UNIT V MCQS FOR UGC NET ECO PAPER III EXAM

Unit-V

Monetary approach’ and adjustment in the balance of payments

Regional blocs – multilateralism and world trading system

The Political Economy of imposition of non-tariff barriers

International trade under conditions of imperfect competition in goods market

Theory of International reserves

Optimum Currency Areas – Theory and impact in the developed and developing countries

WTO and its impact on the different sectors of the economy

1. The total Foreign Direct Investment (FDI) during April-Dec. 2009 was about—
(A) $ 25 billion 
(B) $ 21 billion
(C) $ 45 billion 
(D) $ 50 billion
Ans : (B)

2. In the end of March 2009, External debt to GDP ratio in India stood at—
(A) 22% 
(B) 17•4%
(C) 17•8% 
(D) 15•8%
Ans : (A)

3. Revenue Deficit as a per cent of GDP in Budget 2010-11 has been estimated at—
(A) 1•0% 
(B) 5•3%
(C) 4•4% 
(D) 4•0%
Ans : (D)

4. How many countries of Latin America and Africa have been notified by the Ministry of Commerce under the newly introduced ‘Focus Market Scheme’ for export promotion ?
(A) 37
(B) 57
(C) 81
(D) 115
Ans : (B)

5. According to the latest statistics released by International Tea Committee, the largest tea producer country in the world is—
(A) India
(B) Kenya
(C) China
(D) Indonesia
Ans : (C)

6. Which company among the following started GPS service on mobile phone in April 2009 ?
(A) Reliance Communications
(B) Tata Tele Services
(C) Bharati Airtel
(D) BSNL
Ans : (B)

7. OTCEI is—
(A) Atomic Submarine of China
(B) Economic Policy of USA
(C) An Indian Share Market
(D) A defence research organization

Ans. a

8. Foreign Trade Policy 2008-09 document forecasts the share of India’s trade in world trade at—
(A) 1·2%
(B) 1·3%
(C) 1·4%
(D) 1·5%

Ans. b

9. Inflation in India is measured
by?
(A) Change in wholesale price
index
(B) Increase in currency in
circulation
(C) Change in retail price index
(D) Credit created by the banks

Answer.A

10. Types of inflation is / are–
(A) Creeping inflation
(B) Walking inflation
(C) Running inflation
(D) All of these

Answer.D

11. Which of the following is not
among the functions of money ?
(A) Medium of exchange
(B) Store of value
(C) Shopping with credit card
(D) Measure of value

Answer.C

12. The following factors are responsible for the fall in external
value of rupee—
(A) Withdrawal of foreign
investor from the Indian Share
Market
(B) Fall in prices in America
(C) Decrease in the amount sent
by non-resident Indian
(D) All of the above

Answer.A

13. When rate of inflation increases—
(A) Purchasing power of money
increases
(B) Purchasing power of money
decreases
(C) Purchasing power remains
unaffected
(D) None of the above is correct

Answer.B

14. Match List-I with List-II and select the correct answer using the code given below the lists:
List . I
(Terms of Trade)
A. Gross barter terms of trade
B. Income terms of trade
C. Single factoral terms of trade

List . II
(Explanation)
1. The ratio between the quantity of a country fs imports and exports
2. Index of export export prices quantity Index of import prices
3. Obtained by multiplying the commodity terms of trade by an index of productivity changes in domestic export industries
4. The ratio of a countryfs export price index to its import price index  A B C
a. 3 4 1
b. 1 2 3
c. 3 2 1
d. 1 4 3

Ans. c

15. In the Balance-of-Payment Account, the transfer payments are included in which one of the following?
a. Current account
b. Service account
c. Capital account
d. Official Reserves account
Ans. a

16. Which one of the following explains Balance-of-Payment adjustment mechanism under the gold standard?
a. Devaluation
b. Flexible exchange rates
c. Income-adjustment mechanism
d. Price-specie flow mechanism

