ABM MACMILLAN

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Bhaskar Kothari
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[1] FUNDAMENTALS OF ECONOMICS, MICROECONOMICS
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1. Adam Smith defined Economics as a
 Study of Wealth
 Study of Welfare
 Study of ‘Means’ and ‘ends’
 None of these

2. Macroeconomics deals with

 Gross Domestic Products
 Unemployment Rate
 Price Indices
 All of the above

3. Who is considered as the founder of the field of Microeconomics?

 Lionel Robbins
 Amartya Sen
 Adam Smith
 Prof. Alfred Marshall

4. Microeconomics is concerned with the behaviour of

 Gross Domestic Products
 Individual Entities
 Economy as a Whole
 None of the Above

5. Ends refer to
 Demand
 Resources
 Utility
 Wants

6. A market economy is one

 In which individuals and private firms make the major decisions about the production
and consumption
 In which the government makes all important decisions about production and distribution
 Both (i) and (ii)
 None of the above

7. India is a
 Capitalistic Economy
 Socialistic Economy
 Mixed Economy
 Laissez-faire Economy
8. Laissez-faire economy is
 The extreme case of Market Economy
 Extreme Case of a Command Economy
 Extreme Case of a Mixed Economy
 None of these

9. Market economy is also knowns as

 Mixed Economy
 Capitalistic Economy
 Command Economy
 Socialistic Economy

10. Which of the following is a Capitalistic Economy?

 England
 China
 India
 None of the above

11. Book written by Adam Smith in 1776 is

 An Enquiry into the Nature and Cause of the Wealth of Nations

12. Theory of Adam Smith is also called

 Economics is a “Study of Wealth”

LET US SUM UP
1. Economics is the science that deals with the production, allocation, and use of goods and services.
2. Economics is 'the science which studies human behaviour as a relationship between ends and
scarce means which have alternative uses.
3. Microeconomics is concerned with the behaviour of individual entities such as markets, firms, and
households. Macroeconomics views the performance of the economy as a whole.
4. Every society must answer three fundamental questions: what, how, and for whom? What kinds
and quantities are produced among the wide range of all possible goods and services? How are
resources used in producing these goods? And for whom are the goods produced (that is what is
the distribution of income and consumption among different individuals and classes?)
5. A market economy is one in which individuals and private firms make the major decisions about
production and consumption. A system of prices, of markets, of profits and losses, of incentives
and rewards determines what, how, and for whom.
6. In command economy, the government addresses the major economic questions by virtue of its
ownership of resources and its power to enforce decisions.
7. No contemporary society/nation falls completely into either of these polar/extreme categories.
Rather all Societies are mixed economies, with elements drawn from market and command
economies.
[2] SUPPLY & DEMAND
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1. Demand Schedule is the
 Relationship between demand and quantity bought
 Relationship between price and quantity bought
 Relationship between income and demand
 None of these

2. Market demand curve obey the

 Law of downward -sloping demand
 Law of upward-sloping demand
 Law of diminishing
 None of these

3. Forces behind the demand curve

 Expectation about future economic conditions
 Average Income
 Cost of Production
 Both (i) and (ii)

4. A Download Sloping Demand Curve relates Quantity Demanded to

 Supply
 Income
 Price
 Demand

5. Shifts in Supply means

 When changes in factors other than goods own price affect the quantity supplied
 When changes in goods own price affects the quantity supplied
 Both(i) and (ii)
 None of these

6. The equilibrium price is also known as

 Market Price
 Optimum Price
 Real Price
 Market Clearing Price

7. Forces behind the supply curve

 Cost of production
 Technological Advances
 Government Policies
 All of the above
 8. Supply curve relates quantity supplied to
 Supply
 Income
 Price
 Demand

9. Market equilibrium comes at the prices at which quantity demanded equals to quantity
 Produced
 Supplied
 Inventory
 Demand

