Every question in ECO, searchable by chapter and source.
Articles of prestige value used by rich people as status symbol for increasing their social prestige and/or for displaying wealth is known as:
For a household suppose the income elasticity of a commodity is arrived at 0.5; what can be assumed about the nature of the good?
Find the coefficient of price elasticity when the price of a product decreases from ` 10 to ` 6, and the quantity demanded rises from 10 units to 20 units.
When the price of sugar is ` 60 per kg, its demand is 10 Kgs. Subsequently, if the price of coffee declines from ` 500 per kg to ` 450 per Kg, the usage of sugar rises from 10 kgs to 15 kgs. Calculate the cross price elasticity.
The maximum amount of output that can be produced with given quantities of inputs, under a given state of technical knowledge, is termed as:
The three stages of the law of variable proportion can be referred to as the stages of
Complete the statement by selecting the correct option. A firm earns zero economic profit_______________.
When goods are sold, based on product differentiation, it is known as___________.
Choose the correct statement about Duopoly from the following statements.
A group of firms which explicitly collude to coordinate their activities in industries where there are a few firms, all of which are similar in size, may be referred to as _____.
Which phase of business cycle is charaterised by a rapid rise in output prices leading to increased cost of living and greater pressure on fixed income earners ?
The difference between market price and factor cost for an aggregate like GDP is:
Which of the following is not an internal cause of business cycle?
There is an increase in the national income by ` 2,000 crores when there is an increase in investments by ` 1,600 crores. Calculate the marginal propensity to consume.
During which phase of the business cycle is expansionary fiscal policy most appropriate?
Which of the following is not the responsibility of the Central Government but is associated with the State Government?
Government spending that does not contribute to GDP because income is only redistributed from one group of people to another, without any direct contribution by the recipients is known as:
Which of the following is the rate set by the Monetary Policy Framework Agreement (MPFA) and is the maximum tolerable rate that RBI should target to achieve price stability in India?
If the money supply increases by ` 750 crores, when there is an injection of ` 250 crores, through the open market operations by the central bank of the country. Calculate the money multiplier.
Which of the following is not an assumption of the Absolute Advantage Theory in international trade?
Which type of non-technical measure is adopted in international trade in order to non-discriminatorily and temporarily limit imports of a product, if its domestic industry is injured or threatened with serious injury caused by a sudden rise in imports?
If the price of a commodity reduces from ` 200 to ` 150, calculate the new quantity demanded assuming that price elasticity of demand is 2.5 and the original quantity demanded is 25 Kgs.
The demand curve slopes upwards in case of which of the following scenarios?
Calculate the arc elasticity if P1 = ` 15, P2 = ` 20, Q1 = 50 units, and Q2 = 75 units.
In which of the following conditions the demand curve touches the vertical axis and is horizontal at the price level?
The factors which determine the type of market are __________.
Calculate the AR, when MR = 15 and price elasticity of demand - 1.5
Markets dealing with homogeneous products, which are perfect substitutes referred to as ___.
The industry and the firm are identical in_________ type of market situation.
Government needs to take steps to regulate and prevent formation of certain market forms that are exploitative and create undesirable outcomes in the economy. The market form is:
Which of the following is not a characteristic of the Oligopoly market?
A fall in the levels of investment and employment and supply exceeding demand to a great extent is predominant in _______ phase of business cycle.
Calculate the amount of subsidies, when the national income is ` 4,500 crore, Net National Product at Market Price is ` 4,800 crore and indirect taxes is ` 350 crore.
From the given options, select the method that measures national income through a summation of factor incomes paid out by all production units within the domestic territory of a country such as wages, salaries, rent, interest and profit, with the exception of transfer income.
Considering the Real GDP to be ` 4,500 crore and the Nominal GDP ` 6,750 crore, calculate the GDP deflator.
Calculate the NNP at MP when NNP at FC is ` 15,000 crore, indirect taxes ` 450 crore, direct taxes ` 175 crore and subsidies are ` 250 crore.
National income is calculated as the consolidation of the production of each industry after reducing the intermediate purchases from all other industries in which of the following method?
In economics, what distinguishes between 'National' and 'Domestic with regards to determination of national income?
The condition for national income equilibrium can be expressed through which of the following expressions?
While determining national income, the income, which is not spent on, recently produced consumption goods and services may be referred to as out of the income stream.
Which of the following institutions is not responsible for public debt management in India?
Which of the following is not a non-tax revenue under public finance?
According to Keynes, the transactions demand for money is a direct proportional and positive function of the level of income. Which of the Following equations correctly represents this relationship?
The assumption that there are two media for storing value-money and an interest-bearing alternative financial asset is a central feature of which approach to the demand for money?
Which of the following features is not a component of the Modern Theory in international trade?
Which of the following features was not responsible for the launching of the radical economic reforms of 1991 in India?
Which of the following industries is not considered as a core industry of the ICI in the Indian economy?
