b) Aggregate
(c) Experimental
(d) None of the above

3. Positive Science only explains ………………..


(a) What should be?
(b) What ought to be?
(c) What is right or wrong?
(d) None of the above

4. Which of the following Macro-Economic Factor is considered in Business Economics?


(a) Business Cycles
(b) Employment, Prices
(c) Saving & investment
(d) All of the above.

5. means that buyers ultimately determine which goods and services will be
produced and in what quantities.
(a) Capitalist Economic
(b) Socialist Economy
(c) Mixed Economy
(d) Consumer Sovereignty

6. Which of the following statements is correct?


(a) With the help of statistical tools, the demand can be forecasted accurately.
(b) The more the number of substitutes of a commodity, more elastic is the demand.
(c) Demand for butter is perfectly elastic.
(d) Gold jewellery will have negative income elasticity.

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7. There is a relation between the demand for a product and the price of its substitutes.
(a) Direct
(b) Positive
(c) Indirect
(d) Both (a) & (b)

8. Chicken and fish are substitutes. If the price of chicken increases, the demand for fish will
(a) Increase or decrease but the demand curve for chicken will not change.
(b) Increase and the demand curve for fish will shift rightwards.
(c) Not change but there will be a movement along the demand curve for fish.
(d) Decrease and the demand curve for fish will shift leftwards.

9. The demand curve of a normal good has shifted to the right. Which of the four events would have
caused the shift?
(a) A fall in the price of a substitute with the price of the good unchanged
(b) A fall in the nominal income of the consumer and a fall in the price of the normal good
(c) A fall in the price of a complementary good with the price of the normal good unchanged
(d) A fall in the price of the normal good, other things remaining the same

10. The sum of individual demands for a product at a price per unit of time is called as .
(a) Firm’s Demand
(b) Market Demand
(c) Goods available in market
(d) Goods to be sold in market.

11. In which of the following cases, the law of demand holds true?
(a) Normal Goods
(b) Giffen Goods
(c) Speculative Goods
(d) Necessary Goods

12. When economists speak of the utility of a certain good, they are referring to:
(a) The demand for the good.
(b) The usefulness of the good in consumption.
(c) The expected satisfaction derived from consuming the good.
(d) The rate at which consumers are willing to exchange one good for another.

13. The concept of consumer’s surplus is derived from:


(a) The law of diminishing marginal utility
(b) The law of equal-marginal utility
(c) The law of diminishing returns
(d) Engel’s law

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14. The supply curve for perishable commodities is .
(a) Elastic
(b) Inelastic
(c) perfectly elastic
(d) perfectly inelastic

15. If quantity supply changes substantially in response to small changes in price of the good then it is
(a) Perfect elastic
(b) Unitary elastic
(c) Relatively less elastic supply
(d) Relatively greater elastic supply

16. Which of the following statements is true?


(a) The services of a doctor are considered production.
(b) Man can create matter.
(c) The services of a housewife are considered production.
(d) When a man creates a table, he creates matter.

17. Which of the following statement about factors of production is not true?
(a) Land is a passive factor
(b) Land is a free gift of nature
(c) Land is immobile
(d) Land is perishable

18. Which one of the following statements is not correct?


(a) Land has indestructible powers
(b) Labour is mobile
(c) Capital is natures gift
(d) Land is a passive factor.

19. Which function shows relationship between input and output?


(a) Consumption function
(b) Investment function
(c) Production function
(d) Cost function

20. Suppose the first four units of a variable input generate corresponding total outputs of 200, 350,
450, 500. The marginal product of the third unit of input is:
(a) 50
(b) 100
(c) 150
(d) 200

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21. The marginal product curve is above the average product curve when the average product is:
(a) Increasing
(b) Decreasing
(c) Constant
(d) None

22. A rational producer will produce in the stage in which marginal product is positive and :
(a) MP> AP
(b) MP = AP
(c) MP < AP
(d) MP is zero

23. Which of the following is the reason of the working of law of increasing returns?
(a) Fuller utilisation of fixed factors
(b) Indivisibility of the factors
(c) Greater specialization of labour
(d) All of the above

24. Which of the following statement is true in relation to an ISO Quant Curve?
(a) It represents those combination of two factors of production that will give the same level of
output
(b) It represents those combinations of all the factors that will give the same level of output
(c) It slopes upward to the right
(d) It can tough either axis

25. In figure below, possible reason why the average variable cost curve approaches the average total cost
curve as output rises is:

(a) Fixed costs are falling while total costs are rising at rising output.
(b) Total costs are rising and average costs are also rising.
(c) Marginal costs are above average variable costs as output rises.
(d) Average fixed costs are falling as output rises.

