NIOS Solved Papers: Economics (318) - April' 2019

APRIL’ 2019
1. “Increase in demand” of a normal good can be due to:
(a) Increase in income   (b) Increase in price of substitute good
(c) Fall in price of complementary good (d) All the above
2. Which of the following is subject matter of macroeconomics?
(a) A firm             (b) An industry                  (c) Market           (d) Money  supply
3. Payment of electricity bill by a production unit is:
(a) Implicit cost                 (b) Imputed cost              (c) opportunity cost        (d) Explicit cost
4. Index numbers measure:
(a) Absolute changes     (b) Relative changes      (c) Both ( a) and (b)         (d) Change in price
5. Dispersion of a series expressed in original units is:
(a) Relative dispersion   (b) Absolute dispersion (c) Both (a) and (b)          (d) None of the above
6. Average revenue of 2 units of output is Rs. 20 and that of 3 units of output is Rs. 18 Marginal revenue of 3 units of output is:
(a) 2       (b) 10    (c) 14     (d) 19
7. Which of the following is selective method of credit control?
(a) Margin requirements              (b) Bank Rate     (c) Open market operations        (d) Variable reserve ratio
8. Autonomous investment curve is:
(a) Parallel to the y-axis (b) Parallel to x-axis       (c) Upward sloping          (d) Downward sloping
9. Value added equals:
(a) Sales               (b) Sales + change is stocks          (c) Value of output – intermediate cost                (d) None of the above
10. National income equals:
(a) GDP MP          (b) GNP MP          (c) NNP FC            (d) NDP FC

11. Giving an example explain how economic problem arises in an economy due to ‘alternative uses of resources’                                                                                                                                                     3
Ans: An economic problem is basically the problem of choice which arises because of scarcity of resources. Human wants are unlimited but means to satisfy them are limited. Therefore, all human wants cannot be satisfied with limited means. Wants differ in intensity and limited resources have alternative uses. In such a background, every consumer tries to satisfy his maximum wants. Therefore, one has to choose as to what goods one should consume and in what quantity. Economic problem arises the movement problem of choice arises. Actually speaking, economic problem is basically the problem of choice.

12. Explain ‘Choice of average’ as an issue in construction of index numbers.                                  3
Ans.:- Difficulty is to select an appropriate method of calculating averages. There are a number of methods which can be used for this purpose. But all methods give different results from one another. It is, therefore, difficult to decide which method to choose.

13. Explain what is perfect correlation.                                                                                                               3
Ans.:- Perfect correlation:- A relationship between two variables, X and Y, in which the change in value of none variable is exactly proportional to the change in value of the other. That is, knowing the value of one variable exactly predict the value of the other variable (i.e. rxy = 1.0). when graphed, a perfect correlation forms a perfectly straight line. If the variables change in the same direction (i.e., they both increase or decrease), the correlation is perfect correlation.

14. Distinguish between ‘ceiling price’ and ‘floor price’.                                                                                             3
Ans.:- The difference between a Price Ceiling and a Price Floor:-
A price floor is the minimum  price at which a product can be sold. It’s there to stop a price from dropping below a certain level – the “floor”. Perhaps the best – known example is the minimum wage. This  prevents worker exploitation by mandating the lowest amount (the floor) that a worker can be paid for an hour of work to enable him to afford a  basic standard of living.
A price ceiling is another type of price control, only this time it keeps a price from climbing above a certain level – the “ceiling”. Government usually set price ceilings to protect consumers from rapid price increases that could make essential goods prohibitively expensive. For example, a state government could set a limit (ceiling) on how much a gallon of gas could set for in the helps of saving money for consumers and potentially stimulating growth in the economy.

15. What is meant by excess demand? Explain the restoration of equilibrium price in this case.    3
Ans.:- Excess Demand refers to the situation when aggregate demand (AD) is more than the aggregate supply (AS) corresponding to full employment level of output in the economy.
However, at a higher price , a small no. of people demanding the commodity will reduce / pull back their demand at a higher price.
This process continues for any arbitrary price till excess demand goes away and demand is equal to supply. Because at this point, there is equilibrium, and market has attained efficiency.

16. What are monotonic preferences? Explain                                                                                                3
Ans.:- Monotonic preference means that a rational consumer always prefers more of a commodity as it offers him a higher level of satisfaction.
Monotonic preferences essentially say that “more” is preferred to “less”. A modest version of preference monotonic is synonymous with free disposal in consumption “more” cannot “hurt” if any excess can be freely disposed of.

17. Explain the problem ‘for whom to produce’.                                                                                             3
Ans.:- The problem for whom to produce refers to selection of the category of people who will ultimately consume the goods. Since resources are scarce in every economy, no society can satisfy all the wants of its people/ thus, a problem of choice arises. The economic problem of “ For whom to Produce” basically focuses on the distribution mix of the final goods and services produced. The distribution of the final goods and services is equivalent to the distribution of National Income (or National product ) among the factors of production such as land, labour, capital and entrepreneur.

18. Explain the ‘measure of value’ function of money.                                                                                3
Ans.:- Measure of value:- Money acts as a unit of account or money is the measure of exchange value. This means that money is a sort of common denominator, through which the exchange value of all goods and services can be expressed without any difficulty. Innumerable exchange rates under the barter system earlier caused enormous trouble in the transactions of all kinds.

19. Distinguish between real flow and money flow.                                                                                     3
Ans.:- Differences between real flow and money flow:-
Real Flows include the factors of production, such as labour or land, the flow from individuals to companies, as well as the flow of goods and services from companies to individuals.
Meanwhile, money flows occur when companies pay wages in return for labour or services provided by individuals, as well as when individuals spend money to obtain goods or services produced by companies.

20. State any three components of aggregate demand.                                                                               3
Ans.:- Three components of aggregate demand are:-
Consumption:-  This is made by households, and sometimes consumption accounts for the larger portion of aggregate demand. An increase in consumption shifts the AD curve to the right.

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