'Business Economics' is generally understood as the application of economic theory and quantitative methods to:
Economics itself is broadly defined as the study of how individuals and society choose to use:
The link between Business Economics and traditional economic theory is that Business Economics:
A key characteristic distinguishing Business Economics from pure economic theory is its:
Business Economics draws upon disciplines beyond core economic theory, including:
'Micro' Business Economics, as generally understood, is primarily concerned with decision-making at the level of the:
The fundamental economic problem that underlies the need for Business Economics is the problem of:
'Managerial Economics' is a term often used interchangeably with 'Business Economics', reflecting its focus on:
Business Economics is generally considered a 'normative' science in the sense that it is often concerned with:
The relevance of Business Economics to a Chartered Accountant lies primarily in providing:
'Positive' analysis within Business Economics is generally concerned with describing:
Decision-making in Business Economics typically involves choosing among alternative courses of action based on a comparison of their respective:
The 'opportunity cost' concept, central to economic decision-making generally, is equally central to Business Economics because it reminds decision-makers that choosing one alternative always involves:
Business Economics generally assumes that a firm operates within a broader:
An understanding of Business Economics helps a manager to move beyond mere intuition toward:
Every economy, regardless of its political or social system, must address the basic economic problem of deciding:
The 'what to produce' problem concerns decisions about:
The 'how to produce' problem concerns decisions about:
The 'for whom to produce' problem concerns decisions about:
In a 'market economy' (or price-mechanism economy), the basic economic problems are primarily resolved through:
The 'price mechanism' functions as a signalling system by which changes in prices convey information about:
In a 'centrally planned economy' (as distinguished from a market economy), the basic economic problems are primarily resolved through:
A 'mixed economy' combines elements of both a market economy and a centrally planned economy, involving:
The price mechanism is often praised for its ability to allocate resources without requiring:
'Market failure' refers to situations where the price mechanism, left entirely to itself, fails to achieve an:
Government intervention in an otherwise market-based economy is often justified, among other reasons, by the need to correct:
India's economy is generally classified as a 'mixed economy' because it combines:
The role of the price mechanism in determining 'what to produce' operates, in a competitive market, through the principle that producers tend to supply goods that are:
The 'for whom to produce' question, under a pure price mechanism, is ultimately resolved based largely on:
'Demand' in economics refers to a consumer's:
The Law of Demand states that, ceteris paribus, as price rises, quantity demanded:
'Price Elasticity of Demand' measures the:
Demand for a good is described as 'elastic' when the price elasticity of demand (in absolute value) is:
Demand for a good is described as 'inelastic' when the price elasticity of demand (in absolute value) is:
Goods with few close substitutes, and considered necessities, tend to have demand that is:
Luxury goods, with many available substitutes, tend to have demand that is:
'Income Elasticity of Demand' measures the responsiveness of quantity demanded to a change in:
'Cross Elasticity of Demand' measures the responsiveness of the quantity demanded of one good to a change in:
'Perfectly inelastic demand', where quantity demanded does not change at all regardless of price, corresponds to a demand curve that is:
'Unitary elastic demand' occurs when the percentage change in quantity demanded is:
The relationship between price elasticity of demand and total revenue is such that, for a good with ELASTIC demand, a price increase generally causes total revenue to:
For a good with INELASTIC demand, a price increase generally causes total revenue to:
The 'time period' under consideration is a recognised factor influencing price elasticity of demand, since demand for most goods tends to become:
The proportion of income spent on a good is a recognised factor influencing its price elasticity of demand, since goods that take up a:
'Utility', in the context of consumer theory, refers to:
'Total Utility' refers to the:
'Marginal Utility' refers to the additional satisfaction gained from consuming:
The 'Law of Diminishing Marginal Utility' states that, as a consumer consumes successive additional units of a good, the marginal utility derived from each additional unit tends to:
A consumer reaches a state of 'consumer equilibrium' (utility-maximising allocation of income across goods) when the marginal utility per rupee spent is:
An 'indifference curve' represents combinations of two goods that provide the consumer with:
Indifference curves are typically drawn as convex to the origin, reflecting the principle of:
A 'budget line' (or price line) represents the various combinations of two goods that a consumer can purchase given their:
Under the indifference curve approach, consumer equilibrium is achieved at the point where the budget line is:
The 'Marginal Rate of Substitution' (MRS) between two goods measures the rate at which a consumer is willing to give up units of one good in exchange for:
The 'income effect' of a price change refers to the change in quantity demanded resulting from the change in a consumer's:
The 'substitution effect' of a price change refers to the change in quantity demanded resulting from a change in the:
'Consumer's surplus' refers to the difference between:
The cardinal (utility) approach to consumer behaviour, associated with early economists such as Marshall, assumes that utility can be:
'Supply' in economics refers to the quantity of a good that producers are:
The Law of Supply states that, ceteris paribus, as the price of a good rises, the quantity supplied by producers tends to:
A 'supply curve', with price on the vertical axis and quantity on the horizontal axis, is typically drawn as:
A 'change in quantity supplied' (movement ALONG a fixed supply curve) is caused specifically by a change in:
A 'change in supply' (a shift of the ENTIRE supply curve) is generally caused by changes in factors other than the good's own price, such as:
'Price Elasticity of Supply' measures the:
Supply of a good is described as 'elastic' when the price elasticity of supply is:
Supply is described as 'inelastic' when the price elasticity of supply is:
Goods that can be produced relatively quickly, with easily available inputs, tend to have supply that is:
Agricultural goods, especially in the very short run (before a new crop can be grown), tend to have supply that is:
The 'time period' is a recognised factor influencing price elasticity of supply, since supply tends to become:
An increase in the cost of raw materials used in production, all else equal, tends to cause the supply curve of the finished good to shift:
An improvement in production technology, all else equal, tends to cause the supply curve of a good to shift:
Market equilibrium is reached at the specific price and quantity where:
A 'production function' expresses the relationship between the quantities of inputs used and the:
The 'short run', in production theory, is a period during which:
The 'long run', in production theory, is a period during which:
'Marginal Product' of a variable input refers to the additional output resulting from employing:
The 'Law of Variable Proportions' (Law of Diminishing Marginal Returns) states that, as more units of a variable input are added to a fixed input, beyond a certain point, the marginal product will eventually:
'Returns to Scale' examines, in the long run, the effect on output of a proportionate change in:
'Increasing Returns to Scale' occurs when a given proportionate increase in all inputs results in:
'Decreasing Returns to Scale' occurs when a given proportionate increase in all inputs results in:
An 'isoquant' represents different combinations of two inputs that yield:
The three classical stages of production, based on the behaviour of average and marginal product, are typically identified with reference to which two curves?