Ans. c

17. Which of the following is the highest form of economic integration among different nations?
a. Custom Union
b. Free Trade Area
c. Economic Union
d. Conunon Market
Ans. d

18. Which one of the following best characterizes the Bretton Woods System of exchange rates?
a. Adjustable fixed exchange rates
b. Fixed exchange rates
c. Adjustable pegged exchange rates
d. Pegged exchange rates

An s c

19. Which of the following are the basic components of a typical IMF stabilization programme?
1. Liberalization of foreign exchange
2. Devaluation of the official exchange rate
3. A comprehensive anti-inflation programme
4. General opening-up of the economy to international commerce including foreign investment

Select the correct answer using the code given below
a. 1 and 3 only
b. 2 and 4 only
c. 1, 3 and 4 only
d. 1, 2, 3 and 4

Ans. c

20. Which of the following is not a necessary condition of perfect competition?
a. Large number of firms in the industry producing homogeneous products
b. Free entry and free exit of firms
c. Need for incurring selling costs to attract consumers
d. Absence of artificial restrictions by the government
Ans. b

21. Consider the following statements Short run profit is maximum under perfect competition when
1. Second order condition is satisfied.
2. MC curve cuts MR curve from below.
3. MC curve cuts MR curve from above.

Which of the statements given above is/are correct?
a. 1 and 3
b. 1 and 2
8 of 13
c. 1 only
d. 2 only

Ans. d

22. Match List - I with List-II and select the correct answer using the code given below the lists:
List - I
(Market Type)
A. Perfect competition
B. Monopoly
C. Monopolistic competition
D. Oligopoly

List - II
(Implication)
1. Collusion of firms
2. Excess capacity
3. Uniform price
4. Blocked entry

A B C D
a. 2 4 3 1
b. 3 1 2 4
c. 2 1 3 4
d. 3 4 2 1
Ans. d

23. Consider the following statement:
1. The number of firms is large both under perfect competition and monopolistic completion
2. There is freedom of entry and exit in both perfect competition and monopolistic Competition.
3. In both perfect competition and monopolistic competition, every firm is a price taker and quantity adjuster.

Which of the statements given above are correct?
a. 1, 2 and 3
b. 2 and 3 only
c. 1 and 3 only
d. 1 and 2 only

Ans. b

24. Assertion (A): There is no excess capacity under monopolistic competition in the long run.

Reason (R): The demand curve under monopolistic competition is downward sloping.
a. Both A anti R are individually true and R is the correct explanation of A
b. Both A and R are individually true and R is not the correct explanation of A
c. A is true but R is false
d. A is false but R is true
Ans b

25. Assertion (A): MRP curve lies below the VMP curve under imperfect competition.

Reason (R): Under imperfect competition MR < P.
a. Both A anti R are individually true and R is the correct explanation of A
b. Both A and R are individually true and R is not the correct explanation of A
c. A is true but R is false
d. A is false but R is true

Ans d

26. Which of the following sectors has the largest percentage share in India’s total exports for the period April 2006 - October 2007?
a. Chemicals and related goods
b. Engineering goods
c. Gems and jewellery
d. Textiles including readymade garments

Ans. c

27. Consider the following agreements
1. ISLFTA (India-Sri Lanka Free Trade Agreement)
2. SAFTA (South Asia Free Trade Area)
3. CECA (Comprehensive Economic Cooperation Agreement between India and Singapore)
4. SAPTA (South Asia Preferential Trade Area)

Which one of the following is the correct chronological sequence of the above agreements?
a. 1 - 3 - 2 – 4
b. 4 - I - 2 – 3
c. 2 - 1 - 4 – 3
d. 1 - 2 - 3 – 4

Ans. a

28. Which one of the following statements is correct?
Creeping inflation is a situation in which the rate at which price level rises is
a. very high
b. high
c. moderately high
d. slow
Ans. c

29. Which of the following groups are adversely affected by inflation?
1. Wage earners in the informal sector
2. Profit earners
3. Salary earners with salaries indexed to inflation
4. Pensioners with fixed pensions

