244 PGTRB Economics Study Material 3

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Dr. A. THANGAVELWIN ACADEMY - KUMBAKONAM
9486 474777 MACRO ECONOMICS PGTRB COACHING CENTRE
PRACTICE PAPER - 3 8. A set of all possible production

1. Which of the following is NOT to be combinations while producing two
included in national product ? commodities is-
a) Wheat produced by the farmer and a) Isoquant map
consumed by him. b) Iso cost line
b) house built by the owner himself. c) Production possibility curve
c) Income from the sale of old car d) Production functions
d) Machine made by firm A and sold to B
9. Kalecki theory of profit was influenced by
2. In general, most of the production a) Keynesian economics
functions measure- b) Marxian economics
a) The productivity of factors of production c) Classical economics
b) The relation between the factors of pro- d) Institutional economics
duction
c) The economies of scale 10. National product at current prices is
d) The relations between change in physical higher than national product at constant
inputs and physical output prices during a period of
a) rising prices
3. Innovation basically includes b) falling prices
a) New methods of production c) stable prices
b) New markets d) changing costs
c) New sources of raw materials
d) All the above 11. Economics of scale means-
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4. Depreciation means
a) destruction of a plant in a fire accident
b) loss of equipment and machines over time
due to normal wear and teaf
a) Reductions in unit cost of production
b) Reductions in unit cost of distribution
c) Addition to the unit cost of production
d) Reduction in the total cost of production
c) closure of the firm due to lockout 12. Greater depression, when profit was all
d) unanticipated loss time low happened in
a) 1920
5. In the long-run- b) 1933
a) All factors can be used in different c) 1939
proportions d) 1947
b) Management can be re-organised
c) A firm can experience returns to scale 13. The difference between GNP and NNP is
d) All of these a) indirect taxes
b) direct taxes
6. Monopoly theory of profit was introduced by c) depreciation
a) Kaldor d) net factor income from abroad
b) Keynes
c) Kalecki 14. Marginal product is-
d) Knight a) What is produced when all factors of
production are employed at optimum
7. The difference between GNP and GDP is efficiency
equal to b) The extra output obtained from employing
a) gross foreign investment an additional unit of a factor
b) net foreign investment c) What is left to the entrepreneur after he
c) net export has paid all his expenses
d) net factor income from abroad
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d) Annual output of the most efficient firm in c) adding net factor income from abroad
the industry d) subtracting net factor income from abroad.
15. In case of Depression, profit tend to 23. When average product increases, the
a) Rise marginal product is-
b) Fall a) Less than the average product
c) Remain constant b) More than the average product
d) Can't say with certainty c) Equal to the average product
d) None of the above
16. Y = C + I + G + (X - M) is
a) an equation 24. Profit after rising continuously, start
b) an identity falling in the phase of
c) a formula a) Depression
d) a function b) Recovery
c) Boom
17. Marginal product becomes negative- d) Recession
a) In no circumstances
b) When total output turns down 25. NNP for a given year can be defined as
c) When total output grows swiftly a) the profits of manufacturing uhits after
d) When total output ceases to grow swiftly deducting taxes
b) the real value of final and intermediate
18. In case of war, profit tend to goods
a) Rise c) the market value of all the final goods and
b) Fall services
c) Remain constant d) the total profits of all the entrepreneurs
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d) Can't say with certainty
19. If we know the GNP at market prices we

calculate GNP at factor cost by
a) adding net indirect taxes
26. In short run the law of variable
proportions is also known as the-
a) Law of increasing returns
b) Law of diminishing returns
b) subtracting net indirect taxes c) Law of constant returns
c) adding net factor income from abroad d) Law of return to scale
d) subtracting net factor income from abroad
27. Profit is maximum when there is
20. When the average product is at its maximum a) Depression
the equality can be reached between b) Recession
a) The marginal product and total product c) Boom
b) The marginal product and average product d) Recovery
c) The marginal product and primary product
d) The marginal product and final product 28. Which of the following is NOT included in
disposable income ?
21. Profit after falling continuously, start a) International transfer payments
rising in the phase of b) Unemployment allowances
a) Depression c) Direct taxes
b) Recovery d) Corporate dividends
c) Boom
d) Recession 29. Increasing returns to scale can be
explained in terms of-
22. If we know the GNP, then we calculate a) Fixed scale of plant
GDP by b) Optimum factor proportions
a) adding net indirect taxes c) External and internal economics
b) subtracting net indirect taxes d) Labour productivity
37. If the consumption function is given by