Production is generally considered technically inefficient, and would not rationally be undertaken by a profit-maximising firm, in the stage where the marginal product of the variable input has become:
A production function exhibiting 'Constant Returns to Scale' implies that doubling all inputs results in output that:
'Total Product' refers to the:
'Average Product' of a variable input is calculated by dividing:
'Fixed Cost' refers to a cost that:
'Variable Cost' refers to a cost that:
'Total Cost' (TC) is calculated as:
'Marginal Cost' refers to the additional cost incurred in producing:
'Average Cost' (Average Total Cost) is calculated as:
The short-run Average Cost (AC) curve is typically shaped like the letter:
The Marginal Cost curve intersects the Average Cost curve exactly at the point where Average Cost is at its:
'Economies of scale' refer to a reduction in a firm's long-run average cost per unit as it:
'Diseconomies of scale' occur when, beyond an optimal size, further increases in scale cause a firm's long-run average cost to:
'Opportunity cost' in the context of production and cost theory refers to:
'Explicit costs' involve an actual, direct monetary payment by the firm to an outside party, while 'implicit costs' represent:
'Economic profit', as distinguished from ordinary accounting profit, is calculated by additionally subtracting:
In the long run, since all costs become variable, the long-run cost curves of a firm are primarily shaped by the underlying pattern of:
A 'market', in economics, refers not merely to a physical place but to:
'Market structure' refers to the organisational characteristics of a market, including the:
'Perfect Competition' is a market structure characterised by a very large number of buyers and sellers dealing in a:
'Monopoly' is a market structure characterised by:
'Monopolistic Competition' is a market structure characterised by a relatively large number of sellers offering:
'Oligopoly' is a market structure characterised by a small number of relatively large firms, each aware of and influenced by the:
'Monopsony', as distinguished from monopoly, refers to a market structure with:
'Product differentiation', a key feature distinguishing Monopolistic Competition from Perfect Competition, refers to firms making their products appear:
'Barriers to entry' in a market refer to obstacles that make it:
A market is generally classified based on the TIME PERIOD under consideration into categories such as the 'very short period' market, where supply is:
In a competitive market, 'equilibrium price' is the price at which:
If the market price is set ABOVE the equilibrium price, the resulting condition is generally described as a:
If the market price is set BELOW the equilibrium price, the resulting condition is generally described as a:
A shift of the demand curve to the RIGHT (an increase in demand), with supply unchanged, generally leads to a new equilibrium with:
A shift of the supply curve to the RIGHT (an increase in supply), with demand unchanged, generally leads to a new equilibrium with:
A 'price ceiling' set by the government below the equilibrium price generally results in a persistent:
A 'price floor' set by the government above the equilibrium price generally results in a persistent:
The process by which market price automatically adjusts toward equilibrium, in response to a temporary shortage or surplus, is often described as the market's:
Where BOTH demand and supply increase simultaneously, the effect on equilibrium quantity is generally an increase, while the effect on equilibrium price is:
'Government intervention' in price determination, such as through subsidies, can shift the supply curve:
Under Perfect Competition, an individual firm is a 'price taker' because it:
A profit-maximising firm, under standard microeconomic theory, determines its optimal output level at the point where:
Under Perfect Competition, in long-run equilibrium, firms tend to earn:
A monopolist, being the sole seller in its market, typically restricts output relative to what would prevail under perfect competition, in order to:
'Price discrimination' by a monopolist refers to the practice of charging different prices to different customers for essentially the same product, where the price difference is:
Under Monopolistic Competition, in the long run, firms tend to earn:
The 'Kinked Demand Curve' model was developed specifically to explain price rigidity (stickiness) observed under which market structure?
'Mutual interdependence' among oligopolistic firms means that each firm must, before setting price or output, carefully consider:
'Cartel' formation under Oligopoly refers to firms formally or informally colluding to:
Price and output determination differs across market structures primarily because of differences in:
A 'Business Cycle' (trade cycle) refers to:
The classical phases of a business cycle are generally identified, in sequence, as:
The 'peak' (boom) phase of a business cycle is generally characterised by:
The 'trough' phase of a business cycle is generally characterised by:
A 'recession', in general macroeconomic usage, refers to a period of:
'Depression', as a phase of a business cycle, generally refers to:
'Recovery' (expansion), as a phase of a business cycle, refers to the period during which the economy:
Business cycles are generally described as a feature primarily associated with which type of economic system?
'Seasonal fluctuations' in economic activity, as distinguished from a true business cycle, refer to:
'Secular trend', in the context of long-term economic analysis, refers to:
During the expansion (boom) phase of a business cycle, unemployment generally tends to:
During the contraction (recession) phase of a business cycle, business investment generally tends to:
'Cyclical unemployment' refers to unemployment that arises specifically due to:
Governments often use 'fiscal policy' (taxation and government spending) as a tool to try to:
'Monetary policy', typically conducted by a country's central bank, seeks to influence business cycle conditions primarily through adjustments to:
'Leading economic indicators' are statistical measures that tend to:
'Lagging economic indicators', as distinguished from leading indicators, are measures that tend to:
Business firms generally find business cycle analysis useful primarily because it helps them in:
'Inflation', which often accompanies the later stages of a boom phase, refers to:
'Stagflation' is an economic condition characterised by the unusual simultaneous occurrence of:
A key challenge in identifying the exact turning points of a business cycle (such as the precise start of a recession) in real time is that:
'Consumer confidence', as a psychological/expectational factor, tends to play a significant role in business cycles because:
Which of the following best describes why business cycles are generally considered 'recurrent' but not perfectly 'periodic' (i.e. not occurring at fixed, predictable time intervals)?
Understanding the business cycle is particularly important for financial and investment decision-making because:
The Indian economy is generally classified, based on its ownership and organisational structure, as a:
The Indian economy is broadly divided, in terms of its productive activities, into which three major sectors?
India adopted 'Five Year Plans' as a mechanism for centralised economic planning, a practice that began with the First Five Year Plan starting in:
The 'Planning Commission', India's original central planning body responsible for formulating Five Year Plans, was eventually replaced by which institution?