26. Market consists of


(a) Buyer and Seller
(b) One price for one product at a given time
(c) Both (a) and (b)
(d) None
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27. Generally, perishable goods like butter, eggs, milk, vegetables etc., will have
(a) Regional market
(b) Local market
(c) National market
(d) None of the above

28. If a seller obtains ₹ 3,000 after selling 50 units and ₹ 3,100 after selling 52 units, then marginal
revenue will be :
(a) Rs. 59.62
(b) Rs.50.00
(c) Rs. 60.00
(d) Rs. 59.80

29. Total revenue curve initially increases at a diminishing rate due to


(a) Diminishing average revenue curve
(b) Diminishing marginal revenue curve
(c) Diminishing average fixed revenue curve
(d) Diminishing cost curve

30. The equilibrium quantity increases but the change in equilibrium price is uncertain, when
(a) Both demand and supply decrease
(b) Demand increases and supply decreases
(c) Both supply and demand increase
(d) Demand increases and supply increases

31. There can be simultaneous change in both demand and supply. In that case, the equilibrium price
will be
(a) Increased
(b) Decreased
(c) Changes as per the Proportionate change in demand and Supply.
(d) None of the above

32. The firm in a perfectly competitive market is a price-taker. This designation as a price-taker is
based on the assumption that
(a) The firm has some, but not complete, control over its product price.
(b) There are so many buyers and sellers in the market that any individual firm cannot affect the
market.
(c) Each firm produces a homogeneous product.
(d) There is easy entry into or exit from the market place.

33. Which of the following statement is not correct?


(a) Under monopoly there is no difference between a firm and industry
(b) A monopolist may restrict the output and raise the price
(c) Commodities offered for sale under a perfect completion will be heterogeneous
(d) Product differentiation is peculiar to monopolistic completion.
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34. Which of the following is not a characteristic of a “price-taker”?
(a) TR = P × Q AR = Price
(b) Negatively – sloped demand curve
(c) Marginal Revenue = Price
(d)None

35. It is the amount of revenue from sales which exactly equals the amount of expense.
(a) Shut down point
(b) Break-even point
(c) Profit point
(d) None

36. At the equilibrium position of a firm Under perfect Competition, .


(a) The Marginal revenue is equal to the marginal cost.
(b) The MC Curve cuts MR Curve from below.
(c) Both (a) & (b)
(d) Either (a) or (b)

37. A long run Competitive equilibrium of a perfectly competitive industry occurs when :
(a) All Firms in the industry are in equilibrium
(b) No Firm has an incentive either to enter or exit the industry
(c) The price of the product is such that the quantity supplied by the industry is equal to the
quantity demanded by Consumers
(d) All above three conditions hold true.

38. Market form in which there is only one buyer and one seller is :
(a) Oligopoly
(b) Duopoly
(c) Bilateral monopoly
(d) Monopsony

39. When the monopolist divides the consumers into separate sub markets and charges different
price in different sub-markets it is known as :
(a) First degree of price discrimination.
(b) Second degree of price discrimination
(c) Third degree of price discrimination
(d) None of the above

40. Aluminium industry is the example of which type of oligopoly


(a) Full oligopoly
(b) Open oligopoly
(c) Pure oligopoly
(d) Syndicated oligopoly

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41. Select the odd out :
(a) Expansion
(b) Boom
(c) Upswing
(d) Trough

42. is the turning point and the beginning of recession.