30. Profit is minimum when there is 𝟐𝟐
C= 25 + 𝟑𝟑 𝐲𝐲 then what are the values of
a) Depression
autonomous consumption and total
b) Recession
consumption when income is 300?
c) Boom
a) 2/3 and 200
d) Recovery
b) 25 and 200
c) 25 and 225
31. If the consumption function is given by C
d) 2/3 and 225
= 20 +3/4 Y, then the value of multiplier
will be
38. The Law of variable proportions comes
a) 4/3
into being when-
b) 1/4
a) There are only two variable factors
c) 4
b) There is a fixed factor and a variable
d) 20
factor
c) All factors are variable
32. Imagine a graph showing production
d) Variable factors yield less
possibilities. What does an outward shift
of the production possibilities curve
39. Demand pull inflation leads to
indicate?
a) Increase in profit
a) Inflation
b) Decrease in profit
b) Over production
c) Constant profit
c) Economic growth
d) Over full employment
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33. Hyperinflation leads to
a) Low profit
b) Very high profit
c) Losses
40. Increasing returns imply-
a) Constant average cost
b) Diminishing cost per unit of output
c) Optimum use of capital and factor
d) External economies
d) Constant profits
41. Profit is a source of income for
34. If the saving function is given by S = -25 +
a) Poor
1/4 Y, then what will be the value of
b) Very poor
marginal propensity to consume ?
c) Rich
a) 1/4
d) Very rich
b) 25
c) 3/4
42. On the basis of above example, what is the
d) 4
value of total saving
a) 100
35. The expansion path of production theory is
b) 125
analogous in consumption theory to the-
c) 75
a) Price consumption line
d) cannot be determined
b) Engel curve
c) Income consumption line
43. Law of Diminishing Returns to factors is
d) Budget constraint line
relevant to-
a) Short period
36. Cost push inflation leads to
b) Long period
a) Increase in profit
c) Secular period
b) Decrease in profit
d) Both short and long periods
c) Constant profit
44. Increase in profit as proportion of 51. Which of the following is NOT included in
national income leads to the estimatibn of NNP by income method?
a) Decrease in income inequality a) Interest
b) Increase in income inequality b) Dividends
c) Doesn't affect inequality of income c) Undistributed profits
d) Can't say with certainty d) Depreciation
45. Which of the following is a flow concept? 52. The Law of Diminishing Return depends
a) Wealth on the assumption that-
b) Money a) Total output is constant
c) Total saving b) The state of technical knowledge is
d) Income unchanged
c) Land is the factor kept constant
46. A long run Analysis of production is d) Average output declines faster than
called- marginal output
a) Economies of scale
b) Law of variable proportion 53. Rate of interest for a spend thrift person
c) Law of increasing returns will be
d) Law of Returns to scale a) High
b) Low
47. Which of the following rate of interest is c) Zero
part of credit control d) None of the above
a) Bank rate
b) Forex rate 54. GNP, according to expenditure method,
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c) Badla rate
d) None of the abvoe
48. Which of the following is NOT correct?

a) In measuring GNP, all kinds of goods and
exclude
a) Private consumption expenditure
b) Gross domestic private investment
c) Net foreign investment
d) Government expenditure
services produced in a country during a e) none of these
year are measured in terms of money
b) In estimating GNP, only the final products 55. Increasing returns is not caused by-
are taken into account a) Technological advance
c) The sale and purchase of shares of b) Specialisation of labour
existing companies are included in GNP c) Marketing economies
d) The income earned through illegal d) Varying factor proportions
activities is not included in the GNP
56. Rate of interest for a retired old person
49. The elasticity of substitution between two will be
inputs in CES production function- a) Very high
a) Decrease continuously b) Low
b) Increase continuously c) Zero
c) Remains constant d) Can't say with certainty
d) None of these
57. The term ‘social accounting’ was first
50. Lowest rate of interest is given to introduced into economics by
a) Bonds a) Marshall
b) Debentures b) Hicks
c) Public deposits c) Keynes
d) Treasury bill d) Cooper
58. The increasing returns to scale occurs 65. Government can reduce rate of interest by
because larger scale provides greater a) Increasing export
specialisation to various factors.” b) Decreasing import
According to- c) Increase government expenditure
a) Joan Robinson d) Increase money supply
b) Alfred Marshall
c) Chamberlin 66. GNP includes
d) Paul. A. Samuelson (i) consumer goods and services
(ii) gross private domestic investment
59. Rate of interest for a miser will be (iii) goods. and services produced by
a) Very high government
b) Low (iv) net exports
c) Zero a) i, ii and iii only
d) Can't say with certainty b) ii, iii and iv only
c) i, iii and iv only
60. NNP is equal to d) i, ii, iii and iv
a) GNP - depreciation
b) GNP + depreciation 67. If, by increasing the quantity of labour
c) GNP - net export used by one unit, the firm can give up 2
d) GNP + net export units of capital and still produce the same
output, then the MRTSLK is-
61. Isoquant refers to- a) ½
a) Another name of indifference curve b) 2
b) The production Indifference curve c) 1
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c) An equal quantity curve of a consumer
d) An equal cost curve of a producer
62. Time preference of money for a couple

