Institute of Banking and Finance-Vijayawada / / /

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1 Page 1 1) The Law of demand implies that As price falls quantity demanded increases As price rise demand increases As price fall demand increases As price rise quantity demanded increases 2) Which of the following is consistent with the law of supply? As the price rises, the quantity supplied also increases As the price falls, the supply increases As the price rises, the quantity supplied decreases. None Aggregate demand Balancing of demand and supply position Aggregate supply Government intervention 9) Cetris Paribus means Holding demand constant Holding supply constant Price being constant; Other things being constant 10) Economic resources are Unlimited Limited in supply and use Limited in supply but has alternative uses Unproductive 3) Market equilibrium exists when. at the prevailing price. Quantity demanded equals quantity supplied Quantity demanded is greater than quantity supplied Quantity supplied is greater than quantity demanded Quantity demanded is less than quantity supplied 4) Micro economics theory deals with Economic behavior of individual economic decision making units Economy as a whole Trade relations Economic growth of the society 5) Which of the following is a central problem of every economy? Abundance of resources Scarcity of economic resources Poverty Moral and ethical values 6) In a mixed economy which sector(s) is/ are found Private Only Public sector only None Both a and b 7) In economic theory the term "means" refers to Resources Arithmetic mean A characteristic None 8) Market equilibrium of a commodity is determined by 11) Which of the following is/ are not an economic resource? Land Capital Labour Air 12) Capital in economics means... Factors of production Fund brought in by the entrepreneur Investment in shares, bank deposits All the above 13) Scarcity of resources leads to Un satisfaction of human wants Evaluation of alternative uses of scarce resources Both None 14) Who defined economics as Science which deals with wealth" Adam Smith pigou Alfred Marshall Robbins 15) is known as father of economics Adam Smith A Samuelsson Alfred Marshall J R Hicks 16) Which of these are outside the domain of macro economics? Consumer behavior National income Economic growth

2 Page 2 Balance of payment and trade 17) Which of the following issue relates to micro-economics? Impact of crude price hike on inflation Impact of change in bank rate on bank saving and investment Impact of Information technology on economic growth Impact of shortage of wheat production on wheat prices 18) The famous book "An enquiry into the nature and causes of wealth of Nation" was written by Adam Smith Samuelsson Robertson JB Say Both None 24) Complementary goods are those which are... Consumed simultaneously Close competitive Both Unrelated 25) Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses. This definition was by... Adam Smith J.M.Keyns Lionel Robbins Amartya Sen 19) Macroeconomics is the study of Inflation Unemployment Growth All of (, ( and ( above 20) Market demand curve for a commodity is... Horizontal summation of the individual demand curve for the commodity Summation of individual demand curve for 3 years Demand curve of complementary goods Demand curve of supplementary goods 21) Under law of supply, ceteris paribus is Cost of production Production technology None Both 22) According to law of supply... Higher the price higher the production of the product Higher the price, lower the cost of production Lower the price; lower the demand for the product; Higher the price higher the quantity the seller is prepared to supply in market 23) A desire culminates into demand or effective desire only when it is backed by Purchasing power Willingness of spend money 26) Substantiate the following statements with regard to definition of Economics 1. Man has unlimited wants 2. The means to satisfy the wants are limited 3. Resources are not only limited but also have alternative uses 4. Man has to make a choice 1 and 2 are Correct 2 and 3 are Correct 1 and 3 are Correct All are correct 27) The other major branch of economics, which is concerned with the overall performance of the economy, is... Macroeconomics Microeconomics Pure economics Planned economics 28) General Theory of Employment, Interest and Money was the famous treatise published by Adam Smith John Maynard Keyns Marshall Ruso 29) The extreme case of a market economy, in which the government does not interface in economic decisions, is called... Economy Mixed Economy Political Economy Laissez-faire Economy Bureaucracy 30) A command economy is one in which the government makes all important