(a) Contraction
(b) Depression
(c) Upswing
(d) Boom

43. The most feature of business cycles


(a) Pervasive nature
(b) Regular length
(c) Periodic intensity
(d) None of these

44. is the severe form of .


(a) Depression, Recovery
(b) Depression, Recession
(c) Recession, Depreciation
(d) Recession, Recovery

45. According to which economist trade cycle is a purely monetary for phenomenon
(a) Schumpeter
(b) Pigou
(c) Hawtrey
(d) Marshall

46. In national income accounting, “Net Domestic Product (NDP) is defined as :


(a) The total value of all goods and services produced within a country's borders in a specific period.
(b) The total value of all final goods and services produced within a country's borders in a specific
period.
(c) The total value of all goods and services produced within a country's borders minus depreciation
in a specific period.
(d) The total value of all goods and services produced by a country's residents, both domestically and
abroad, in a specific period.

47. Which of the following is NOT a usefulness of National Income estimates?


(a) Facilitating economic planning and formulation of policies '
(b) Assessing the contribution of different sectors to the economy
(c) Aiding in international trade negotiations
(d) Estimating the unemployment rate Answer:

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48. Personal Income (PI) is calculated as
(a) National Disposable Income (NDI) minus corporate profits and social insurance continuations
(b) National Income (NI) minus indirect taxes.
(c) Gross Domestic Product (GDP) minus deprecation.
(d) Gross National Product (GNP) minus net income from abroad

49. The nominal GDP of a country in the base year was ₹500 billion, and the real GDP in the same year
was ₹ 450 billion. Calculate the GDP deflator for the base year.
(a) 90.0
(b) 100.0
(c) 110.0
(d) 125.0

50. In a country, the Gross Domestic Product at Market Prices (GDPMP) for the year 2021 is ₹ 900 billion,
and indirect taxes (subsidies) on products are ₹ 50 billion. Calculate the Gross Domestic Product at
Factor Cost (GDPFC) for the year 2021.
(a) ₹ 850 billion
(b) ₹ 950 billion
(c) ₹ 950 billion (adjusted for indirect taxes)
(d) ₹ 850 billion (adjusted tor subsidies)

51. In a country, the Personal Income (PI) for the year 2021 is ₹ 800 billion. The direct taxes are ₹ 100
billion, and the social security contributions are ₹ 50 billion. Calculate the Disposable Personal
Income (DI) for the year 2021, given that there are no other income transfer
(a) ₹ 650 billion
(b) ₹ 750 billion
(c) ₹ 7OO billion
(d) ₹ 600 billion

52. Consider a two-stage production process. The value of raw materials purchased by a firm is ₹ 400,
and the firm adds a value of ₹ 600 to produce the final goods Calculate the value added by the firm.
(a) ₹ 400
(b) ₹ 600
(c) ₹ 1,000
(d) ₹ 200

53. Which statistical yearbook published by the CSO includes the data and analysis on the System of
Regional Accounts in India?
(a) Economic Survey of India
(b) Indian Financial Yearbook
(c) India in Figures
(d) National Accounts Statistics

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54. Keynesian theory suggests that during an economic downturn, the government should implement:
(a) Austerity measures to reduce public debt
(b) Supply-side policies to boost production
(c) Contractionary monetary policies to control inflation
(d) Expansionary fiscal policies to increase spending

55. In an economy the consumption function is represented as C = 800 + 0.6Y, where Y is disposable
income. Calculate the level of consumption when disposable income (Y) is ₹ 2,500.
(a) ₹ 1,500
(b) ₹ 2,000
(c) ₹ 2,300
(d) ₹ 2,800

56. The value of the investment multiplier is calculated as


(a) 1/ Marginal Propensity to Consume (MPC)
(b) Marginal Propensity to Consume (MPC) / 1
(c) 1 / Marginal Propensity to Save (MPS)
(d) Marginal Propensity to Save (MPS) / 1

57. In the three-sector model, the total income earned by households is divided into three components:
consumption expenditure (C), savings (S) and
(a) Taxes (T)
(b) investment (I)
(c) Exports (X)
(d) Government expenditure (G)
58. Personal Income (PI) is derived from National Income (NI) by:
(a) Adding transfer payments and deducting undistributed corporate profits
(b) Adding corporate profits and deducting net interest and rent
(c) Deducting direct taxes and adding transfer payments
(d) Deducting retained earnings and adding social security contributions