Select the correct answer using the code given below:
13 of 13
a. 1 and 2
b. 3 and 4
c. 1 and 4
d. 2 and 3

Ans. d

30. Which one of the following statements is correct? The Leontief Paradox makes
a. a critical analysis of Haberler’s theory of opportunity cost
b. an empirical study of factor-price equalization theory of Samuelson
c. an empirical testing of Mills’ theory of reciprocal demand
d. an empirical testing of Heckscher — Ohlin theory of international trade

Ans. d

31. What is the ratio between the price of a country’s export goods and price of its import goods known as?
a. Single factoral terms of trade
b. Double factoral terms of trade
c. Net barter terms of trade
d. Income terms of trade

Ans. a

32. Prebisch-Singer thesis enunciates which of the following?

1. International trade has been operating as a mechanism of international inequalities and has, therefore, retarded the development of less developed countries.

2. The strategy of import substitution as a means to achieve self-sufficiency in industrial production, has led to ma! allocation of resources and a very bad effect on industrial productivity.

Select the correct answer by using the code given below

(a) l only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Ans. (a)

33. If an Indian exporter exports to Bangladesh Rs. 50,000 worth of goods payable in three months, the balance of payment for India will show which one of the following?

(a) Current account credit goes up and capital account debit also goes up by Rs. 50,000 each

(b) Current account credit goes down and capital account debit goes up by Rs. 50,000 each

(c) Current account credit goes down and capital account debit also goes down by Rs. 50,000 each

(d) Current account credit goes up and capital account debit goes down by Rs. 50,000 each

Ans. (d)

34. Devaluation makes Balance of Payments worse in the short-run and then improves it in the long-run. What is this phenomenon known as?

(a) Marshall -Lerner condition

(b) J-curve effect

(c) Money illusion effect

(d) Backwash effect

Ans. (b)

35. Which one of the following is considered as non-debt creating foreign investment inflow?

(a) External assistance

(b) Foreign direct investment

(c) Borrowing from the IMF

(d) Commercial borrowings

Ans. (b)

36. Exchange rates are kept same in all the parts of market by using which one of the following?

(a) SDRs

(b) Arbitrage

(c) Fledging

(d) Speculation

Ans. (b)

37. An over-valued currency in the foreign exchange market

will have which one of the following impacts in India?

(a) Make imports costlier and exports cheaper

(b) Will ha4e no effect on cost of imports

(c) Give protection to domestic industry against foreign competition

(d) Make imports cheaper and exports costlier

Ans. (d)

38. The inflationary impact of the inflow of foreign capital in

India is neutralized by the Reserve Bank of India by which

one of the following methods?

(a) Permitting outflow of foreign exchange

(b) Sale of securities in the open market

(c) Facilitating imports of essential commodities

(d) Permitting depreciation of Indian rupee in the foreign exchange market

Ans. (b)

39. Which one of the following is the correct sequence in the process of economic integration between different countries?

(a) Common market—Free trade area—Custom union— Economic union

(b) Free trade area—Custom union—Common market— Economic union

(c) Free trade area—Common market—Custom union— Economic union

(d) Common market—Free trade area—Economic union— Custom union

Ans. (b)

40. Under Gold Standard, how can a surplus in a country’s balance of payments be eliminated?

(a) By inflow of gold and a rise in general price level

(b) By outflow of gold and a rise in general price level

(c) By inflow of gold and a fall in general price level

(d) By outflow of gold and a fall in general price level

Ans. {d)

41. In order to reduce the balance of payment deficits of the member countries, which one of the following schemes was introduced by the World Bank in 1980?

