demand & supply, profit loss, inflation & price index section 2 Practice Questions Answers Test with Solutions & More Shortcuts

Question : 1 [UPSC (Mains) 2015]

Index ‘Residex’ is associated with

a) Price Index

b) Land Prices

c) Share Prices

d) Mutual Fund Prices

Answer: (b)

Question : 2

Devaluation usually causes the internal price to

a) Rise

b) Remain unchanged

c) Fall

d) None of these

Answer: (b)

Devaluation is a deliberate downward adjustment to the value of a country’s currency, relative to another currency, group of currencies. Since it is relative to other currencies so the internal price remains unchanged.

It causes a country’s exports to become less expensive and imports more expensive.

Devaluation is a monetary policy tool used by countries that have a fixed exchange rate or semi-fixed exchange rate. It is often confused with Depreciation and is the opposite of revaluation.

Question : 3

Consider the following statements in regard to the Money market in India:

  1. It is a market for short-term funds with maturity ranging from overnight to one year.
  2. It acts as an instrument of liquidity adjustment for the Central Bank.
Which of the statements given above is/are correct?

a) Both 1 and 2

b) 1 only

c) 2 only

d) Neither 1 nor 2

Answer: (a)

The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend.

Participants borrow and lend for short periods of time, typically up to twelve months. Money market trades in short-term financial instruments commonly called “paper.”

Question : 4 [CDS-2014-II]

Which of the following statements are correct?

  1. When marginal revenue is positive, total revenue increases with increase in output.
  2. When marginal revenue is zero, total revenue is maximum.
  3. When marginal revenue becomes negative, total revenue falls with increase in output.
Select the correct answer using the code given below:

a) 2 and 3 only

b) 1 and 3 only

c) 1 and 2 only

d) 1, 2 and 3

Answer: (d)

Question : 5

The basis of determining dearness allowance (D.A.) to government employees in India is

a) Standard of living

b) National income

c) Consumer Price Index

d) Per capita income

Answer: (c)

The basis of determining dearness allowance (D.A.) to government employees in India is the consumer price index. Dearness Allowance (DA) is an allowance paid to employees to compensate them for the erosion of real income/wage due to inflation.

The increase in the cost of living and the consequent erosion of income is measured in terms of a consumer price index number and, DA to be sanctioned to employees is determined on the basis of the percentage increase in that index.

Dearness Allowance - D.A. is calculated as a percentage of an Indian citizen’s basic salary to mitigate the impact of inflation on people.

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