who are just married will be
d) 4
68. At times of recession, goverment should

a) Reduce rate of interest
b) Increase existing rate of interest
a) Low c) Maintain existing rate of interest
b) High d) Can't say with certainty
c) Zero
d) Can't say with certainty 69. NNP according to income method includes
(i) wages and salaries
63. The total income received by the (ii) royalty
individuals of a country from all sources (iii) net indirect taxes
before deducting direct taxes is known as (iv) depreciation
a) private income a) i, ii and iii only
b) personal income b) ii, iii and iv only
c) personal disposable income c) i and ii only
d) none of these d) ii and iii only
64. The law of increasing returns is only Directions : Following 70 to76 questions are
applicable to agriculture; According to- based on Cobb-Douglas Production Function-
a) Classical school 𝐐𝐐 = 𝐀𝐀. 𝐋𝐋𝛂𝛂 . 𝐊𝐊 𝛃𝛃
b) Neo-classical school 70. The elasticity substitution between the two
c) Modern school inputs is-
d) J.M. Keynes a) Zero
𝛼𝛼
b) 𝛽𝛽
c) Infinite
d) Unity
71. The returns to scale are measure by- 78. GNP at market prices minus depreciation
a) 𝛼𝛼 + 𝛽𝛽 minus indirect taxes + subsidies is equal to
b) 𝛼𝛼 − 𝛽𝛽 a) NNP at market price
c) 𝛼𝛼. 𝛽𝛽 b) GNP at factor cost
d) 𝛼𝛼/𝛽𝛽 c) national income
d) NDP at factor cost
72. The efficiency parameter indicating the
state of technology is given by- 79. The marginal product curve is above the
a) A average product curve when the average
b) K product is-
c) L a) Decreasing
d) 𝛼𝛼 b) Increasing
c) Becomes constant
73. The MRTS of capital for labour is given d) None of the above
by-
𝛼𝛼 80. Liquidity trap occurs when
a) 𝛽𝛽
𝛼𝛼+𝛽𝛽
a) Increase in money supply can't reduce rate
b) 𝐾𝐾+𝐿𝐿 of interest
𝛼𝛼 𝐿𝐿 b) Increase in money demand can't reduce
c) 𝛽𝛽 . 𝐾𝐾
rate of interest
𝐾𝐾
d) 𝐿𝐿 c) Increase in rate of investment can reduce
rate of interest
74. The efficiency of production is measured d) Increase in saving rate can't reduce in-
by- terest rate
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a) 𝐴𝐴(𝛼𝛼 + 𝛽𝛽)
b) A
c) 𝛼𝛼. 𝛽𝛽
d) A. 𝛼𝛼
81. The sum of money value of the income
produced by and accruing to the various
factors of production in one year in a
country is known as
75. The output elasticity with respect to a) GNP at market price
labour input is measured by- b) GNP at factor cost
a) 𝛽𝛽 c) NNP at market price
b) A d) NNP at factor cost
c) 𝛼𝛼
d) 𝛽𝛽.A 82. Written in this form, the CES constant
Elasticity of substitution production
76. The factor intensity is measured by- function exhibits-
𝛼𝛼 a) Increasing returns to scale
a) 𝐴𝐴
𝛼𝛼
b) Constant returns to scale
b) 𝛽𝛽 c) Decreasing returns to scale
c) A+B d) None of the above
d) 𝛼𝛼 + 𝛽𝛽
83. Increase in rate of interest leads to
77. At times of boom, government should a) Inflow of foreign investment
a) Reduce rate of interest b) Decrease in investment
b) Increase in rate of interest c) Increase in cost of production
c) Maintain existing rate of interest d) All the above
84. The net value of final goods and services 90. National income expressed in terms of a
evaluated at current prices is known as general level of prices of a particular year
a) GNP at market price taken as base is known as
b) GNP at factor cost a) NN P at market price
c) NNP at market price b) NNP at factor cost
d) NNP at factor cost c) NNP at current prices
d) real income
85. Increasing returns to scale can be
explained in terms of- 91. When the APL is positive but declining,
a) External diseconomies and internal the MPL could be-
economies a) Declining
b) External and internal economies b) Zero
c) External and internal diseconomies c) Negative
d) Optimum factor combination d) Any of the above
92. Match the Following with Regarding