LET US SUM UP
1. There exists a definite relationship between the market price of a good and the demanded quantity
of that good, other things being constant. This relationship between price and quantity bought is
called the demand schedule, or the demand curve
2. Law of downward-sloping demand: When the price of a commodity is raised (and other things are
held constant) buyers tend to buy less of the commodity. Similarly, when the price is lowered,
other things being constant, quantity demanded increases.
3. The market demand curve is found by adding together the quantities demanded by all individuals
at each price.
4. When there are changes in factors other than a good's own price which affect the quantity
purchased, we call these changes shifts in demand. Demand shift means that the quantity
demanded at each specific price increases (or decreases) compared to the earlier demand at that
price.
5. The supply schedule (or supply curve) for a commodity shows the relationship between its market
price and the amount of that commodity that producers are willing to produce and sell other
things held constant.
6. When changes in factors other than a good's own price affect the quantity supplied, we call these
changes as shifts in supply.
7. Market equilibrium comes at the price at which quantity demanded equals quantity supplied. At
that equilibrium, there is no tendency for the price to rise or fall. The equilibrium price is also
called the market-clearing price. This denotes that all supply and demand orders are filled, the
books are ‘cleared of orders’, and demanders and suppliers are satisfied.
8. The equilibrium price and quantity come where the amount willingly supplied equals the amount
willingly demanded. In a competitive market, this equilibrium is found at the intersection of the
supply and demand curves. There are no shortages or surpluses at the equilibrium price.
9. When the elements underlying demand or supply change this leads to shifts in demand or supply
and to changes in the market equilibrium of price and quantity.
[3] MONEY SUPPLY AND INFLATION
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1. Money Supply refers to
 The amount of money in Banks
 The amount of money with the people
 The amount of money in circulation in an Economy
 None of the above

2. Narrow money consists of

 Currency with the Public, Demand Deposits, ‘Other’ Deposits with the RBI
 Currency with the Public, Time Deposits, ‘Other’ deposits
 Time Deposits, Demand Deposits, ‘Other’ Deposits with the RBI
 Currency with the Public, Demand Deposits

3. Time deposits are

 Paid on Demand
 Not Paid on Demand
 Relatively less liquid than Cash and Demand Deposits
 Both(ii) and (iii)

4. Demand deposits are

 Paid on demand
 Not paid on demand
 Relatively less liquid than cash and demand deposits
 Both (i) and (ii)

5. Which of the following statements is true about ‘Inflation’?

 A rise in the general level of prices
 Leads to fall in purchasing power
 Both (i) and (ii)
 None of the above

6. Price index used in India to Calculate inflation for policy formulation is

 Consumer price index
 GDP deflator
 Wholesale price index
 Retail price index

7. Consumer Price Index measures prices at

 Wholesale level
 Retail level
 Producer level
 Consumer level
LET US SUM UP

 Money performs four functions - Medium of exchange, a measure of value, a store of value
over time, Standard for deferred payments.
 Sources of Money supply analysed by the RBI, consist of the following:
 Net bank credit to the government,
 Bank credit to the commercial sector,
 Net foreign exchange assets of the banking sector,
 Government Currency Liabilities to the Public,
 Net non-monetary liabilities of the RBI and the other banks

 The most common measures of money supply used in India are:

 Narrow Money (M1),
 Broad Money(M3),
 M2=M1 + demand deposits in post office savings accounts,
 M4=M3 all deposits with post offices
 Inflation is a sustained rise in the general level of prices of goods and services in an economy
over a period of time. A chief measure of price inflation is the inflation rate, the annualized
percentage change in a general price index over time
 The most important causes of inflation are:
 Demand-Pull Inflation,
 Cost-Push Inflation

 Demand Pull Inflation is a rise in general prices caused by increasing aggregate demand for
goods and services.
 Cost-Push Inflation is a type of inflation caused by substantial increases in the cost of
important goods or services where no suitable alternative is available.

 Inflation denotes a rise in the general level of prices. The general price level is measured by a
price index. The most important price indexes are: Wholesale price index, Consumer price
index and GDP deflator
 The WPI reflects the change in the level of prices of a basket of goods at the wholesale level.
The CPI reflects the change in the level of prices of a basket of goods and services
purchased/consumed by the households. GDP deflator is a measure of the level of prices of all
new, domestically produced, final goods and services in an economy.