Macroeconomics Practice Paper
Introductory Macroeconomics
Q1. Balance of Payments of an economy records_____________ for a fiscal year.
(a) income and expenditure of the government
(b) inflow and outflow of funds of the government
(c) inflow and outflow of foreign exchange to/from the economy
(d) inflow and outflow of loans to/from the rest of the world
Ans. (c)
Q2. Ms. Sakshi, an economics teacher, was explaining the concept of ‘minimum percentage of the
total deposits to be kept by any commercial bank with the Central Bank of the country, as per
norms and statutes prevailing in the country.
From the following, choose the correct alternative which specifies the concept
explained by her?
(a) Cash Reserve Ratio
(b) Repo Rate
(c) Bank Rate
(d) Statutory Liquidity Ratio
Ans. (a)
Cash Reserve Ratio: It refers to the minimum percentage of a bank’s total deposits, which it is required to keep with the central bank. It is required by the RBI and is varied from time to time to regulate the money supply in the economy.
Q3. Read the following statements – Assertion (A) and Reason (R):
Assertion (A) – Acquisition of a domestic (Indian) company by a foreign (Australian) company
will be recorded on the credit side of the Balance of Payment Account.
Reason(R) – It leads to the outflow of foreign exchange from the domestic economy.
Choose the correct option from below:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Ans. (c)
CASE. [Q4 – Q8] Once there was a goldsmith named Lala in a village. In this village, people used gold and other precious metals in order to buy goods and services. In other words, these metals were acting like money. People in the village started keeping their gold with Lala for safekeeping. In return for keeping their gold, Lala issued paper receipts to the people of the village and charged a small fee from them. Slowly, over time, the paper receipts issued by Lala began to circulate as money. This means that instead of giving gold for purchasing wheat, someone would pay for wheat or shoes or any other good by giving the paper receipts issued by Lala.
Q4. In the modern context, given cheques and debit cards are examples of? (from above paragraph)
Ans. Paper receipts issued by Lala.
Q5. What is the aim of a Commercial Bank?
Ans. It issues banknotes.
Q6. Which type of commodity was acting as money in the village?
Ans. Paper receipts issued by Lala.
Q7. Commercial banks are the other type of institutions that are a part of the ___ system of the economy.
Ans. Money-creating and Money-issuing.
Q8. What is the main objective of the above paragraph?
Ans. Explain the work of a Commercial bank.
Case. Two friends Mira and Sindhu were discussing the exchange rate systems.
‘Under this system, the exchange rates are determined by the market forces of demand and supply. However, deliberate efforts are made by the competent authority to keep the exchange rates within a specific range’.
Q9. The above-mentioned statement was given by Sindhu, identify the type of exchange rate system was she talking about?
(a) Fixed Exchange Rate
(b) Floating Exchange Rate
(c) Managed Floating Exchange Rate
(d) Managed Fixed Exchange Rate
Ans. (c) Managed Floating Exchange Rate also known as “Dirty Floating Exchange Rate”.
CASE. [Q.10-13] One of the most distressing years by far, 2020 marked the year of a deadly pandemic that drastically impacted health, businesses, and communities across the globe. The Indian economy also got battered due to the subsequent lockdown which exposed gaps in the supply chain and delays in working around the social distancing norms. Critical indicators such as de-growth in the economy, contraction in GDP, widening of fiscal deficit, and high inflation have highlighted the severe strike on the economy in the past year.
But as it is said, ‘There is hope after despair and many suns after darkness’, similarly, the Indian economy has started showing signs of recovery. Faced with the daunting twin tasks of pulling back the economy from the clutches of de-growth, a slew of fiscal and non-fiscal measures was taken during the year to rebound the economy from the aftermath of the pandemic. This is evidenced by the pre-budget Economic Survey’s projection of 11% growth in real GDP for 2021.
Laying a vision for AtmaNirbhar Bharat, the Hon’ble Finance Minister has rested the budget proposals on six pillars – health and wellbeing, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation, and R&D, and minimum government – maximum governance.
Overall, against the backdrop of the fiscal constraints within which the finance minister had to operate, the measures announced seem to be in the right direction. These measures may accelerate overall growth along with healthcare development, consumption surge, and provide support to infrastructure developments if implemented in the time to come.
Q10. The substantial rise in prices is called
Ans. Inflation.
Q11. ‘Atmanirbhar Bharat Abhiyaan’ support the Indian Economy to fight against
Ans. COVID-19
Q12. Fiscal deficit shows:
(a) Excess of Expenditure over receipts.
(b) Excess of receipts over expenditure
(c) Expenditure equal to receipts
(d) None of these
Ans. (a)
Q13. The difference between real GDP and nominal GDP is the adjustment for?
Ans. Inflation
Q14. Which of the following budget is suitable for developing economies?
(a) Deficit Budget
(b) Balanced Budget
(c) Surplus Budget
(d) None of these
Ans. (a) Deficit Budget.
Q15. Read the following statements – Assertion (A) and Reason (R):
Assertion (A) – Trade deficit is always a great cause of worry for an economy,
Reason(R) – Trade deficit is a lesser cause of worry if it reflects a rise in investment which will build the capital stock and increase the future output in an economy.
Choose the correct option from below:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Ans. (d)