The major economic reforms of 1991 in India, often referred to as 'LPG' reforms, are commonly understood to stand for:
'Liberalisation', as one pillar of India's 1991 economic reforms, primarily refers to:
'Privatisation', as another pillar of the 1991 reforms, generally refers to:
'Globalisation', as the third pillar of the 1991 reforms, generally refers to the process of:
The 'agricultural sector' has historically played a significant role in the Indian economy, particularly in terms of its contribution to:
India's 'services sector' (tertiary sector) has, in recent decades, come to represent a substantial and growing share of the country's:
'Foreign Direct Investment' (FDI) policy in India, particularly following the 1991 reforms, has generally moved toward:
The 'informal (unorganised) sector' of the Indian economy generally refers to economic activity that is:
'Disinvestment' by the Indian government generally refers to the process of:
'Public Sector Undertakings' (PSUs) in India refer to enterprises that are:
India's 'demographic dividend' refers to the potential economic benefit arising from:
'Infrastructure development' (such as roads, power, and ports) is generally regarded as important for the Indian economy primarily because it:
'Financial inclusion' initiatives in India generally aim to:
India's Constitution establishes a federal structure in which economic and fiscal responsibilities are divided between:
'Make in India' and similar government initiatives are generally aimed at:
India's economic reforms since 1991 are generally credited with contributing to which broad, structural trend in the economy?
The 'organised sector' of the Indian economy, as distinguished from the informal/unorganised sector, is generally characterised by:
'Regional economic disparity' within India refers to the observed phenomenon that:
India's economic policy generally seeks to balance the objectives of economic growth with which other important consideration?
Understanding the broad structure and policy history of the Indian economy is important for a Chartered Accountancy student primarily because:
'National Income' broadly refers to the total monetary value of all:
'Gross Domestic Product' (GDP) measures the total value of final goods and services produced:
'Gross National Product' (GNP) measures output attributable to a country's own residents, and is related to GDP by the formula:
'Net National Product' (NNP) is obtained by subtracting from GNP the value of:
The 'Income Method' of measuring national income sums the different categories of factor incomes, namely:
The 'Expenditure Method' calculates GDP by summing:
'Double counting', a key error national income accounting must avoid, refers to:
'Transfer payments' (such as unemployment benefits or pensions) are excluded from national income calculations because they represent:
'Per Capita Income' is calculated by dividing total national income by:
'Real GDP', measured at constant prices, is used instead of 'Nominal GDP' primarily to:
The three methods of measuring national income (Product, Income, and Expenditure) should, in principle, yield the same figure because:
'National Income at Factor Cost' differs from 'National Income at Market Price' primarily due to the treatment of:
The Keynesian theory of income determination places central emphasis on the role of:
'Aggregate Demand', in the simple Keynesian model, is generally composed of:
The 'Consumption Function' describes the relationship between the level of:
The 'Marginal Propensity to Consume' (MPC) measures the fraction of an additional unit of income that a household:
The 'Marginal Propensity to Save' (MPS) measures the fraction of an additional unit of income that a household:
Equilibrium national income, in the simple Keynesian model, is achieved at the level where:
The 'Investment Multiplier' describes how a given initial change in investment spending leads to a:
The value of the simple investment multiplier, in the basic Keynesian model, is calculated as:
'Effective Demand', a central concept in Keynesian theory, refers to the level of aggregate demand at which:
Keynesian theory generally challenged the earlier classical view that an economy would automatically and quickly self-adjust to a level of:
'Public Finance' is the branch of economics dealing with the income, expenditure, and debt operations of:
The 'allocation function' of government, one of the classical fiscal functions, refers to the government's role in:
The 'distribution function' of government refers to its role in:
The 'stabilization function' of government refers to its role in using fiscal (and monetary) policy to:
In a federal system such as India's, fiscal responsibilities are divided between the Centre and the States primarily through:
'Fiscal federalism' refers to the study of how fiscal responsibilities and revenues are:
'Centre-State financial relations' in India are significantly shaped by recommendations of the:
'Public goods', which the allocation function addresses, are characterised by:
India's fiscal structure is generally described as 'quasi-federal', reflecting a system with:
Which of the following is a recognised example of the government exercising its 'stabilization function' during an economic downturn?
'Market failure' refers to a situation where the unregulated market mechanism fails to achieve an:
'Externalities' refer to costs or benefits of an economic activity that fall on:
A 'negative externality', such as pollution from a factory, generally results in the private market producing:
A 'positive externality', such as the wider societal benefit of education, generally results in the private market producing:
Government correction of a negative externality, such as pollution, is commonly attempted through tools such as:
Government correction of a positive externality, such as under-provision of education, is commonly attempted through tools such as:
'Public goods' represent a specific type of market failure because private markets tend to:
'Merit goods' (such as education and healthcare) represent a rationale for government intervention because the government believes:
'Monopoly power' is another recognised source of market failure because a monopolist tends to:
'Information asymmetry' between buyers and sellers, another recognised source of market failure, can lead to problems such as:
A government 'budget' is generally a statement of the government's estimated:
'Tax revenue' is generally the largest single source of government revenue, comprising both:
'Non-tax revenue' of the government includes sources such as:
'Revenue Expenditure' of the government refers to spending incurred for:
'Capital Expenditure' of the government refers to spending that results in:
A 'Fiscal Deficit' is generally calculated as total government expenditure minus:
'Revenue Deficit' refers to the excess of the government's revenue expenditure over its:
'Public Debt' refers to the total amount that a government owes, arising primarily from:
'Internal (domestic) public debt' refers to government borrowing sourced from:
Sound 'management of public debt' generally requires the government to carefully balance the need to finance its deficit with the goal of:
'Fiscal Policy' refers to the use of government spending and taxation as tools to:
'Expansionary fiscal policy', typically used to stimulate a sluggish economy, generally involves:
'Contractionary fiscal policy', typically used to cool an overheating economy or curb inflation, generally involves:
'Automatic stabilizers' in fiscal policy refer to features of the tax/spending system that automatically:
'Discretionary fiscal policy' refers to deliberate changes in government spending or taxation, made through:
The 'crowding out' effect is a recognised concern associated with expansionary fiscal policy, referring to the possibility that increased government borrowing may:
'Fiscal Responsibility' legislation, adopted by several countries including India, generally aims to:
Fiscal policy and monetary policy are both macroeconomic policy tools, but fiscal policy is distinguished by being controlled primarily by the:
A key challenge in the effective use of discretionary fiscal policy is the presence of significant:
Fiscal policy and monetary policy are generally most effective when they are:
'Demand for money' refers to the desire of the public to hold their wealth in the form of:
The classical 'Quantity Theory of Money' proposes a direct relationship between the money supply and:
Keynes's theory of the demand for money identifies three distinct motives for holding money, namely the transactions motive, the precautionary motive, and the:
The 'transactions motive' for holding money refers to the need to hold money for:
The 'precautionary motive' for holding money refers to the desire to hold money as a buffer against:
The 'speculative motive' for holding money, according to Keynes, is related to the desire to take advantage of expected future changes in:
Keynes's 'Liquidity Preference' theory generally proposes that the interest rate is determined by the interaction of the demand for money and the:
According to the speculative demand for money, when interest rates are relatively LOW, individuals tend to hold:
The demand for money for the transactions motive is generally considered to be primarily a function of:
The demand for money, according to Keynesian theory, is generally considered to be inversely related to the:
'Money Supply', broadly defined, refers to the total stock of money circulating in an economy at a given:
'M1', a narrow measure of money supply, typically includes currency in circulation and:
Broader measures of money supply (such as M3), as compared to narrower measures (such as M1), typically include:
'Legal Tender', as a characteristic of currency issued by a government/central bank, means that it:
'Credit Creation' by commercial banks refers to the process by which banks:
The 'Cash Reserve Ratio' (CRR), a monetary policy tool, refers to the minimum percentage of a commercial bank's deposits that it must:
An increase in the Cash Reserve Ratio (CRR), all else equal, tends to:
'High-powered money' (or the monetary base) generally refers to:
The 'money multiplier' describes the relationship between a given change in high-powered money (the monetary base) and the resulting:
The central bank's ability to control the money supply is a key reason it is generally regarded as the:
'Monetary Policy' refers to actions taken by a central bank to control the money supply and interest rates, in order to achieve:
'Open Market Operations' (OMO), a key tool of monetary policy, refer to the central bank's:
'Bank Rate' (or 'Repo Rate', in more recent central bank terminology) refers to the rate at which the central bank:
A reduction in the Repo Rate by a central bank, all else equal, is generally intended to:
'Expansionary monetary policy', typically used to stimulate a sluggish economy, generally involves:
'Contractionary (tight) monetary policy', typically used to curb inflation, generally involves:
The primary objective of a central bank's monetary policy generally includes maintaining:
'Statutory Liquidity Ratio' (SLR), a regulatory requirement distinct from CRR, requires commercial banks to maintain a percentage of deposits in the form of:
The transmission of monetary policy to the broader economy typically operates through channels such as changes in:
Effective coordination between monetary policy (controlled by the central bank) and fiscal policy (controlled by the government) is generally considered important because:
Adam Smith's theory of 'Absolute Advantage' suggests that a country should specialise in and export the good(s) it can produce:
David Ricardo's theory of 'Comparative Advantage' showed that mutually beneficial trade can occur even when one country is:
A country has a 'Comparative Advantage' in producing a good if it can produce that good at a:
The Heckscher-Ohlin theory of international trade explains trade patterns primarily based on differences between countries in their relative:
Modern theories of international trade, going beyond comparative advantage, also emphasise factors such as:
The gains from international trade, according to comparative advantage theory, arise because trade allows countries to consume:
'Terms of Trade' refer to the ratio at which a country's:
A theory of trade based on 'factor price equalisation' suggests that, under certain conditions, free trade can lead to:
'Intra-industry trade' refers to a country simultaneously:
The classical theories of international trade generally assume that resources such as labour and capital are:
A 'Tariff', as a trade policy instrument, refers to a tax imposed by a government on:
A 'Quota', as a trade policy instrument, refers to a direct:
A 'subsidy' to domestic producers, as a trade policy instrument, is generally used to:
'Non-tariff barriers' (NTBs) refer to trade restrictions that do NOT take the form of a direct:
'Dumping' refers to a firm exporting a good to another country at a price:
'Anti-dumping duties' are a trade policy response specifically designed to counteract:
'Protectionism' as a trade policy stance refers to the use of tariffs, quotas, and similar tools primarily to:
'Free Trade Agreements' (FTAs) between countries generally involve an arrangement to:
An 'import licensing' requirement, as a non-tariff barrier, generally requires importers to:
The choice between using a tariff versus a quota to achieve the same level of import restriction differs in that, unlike a quota, a tariff also generates:
'World Trade Organization' (WTO) is primarily concerned with:
'Multilateral trade negotiations', such as those conducted under the WTO framework, involve:
'Bilateral trade negotiations' involve trade discussions and agreements between:
The WTO's 'dispute settlement mechanism' provides member countries with a structured process to:
A 'Most Favoured Nation' (MFN) principle, central to WTO rules, generally requires a member country to:
'Regional Trade Agreements' (RTAs), such as free trade areas or customs unions, represent a departure from strict multilateralism by allowing:
Trade negotiations often address 'non-tariff issues' as well, such as:
A key challenge in multilateral trade negotiations (such as WTO rounds) is achieving:
Developing countries, in WTO and other trade negotiations, have often sought 'special and differential treatment' primarily to:
Successful trade negotiations are generally expected to result in outcomes that are, at least broadly, considered:
A 'Foreign Exchange Rate' refers to the rate at which one country's currency can be:
Under a 'fixed exchange rate' system, the value of a country's currency is:
Under a 'floating (flexible) exchange rate' system, the value of a country's currency is determined primarily by:
An 'appreciation' of a country's currency (relative to another currency) generally makes that country's exports:
A 'depreciation' of a country's currency (relative to another currency) generally makes that country's exports:
An appreciation of a country's currency generally makes IMPORTS from other countries:
'Purchasing Power Parity' (PPP) theory suggests that, in the long run, exchange rates should adjust to equalise the:
Central bank intervention in the foreign exchange market, such as buying or selling foreign currency reserves, is generally undertaken to:
A significant, persistent depreciation of a country's currency can contribute to domestic inflation primarily because it:
Exchange rate volatility can pose a challenge for businesses engaged in international trade primarily because it introduces:
'International capital movements' refer to the flow of financial capital (investment funds) across:
'Foreign Direct Investment' (FDI) generally refers to an investment by a foreign entity that establishes a:
'Foreign Portfolio Investment' (FPI), as distinguished from FDI, generally refers to investment in:
International capital movements can benefit a capital-importing (recipient) country by providing access to:
'Capital flight', a risk associated with international capital mobility, refers to the:
'External commercial borrowings' (ECBs) generally refer to loans raised by domestic entities from:
A country's 'Balance of Payments' Capital Account records, among other items, cross-border flows related to:
Restrictions on international capital movements (capital controls) are sometimes imposed by governments primarily to:
'Hot money' refers to short-term capital flows that move rapidly between countries in search of:
A stable and predictable policy environment is generally considered important for attracting sustained Foreign Direct Investment because investors:
Business Economics is generally distinguished from pure economic theory by its focus on:
The study of Business Economics generally assumes that a rational decision-maker seeks to:
A firm's decision to enter a new market is an example of the kind of problem Business Economics helps analyse, primarily by weighing:
Business Economics, in guiding managerial decisions, generally requires an understanding of both the firm's internal cost/production structure and its external:
Which of the following best illustrates the practical, applied nature of Business Economics as a discipline?
