ECOVISIONNAIRE STUDY MATERIAL

MUST DO QUESTIONS
MACRO ECONOMICS
Q1. Venture capital refers to the funding provided by investors to small or start-up
businesses with strong potential for growth. In light of the above statement, how does the
process of devaluation of a currency affect Foreign Direct Investment or Portfolio
investment?

Q2. Explain the process of credit creation by commercial banks with the help of a numerical
example.

Q3. ‘Covid led lockdowns led to a big fall in Aggregate Demand in the economy.’ Identify the
situation that arose due to Covid imposed lockdowns. Also mention any two ways in which
the government or central bank help correct the above situation.

Q4. State true or false giving reasons.

a. When planned saving is greater than planned investment both output and employment
rise.
b. When MPC is equal to MPS, the value of investment multiplier is one.

Q5. How will you treat Profit earned by Tata Motors in England in both Domestic and
National income?

Q6. The government under “UJJWALA Yojna” is providing free LPG connections to the
families ‘below the poverty line’. What objective the government is trying to fulfil through
the government budget and how? Explain.

Q7. Non-monetary exchanges are not included in the estimation of National Income.” Do
you agree with the above statement? Give reasons.

Q8. Define full employment. Can an equilibrium situation be reached in an economy at l ess
than full employment level? Explain.

Q9. Read the following text carefully and discuss briefly any two tools of correcting the
situation of deflation/recession in the economy.

The Reserve Bank of India (RBI) cuts Repo Rate to 4.4%, the lowest in at least 15 y ears. Also,
it reduced the Cash Reserve Ratio (CRR) maintained by the banks for the first time in over
seven years. CRR for all banks was cut by 100 basis points to release `1.37 lakh crores across
the banking system. RBI governor Dr. Shakti kanta Das predicted a big global recession and
said India will not be immune. It all depends how India responds to the situation.
Aggregate demand may weaken and ease core inflation.
Q10. State whether the following statements are true or false. Give reason for your answer.
(a) When MPC is greater than MPS, the value of investment multiplier will be greater than 5.
(b) The value of MPS can never be negative.

Q11. Indian Rupee (`) plunged to all time low of `80.10 against the US Dollar ($).” —The
Economic Times
In the light of the above report, discuss the impact of the situation on Indian imports and
exports.

Q12. Many large Multinational Corporations (MNCs) have recently shifted their investments
from China and have started their production in India, thereby boosting the Make in India
plans of the Government’. Presuming other factors being constant, discuss the effects of the
given statement on Foreign Exchange rates with reference to the Indian Economy.

Q13. Explain how the following should be treated while estimating national income:
(i) Free medical facilities by the employer
(ii) Income arising out of the sale of shares

Q14. Explain the ‘problem of double counting’ in the estimation of national income w ith the
help of an example. How can this problem be avoided?

Q15. Draw a hypothetical propensity to consume curve and from it derive the propensity to
save curve. Explain the steps.

Q16. Discuss the working of the adjustment mechanism in the following situations.
(a) Aggregate demand is greater than aggregate supply.
(b) Ex-ante investment are lesser than Ex-ante savings.

Q17. Giving reasons, categorise the following into revenue and capital expenditure.
(a) Subsidies
(b) Grants given to state governments
(c) Repayment of loans
(d) Construction of school building

Q18. How shall the following be treated while calculating national income ?
a. Payment of electricity bill by a school
b. Payment of Interest on borrowings’ by general government

Q19. Why does the demand for foreign currency falls and supply rises, when its price rises?
Explain.

Q20. Explain the role of Open Market Operations in reducing deflationary gap.

Q21. What are official reserve transactions (ORT)? Explain their importance in the Balance of
Payments Account.
Q22. Suppose in the budget, the government proposed to raise the excise duty on cement .
It also proposed to raise the income tax on individuals earning more than rupees one crore
per annum.
(a) Identify and explain the type of taxes proposed by the government.
(b) Was the objective only to earn revenue for the government?
(c) What possible welfare objective could the government be considering?

Q23. Economists are generally concerned about the rising Marginal Propensity to Save
(MPS) in an economy.” Why so? Explain.

Q24. “India’s GDP is expected to expand 6.8% in 2024-25: World Bank” —The Economic
Times
Does the given statement mean that welfare of people of India increase at the same rate?
Comment with reason.

Q25. Explain using numerical example, how an increase in reserve deposit ratio affects the
credit creation power of the banking system.

Q26. ‘Devaluation and Depreciation of currency is one and the same thing’. Do you agree?
How do they affect the exports of a country?

Q27. Indian investors borrow from abroad. Answer the following:

(a) In which sub-account and on which side of Balance of Payments Account will this
borrowing be recorded? Give reasons.
(b) Explain what is the impact of this borrowing on exchange rate?

