An: Economic Environment
2...........is a system which functions in a country for the purpose of production
and distribution of goods and services to satisfy the needs of the people.
An: Economic system
14.................is the rate at which central bank would re- discount the eligible bills
already discounted by commercial banks.
An: Bank Rate
3.............believes in private ownership of production and distribution facilities.
An: Capitalism
4.In a ...........economy all means of production are owned by the government.
An: Socialism
5.In a ............economy public sector and private sector coexist.
An: Mixed economy
6.Monetary policy is also termed as ...............
An: Credit control policy
7.Find odd one and state reason.
a) Bank rate b) Open market operations c) Moral suasion c)Variable reserve ratio
An: Moral Suasion. Others are quantitative credit control techniques
8.GDP stands for...........
An: Gross Domestic Product
9.Gross National Product (GNP)=------------
GNP=GDP + Net factor Income from abroad
10.The fluctuation in the level of economic activity is called ...........
An: Business Cycle/Trade Cycle ബിസിനസ് സൈക്കിളുകൾ.
11.Expansion in general business activities : Inflation
Contraction in general business activities :-------------
Ans: Deflation
12.Per Capita Income=.............
An: GDP/Population
13.Monetary Policy is announced by..............
An: Central Bank
15............is the process of purchasing and selling government securities by the
central bank to control money supply.
An :Open market operation
16. SLR stands for..............
An: Statutory Liquidity Ratio
17. CRR stands for--------------
An: Cash Reserve Ratio
18............... is the minimum ratio of deposits that a bank must maintain in the form of gold cash or other recognized securities.
An: Statutory Liquidity Ratio
19........... is the minimum cash deposit that a bank must maintain with the RBI.
An: Cash Reserve Ratio
20.....................is concerned with the determination of State income and
expenditure policy.
An:Fiscal policy
21.Fiscal policy is popularized by ...........
An: J M Keynes.
22...................determines the scope for trade between countries.
An: Foreign Trade Policy
23.Till 1991, India adopted........................... policy to regulate the growth of
industries in India.
An: Licensing policy
24.NNP =-----------------
An: GNP – Depreciation.
4/6/8 Scores Questions
25.What are the various difficulties involved in estimating national income in
India?
Problems in calculating national income can be classified into two ,
namely statistical difficulties and conceptual difficulties.
1. Lack of adequate statistical data.
2. Non-cash transactions are not taken into account.
3. Small producers do not keep records of their production.
4. Classification is difficult as income comes from many sources.
5. There is a difficulty of avoiding double counting in calculations.
6. No accepted standard rate while calculating depreciation.
7. Changes in prices are not included in the calculation of national income.
26.Explain the various methods of estimating national income.
There are three methods of measuring national income:
1) Value added method or Product method
2) Income method
3) Expenditure method
1. Product method/Value Added Method
There are three steps in computing national income, under product method.
a.Classify the economy
i. Primary sector : Producing commodities by exploiting natural resources like
land and water e.g. agriculture, forestry, fishing, mining etc.
ii. Secondary sector: Manufacturing sector–transfers one type of commodity into
another eg. manufacturing, construction, electricity, gas, water supply etc.
iii. Tertiary sector i.e. service sector e.g. trade and commerce, transport and
communication, banking, insurance Government and professional services.
b. Estimation of net value added
At this stage, the combined net value of products and services in the
primary, secondary and tertiary sectors is calculated.
Value Added = Value of output -Intermediate consumption
c. Estimation of National Income
Gross National Product=Gross Value added + Net factor income from abroad
2. Income Method
There are four steps in computing national income, under this method.
a. Classify the economy
i. Primary sector : Producing commodities by exploiting natural resources like
land and water e.g. agriculture, forestry, fishing, mining etc.
ii. Secondary sector: Manufacturing sector–transfers one type of commodity into
another eg. manufacturing, construction, electricity, gas, water supply etc.
iii. Tertiary sector i.e. service sector e.g. trade and commerce, transport and
communication, banking, insurance Government and professional services.
b. Classify factor incomes
Classify factor income into employee compensation, capital income, and
mixed income.
c. Estimating factor incomes
At this stage, the combined net factor income from the primary,
secondary and tertiary sectors is calculated.
d. Estimating net factor income from abroad
Gross National Income = Gross Factor Income + Net factor income from abroad
3.Expenditure Method
The expenditure method estimates national income by measuring final
expenditure on gross domestic product. Final expenditure in an economy is the
sum total of the expenses incurred on final goods and services produced. It is the
sum total of consumption expenditure and investment expenditure. The final
expenditure on gross domestic products consists of:
a. Private final consumption expenditure
b. Government final consumption expenditure
c. Gross fixed capital formation
d. Changing stocks
e. Net acquisition of valuables
f. Net export of goods and services
27.Economic activities never move on a straight line, it faces fluctuations.
Identify the concept and explain its phases with a diagram,
Economic activities never move on a straight line, it faces fluctuations.
The fluctuation in the level of economic activity is called business cycles. It is
characterised by the periods-boom, recession, depression and recovery. Business
cycle affects the total income, investment, employment and output.
1.Boom
Boom is a period of business optimism . It is characterized by high
productivity, income, price and trade expansion. During this period Investment
Increases in the business, increases employment and demand for goods, but it is
not sustainable.
2.Recession (Contraction)
Recession is a period of business pessimism. It starts with the stock
market crash and some business failures. Unemployment and low incomes lead
to a decline in overall demand.
3.Depression
During the phase of depression economic activity is at its low ebb. Wages,
costs and prices are very low. There is massive unemployment and a fall in the
aggregate income of the people. The lowest point at this phase is called ‘trough
4.Recovery
Depression phase does not continue indefinitely. The idle workers now
come forward to work at low wages, consumers start consuming, and banks come
forward to give loans. Thus economic activity starts picking up.
