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Part 034 – Macro Economics Previous Year Questions

Q1. Which of the following is not viewed as national debt ?
(a) Life Insurance Policies
(b) Long-term Government Bonds
(c) National Savings Certificates
(d) Provident Fund
Ans: (a) Government debt (also known as public debt, national debt) is the debt owed by a central government. Government debt is one method of financing government operations, but it is not the only method. Governments can also create money to monetize their debts, thereby removing the need to pay interest. But this practice simply reduces government interest costs rather than truly canceling government debt. Governments usually borrow by issuing securities, government bonds and bills. Less creditworthy countries sometimes borrow directly from a supranational organization (e.g. the World Bank) or international financial institutions. Life insurance is a contract that pledges payment of an amount to the person assured (or his nominee) on the happening of the event insured against.

Q2. What is Value Added Tax (VAT) ?

(a) A simple, transparent, easy to pay tax imposed on consumers
(b) A new initiative taken by the Government to increase the tax-burden of high income groups
(c) A single tax that replaces State taxes like, surcharge, turnover tax, etc.
(d) A new tax to be imposed on the producers of capital goods
Ans: (c) A value added tax (VAT) is a form of consumption tax. A VAT is like a sales tax in that ultimately only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer. VAT comes under the single tax system based primarily or exclusively on one tax, typically chosen for its special properties. Most of the Indian States have replaced Sales tax with Value Added Tax (VAT) from 1 April, 2005. VAT is imposed on goods only and not services and it has replaced sales tax.

Q3. What is referred to as ‘Depository Services’ ?

(a) A new scheme of fixed deposits
(b) A method for regulating stock exchanges
(c) An agency for safe-keeping of securities
(d) An advisory service to investors
Ans: (c) It is a service offered by a securities depository under which the depository maintains book accounts recording the ownership of securities held on behalf of the depository’s participants, for eligible securities.

Q4. The ‘Interest Rate Policy’ is a component of

(a) Fiscal Policy
(b) Monetary Policy
(c) Trade Policy
(d) Direct Control
Ans: (b) Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. The contraction of the monetary supply can be achieved indirectly by increasing the nominal interest rates. Monetary authorities in different nations have differing levels of control of economy-wide interest rates.

Q5. A mixed economy works primarily through the

(a) market mechanism
(b) central allocative machinery
(c) market mechanism regulated by Government policy
(d) market mechanism guided by Government participation and planning
Ans: (d) Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. The basic idea of the mixed economy is that the means of production are mainly under private ownership; that markets remain the dominant form of economic coordination; and that profit-seeking enterprises and the accumulation of capital remain the fundamental driving force behind economic activity. However, unlike a free-market economy, the government would wield considerable indirect influence over the economy through fiscal and monetary policies designed to counteract economic downturns and capitalism’s tendency toward financial crises and unemployment, along with playing a role in interventions that promote social welfare.

Q6. When a large number of investors in a country transfer investments elsewhere because of disturbed economic conditions, it is called

(a) Transfer of Capital
(b) Escape of Capital
(c) Outflow of Capital
(d) Flight of Capital
Ans: (d) Flight of capital refers to the movement of money from one investment to another in search of greater stability or increased returns. Sometimes, it specifically refers to the movement of money from investments in one country to another in order to avoid country-specific risk (such as high inflation or political turmoil) or in search of higher returns. Capital flight is seen most commonly in massive foreign capital outflows from a specific country, often at times of currency instability.

Q7. ‘Golden Handshake Scheme’ is associated with

(a) inviting foreign companies
(b) private investment in public enterprises
(c) establishing joint enterprises
(d) voluntary retirement
Ans: (d) The voluntary retirement scheme (VRS) is the most humane technique to provide overall reduction in the existing strength of the employees. It is a technique used by companies for trimming the workforce employed in the industrial unit. It is also known as ‘Golden Handshake’ as it is the golden route to retrenchment.

Q8. Industrial exit policy means

(a) forcing foreign companies to leave India
(b) forcing business units to move out of congested localities
(c) allowing manufacturers to shift their line of products
(d) allowing business units to close down
Ans: (d) The term ‘exit’ is the obverse of the term ‘entry’ into industry. It refers to the right or ability of an industrial unit to withdraw from or leave an industry or in other words to close down. The proposal to introduce an exit policy was first mooted in 1991 when it was felt that without labor market flexibility, efficient industrialization would be difficult to achieve. The need for such a policy arises as a result of modernization, technology upgradation, restructuring as well as closure of industrial units. Such a policy will allow employers to shift workers from one unit to another and also retrench excess labor.