59. Which concept of National Income takes into account the net income earned from foreign
investments and deducts net income earned by foreigners within the country?
(a) Gross Domestic Product (GDP) at factor cost
(b) Net Domestic Product (NDP)
(c) Gross National Product (GNP)
(d) Net National Product (NNP)

60. If the GDP deflator for a particular year is 90.0, what does it indicate about the price level compared
to the base year?
(a) Prices have increased by 10% compared to the base year.
(b) Prices have decreased by 10% compared to the base year.
(c) Prices have remained the same as the base year.
(d) Prices have decreased by 90% compared to the base year.
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61. The redistribution function in an economic system refers to:
(a) The process of reallocating resources among different sectors of the economy.
(b) The role of the government in redistributing income and wealth among the population.
(c) The function of the central bank in regulating the money supply and interest rates.
(d) The process of reallocating resources between domestic and foreign markets.

62. In response to an economic recession, the government can use fiscal policy to stimulate the economy by:
(a) Decreasing government spending and increasing taxes.
(b) Decreasing taxes and increasing government spending.
(c) Increasing interest rates and reducing government spending.
(d) Decreasing interest rates and reducing government spending.

63. Which of the following is an example of a positive externality?


(a) Pollution from a factory affecting nearby residents' health negatively.
(b) A new technology leading to increased productivity in an industry.
(c) Overfishing in an unregulated fishery.
(d) A decrease in consumer spending affecting local businesses negatively.

64. Which of the following statements is true about public goods?


(a) Public goods can be easily provided by private firms for a profit.
(b) The free-rider problem is not a concern for public goods.
(c) Public goods have a competitive market price.
(d) Public goods are typically provided by the government or public sector.

65. Moral hazard is an example of incomplete information in insurance markets. It occurs when one
party alters their behavior after becoming insured, and the other party cannot fully monitor the
actions. Adverse selection is a situation where:
(a) Buyers and sellers have equal knowledge about a product.
(b) High-quality goods dominate the market.
(c) Low-quality goods are more likely to be traded.
(d) The market is characterized by perfect competition

66. Incomplete information in the market refers to a situation where:


(a) Consumers have perfect knowledge about the quality and price of goods.
(b) Sellers have perfect knowledge about consumer preferences.
(c) Market participants have unequal access to information.
(d) The government regulates the flow of information in the market.

67. Which of the following is an example of a capital receipt for a government?


(a) Income tax collected from individuals
(b) Revenue generated from selling government services
(c) Proceeds from selling government-owned land
(d) Grants received from other countries

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68. Fiscal deficit includes:
(a) Only revenue deficit
(b) Only capital deficit
(c) Both revenue deficit and capital deficit
(d) Neither revenue deficit nor capital deficit

69. During periods of high inflation, which instrument of Fiscal Policy is mor likely to be used?
(a) Monetary Policy
(b) Expansionary Fiscal Policy
(c) Exchange Rate Policy
(d) Contractionary Fiscal Policy

70. When the government increases public expenditure on education and healthcare, it is using Fiscal
Policy as an instrument to:
(a) Regulate the money supply and control inflation
(b) Promote international trade and exports
(c) Enhance human capital and promote long-term economic growth
(d) Stabilize the financial market and control exchange rates

71. What does the demand for money refer to in economics?


(a) The total amount of money in circulation in the economy.
(b) The desire of individuals and businesses to hold money for various purposes.
(c) The quantity of money supplied by the central bank.
(d) The amount of money demanded by the government for its expenditures.

72. What is the speculative motive for holding money?


(a) It refers to holding money for future investment opportunities.
(b) It refers to holding money to speculate on future price changes in financial assets.
(c) It refers to holding money to finance day-to-day transactions and purchases.
(d) It refers to holding money to preserve wealth.