(a) Buffer stock loans

(b) Supplementary loans

(c) Structural adjustment loans

(d) Gold loans

Ans. (c)

42. Assertion (A) A balance of payments deficit is always and every where a monetary phenomenon.

Reason (R): A balance of payments deficit cannot be corrected through changes in money supply

Codes:

(a) Both A and R are individually true and R is the correct explanation of A

(b) Both A and R are individually true but R is not the correct explanation of A

(c) A is true but R is false

(d) A is false but R is true

Ans. (c)

43. Which one of the following is not a component of foreign aid of a country?

(a) Bilateral grant

(b) Multilateral grant

(c) Loans from international financial institutions

(d) Commercial borrowing

Ans. (d)

44. Consider the following A dual economy implies

1. the existence of domestic and export markets.

2. modern industry and commercial agriculture co-existing with subsistence farming and traditional handicrafts.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Ans. (b)

45. Theory of linkages is most appropriate for which kind of development models?

(a) Balanced growth models

(b) Unbalanced growth models

(c) Population growth models

(d) One sector growth models

Ans. (b)

46. Which one of the following is a component of disequilibrium mentioned often in the context of trade and development?

(a) Revenue gap

(b) Savings-investment gap

(c) Income gap

(d) Expenditure gap

Ans. (b)

47. Consider the following sectors:

1. Electrical Equipments

2. Service Sector

3. Food Processing Industries

4. Metallurgical Industries

Which one of the following is the correct sequence in ascending order in terms of their share in attracting FDI inflows in India?

(a) 4-3-2-1

(b) 1-2-3-4

(c) 2-1-3-4

(d) 1-2-4-3

Ans. (a)

48. Capital fundamentalism refers to which one of the following?

(a) Capital structure of a country

(b) Accelerated capital accumulation for development

(c) A capitalistic system of economy

(d) Growth of capital expenditure

Ans. (b)

49. To make meaningful international comparisons of income and living standards, which one of the following is most appropriate?

(a) A measure of purchasing power parity

(b) A measure of per capita income

(c) An index of poverty

(d) An index of infrastructure development

Ans. (a)

50. Growth rate in NNP at factor cost (at constant prices) has been highest during which Five-Year Plan?

(a) Ninth Plan

(b) Eighth Plan

(c) Seventh Plan

(d) Fifth Plan

Ans. (b)

51. Which of the following sectors has the largest percentage share in India’s total exports for the period April 2006 October 2007?
(a) Chemicals and related goods
(b) Engineering goods
(c) Gems and jewellery
(d) Textiles including readymade garments
Ans. (b)

52. If the supply of a commodity is very inelastic in the exporting country and demand for the same is fairly elastic in the importing country, the imposition of tariff will have which one of the following?

(a) A very large protective effect

(b) No protective effect at all

(c) A very large revenue effect

(d) A very small protective effect

Ans. (a)

53. If an Indian exporter exports to Bangladesh Rs. 50,000 worth of goods payable in three months, the balance of payment for India will show which one of the following?

(a) Current account credit goes up and capital account debit also goes up by Rs. 50,000 each

(b) Current account credit goes down and capital account debit goes up by Rs. 50,000 each

(c) Current account credit goes down and capital account debit also goes down by Rs. 50,000 each

(d) Current account credit goes up and capital account debit goes down by Rs. 50,000 each

Ans. (d)

54. Devaluation makes Balance of Payments worse in the short-run and then improves it in the long-run. What is this phenomenon known as?

(a) Marshall -Lerner condition

(b) J-curve effect

(c) Money illusion effect

(d) Backwash effect

Ans. (b)

55. Which one of the following does not constitute a part of the jurisdiction of WTO?

(a) Trade related tariff and non-tariff barriers

(b) Trade related intellectual property rights

(c) Agreement related to agriculture

(d) Regional trade agreements

Ans. (d)

56. Theory of linkages is most appropriate for which kind of development models?

(a) Balanced growth models

(b) Unbalanced growth models

(c) Population growth models

(d) One sector growth models

Ans. (b)

57. When is an isoquant L – shaped?

(a) When the two factors are complementary

(b) When the two factors are perfect substitutes

(c) When the two factors are used in fixed proportions

(d) When the two factors are imperfect substitutes

Ans. (c)

58. Match List-I with List-II and select the correct answer by using the code given below the lists

List – I                                                         List -II

(Economist)                                                (Concept)