Q9. Capital formation in an economy depends on

(a) Total Income
(b) Total demand
(c) Total savings
(d) Total production
Ans: (c) Capital formation refers to capital accumulation, referring to the total “stock of capital” that has been formed, or to the growth of this total capital stock. It also refers to a measure of the net additions to the (physical) capital stock of a country (or an economic sector) in an accounting interval, or, a measure of the amount by which the total physical capital stock increased during an accounting period. Total capital formation” in national accounting equals net fixed capital investment, plus the increase in the value of inventories held, plus (net) lending to foreign countries, during an accounting period (a year or a quarter). Capital is said to be “formed” when savings are utilized for investment purposes, often investment in production.

Q10. If the tax rate increases with the higher level of income, it shall be called

(a) Proportional tax
(b) Progressive tax
(c) Lump sum tax
(d) Regressive tax
Ans: (b) A progressive tax is a tax by which the tax rate increases as the taxable base amount increases.” Progressive” describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate. It can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Progressive taxes attempt to reduce the tax incidence of people with a lower ability-to-pay, as they shift the incidence increasingly to those with a higher ability-to-pay.

Q11. New capital issue is placed in

(a) Secondary market
(b) Grey market
(c) Primary market
(d) Black market
Ans: (c) The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).

Q12. Which of the following is the classification of Industries on the basis of raw-materials ?

(a) Small Scale – Large scale
(b) Primary and Secondary
(c) Basic and Consumer
(d) Agro-based and Mineral based
Ans: (d) Industries are classified on the bases of source of raw material. There are two types of industries agro based and mineral based industries. Agro based industries are the one that produce jute, cotton, silk, tea, coffee, rubber etc. Mineral based industries are iron and steel, cement, aluminum, machine tools, and petrochemicals producing industries

Q13. Which one of the following items is not included in the current account of India’s Balance of Payments ?

(a) Short-term commercial borrowings
(b) Non-monetary gold movements
(c) Investment income
(d) Transfer payments
Ans: (b) Balance of payments (BoP) accounts are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country’s exports and imports of goods, services, financial capital, and financial transfers. The two principal parts of the BOP accounts are the current account and the capital account. The current account shows the net amount a country is earning if it is in surplus, or spending if it is in deficit. It is the sum of the balance of trade (net earnings on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers. Some of the components of the current account of BOP include investment income; borrowing entities in respect of their external commercial borrowing; secondary income account (transfer payments); primary income account (factor income such as from loans and investments), etc.

Q14. In India, disguised unemployment is generally observed in

(a) the Agricultural sector
(b) the Factory sector
(c) the Service sector
(d) All these sectors
Ans: (a) As the word suggests, disguised unemployment refers to a situation when a person is apparently employed, but in effect unemployed. It is a phenomenon of concealed unemploy-ment, not visible to the open eyes. Here it is not possible to identify as to who are unemployed, as all “appear to be working.” Disguised unemployment is especially seen in the field of agriculture. Most of the people are observed to be engaged in agriculture; however, in reality a sufficient number of them are unemployed. Their contribution regarding production is negligible.

Q15. Excise duty on a commodity is payable with reference to its

(a) production
(b) production and sale
(c) production and transportation
(d) production, transportation and sale
Ans: (a) An excise or excise tax (sometimes called a duty of excise special tax) is an inland tax on the sale, or production for sale, of specific goods or a tax on a good produced for sale, or sold, within a country or licenses for specific activities. Excises are distinguished from customs duties, which are taxes on importation. Excises are inland taxes, whereas customs duties are border taxes.

Q16. Which of the following taxes is not collected by the Central Government ?

(a) Income tax
(b) Customs duty
(c) Professional tax
(d) Excise duty
Ans: (c) A professional tax, also known as an occupation tax or a professional privilege tax, is a tax that a professional must pay to receive the right to practice a professional service. Many state and local governments col lect professional tax, and a professional who has clients in more than one state may owe professional taxes in several states.

Q17. The permission given to a bank customer to draw cheques in excess of his current account balance is called

(a) a personal loan
(b) an ordinary loan
(c) discounting a bill of exchange
(d) an overdraft
Ans: (d) Overdrafts is an extension of credit from a lending institution when an account reaches zero. An overdraft allows the individual to continue withdrawing money even if the account has no funds in it. Basically the bank allows people to borrow a set amount of money. An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be “overdrawn.”

Q18. Which of the following is not considered as National Debt ?