73. How does the Cambridge Approach view the relationship between the demand for money and the
interest rate?
(a) There is a positive relationship between the demand for money and the interest rate.
(b) There is a negative relationship between the demand for money and the interest rate.
(c) There is no relationship between the demand for money and the interest rate.
(d) The demand for money is solely determined by changes in the money supply.

74. Why is the measurement of money supply considered essential for conducting monetary policy?
(a) It helps central banks predict future changes in the stock market.
(b) It provides insights into consumer spending patterns.
(c) It allows central banks to control inflation and stabilize the economy.
(d) It assists central banks in managing the fiscal deficit of the government.

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75. What happens to the money supply when commercial banks increases their lending activities?
(a) The money supply decreases
(b) The money supply remains unchanged
(c) The money supply increases
(d) The money supply fluctuates randomly

76. Which of the following measures of money supply includes physical currency (coins and notes) in
circulation and demand deposits with commercial banks?
(a) M0
(b) M1
(c) M2
(d) M3

77. Which of the following is NOT a determinant of money supply in an economy?


(a) Monetary policy decisions of the central bank.
(b) Reserve requirements set by the central bank.
(c) Fiscal policy decisions of the government.
(d) Open market operations conducted by commercial banks.

78. The "Liquidity Adjustment Facility (LAF)" is a significant instrument used in the Monetary Policy
Framework in India. What does LAF primarily aim to do?
(a) Regulate the foreign exchange market.
(b) Control the money supply in the economy.
(c) Encourage foreign direct investment (FDI).
(d) Regulate the stock market.

79. The Cash-flow Channel of monetary policy in India refers to:


(a) The impact of changes in interest rates on cash flows of businesses and households.
(b) The process of managing the government's cash reserves.
(c) The role of the Reserve Bank of India (RBI) in printing and distributing currency notes.
(d) The coordination between the Ministry of Finance and the RBI in managing cash transactions.

80. In India, the responsibility for formulating and implementing monetary policy lies with:
(a) The Ministry of Finance.
(b) The Reserve Bank of India (RBI).
(c) The Securities and Exchange Board of India (SEBI).
(d) The Indian Parliament.

81. The Theory of Comparative Advantage, developed by David Ricardo, suggests that countries should
specialize in producing goods in which they have a comparative advantage. What does "comparative
advantage" mean in this context?
(a) The ability to produce a good at a lower opportunity cost than another country.
(b) The ability to produce a good using fewer resources than another country.
(c) The ability to produce a good at the same cost as another country.
(d) The ability to produce a good more efficiently than another country.
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82. The Heckscher-Ohlin Theory of Trade suggests that a country will export the good that uses its
abundant factor of production more intensively because:
(a) The country wants to promote domestic industries.
(b) It wants to reduce its dependence on imports.
(c) The abundant factor of production is relatively cheaper.
(d) The abundant factor of production is scarce.

83. Compound tariffs are a combination of:


(a) Specific tariffs and import quotas.
(b) Ad valorem tariffs and export subsidies
(c) Ad valorem tariffs and specific tariffs.
(d) Import quotas and export quotas.
84. What is the purpose of non-tariff measures (NTMs)?
(a) To increase competition
(b) To decrease competition
(c) To protect domestic industries
(d) None of the above

85. What are trade negotiations in international trade?


(a) Bilateral meetings between government officials and domestic exporters
(b) Discussions between countries to resolve trade disputes
(c) Talks aimed at reaching agreements on trade policies and market access
(d) Interactions between customs officials and importers at borders

86. What is the most-favored-nation (MFN) principle under GATT?


(a) A country should grant the best trade terms to its most important trading partners
(b) A country should provide preferences to its neighboring nations in trade matters
(c) A country should impose higher tariffs on goods from less developed countries
(d) A country should treat all its trading partners equally, without discrimination

87. What is a managed float exchange rate system?


(a) A system where the exchange rate is determined solely by market forces
(b) A system where the exchange rate is fixed to a specific commodity, such as gold
(c) A system where the central bank intervenes in the foreign exchange market to influence the
exchange rate
(d) A system where the exchange rate is pegged to a basket of currencies