3 Page 3 decisions about production and distribution. It is also Known as Socialistic Economy Communist Economy Aristocratic Economy Beurocratic Economy 31) Adam Smith defined Economics as a Study of welfare Study of 'means' and 'ends Study of Wealth None of these 38) The graphical representation of the demand schedule is Demand curve Demand Elasticity curve Demand supply curve Demand scheduled curve 39) Market Demand Curve obeys the Law of downward-sloping demand Law of upward-sloping demand Law of diminishing None of these 32) Macroeconomics deals with Gross domestic product Unemployment rate Price indices All the above 33) Microeconomics is concerned with the behavior of Gross domestic product Individual entities Economy as a whole None of the above 34) In economics parlance, 'Ends' refer to... Demand Resources Utility Wants 35) A market economy is one In which individuals and private firms make the major decisions about production and consumption In which the government makes all important decisions about production and distribution Both (1) and (2) None of these 36) Market economy is also known as Mixed Economy Capitalistic Economy Command Economy Socialistic Economy 37) The higher the price of an article, other things held constant fewer the units consumers are willing to buy. The lower is its market price; the more units of it are bought. This relationship that exists between price and quantity bought in the market is represented by... Demand schedule Supply schedule Demand and supply schedule Consumer schedule 40) Forces behind are... the demand curve Expectation about future economic conditions Average Income Cost of production Both (1) and (2) 41) A down ward Sloping Demand Curve relates quantity demanded to Supply Income Price Demand 42) Shifts in Supply curve means When changes in factors other than goods own price affect the quantity supplied When changes in goods own price affect the quantity supplied Both (1) and (2) None of these 43) The Equilibrium Price is also known as Market price Optimum price Real price Market-clearing price 44) Forces behind the Supply Curve are... Cost of production Technological advances Government policies All of the above 45) Supply curve relates quantity supplied to... Supply Income Price Demand 46) Market equilibrium comes at the price at which quantity demanded equals to quantity...

4 Page 4 Produced Supplied Inventory Demand 47) Why does the demand curve shift? Because influences other than the good's price change A change in a non-price variables such as rising income levels of the people, shift the demand curve Quantity demanded of a good at different prices also shifts the demand curve All the above are true circumstances that lead to shift in the demand curve 48) A whole array of factors influences how much will be demanded at a given price. Important such influencing factor is/are... The average income of consumers and the size of the market The prices and availability of related goods Subjective elements called tastes or preferences and special influences of customers All the above 49) When the price of a commodity is raised (and other things being constant), buyers tend to buy less of the commodity. Similarly, when the price is lowered, other things being constant, quantity demanded increases. This is called... Law of Demand Law of Demand Supply Law of Market Demand None 50) The graphical representation of the demand schedule is the demand curve. This curve slopes downward, going from northwest to southeast. This important property is called... Law of downward-sloping demand Law of Upward-sloping demand Law of sloping demand Law of north east sloping demand Part-2 1) The functions of Money includes... Medium of Exchange A measure of value and A store of value over time Standard for deferred payments All of the Above 2) The stock of money in circulation in the economy at a given point of time is known as... Currency supply Money value supply Value supply Money supply 3) Narrow Money (M 1) refers to... Currency with the public Demand deposits with the banking system `Other deposits with the RBI Currency with the public plus Demand deposits with the banking system plus `Other deposits with the RBI 4) M2 is equal to M1 plus share market transactions M1 plus foreign exchange reserves M1 plus government treasury M1 plus Savings deposits of post office savings banks 5) M3 is equal M I plus Time deposits with the banking system M I plus Time deposits with post offices M I plus Time deposits with the banking system and post offices None 6) Demand deposits' with a bank include all liabilities which are payable on demand and they include Current deposits, demand liabilities portion of savings bank deposits Margins held against letters of credit/ guarantees, Balances in overdue fixed deposits, cash certificates and cumulative/ recurring deposits All the above 7) 'Time deposits' are those which are payable otherwise than on demand Fixed deposits