(a) National Savings Certificates
(b) Long-term Government Bonds
(c) Insurance Policies
(d) Provident Fund
Ans: (c) Government debt is the debt owed by a central government. Governments usually borrow by issuing securities, government bonds and bills. Government Bonds are often issued via auctions at Stock Exchanges. There are two main depository types: Book-Entry and Certificate. Insurance policies do not come under government debt. In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay.

Q19. Disinvestements is

(a) offloading of shares of privates companies to government
(b) offloading of government shares to private companies
(c) increase in investment
(d) closing down of business concerns
Ans: (b) Disinvestment is a process where Government sells its equity holding to private sectors. In other ways it is a privatization process where private parties are given shareholding in Government undertakings either wholly or partially.

Q20. A short-term government security paper is called

(a) Share
(b) Debenture
(c) Mutual fund
(d) Treasury bill
Ans: (d) Treasury bills are instrument of short-term borrowing by the Government of India, issued as promissory notes under discount. The interest received on them is the discount which is the difference between the price at which they are issued and their redemption value. They have assured yield and negligible risk of default. They are thus useful in managing short-term liquidity. At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments.

Q21. The existence of a parallel economy or Black Money

(a) makes the economy more competitive
(b) makes the monetary policies less effective
(c) ensures a better distribution of income and wealth
(d) ensures increasing productive investment
Ans: (b) The existence of black money is injurious not just for tax revenues. It distorts the systematic resource allocation process and upsets the accuracy of economic forecasts. Inflation is both a cause as well as a consequence of the black money in our economy. Black money results in the social injustice and fallacy in the economy. The rich gets richer and the poor gets poorer. So the existence of black money erodes the very rationale of growth behind monetary policies.

Q22. In the context of the stock market, IPO stands for

(a) Immediate Payment Order
(b) Internal Policy Obligation
(c) Initial Public Offer
(d) International Payment Obligation
Ans: (c) An initial public offering (IPO) or stock market launch is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange, for the first time. Through this process, a private company transforms into a public company. Initial public offerings are used by companies to raise expansion capital, to possibly monetize the investments of early private investors, and to become publicly traded enterprises. A company selling shares is never required to repay the capital to its public investors. After the IPO, when shares trade freely in the open market, money passes between public investors.

Q23. Disinvestment in Public Sector is called

(a) Liberalisation
(b) Globalisation
(c) Industrialisation
(d) Privatisation
Ans: (d) Privatization is the process of transferring ownership of a business, enterprise, agency, public service or public property from the public sector (a government) to the private sector, either to a business that operates for a profit or to a non-profit organization. The term can also mean government outsourcing of services or functions to private firms, e.g. revenue collection, law enforcement, and prison management. There are four main methods of privatization: (a) Share issue privatization (SIP) – selling shares on the stock market; (b) Asset sale privatization – selling an entire organization (or part of it) to a strategic investor, usually by auction or by using the Treuhand model; (c) Voucher privatization – distributing shares of ownership to all citizens, usually for free or at a very low price; and (d) Privatization from below – Start-up of new private businesses in formerly socialist countries.

Q24. The government set up a committee headed by the Chairman, Central Board of Direct Taxes some time back to go into –

(a) codification of tax laws
(b) the entire structure of tax laws including the question of imposition of bank tax
(c) the concerns of the foreign investors in India with regard to taxation matters
(d) aspects of generation of black money, its transfer abroad and bringing back such money into India’s legitimate financial system
Ans: (d) The Central Board of Direct Taxes (CBDT) panel on black money recently suggested enactment of new laws, strengthening of existing legislation and introduction of deterrent penalties for tax offences to deal with the menace. In its 66-page report on measures to tackle black money in India and abroad, the CBDT committee also recommended steps to prevent generation of illicit funds through transactions in property, bullion and equity market. Besides, the panel, headed by former CBDT Chairman Laxman Das, made a case for strengthening laws relating to investments by FIIs, Participatory Notes (PNs) and routing of funds from Mauritius.

Q25. What is dual pricing?

(a) Wholesale price and Retail pricing
(b) Pricing by agents and Pricing by retaliers
(c) Price fixed by Government and Price in open market
(d) Daily prices and Weekly prices
Ans: (c) Dual pricing is the practice of setting prices at different levels depending on the currency used to make the purchase. It may be used to accomplish a variety of goals, such as to gain entry into a foreign market by offering unusually low prices to buyers using the foreign currency, or as a method of price discrimination. In the context of commerce, however, dual pricing refers to the sale of the same product at different prices, depending on the market. This is also known as two-tier pricing and is common in many developing nations

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