88. What is the primary advantage of a fixed exchange rate system?


(a) Exchange rate stability, reducing uncertainty for international trade and investments
(b) Flexibility in adjusting the exchange rate based on market conditions
(c) Full control of the exchange rate by market forces
(d) Ability to accumulate foreign exchange reserves easily

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89. What are international capital movements?
(a) Movements of goods and services between countries.
(b) Movements of people between countries for employment purposes
(c) Movements of financial assets and liabilities between countries
(d) Movements of foreign aid and grants between countries

90. What is capital flight?


(a) The movement of foreign capital into a domestic economy.
(b) The movement of domestic capital into a foreign economy.
(c) The rapid increase in foreign direct investments
(d) The rapid increase in exports of a country.

91. What was the role of Indian agriculture during the pre-independence period?
(a) Indian agriculture was highly mechanized and technologically advanced
(b) Agriculture played a minor role in the economy with the focus on industrialization
(c) Indian agriculture was the backbone of the economy, employing the majority of the population
(d) Agriculture was primarily focused on cash crops for export to British markets

92. What was the economic policy adopted by India after independence in 1947, emphasizing self-
reliance and state-led planning?
(a) Import substitution
(b) Liberalization and privatization
(c) Globalization and free trade
(d) Mixed economy and planned development

93. The economic reforms in India during the 1990s aimed to:
(a) Strengthen the socialist economic model
(b) Encourage import substitution and self-reliance
(c) Promote export-oriented industrialization
(d) Accelerate economic growth and improve efficiency

94. Which of the following is NOT one of the key pillars of the economic reforms of 1991?
(a) Liberalization
(b) Privatization
(c) Globalization
(d) Nationalization

95. The introduction of Value Added Tax (VAT) in 2005 was part of which fiscal reform initiative?
(a) Fiscal deficit reduction program
(b) Tax rationalization and modernization
(c) Privatization of state-owned enterprises
(d) Poverty alleviation and social welfare scheme

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96. The establishment of the Securities and Exchange Board of India (SEBI) in 1992 aimed to:
(a) Promote the trading of physical commodities in the market
(b) Regulate and develop the Indian securities market
(c) Encourage foreign direct investment (FDI) in the capital markets
(d) Promote the privatization of state-owned enterprises

97. The trade policy reforms in India during the 1991 economic reforms aimed to:
(a) Promote import substitution and restrict foreign trade
(b) Increase tariffs on imported goods to protect domestic industries
(c) Liberalize and open up the economy to international trade
(d) Nationalize all foreign companies operating in India

98. In which year did India witness the highest GDP growth rate in the 1990s post the reforms?
(a) 1991
(b) 1994
(c) 1997
(d) 1999

99. Which five-year plan of India was replaced by NITI Aayog?


(a) First Five-Year Plan
(b) Second Five-Year Plan
(c) Eighth Five-Year Plan
(d) Twelfth Five-Year Plan

100. What percentage of India's workforce is employed in the primary sector?


(a) Approximately 15%
(b) Approximately 30%
(c) Approximately 50%
(d) Approximately 70%

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ANSWER KEYS
1 d 2 b 3 a 4 d 5 d
6 b 7 d 8 b 9 c 10 b
11 a 12 c 13 a 14 d 15 d
16 a 17 d 18 c 19 c 20 b
21 a 22 c 23 d 24 a 25 d
26 c 27 b 28 b 29 b 30 c
31 c 32 b 33 c 34 c 35 b
36 c 37 d 38 c 39 c 40 a
41 d 42 a 43 a 44 b 45 c
46 c 47 d 48 a 49 b 50 c
51 a 52 d 53 d 54 d 55 c
56 a 57 a 58 a 59 c 60 b
61 b 62 b 63 b 64 d 65 c
66 c 67 c 68 c 69 d 70 c
71 b 72 b 73 b 74 c 75 c
76 b 77 d 78 b 79 a 80 b
81 a 82 c 83 c 84 c 85 c
86 d 87 c 88 a 89 c 90 b
91 c 92 d 93 d 94 d 95 b
96 b 97 c 98 d 99 d 100 b

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