5 Page 5 Cash certificates Cumulative and recurring deposits and Time liabilities portion of savings bank deposits All of the above 8) A fall in purchasing power of the people is known as Inflation Deflation Stagflation Reflation 9) The annualized percentage change in a general price index over time is known as Inflation Rate Boom Recession Rate Deflation Rate 10) A rise in general prices caused by increasing aggregate demand for goods and services... Pull Inflation Demand Inflation Demand-Supply Inflation Demand-Pull Inflation 11) Increasing quantity of money in the hands of the people increases the aggregate demand for... Goods and services Cost of Production 1 and 2 None 12) A rise in general prices caused by increasing aggregate demand for goods and services is called... Demand-Pull Inflation Demand-Push Inflation Cost-Pull Inflation Cost-Push Inflation 13) It is a type of inflation caused by substantial increases in the cost of production of important goods or services where no suitable alternative is available. Demand-Pull Inflation Cost-Push Inflation Cost-Pull Inflation Demand-Push Inflation ) Which Index reflects the change in the level of prices of a basket of goods as a whole? Wholesale Price Index (WPI) Consumer Price Index (CPI) Food Inflation Index GDP Deflator 16) The cost of living index is popularly known as CPI for industrial workers (CPI-IW) CPI for agricultural labourers (CPI-AL) Core Inflation All the Above 17) Which of the following is a measure of the level of prices of all new, domestically produced, final goods and services in an economy? Consumer Price Index (CPI) Food Inflation Index Wholesale Price Index (WPI) GDP Deflator 18) Money Supply refers to The amount of money in banks The amount of money with the people The amount of money circulation in an economy in None of the above 19) Narrow Money consists of Currency with the Public Demand Deposits, 'Other 'Deposits with the RBI Currency with the Public, Time Deposits, `Other' Deposits Time deposits, Demand Deposits, 'Other' Deposits with the RBI Currency with the Public, Demand Deposits 20) Time Deposits are Paid on demand Not paid on demand Relatively less liquid than cash and demand deposits Both (2) and (3) 14) Which of the following is used to measure Inflation in India? 1. Wholesale Price Index (WPI) 2. Food Inflation Index 3. Consumer Price Index (CPI) 4. GDP deflator 21) RBI checks inflation by Increasing bank rate Increasing CRR Both None

6 Page 6 22) Which of the following is near money? Bill of exchange Saving bonds Gilt edged securities All the three 23) Which of the following is the oldest system of money? Barter Plastic money Gold Credit money 24) Optional money is a Legal tender money Non-legal tender money Limited legal tender money Full bodied money 25) Which of these is not a function of money? Means of exchange Store value Measurement of value Power indicator 26) If RBI wants to decrease the money supply in order to check inflation it will Sell bonds Increase CRR Hike bank rate All or any of the above three 27) If the country is passing recession, the RBI would through Buy bonds Reduce CRR Ease out bank rate All or any of the above three 28) If RBI sucks excess money into circulation this will effect M1 M2 Both None 29) Manipulation in CRR enables the RBI to... Influence the lending ability of the commercial banks Check unemployment growth Check poverty Increase GDP 30) How does a commercial bank create money? By circulating money By lending a part of its deposits By issuing ATM cards Accepting deposits 31) Which of these affects the demand for money? Real income Price level Rate of interest All the three 32) If someone keeps some money for bad days, this demand for money is known by... motive of money Speculative Transaction Precautionary 33) Store Which of these would lead to fall in demand for money? Inflation Increase in real income Increase in real rate of interest Increase in wealth 34) Demand pull inflation rises due to Persistent rise in factor cost Mismatch between demand and supply of commodities Combine phenomena of demand pull and cost-push inflation. Increase in Price of precious metals 35) Cost push inflation arises due to Persistent rise in factor cost Mismatch between demand and supply of commodities Combine phenomena of demand pull and cost-push inflation. Increase in price of precious etals 36) Deflation is a state when Prices are falling Consistent increase in prices Fall in GDP Collapse of sensex 37) Inflationary conditions may co-exist with which of the following situation Increase in factor cost Increase in employment opportunities Growth in GDP and imports All the three 38) Given the supply quantity which is fixed an increase in aggregate demand will have direct impact on Increase in GDP Inflationary pressure Greater employment opportunity More equitable distribution of income and wealth