A. A. C. Pigou                                      1. Liquidity Preference

B. J.M. Key                                          2. Real Balance Effect

C. J.R. Hicks-A.H. Hansen                  3. Ratchet Effect

D. J.S. Duesenberry                              4. IS-LM Analysis

Code:

A B C D

(a) 2 1 4 3

(b) 4 3 2 1

(c) 2 3 4 1

(d) 4 1 2 3

Ans. (a)

59. Match List I (Market Type) with List-II (Implication) and select the correct answer using the codes given below the lists:

List-I                                                                     List-II

(Market Type)                                                        (Implication)

A. Perfect competition                                        1. Collusion of firms

B. Monopoly                                                       2. Excess capacity

C. Monopolistic competition                              3. Uniform price

D. Oligopoly                                                       4. Blocked entry

Code:

A B C D

(a) 2 4 3 1

(b) 3 1 2 4

(c) 2 1 3 4

(d) 3 4 2 1

Ans. (d)

60. Assertion (A): M curve lies below the VMP curve under imperfect competition.

Reason (R): Under imperfect competition MR < P.

Ans. (a)

61. Which of the following statements about Pareto Optimum are correct?

A. It changes with changes in the distribution of income.

B. At the Pareto Optimum, MRS in consumption = MRT in production.

C. It is not unique.

D. It is obtained under imperfect competition.

Select the correct answer using the codes given below:

(a) A and B

(b) A, B and C

(c) A, C and D

(d) B and C

Ans. (b)

62. Consider the following statements

Under flexible exchange fate system, balance of payments

disequilibria are corrected by:

1. changes in the exchange rates.

2. international flow of money and reserves.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Ans. c

63. Which of the following is/are the reasons for the collapse of Bretton-Woods system?

I. The refusal by the U.S. Treasury to convert short-term liability into gold.

2. The U.S. move to make dollar inconvertible.

3. The devaluation of U.S. dollar in 1973.

Select the correct answer using the code given below

(a) 1 only

(b) 1 and 2

(c)2 and 3

(d) l,2 and 3

Ans.. a

64. Tariffication refers to:

(a) replacement of quotas by tariffs only

(b) replacement of all existing non-tariff restrictions by tariff

(c) scaling dow.of tariffs in general

(d) obtaining sanction to increase tariff rates

Ans. d

65. Which of the following are the components of foreign capital?

1. Grants and loans.

2. External commercial borrowings.

3. Foreign direct investment.

4. Deposits from non-residents.

Select the correct an using the code given below

(a) 1,2,3 and 4

(b) 1,2 and 4

(c) l and 2

(d)3 and 4

Ans. a

66. The fundamental equation in Harrod’s growth model is defined?
(A) In terms of rate of growth of output
(8) In terms of rate of growth of technology
(C) In relation to the path of capital-labour ratio
(D) In terms of rate of change of capital-output ratio

Ans. a

67.According to Harvey Leibenstein, two types of incentives work in under-developed countries?
(A) Positive-sum incentives and Negative-sum incentives
(B) Zero-sum incentives and negative-sum incentives
(C) Positive-sum incentives and Multiple-sum incentives
(D) Zero-sum intcentives and Positive-sum incentives

Ans. c

68. During recent past, the highest GDP growth rate has been
achieved in the year?
(A)2005-06
(B) 2006-07
(C)2007-08
(D) 2008-09

Ans. c

69 A factor of production is used by a producer at that stage where the marginal production of the factor is?
(A) Increasing, but positive
(B) Increasing, but negative
(C) Decreasing, but positive
(D) Decreasing, but negative

Ans. a

70. Select the correct statements regarding the Balanced Growth theory
Statements:
1 It is a static concept
2. It is a dynamic concept
3. It recognises the significance of economic independence
4. It recognises the significance of economic interdependence.
Code
(A) 1 and 4
(B) 2and 3
(C)1 and 3
(D) 2 and 4

Ans. a