Q28. What is Break-even point? Show the Break-even point with the help of Consumption
and Income Curve. At this point what is the value of Savings?

Q29. The Indian Economy has been experiencing significant slowdown over the past few
quarters. In the third quarter of the current fiscal year, the economy grew at a six -year low
rate of 4.7%. Investment and consumption had been languishing and a number of stimulus
measures have been taken to bring the economy on a growth path. The new coronavirus
epidemic has made the recovery extremely difficult. The outbreak has presented fresh
challenges for the Indian Economy now, causing severe disruptive impact on both demand
and supply side elements which has the potential to derail India’s growth story
-FICCI (Impact of Covid-19 on Indian Economy}, March 20, 2020. State and discuss any two
measures that may be taken by Reserve Bank of India to improve the situation indicated in
the above news report.

Q30. The government announced the third tranche of the Atmanirbhar Bharat Abhiyan
Package. A key initiative is the Production Linked initiative worth up to Rs. 1.46 lakh crore
for 10 key sectors.- The Indian Express.
What impact is it likely to have on foreign exchange rate and imports and how?
Q31. Give reasons, explain how the following are treated in national income.
(i) Purchase of truck to transport goods by a company
(ii) Payment of income tax
(iii) Expenditure by government on providing free education

Q32. With the help of a numerical example, prove that Marginal Propensity to Save and the
value of investment multiplier are inversely related.

Q33. Import of machinery is recorded in the debit side of capital account of BOP. Defend or
refute.

Q34. How is Real income different from Nominal income? Which of the two is a better
indicator of economic growth of a nation?

Q35. The Reserve Bank of India (RBI) raised key repo rate by 50 basis points to 4.90 pe r cent.
The RBI Governor said that the rates have been increased on the back of inflationary
pressures and higher supply shocks. (June 2022)
What is the function of RBI mentioned here?
What is Repo rate? How does it correct inflation?

Q36. Explain externalities a limitation of using gross domestic product as an index of welfare
of a country.

Q37. Distinguish between Autonomous items and Accommodating items.

Q38. What is fiscal policy? How does the central government use his fiscal policy measure to
control the deflationary gap in an economy?

Q39. Explain the function of Central Bank as ‘Lender of last resort’

Q40. Is fiscal deficit always inflationary?

Q41. Find domestic income when GNPMP = Rs. 1,20,000, indirect taxes = Rs.20,000,
consumption of fixed capital = Rs.5,000 and factor income from rest of the world = Rs.3,000

Q42. Calculate ‘Value of Output’ from the following data:

Items (Rs. In lakh)
(i) Net value added at factor cost 100
(ii) Intermediate consumption 75
(iii) Excise duty 20
(iv) Subsidy 5
(v) Depreciation 10
Q43. Calculate National Income and Depreciation from the following data:
Particulars ? in crores
(i) Net indirect tax 5
(ii) Net domestic fixed capital formation 100
(iii) Net imports (-)20
(iv) Government final consumption expenditure 200
(v) Gross domestic fixed capital formation 125
(vi) Private final consumption expenditure 600
(vii) Change in stocks 10
(viii) Net factor income from abroad 5

Q44. Find the value of initial deposits if the value of total deposits created is 2000 cr and LRR
is 50%.

Q45. If in an economy C = 500 + 0.75 Y and I = 800 (Where C = Consumption, Y = Income, I =

Investment, etc.) Calculate the following:
(i) Equilibrium level of Income
(ii) Consumption expenditure at equilibrium level of income

Q46. Complete the following table.

Income (₹) Saving MPC APC

0 -20 - -
50 -10 - -
100 0 - -
150 30 - -
200 60 - -

Q47. An economy, MPC is 0.75. Investment expenditure increases by ₹ 75 crore, calculate

total increase in national income.

Q48. From the following data about a Government budget, find out (a) Revenue deficit (b)
Fiscal deficit and (c) Primary deficit:
Particulars ( Arab)
(i) Capital Receipts net of Borrowings 95
(ii) Revenue Expenditure 100
(iii) Interest Payments 10
(iv) Revenue Receipts 80
(v) Capital Expenditure 110
Q49. From the following data about the Government Budget, determine: (a) Non -debt
Creating Capital Receipts, (b) Fiscal Deficit and (c) Primary Deficit:
Particulars ( in Crore)
(i) Total Receipts Excluding Borrowings 20,000
(ii) Revenue Deficit 8,000
(iii) Capital Expenditure 22,000
(iv) Revenue Expenditure 15,000
(v) Interest Payments 30% of Revenue Deficit

Q50. Find the volume of imports if BOT= -300cr and exports 450 crores.

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