An economy facing the basic problem of 'what to produce' must ultimately allocate its limited resources among competing:
In a market economy, if the price of a good rises significantly due to strong demand, this price signal typically encourages producers to:
The price mechanism's role in resolving the 'how to produce' problem is reflected in producers choosing production techniques that:
Government intervention to correct market failure, such as regulating a monopoly or providing a public good, is generally justified on the basis that:
The basic economic problems of what, how, and for whom to produce are relevant to Business Economics because a firm's own decisions (about products, production methods, and target customers) are essentially:
Even within a predominantly market-based economy, the government typically retains a role in the price mechanism by:
In the simple Keynesian model, an 'inflationary gap' occurs when planned aggregate demand at full-employment income:
In the simple Keynesian model, a 'deflationary (recessionary) gap' occurs when planned aggregate demand at full-employment income:
The 'paradox of thrift', a concept associated with Keynesian theory, suggests that if all households simultaneously try to save more, the result may be:
In the Keynesian model, 'planned' (or intended) investment and savings are conceptually distinguished from 'actual' investment and savings because:
According to the Keynesian model, government spending can help close a deflationary gap by:
The Keynesian consumption function is often expressed in the simple linear form C = a + bY, where 'a' represents:
The Keynesian theory of income determination is generally considered a 'demand-side' theory because it emphasises that, at least in the short run, the level of output and employment is primarily determined by:
An 'inferior good', as understood in the theory of consumer behaviour, is one for which demand tends to:
The 'law of equi-marginal utility' guides a consumer's allocation of limited income across multiple goods by requiring that, at equilibrium, the marginal utility per rupee spent be:
An indifference map consists of a family of indifference curves, where curves further from the origin represent:
Indifference curves belonging to the same consumer are generally assumed never to intersect one another, because an intersection would imply:
A shift of the entire budget line outward (parallel to the original), with prices unchanged, generally reflects:
A rotation (pivot) of the budget line around one fixed intercept, with the other intercept moving, generally reflects a change in the:
A movement ALONG a given supply curve (a 'change in quantity supplied') is caused specifically by a change in:
An increase in the number of sellers/firms in a market, all else equal, tends to cause the market supply curve to shift:
A government-imposed tax on the production of a good, all else equal, tends to cause the supply curve of that good to shift:
'Joint supply' refers to a situation where two or more goods are:
'Composite supply' refers to a situation where a single good can be supplied to satisfy:
Expectations of a future price INCREASE for a good tend to cause current supply to:
A production function of the form Q = f(L, K), where L is labour and K is capital, expresses output as a function of:
In Stage I of the classical three stages of production (under the Law of Variable Proportions), Average Product of the variable input is generally:
In Stage III of the classical three stages of production, Total Product is generally:
A rational, profit-maximising producer would generally choose to operate in Stage II of the classical three stages of production, since Stage II is characterised by:
'Explicit costs' of a firm involve an actual, direct monetary payment to an outside party, such as:
'Short-run Average Variable Cost' (AVC) is calculated by dividing Total Variable Cost by the:
'Short-run Average Fixed Cost' (AFC) continuously declines as output increases, because:
The relationship between short-run Marginal Cost (MC) and Average Variable Cost (AVC) mirrors the relationship between MC and Average (Total) Cost (AC), in that MC intersects AVC at AVC's:
In the long run, since all costs are variable, there is no distinction maintained between 'fixed' and 'variable' cost; instead, the primary focus shifts to how:
The 'Long-Run Average Cost' (LAC) curve is often described as an 'envelope curve' because it is derived by:
'Sunk costs' -- costs that have already been incurred and cannot be recovered regardless of future decisions -- are generally considered:
The 'allocation function' of government fiscal policy is primarily concerned with correcting inefficiencies arising from:
The 'distribution function' of fiscal policy generally aims to influence the distribution of income and wealth through instruments such as:
India's Constitution allocates specific taxation powers between the Centre and the States through:
The 'Finance Commission', a constitutional body in India, is primarily tasked with recommending:
Subjects on which only the State Legislatures (and not Parliament) may generally legislate, such as certain local taxes, fall under the:
India's fiscal structure, combining genuine federal features with certain centralising (unitary) tendencies, is often described as:
The 'stabilization function' of fiscal policy, in coordination with monetary policy, aims to help maintain:
Goods and Services Tax (GST) in India is an example of fiscal reform requiring cooperation between the Centre and the States because it:
Centre-State fiscal relations in India also involve grants-in-aid from the Union to the States, intended primarily to:
A 'negative externality', such as industrial pollution, causes the private market to produce:
A 'Pigouvian tax', used to correct a negative externality, is generally set equal to the:
'Public goods', such as national defence, are characterised by non-excludability, meaning:
The 'free-rider problem', associated with public goods, refers to the incentive individuals have to:
'Merit goods', such as education, are goods the government believes society tends to:
'Demerit goods', such as tobacco products, are goods the government generally believes society tends to:
'Information asymmetry' between buyers and sellers, a recognised source of market failure, can lead to problems such as:
'Monopoly power', a recognised source of market failure, is often addressed by government intervention such as:
A government 'Balanced Budget' refers to a budget in which estimated total revenue is:
'Primary Deficit', a specific fiscal indicator, is calculated as the Fiscal Deficit minus:
Effective 'expenditure management' by a government generally involves prioritising spending to:
'Off-budget borrowing' refers to government borrowing that:
'Public debt sustainability' generally refers to the government's ability to:
The 'Budget' presented by the government each year is generally accompanied by supporting documents explaining, among other things, the:
'Contingency Fund', maintained by the government, is generally used to meet:
Transparent and timely disclosure of a government's fiscal position (revenue, expenditure, and debt) is generally considered important because it helps:
'Fiscal drag' refers to a situation where, as nominal income rises (e.g. due to inflation), taxpayers are pushed into:
The 'balanced budget multiplier' concept suggests that an equal increase in both government spending and taxation can still lead to:
'Pro-cyclical fiscal policy' refers to fiscal policy that:
'Counter-cyclical fiscal policy', as generally advocated by Keynesian economics, involves the government:
The 'multiplier effect' of government spending refers to the way an initial increase in government expenditure leads to:
Fiscal policy in India is subject to certain self-imposed discipline through legislation such as the Fiscal Responsibility and Budget Management (FRBM) Act, which generally aims to:
An 'expansionary fiscal policy' financed primarily through increased government borrowing (rather than higher taxation) carries the risk of contributing to:
Fiscal policy's effectiveness in stabilising the economy can be undermined by 'time lags', which include the delay between:
'Automatic stabilizers' embedded in the fiscal system, such as progressive taxation and unemployment benefits, help moderate the business cycle without requiring:
A government pursuing 'fiscal consolidation' generally aims to:
The Classical (Quantity Theory) approach to money demand generally emphasises money's role primarily as a:
Keynes's 'speculative demand for money' is generally considered to have an inverse relationship with:
Under Keynes's Liquidity Preference theory, the equilibrium rate of interest is determined at the point where the demand for money equals the:
The 'Baumol-Tobin model' of transactions demand for money is generally credited with extending the simple Keynesian transactions demand analysis by incorporating:
Under Tobin's 'portfolio approach' to speculative money demand, an individual's asset allocation decision between money and bonds is influenced by:
According to the Classical/Quantity Theory tradition, the demand for money is generally considered to be a stable function primarily of:
The 'precautionary demand for money', as identified by Keynes, is generally considered to depend primarily on:
An important practical application of money demand theory is helping a central bank understand how changes in the money supply are likely to affect:
'M2' and other broader monetary aggregates typically include, in addition to M1's components, items such as:
The 'money multiplier' is generally calculated, in its simplest form, as the inverse of the:
An increase in the public's preference to hold currency (cash) rather than bank deposits, all else equal, tends to:
'Narrow money' (such as M1) generally refers to monetary aggregates that emphasise:
The central bank's control over the money supply is generally considered a key foundation for its ability to conduct effective:
'Demonetisation', a significant monetary policy action affecting money supply, refers to the government/central bank:
An expansion of bank credit through the credit-creation process ultimately depends on banks having sufficient:
'Currency in circulation' generally refers to currency notes and coins that are:
A rise in the reserve ratio maintained by commercial banks, all else equal, tends to have which effect on the money multiplier and overall money supply?
'Quantitative' monetary policy tools, such as the repo rate and CRR, are generally distinguished from 'qualitative' tools, which instead aim to:
'Moral suasion', a qualitative monetary policy tool, refers to the central bank:
'Inflation targeting', adopted as a monetary policy framework by several central banks including the RBI, involves the central bank publicly committing to:
The 'transmission mechanism' of monetary policy refers to the process by which a change in the central bank's policy rate eventually affects:
A central bank's decision to raise its policy (repo) rate, transmitted through the banking system, generally aims to:
The 'lag' between a monetary policy action (such as a rate change) and its full effect on the real economy is generally considered:
A central bank's 'Monetary Policy Committee' (MPC), where established, is generally responsible for:
Effective monetary policy communication by a central bank is generally considered important because it helps:
Coordinating monetary policy with fiscal policy is generally considered beneficial for macroeconomic stability primarily because:
A market's classification (perfect competition, monopoly, monopolistic competition, or oligopoly) primarily depends on characteristics such as:
A 'duopoly' is a specific, limiting case of oligopoly in which there are exactly:
'Monopsony' is a market structure with a single dominant:
'Bilateral monopoly' refers to a market situation involving:
'Barriers to entry', a key factor distinguishing market structures such as monopoly from perfect competition, refer to obstacles that:
In a competitive market, price is determined at the level where the market demand and supply curves:
An increase in consumer income for a normal good, all else equal, shifts the demand curve to the:
A technological improvement that reduces production costs, all else equal, shifts the supply curve to the:
A government-imposed price ceiling set below the market equilibrium price generally results in a persistent:
A government-imposed price floor set above the market equilibrium price generally results in a persistent:
When BOTH demand and supply decrease simultaneously (both curves shift leftward), the effect on equilibrium quantity is generally an unambiguous decrease, while the effect on equilibrium price is:
The concept of 'market equilibrium' is generally understood to describe a state in which, absent any external shock, price and quantity have:
'Comparative statics' analysis, commonly used in price determination theory, examines the effect of a change in an underlying condition (such as a shift in demand or supply) by comparing:
Government intervention in price determination through subsidies to producers generally has the effect of:
An 'excise tax' imposed on the sale of a good, all else equal, generally shifts the supply curve:
Under Perfect Competition, the demand curve facing an individual firm (as distinguished from the overall market demand curve) is:
A monopolist's profit-maximising output level is determined at the point where Marginal Revenue equals Marginal Cost, with price then read off the:
Under Monopolistic Competition, in short-run equilibrium, a firm may earn above-normal (economic) profit, but in the long run this tends to be competed away because:
Under Oligopoly, a firm's pricing decision must account for the likely reactions of rival firms, a feature captured by the concept of:
Price leadership, sometimes observed under Oligopoly, refers to a situation where one dominant firm sets a price and:
A monopolist, unlike a firm under Perfect Competition, generally faces a downward-sloping demand curve, meaning that to sell a larger quantity, the monopolist must generally:
The comparison of price and output outcomes across Perfect Competition, Monopoly, Monopolistic Competition, and Oligopoly is a central theme of price-output determination theory, primarily because it illustrates how:
Mercantilism, an early theory predating classical trade theory, generally held that a nation's wealth was measured primarily by its holdings of:
Ricardo's theory of Comparative Advantage is often illustrated using a simple two-country, two-good model, primarily to demonstrate that mutually beneficial trade can occur:
The Heckscher-Ohlin theory predicts that a labour-abundant country will tend to export goods that are:
The 'Leontief Paradox' refers to an empirical finding that appeared to contradict the predictions of which theory of international trade?