86. Normal profit cover theories of profit
a) Accounting cost
(i) Dynamic (a) Frank Knight theory
b) Opportunity cost
(ii) Uncertainty (b) Kalecki theory
c) Both (a) & (b)
(iii) Innovation (c) J.B. Clark theory
d) None of the above
(iv) Monopoly (d) Joseph Schumpeter
theory
87. The difference between GNP and NNP is
a) net indirect taxes a) i-a, ii-b, iii-c, iv-d
b) net factor income from abroad b) i-c, ii-a, iii-d, iv-b
c) i-b, ii-c, iii-d, iv-a
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c) depreciation
d) personal income taxes
88. Which of the following is the correct state-

ment?
d) i-c, ii-d, iii-a, iv-b
93. Classical theory of employment is based on
some assumptions. Which of the following is
NOT an assumption of the classical theory
1. The slope of the Isoquants represents of employment
the MRTS. a) perfect competition
𝐌𝐌𝐌𝐌
2. The MRTS of the inputs x and y = 𝐌𝐌𝐌𝐌𝐱𝐱 b) full employment
𝐲𝐲 c) money wages and real wages are directly
3. The elasticity of substitution between related
two inputs x and y is proportionate d) wages and price-are fixed
change in the ratio two inputs divided by
proportionate change in the MRTS. 94. The point which shows the maximum
4. If degree of homogeneity is greater than marginal product in the total product
one, the production function is increasing curve represents-
returns to fixed factor. a) Least cost combination
a) 1,2,3 and 4 b) Producer’s equilibrium
b) l,3and4 c) Expansion path
c) 2,3 and 4 d) Point of inflexion
d) l,2and3
95. If the MRTSLK equals 2, then the
89. Supernormal profit is earned by MPK/MPL is-
a) Charging higher prices a) 2
b) Restricting entry of new firms b) 1
c) Restricting supply c) ½
d) All the above d) 4
96. Match the Following With Relation
between Trade cycle and profit
(i) Recession (a) Negative
(ii) Boom (b) Low or negative
(iii) Recovery (c) Positive
(iv) Depression (d) Highest level
a) i-a, ii-b, iii-c, iv-d
b) i-b, ii-c, iii-d, iv-a
c) i-b, ii-d, iii-c, iv-a
d) i-c, ii-d, iii-a, iv-b
97. According to classical, full employment in

the labour market is restored through
a) the manipulation of prices
b) the manipulation of wages
c) government intervention
d) monopolistic behaviour of labour unions
98. Match the Following With List-I & List-II

List-I List-II
(i) Trading A/c (a) Retained profit
(ii) Profit & loss A/c (b) Gross profit
(iii) Profit Appropriation (c) Net profit A/c
a) i-b, ii-c, iii-a
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b) i-b, ii-c, iii-a
c) i-c, ii-a, iii-b
d) i-a, ii-b, iii-c
99. In the real sector, the equality between

saving and investment, according to
classical economics, is brought out by
a) price mechanism
b) manipulation in wage rates
c) the adjustment of the rate of interest
d) the adjustment of real income
100. Oil Refinery at Bhatinda is being

established by--
a) IOC
b) HPCL
c) Reliance
d) BPCL
ANSWER KEY – 3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
C D D B B C D C B A A D C B B B B A B B
21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
B D A D C B C C C A C C B C C B C B A B
41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60
D C A B D D A C C D D B A E D B B C B A
61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80
B B B A D D B A A D D A C C A B B C B A
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100
B B D C B C B D D D D B D D C C B A C B
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244 PGTRB Economics Study Material 3

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PRACTICE PAPER - 3 8. A set of all possible production

19. If we know the GNP at market prices we

37. If the consumption function is given by

48. Which of the following is NOT correct?

62. Time preference of money for a couple

68. At times of recession, goverment should

92. Match the Following with Regarding

88. Which of the following is the correct state-

97. According to classical, full employment in

98. Match the Following With List-I & List-II

99. In the real sector, the equality between

100. Oil Refinery at Bhatinda is being

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