7 Page 7 Part-3 1) Interest is Payment for the risk involved in making the loan Payment for the trouble involved Payment for the use of the money i.e. pure interest All the Above 2) The rate of interest is a purely monetary phenomenon and is determined by demand for money and supply of money. This theory is known as The General Theory of Employment and Interest The General Theory of Interest Theory of Employment and Income Liquidity Preference Theory 3) In order to explain the demand for money and interest-rate determination, Keynes assumed a simplified economy where there are two assets which people can keep in their portfolio balance. These two assets are Money in the form of currency and current deposits in the banks which earn no interest Long-term bonds 1 and 2 Long-term bonds and Gold 4) Due to higher level of nominal income, the purchases by the people of goods and services in their daily life will be relatively larger, which require more money to be kept for various purposes. This motive is called... Transactions motive Speculative motive. Necessity Motive None 5) The higher the nominal rate of interest, the lower the demand for money for speculative motive. This is because A higher nominal rate of interest implies a higher opportunity cost for holding money At higher rate of interest, holders of money can earn more incomes by holding bonds instead of money If the current rate of interest is higher than what is expected in the future, the people would like to hold more bonds and less money All the above 6) Quantity of money demanded increases with the... in the rate of interest or with the... in the level of nominal income. Fall and Increase Increase and Fall Fall and nominal increase Increase and Nominal fall 7) The rate of interest, according to... is determined by demand for money (Liquidity Preference) and supply of money. J.M. Keynes Robinson Adam Smith None of the above 8) Renowned economists, Sir John Richard Hicks and Alvin Hansen, have brought about a synthesis between the Classical and Keynes' theories of interest and have thereby succeeded in propounding an adequate and determinate theory of interest through the intersection of what are called IS and LM curves LS and LM curves IS and IM curves LIS and LM curves 9) According to J.M.Keynes rate of interest and bond prices are related Inversely Directly Parallel Horizontal 10) Keynes explained interest in terms of Real forces Economic forces Monetary forces Social forces 11) The initials LM stand for Liquidity Model Liquidity preference and Money supply equilibrium Liquidity and Money Model Liquidity and money 12) IS curve is derived from Classical theory Keynesian liquidity preference theory of interest Law of diminishing marginal utility Law of equi-marginal utility 13) LM curve is derived from Classical theory Keynesian liquidity theory of interest preference Law of diminishing marginal utility Law of equimarginal utility 14) The position of money demand curve depends upon which factors The level of nominal income

8 Page 8 The expectations about the changes in bond prices in the future The level of Savings 1 and 2 only 15) Hicks and Hansen have brought about a Synthesis between Classical theory and Keynes theory Keynes theory and wealth theory Classical theory and wealth theory Classical theory and neo classical theory 16) Which curve tells us what will be the various rates of interest at different levels of income, given the investment demand curve and a family of saving curves at different levels of income? LM curve I S curve Demand for money and Supply curve None 17) The IS curve and the LM curve relate the variables of 1. Income 2. The rate of interest 3. Savings 1 and 2 only 1 and 3 only 2 and 3 only None of the above 18) According to Hicks and Hansen, both monetary and real factors play a part in determining of the rate of interest. Here Monetary and Real factors refers to Productivity, thrift (Savings) Demand for money Supply of money All the above 19) Factors on which the slope of the LM curve depends on 1. Responsiveness of demand for money (i.e. liquidity preference) to the changes in income 2. The elasticity or responsiveness of demand for money (i.e., liquidity preference for speculative motive) to the changes in rate of interest. 3. Propensity to save 4. People's speculation regarding future rates of Interests 1 and 2 2 and 3 2and 4 1 and 4 20) Hicks and Hansen show that with the intersection of IS and LM curves, both the......and... are simultaneously determined. Interest and Savings Interest and extrvagance Interest and Income Interest and Propensity to save