Modern trade theories incorporating 'economies of scale' help explain a pattern of trade -- particularly common between similar developed economies -- known as:
The gains from specialisation and trade, according to comparative advantage theory, arise because trade allows a country to consume:
'Terms of Trade', an important indicator in international trade analysis, generally improve for a country when the price of its exports rises relative to the price of its:
Classical and neoclassical theories of international trade generally assume that factors of production such as labour and capital are:
An 'ad valorem tariff' is a tariff calculated as:
A 'specific tariff' is a tariff calculated as:
'Countervailing duties', a trade policy instrument, are specifically imposed to offset the effect of:
'Voluntary Export Restraints' (VERs) refer to an arrangement where an exporting country agrees to:
A 'technical barrier to trade', a form of non-tariff barrier, refers to a requirement such as:
'Export subsidies', a trade policy instrument used by some governments, aim to make a country's exports more competitive by:
An 'import quota' differs from a 'tariff' in that a quota primarily restricts:
The overall economic rationale most commonly cited by governments for using protectionist trade policy instruments (such as tariffs) includes:
The 'Instruments of Trade Policy' unit is closely connected to the broader theory of international trade because these instruments are typically used to:
The predecessor agreement to the WTO, which governed international trade rules for several decades before the WTO's establishment, was known as:
'Trade rounds', a term used in multilateral trade negotiations, refer to:
A 'trade dispute' between two WTO member countries, if not resolved through consultation, may proceed to the WTO's:
'Trade facilitation', a topic increasingly addressed in modern trade negotiations, generally refers to efforts to:
'Plurilateral' trade agreements, as distinguished from fully multilateral WTO-wide agreements, involve:
'Non-discrimination', a foundational principle underlying WTO trade negotiations, is reflected in rules such as the Most Favoured Nation principle, requiring that trade concessions granted to one member be:
'Regional Trade Agreements' (RTAs), permitted as an exception to strict WTO non-discrimination principles, allow a specific group of countries to:
A key practical challenge facing modern multilateral trade negotiations (such as WTO rounds) is achieving consensus given:
'Special and Differential Treatment' provisions in trade agreements generally aim to give developing countries:
Successful conclusion of a trade negotiation is generally expected to result in an agreement that, on balance, is considered:
A 'managed float' exchange rate system generally combines elements of a floating exchange rate with:
'Devaluation' of a currency, as distinguished from 'depreciation', generally refers to:
'Revaluation' of a currency, the counterpart to devaluation, refers to a deliberate, official:
A significant depreciation of a country's currency can, over time, help improve its trade balance by:
'Exchange rate pass-through' refers to the extent to which a change in the exchange rate is reflected in:
Central bank intervention in the foreign exchange market to counter excessive currency appreciation often involves:
'Interest rate parity', a concept relating exchange rates to interest rate differentials between countries, suggests that a currency with a higher interest rate tends to:
A country experiencing chronic currency depreciation, if driven by persistent trade or fiscal imbalances, may face increased risk of:
Businesses engaged in international trade often use financial instruments such as forward contracts to manage the risk arising from:
The relationship between a country's exchange rate policy and its broader macroeconomic objectives (such as controlling inflation or supporting growth) illustrates why exchange rate management is generally considered:
Foreign Direct Investment (FDI), as distinguished from Foreign Portfolio Investment (FPI), is generally characterised by:
Foreign Portfolio Investment (FPI) primarily involves investment in:
'Capital flight', a phenomenon of concern to policymakers, refers to a large-scale movement of capital:
'Hot money', a term used to describe certain international capital flows, refers to funds that:
A key benefit host countries often seek from attracting Foreign Direct Investment (FDI), beyond the capital itself, is the associated transfer of:
International capital movements can help a country finance a current account deficit, since a capital account surplus (net capital inflow) can:
'External Commercial Borrowings' (ECBs), a route through which Indian entities can raise international capital, generally refer to:
A sovereign wealth fund, an institutional vehicle sometimes used to channel international capital, is typically:
Excessive volatility in short-term international capital flows (such as sudden large inflows followed by rapid outflows) can pose a policy challenge because it may:
Restrictions on international capital movements, such as capital controls, are sometimes used by governments primarily to:
'Merit goods', a category relevant to government intervention, are goods considered to be under-consumed in a purely free market primarily because:
'Demerit goods', the counterpart to merit goods, are goods considered to be over-consumed in a purely free market, often prompting government intervention such as:
A guard-wiring test question for confirming the post-import guard fires automatically -- under the Law of Supply, ceteris paribus, an increase in a good's own price generally leads to: