Economic Analysis for Business Decisions - Neville Wadia

Economic Analysis for BusinessDecisions

Chapter 1Basic Concepts of Economics

1. The resources in an economy(a) Are always fixed? (b) Can never decrease?(c) Always increase over time (d) Are limited at a moment in time

2. The sacrifice involved when you choose a particular course of action is called:(a) Alternative (b) Opportunity cost(c) Consumer Cost (d) Producer cost

3. Which one of the following is not one of the basic economic question?(a) What to produce? (b) For whom to produce(c) How to produce? (d) How to minimize economic growth?

4. Economics is the study of(a) Production technology(b) Consumption decisions(c) How society decides what, how and for whom to produce?(d) The best way to run society

5. The subject matter of economics is:(a) A physical science (b) A natural science(c) An exact science (d) A social science

6. In economics the central problem is(a) Scarcity (b) Consumption(c) Money (d) Allocation

7. Indicate below which is NOT a factor of production(a) Land (b) Capital(c) A bank Loan (d) Labour

8. The circular flow of money shows the relationship between(a) Firms and households (b) Income and money(c) Goods and services (d) Wages and salaries

29All in One Multiple Choice Questions

9. Who has presented the theory of invisible hand?(a) David Recardo (b) Philip Kotler(c) Adam Smith (d) Adam Ohlin

10. What all sectors are there in two sector model?(a) Bank & Industry (b) Firm & Bank(c) Household & Government (d) Firm & Household

11. Injection is when ____________ activity takes place in economy.(a) Import (b) Export(c) Advertising (d) Tax payment

12. Leakage is when ____________ activity takes place in economy.(a) Import (b) Export(c) Advertising (d) Tax payment

13. Which principal of economics studies an increase in cost for one additional unit?(a) Incremental (b) Marginal(c) Static (d) Opportunity cost

14. Which one in following is not an objective of firm?(a) Profit Maximization (b) Investment Maximization(c) Growth Maximization (d) Tax Maximization

15. When a hired person gives priority to individual goal rather than firm’s/owner’s it isconsidered as…(a) Principle agent problem (b) Principle shareholder problem(c) Manager problem (d) Hired person’s problem

16. Which factor differentiates accounting and economic profit?(a) Implicit cost (b) Production cost(c) Labour cost (d) Procurement cost

17. All of the following is purview of micro economics except____________(a) What to produce? (b) How to produce?(c) For whom to produce? (d) Is economy growing?

18. Welfare economics deals with:(a) Whether resources are optimally generated?(b) How to identify a socially efficient allocation of resources?(c) For whom to produce resources?(d) Whether distribution is done on the basis of ability to pay principle?

19. The “invisible hand” refers to(a) Fact that the tax system redistributes income from rich to poor.(b) notion that, under competition, buying and selling decisions motivated by self-interest

promote the social interest(c) tendency of monopolistic sellers to raise prices above competitive levels(d) hands of shoplifters caught red-handed by video cameras at stores

30 All in One Multiple Choice Questions

20. Which sectors form a three sector model of circular flow?(a) Household, firm and bank (b) Household, firm, and rest of world(c) Government, firm and bank (d) Household, government and bank

21. Which of the following is not an example of macro economics?(a) National income (b) Employment(c) Net profit of Infosys (d) Poverty

22. What is disposable income?(a) Total income + taxes (b) Total income – taxes(c) Total income + subsidies (d) Total income – subsidies

23. Which of the following is an objective of firm?(a) Salary maximization (b) Interest maximization(c) Wealth maximization (d) High employee turnover

24. Which of the following is not an objective of firm?(a) Wealth maximization (b) Profit maximization(c) Social concern (d) High employee turnover

25. What is maximization?(a) Increasing profit(b) Decreasing cost(c) Increasing desired one at cost of anything(d) Decreasing quality

26. What is optimization?(a) Increasing profit without quality(b) Increasing quality with high cost(c) Decreasing undesired and increasing desired one.(d) Decreasing cost

27. What is satisficing?(a) Aiming for employee turnover(b) Aiming for decreasing sales turnover(c) Aiming for reducing economic profit(d) Aiming for satisfactory results

28. What is principle agent problem?(a) Conflict between employee and employer(b) Conflict between employee and dealer(c) Conflict between firm and government(d) Conflict between firm and society

29. Economic profit includes ____________.(a) Implicit and explicit cost (b) Implicit cost(c) Explicit cost (d) Opportunity cost


30. Accounting profit excludes____________.(a) Labour cost (b) Explicit cost(c) Opportunity cost (d) Travelling cost

31. This profit is considered for exit decision of firm ____________.(a) Economic profit (b) Accounting profit(c) Gross profit (d) Net profit

32. This profit is considered for calculation of tax liability____________.(a) Economic profit (b) Accounting profit(c) Abnormal profit (d) Supernormal profit

33. Accounting profit is determined by ____________.(a) Sales – cost (b) Sales – opportunity cost(c) Sales – variable cost (d) Sales – revenue

34. What is national accounting identity?(a) Income = production (b) Income = tax liability(c) Income = cost (d) Income = profit

35. Demand for a product refers to ____________.(a) Need for a product (b) Desire for a product(c) Desire to buy a product (d) Desire to buy a product with paying ability

36. Choice in economics is considered as(a) Human Behaviour for dealing with scarcity(b) Want(c) Desire(d) Purchasing ability

37. Micro economics deals with the problem of(a) Economy (b) Unemployment(c) Poverty (d) Firm

38. Who amongst the following is known as father of economics:(a) Alfred Marshall (b) Adam Smith(c) R. Coase (d) Peter Drucker

39. In which book the theory of invisible hand is described:(a) The Nation of wealth (b) The wealth of nation(c) The theory of moral sentiments (d) An enquiry into the nation

40. Existence of profit in market improves:(a) Cost (b) Employment(c) Poverty (d) Efficiency of firm

41. Which of the following is true(a) Accounting profit and economic profit are same(b) Economic profit is used for calculating tax liability


(c) Accounting profit differs from economic profit(d) Annual profit excludes implicit cost

42. Which of the following is the term of micro economics?(a) Firm (b) National income(c) Union budget (d) Employment

43. Accounting profit is determined by(a) GAAP (b) GATT(c) IFRS (d) Economic principles

44. Economic profit is determined by(a) GAAP (b) GATT(c) IFRS (d) Economic principles

45. Economics is the term derived from(a) Japan (b) Greek(c) Latin (d) India

46. What is market?(a) Where selling activity takes place(b) Where purchases take place(c) Where buyer and seller meet to sell and buy(d) Where cost of a product is determined

47. What is production function?(a) Purchasing raw material (b) Purchasing factors of production(c) Converting output in to input (d) Producing goods and services

48. What is short-run?(a) All factors of production are flexible(b) One factor of production is flexible(c) At least a factor of production is constant(d) All factors of production are constant

49. What is long-run perspective?(a) All factors of production are flexible(b) All factors of production are constant(c) One factor of production is constant(d) One factor of production is flexible

50. Which of the following is not an economic activity?(a) A manager is taking decision of purchasing raw material(b) An individual is paying tax(c) Mr Right is taking care of his mother(d) An agent is purchasing shares for client


Answer Key of Chapter 1

1. (d) 11. (b) 21. (c) 31. (a) 41. (c)2. (b) 12. (a) 22. (b) 32. (b) 42. (a)3. (d) 13. (b) 23. (c) 33. (a) 43. (a)4. (c) 14. (d) 24. (d) 34. (a) 44. (d)5. (d) 15. (a) 25. (c) 35. (d) 45. (b)6. (a) 16. (a) 26. (c) 36. (a) 46. (c)7. (c) 17. (d) 27. (d) 37. (d) 47. (d)8. (a) 18. (b) 28. (a) 38. (b) 48. (c)9. (c) 19. (b) 29. (a) 39. (b) 49. (a)

10. (d) 20. (a) 30. (c) 40. (d) 50. (c)


Chapter 2Demand Analysis and Forecasting

1. Relationship between price and demand is ____________.(a) Direct (b) Inverse(c) Proportionate (d) Positive

2. The meaning of term ceteris paribus is ____________.(a) Other things being equal (b) Other things are changeable(c) Other things are different (d) Other things are movable

3. What is demand schedule?(a) Table that shows relationship between price and quantity demanded(b) Table showing relationship between price and quantity supplied(c) Table that shows relationship between demand and income(d) Table showing relationship between demand and supply

4. What is demand curve?(a) Shows relationship between price and quantity supplied(b) Indicates the quantity demanded at each price in a series of prices(c) Graphs as an upward sloping line(d) Shows the relationship between income and spending

5. Law of demand states…(a) There is an inverse relationship between price and quantity demanded(b) There is no relationship between price and quantity demanded(c) There is positive relationship between price and quantity demanded(d) Price changes as per the change in demand

6. Law of supply states ____________.(a) There is inverse relationship between price and quantity supplied(b) There is positive relationship between price and income(c) There is positive relationship between price and quantity supplied(d) There is positive relationship between supply and demand

7. What is schedule of supply?(a) Table showing relationship between price and quantity demanded(b) Table showing relationship price and quantity supplied(c) Table showing relationship between price and income(d) Table showing relationship between supply and demand

8. Historical data is used in estimating future demand under…(a) Survey method (b) Expert opinion method(c) Statistical method (d) Complete enumeration method

9. An increase in supply, demand remaining constant will change the equilibrium..(a) Causing a fall in price (b) Causing a backward shift in demand curve(c) Causing no change in price (d) Causing no change in income


10. The market structure where very few sellers sell slightly different products referred to as…(a) Perfect competition (b) Pure monopoly(c) Duopoly (d) Oligopoly

11. Which of the following is an example of an economic barrier to entry?(a) Network externalities (b) Copyrights(c) Patent (d) Dumping

12. A monopoly that arises because of economies of scale is referred to(a) Local monopoly (a) Natural monopoly(b) Network monopoly (d) Regulated monopoly

13. Which of the following is not a condition of oligopoly?(a) Each seller can influence the market prices(b) Each firm must consider the behaviour of its rivals(c) Each firm faces a perfectly elastic demand curve(d) Entry into a market is difficult

14. Which one is not the type of elasticity of demand?(a) Price (b) Consumer preferences(c) Income (d) Cross

15. When do we say that product is elastic?(a) No impact of price change on demand(b) Change of income effects price(c) Demand changes as per changes in price(d) Demand does not change as per change in price

16. Which one is not the method of demand forecasting?(a) Barometric (b) Multiple regression(c) Moving average (d) Game theory

17. What is profit maximization point?(a) AR=MR (b) MR=MC(c) MC=AC (d) AC=MR

18. Which of following is not a characteristic of perfect competition?(a) Free entry and exit (b) Heterogeneous products(c) Good market knowledge (d) Price taker

19. What kind of profit firm earns in long-run perfect competition?(a) Accounting (b) Normal(c) Supernormal (d) Abnormal

20. Which two curves help to understand revenue and cost?(a) AR & MC (b) AR & AC(c) AC & MR (d) MC & MR


21. When a fall in the price of one good reduces the demand for another good, the two goods arecalled ____________.(a) Complimentary goods (b) Substitutes(c) Normal goods (d) Inferior goods

22. When a fall in the price of one good increases the demand for another good, the two goods arecalled(a) Complimentary goods (b) Substitutes(c) Normal goods (d) Inferior goods

23. Upward-sloping line relating price to quantity supplied is called as ____________.(a) Supply curve (b) Demand curve(c) Supply schedule (d) Supply elasticity

24. Movement along the supply curve caused by a change in the market price of the product iscalled as ____________.(a) Change in supply (b) Change in quantity supplied(c) Change in supply elasticity (d) Change in prices of products

25. A shift in the supply curve, either to the left or right caused by a change in a determinant otherthan price is called as(a) Change in supply (b) Change in quantity supplied(c) Change in supply elasticity (d) Change in income elasticity

26. Which of the following is an exception to law of demand?(a) Inferior goods (b) Bread and butter(c) Shelter (d) Government taxes

27. Quantity demanded does not responds to change in price is called as(a) Perfectly elastic (b) Perfectly inelastic(c) Unitary elastic (d) Unitary inelastic

28. Quantity demanded changes infinitely with any change in price is called as ____________.(a) Perfectly elastic (b) Perfectly inelastic(c) Unitary elastic (d) Unitary inelastic

29. Quantity demanded changes by the same percentage as the price is called as ____________.(a) Perfectly elastic (b) Perfectly inelastic(c) Unitary elastic (d) Unitary inelastic

30. Which of the following is not an assumption of perfect competition?(a) Restricted entry into the industry (b) Many firms(c) Many buyers (d) Each firm sells an identical product

31. A monopolist is a(a) Price taker(b) Price setter(c) Produces a product that has a close substitute(d) Must constantly worry about the other firms entering into market


32. Why monopoly earns economic profit in long-run?(a) Because there is single firm in market(b) Because the firm protected by barriers to entry(c) Because there are close substitutes to firm’s product(d) All the above

33. Price discrimination is the practice of charging different prices to(a) Different countries because of tariffs and transportation cost(b) Different customers because the costs of selling are different(c) Different customers even though cost of selling to each is the same(d) The same customers because of changes in cost

34. Monopolistic competition is a market structure in which(a) There are barriers to entry(b) A small number of firms compete(c) Firms only compete on product price(d) Each firm produces a differentiated product

35. In the long-run, in monopolistic competition firm earns ____________.(a) Normal profit (b) Abnormal profit(c) Supernormal profit (d) Net profit

36. An oligopoly is a market structure in which there are(a) Many sellers selling a differentiated product.(b) Only a few buyers but many sellers.(c) A few products sold by many sellers.(d) Only a few sellers selling either an identical or differentiated product.

37. The kinked demand curve model assumes that a firm's rivals will(a) Follow the firm's price decreases but not its price increases.(b) Not follow any of the firm's price changes.(c) Follow any price change the firm makes.(d) Follow the firm's price increases but not its price decreases.

38. In the short-run, a firm in monopolistic competition produces profit where(a) MR = MC.(b) MR = MC and economic profit is equal to zero.(c) The given market price is equal to MC and economic profit is equal to zero.(d) The given market price is equal to MC.

39. In monopolistic competition, a firm can determine what price to set for its product because(a) There are many buyers.(b) There are many sellers.(c) The demand for its product is not perfectly elastic.(d) The demand for its product is perfectly elastic.


40. When a market is in equilibrium,(a) There is no shortage and no surplus at the equilibrium price.(b) Everyone has all they want of the commodity in question.(c) The supply curve has the same slope as the demand curve.(d) The number of buyers is exactly equal to the number of sellers.

41. When demand increases, the equilibrium price ____________ and the equilibrium quantity____________.(a) Falls; increases (b) Rises; increases(c) Rises; decreases (d) Falls; decreases

42. If the demand for a good is elastic, that means that when price increases(a) The demand will decrease.(b) The quantity demanded will decrease by a greater percentage than the price increased.(c) The quantity demanded will increase.(d) The quantity demanded will decrease by a smaller percentage than the price increased.

43. If demand is inelastic, an increase in the price will(a) Not change total revenue. (b) Increase the quantity demanded.(c) Increase total revenue. (d) Decrease total revenue.

44. If the cross elasticity of demand between coffee and tea is positive, an increase in the price oftea will shift the demand curve for(a) Tea leftward. (b) Tea rightward.(c) Coffee leftward. (d) Coffee rightward.

45. The income elasticity of demand is(a) Always negative.(b) Always positive.(c) Negative for a normal good and positive for an inferior good.(d) Positive for a normal good and negative for an inferior good.

46. Which of the following is a defining characteristic of a perfectly competitive industry?(a) No restrictions on entry into the industry(b) Persistent economic profits in the long-run(c) Advertisements by well-known celebrities(d) Higher prices being charged for certain name brands

47. Individual firms in perfectly competitive industries are price takers because(a) Each individual firm is too small to affect the market price.(b) The government sets all prices.(c) Firms decide together on the best prices to charge.(d) Buyers set prices.

48. The firm's goal is to(a) Maximize its total revenue. (b) Maximize its normal profit.(c) Maximize its economic profit. (d) Maximize its industry's revenue.


49. A barrier to entry is(a) A brick wall that a firm places around its corporate headquarters.(b) The result of highly elastic demand.(c) A natural or legal impediment that makes it difficult for new firms to enter a market.(d) A necessary condition for perfect competition.

50. If marginal revenue exceeds marginal cost, to increase its profit the firm will(a) Shut down. (b) Keep its output the same.(c) Increase its output. (d) Decrease its output.


1. (b) 11. (a) 21. (b) 31. (b) 41. (b)2. (a) 12. (b) 22. (a) 32. (b) 42. (b)3. (a) 13. (c) 23. (a) 33. (c) 43. (c)4. (b) 14. (b) 24. (b) 34. (d) 44. (d)5. (a) 15. (c) 25. (a) 35. (a) 45. (d)6. (c) 16. (d) 26. (a) 36. (d) 46. (a)7. (b) 17. (b) 27. (b) 37. (a) 47. (a)8. (c) 18. (b) 28. (a) 38. (a) 48. (c)9. (a) 19. (b) 29. (c) 39. (c) 49. (c)

10. (d) 20. (b) 30. (a) 40. (a) 50. (c)


Chapter 3Cost Concepts

1. BENEFIT forgiven for an alternative choice is known as ____________.(a) Loss (b) Opportunity cost(c) Factor cost (d) Product cost

2. A cost that has already been incurred and thus can not be recovered is called as…(a) Opportunity cost (b) Sunk cost(c) Direct cost (d) Deferred cost

3. Which cost is not recorded in the books of accounts?(a) Explicit cost (b) Implicit cost(c) Direct cost (d) Factory cost

4. Economic profit includes which cost?(a) Only Implicit cost (b) Only Opportunity cost(c) Only Material cost (d) Implicit and explicit

5. Cost volume analysis is also known as____________.(a) Break-even analysis (b) Regression analysis(c) Technical analysis (d) Fundamental analysis

6. What is Break-even Point?(a) No loss no profit situation (b) No profit situation(c) No loss situation (d) Profit situation

7. Accounting profit excludes(a) Explicit cost (b) Opportunity cost(c) Material cost (d) Advertising cost

8. What is incremental cost?(a) The additional cost for additional quantity(b) The additional cost for one additional unit(c) Cost of promotion(d) Cost of research

9. CVP analysis helps to reach ____________.(a) Cost minimization point (b) Marginal point(c) Break-even point (d) Reengineering point

10. Everything manufactured is sold is an assumption of ____________.(a) ABC analysis (b) XYZ analysis(c) Fundamental analysis (d) CVP analysis

11. A situation in which there is more than one possible outcome to a decision and the probabilityof each specific outcome is known or can be estimated is called as ____________.(a) Certainty (b) Uncertainty(c) Risk (d) No risk


12. A situation in which there is more than one possible outcome to a decision and the probabilityof each specific outcome is not known or can not be estimated is called as…(a) Certainty (b) Uncertainty(c) Risk (d) No risk

13. The situation where there is only one possible outcome to a decision and is known precisely iscalled as ____________.(a) Certainty (b) Uncertainty(c) Risk (d) No risk

14. What is expected value?(a) Sum of possible outcome (b) Average of possible outcome(c) Discounted value of outcome (d) Compound value of outcome

15. What is risk management?(a) Minimization of risk(b) Maximization of certainty(c) Identification, assessment and prioritisation of risks(d) Evaluation of risk

16. Which of the following is not a technique of risk management?(a) Insurance (b) Diversification(c) Hedging (d) Investing in shares

17. Which of the following is the technique of risk management?(a) Stock investment (b) Stock shortlisting(c) Hedging (d) Loan syndication

18. What is hedging?(a) Improving profitability (b) Increasing investment limit(c) Strategy of reducing risk (d) Selling of investment

19. What is insurance?(a) Person transfers the cost of potential loss to another entity in exchange for monetary

compensation.(b) Increasing risk(c) Decreasing profit(d) Purchasing stock

20. What is diversification?(a) Combining variety of investments in a portfolio(b) Distribution of profit(c) Distribution of maturity(d) Selling investment

21. What helps to protect one’s capital against effects of inflation?(a) Hedging (b) Insurance(c) Fixed deposit (d) Real estates


22. What is decision tree?(a) Graph that uses a branching method to illustrate every possible outcome of a decision.(b) Taking multiple decisions(c) Distribution of risk(d) Distribution of cost

23. Which type of node is not a part of decision tree?(a) Decision node (b) Outcome node(c) Chance node (d) End node

24. Decision node is represented by(a) Square (b) Rectangle(c) Circle (c) Triangle

25. Chance node is represented by(a) Square (b) Rectangle(c) Circle (d) Triangle

26. End node is represented by(a) Square (b) Rectangle(c) Circle (d) Triangle

27. What is marginal cost?(a) Cost of material (b) Cost of an additional unit(c) Cost of labour (d) Cost of overheads

28. Who is the regulator of insurance market?(a) RBI (b) SEBI(c) IRDA (d) WTO

29. What is cost?(a) the amount of money needed to buy, do, or make something(b) selling price(c) market price(d) economic value of an asset

30. What is fixed cost?(a) Cost which does not remain constant(b) Cost which does not change(c) Cost that varies(d) Cost which is flexible

31. What is variable cost?(a) Cost which changes as per the production change.(b) Cost which does not change(c) Cost which remains constant(d) Cost which does not vary


32. A cost that can be directly related to producing specific goods or performing a specific serviceis called as ____________.(a) Indirect cost (b) Selling price(c) Production cost (d) Direct cost

33. A cost that has occurred but it is not initially shown or reported as a separate cost is called as____________.(a) Explicit cost (b) Promotion cost(c) Total cost (d) Implicit cost

34. A cost that has occurred and is clearly reported as a separate cost is called as ...(a) Explicit cost (b) Total cost(c) Selling cost (d) Implicit cost

35. Which of following is not a technique of marginal costing?(a) PV Ratio (b) BEP(c) PV analysis (d) Cost sheet

36. Which of the following is an assumption of CVP analysis?(a) Whatever is produced is sold (b) Sales vary as per demand(c) Sales prices changes as per supply (d) Everything produced is not sold

37. Which of the following is not an assumption of CVP analysis?(a) Sales price is constant (b) Sales price varies(c) Fixed cost is constant (d) Whatever is produced is sold

38. What is contribution?(a) Sales- Fixed cost (b) Sales – Variable cost(c) Sales – Profit (d) Sales – total cost

39. Which of the following is true?(a) Profit = sales – (Variable cost + Fixed Cost)(b) Profit = sales – contribution(c) Profit = sales – variable cost(d) Profit = sales – fixed cost

40. Which of the following is not a part of Break-even Analysis?(a) Sales (b) Variable cost(c) Fixed cost (d) Capital

41. What is incremental principle?(a) Estimating sales prices at increased level(b) Estimating revenue at increased level(c) Estimating cost reduction at increased level(d) Estimating the impact of decision alternative on cost & revenue


42. What is incremental revenue?(a) Total revenue of historical year(b) Total revenue of current year(c) Total revenue resulting from a decision(d) Total estimated revenue

43. Which of following is true?(a) Decision is profitable if is it increases revenue than cost(b) Decision is profitable if is reduces cost & revenue(c) Decision is profitable if it increases cost(d) Decision is profitable if it reduces cost and total revenue

44. Which of the following is not true about incremental analysis?(a) Cost & revenue are the components of incremental analysis(b) Alternative decisions are available(c) Decision impacts on cost and revenue(d) Decision does not impacts on cost and revenue

45. Which of following is true?(a) Marginal cost is cost for increased production(b) Marginal cost is cost of additional one unit(c) Marginal cost is cost decreased production(d) Marginal cost is not recorded in books of accounts

46. Which of the following is not an example of sunk cost?(a) Rent (b) Research and development cost(c) Advertising (d) Capital

47. Which of following is not an example of explicit cost?(a) Labour cost (b) Material cost(c) Overhead cost (d) Opportunity cost

48. Sales made over and above BEP is known as(a) Margin of safety (b) Marginal cost(c) Contribution (d) Surplus margin

49. Point at which total revenue and total cost is equal is called as ____________.(a) CVP (b) BEP(c) Marginal point (d) Central point

50. Maturity date of an investment is 23rd November 2016, is an example of ____________.(a) Uncertainty (b) Certainty(c) Risk (d) None of the above



1. (b) 11. (c) 21. (a) 31. (a) 41. (d)2. (b) 12. (b) 22. (a) 32. (d) 42. (c)3. (b) 13. (a) 23. (b) 33. (d) 43. (a)4. (d) 14. (b) 24. (a) 34. (a) 44. (d)5. (a) 15. (c) 25. (c) 35. (d) 45. (b)6. (a) 16. (d) 26. (d) 36. (a) 46. (d)7. (b) 17. (c) 27. (b) 37. (b) 47. (d)8. (a) 18. (c) 28. (c) 38. (b) 48. (a)9. (c) 19. (a) 29. (a) 39. (a) 49. (b)

10. (d) 20. (a) 30. (b) 40. (d) 50. (b)


Chapter 4Money and Capital Markets in India

1. What is money market?(a) A place where only debt instruments are traded(b) Bond market(c) A place where high liquid financial instruments are traded(d) A place where high maturity financial instruments are traded

2. Who regulates money market?(a) RBI (b) SEBI(c) IRDA (d) SIDBI

3. Which is not the instrument of money market?(a) CP (b) CD(c) T-Bill (d) Fixed Deposit

4. Which of the following is an instrument of money market?(a) Debentures (b) Preference shares(c) ADR (d) Bill of Exchange

5. What is the minimum amount limit in Treasury bill?(a) 26000 (b) 25000(c) 30000 (d) 100000

6. What is the tenure of T-Bill?(a) Less than one year (b) More than one year(c) Two years (d) One year

7. What is bill of exchange?(a) Unconditional order to pay a sum of money.(b) Saving certificate with fixed maturity(c) Unsecured short-term debt instrument(d) Long-term debt instrument

8. Which of the following is not a party involved in bill of exchange?(a) Society (b) Drawer(c) Payee (d) Endorsee

9. What is commercial paper?(a) Unconditional order to pay a sum of money.(b) Saving certificate with fixed maturity(c) Unsecured short-term debt instrument(d) Long-term debt instrument

10. What is the tenure of commercial paper?(a) 30 days to 270 days (b) 300 days(c) 360 days (d) 2 years


11. What is certificate of deposit?(a) Unconditional order to pay a sum of money.(b) Saving certificate with fixed maturity(c) Unsecured short-term debt instrument(d) Long-term debt instrument

12. What is the tenure of certificate of deposit?(a) 2 years (b) 1.5 years(c) 7 days to one year (d) 1 day to 365 days

13. CBLO stands for ____________.(a) Collateralized Borrowing and Lending Obligation(b) Central borrowing & lending Obligation(c) Commercial borrowing and liquidity object(d) Collateral borrowing and legal obligation

14. What is collateralized borrowing and lending obligation?(a) a money market instrument that represents an obligation between a borrower and a lender

as to the terms and conditions of the loan.(b) A capital market instrument that represents an obligation between a borrower and a lender

as to the terms and conditions of the loan(c) A forex market instrument that represents an obligation between a borrower and a lender

as to the terms and conditions of the loan(d) A share market instrument that represents an obligation between a borrower and a lender

as to the terms and conditions of the loan15. What is the tenure of CBLO?

(a) More than a year (b) A year(c) Less than a year (d) 1year to 2 years

16. BOP is ____________.(a) Record of country’s payments(b) Record of all economic transactions between country residents and rest of world(c) Record of payment transactions between country residents and rest of world(d) Record of all receipts between country residents and rest of world

17. BOP stand for ____________.(a) Bills of payment (b) Balance of payment(c) Borrowing for payment (d) Balance of policy

18. Which of the following is an apex institution of Indian economy?(a) SEBI (b) RBI(c) SBI (d) IRDA

19. RBI is established in ____________.(a) 1935 Mumbai (b) 1935 Kolkata(c) 1937 Mumbai (d) 1937 Calcutta


20. SEBI stands for ____________.(a) Social Economic Board of India (b) Securities Economic Board of India(c) Securities Exchange Board of India (d) Securities Extending Board of India

21. SEBI is established in ____________.(a) 1991 (b) 1992(c) 1990 (d) 1993

22. Which of the following is not the function of SEBI?(a) Issuer (b) Creditor(c) Regulator (d) Protector

23. Which of the following is not the function of money market?(a) Promotes liquidity (b) Regulates currency(c) Mobility (d) Provides funds

24. Which among the following is not the function of SEBI?(a) Regulating capital market (b) Regulating money market(c) Regulating credit rating agencies (d) Regulating underwriters

25. Which among the following is function of RBI?(a) Regulating capital market (b) Regulating money market(c) Regulating goods market (d) Regulating insurance policies

26. Which among the following is not the function of RBI?(a) Regulating capital market (b) Regulating currency(c) Regulating BOP (d) Regulating money market

27. Which among the following is the central bank of India?(a) RBI (b) SBI(c) BOI (d) BOM

28. Balance of payment defines the relationship between ____________.(a) Foreign exchange (b) Local trade(c) Borrowing and lending (d) Receipts and payments

29. What is capital market?(a) Financial market dealing with long-term instruments(b) Financial market dealing with insurance instruments(c) Financial market dealing with liquid instruments(d) Financial market dealing with cash instrument

30. What is composition of Capital market?(a) Primary & secondary market(b) Primary and forex market(c) Secondary and debt market(d) Secondary and forex market

31. How many companies are considered for calculating BSE index?(a) 25 (b) 50(c) 30 (d) 42


32. Who regulates capital market?(a) RBI (b) SBI(c) SEBI (d) IRD

33. How many companies are considered for calculating NSE index?(a) 25 (b) 50(c) 30 (d) 42

34. Stock exchanges are regulated by ____________.(a) SEBI (b) BSE(c) SBI (d) RBI

35. OMO stands for ____________.(a) Obligation monetary operations(b) Open market operations(c) Open money operation(d) Open monetary operation

36. Which among the following is the stock exchange of India?(a) NASDAQ (b) HKSE(c) NSE (d) ESE

37. Who amongst the following is not a part of capital market?(a) Primary market (b) Secondary market(c) Debt market (d) Liquid market

38. Who amongst the following is not a part of money market?(a) Secondary market (b) Liquid instrument market(c) Insurance market (d) Primary market

39. GDR stand for(a) Global Depository Receipts (b) Global Debt Receipt(c) Global Doubtful Receipts (d) Global Depository Regulator

40. ADR stands for(a) American Doubtful Receipt (b) American Depository Receipt(c) American Debt Receipt (d) Asian Debt Receipt

41. What is debenture?(a) Debt instrument (b) Share instrument(c) Liquid instrument (d) Depositary instrument

42. What is a share?(a) Debt instrument (b) Stock(c) Depositary instrument (d) Insurance instrument

43. What is bond?(a) Debt instrument (b) Depositary instrument(c) Share instrument (d) Stock


44. What is hedge fund?(a) Pool of underlying securities (b) Pool of fixed deposits(c) Pool of debentures (d) Pool of currencies

45. What is gold ETF?(a) Units representing in physical gold, which may be in paper or dematerialized form(b) Units representing in mutual gold(c) Units representing gold in paper form only(d) Units representing gold in dematerialized form only

46. Which of the following is not a type of debenture?(a) Fully convertible(b) Partially convertible(c) Non-convertible(d) Mutually convertible

47. What is the core function of capital market?(a) Provides liquid sources of funds(b) Provides long-term sources of funds(c) Regulating mutual funds(d) Regulates currency

48. What is the core function of money market?(a) Provides liquid sources of funds(b) Provides long-term sources of funds(c) Regulating mutual funds(d) Regulates currency

49. What is ADR?(a) Securities of non U. S. company that trades in U. S market(b) Securities from U. S. company that trades in U.S. market(c) Securities of Indian company that trades in U.S. market(d) Securities of U. S. company that trades in Indian Market

50. What is GDR?(a) a bank certificate issued in more than one country for shares in a foreign company(b) a bank certificate issued in one country for shares in Indian company(c) Securities of Indian company that trades in U.S. market(d) Securities of U. S. company that trades in Indian Market



1. (c) 11. (b) 21. (b) 31. (c) 41. (a)2. (a) 12. (d) 22. (b) 32. (c) 42. (b)3. (d) 13. (a) 23. (b) 33. (c) 43. (a)4. (d) 14. (a) 24. (b) 34. (a) 44. (a)5. (b) 15. (c) 25. (b) 35. (b) 45. (a)6. (a) 16. (b) 26. (a) 36. (c) 46. (d)7. (a) 17. (b) 27. (a) 37. (d) 47. (b)8. (a) 18. (b) 28. (a) 38. (c) 48. (a)9. (c) 19. (b) 29. (a) 39. (a) 49. (a)

10. (a) 20. (c) 30. (a) 40. (b) 50. (a)


Chapter 5Public Finance Infrastructure

1. GDP stands for ____________.(a) Gross Demand of Product (b) Gross Domestic Product(c) Global Demand of Product (d) Gross Domestic Price

2. GNP Stands for ____________.(a) Global Net Product (b) Gross National Price(c) Gross National Product (d) Global Net Price

3. PPP stands for ____________.(a) Public private parity (b) Public private performance(c) Public purchase power (d) Purchase power parity

4. GATT Stands for ____________.(a) Gross agreement on trade and tariff(b) General agreement on trade and tariff(c) General agreement on tariff and trade(d) Gross agreement on tariff and trade

5. WTO stands for ____________.(a) World Trade Organisation (b) World Trade Office(c) World Tourism Organisation (d) World Transportation Organisation

6. WTO was established in ____________.(a) 1993 (b) 1994(c) 1995 (c) 1998

7. The headquarter of WTO is in ____________(a) Singapore (b) USA(c) UK (d) Switzerland

8. Which of the following is added to national income while calculating personal income?(a) Transfer payments to individuals (b) Social security contributions(c) Corporate taxes (d) Undistributed profits

9. Which of the following method/s is/are used to calculate national income in India?(a) Production method (b) Expenditure method(c) Income method (d) All the above

10. The national income estimation is the responsibility of(a) NSSO (b) CSO(c) Finance Ministry (d) National Income Committee

11. Consider the following statements and identify the right ones.(i) The data for NI and PCI are collected at current prices.

(ii) They are deflated using the deflator index to get value at constant prices.


(a) (i) only (b) (ii) only(c) both (d) none

12. The most appropriate measure of a country's economic growth is(a) GDP (b) NDP(c) Per capita real income (d) GNP

13. Consider the following statements and identify the right ones.(i) National income is the monetary value of all final goods and services produced.

(ii) Depreciation is deducted from gross value to get the net value(a) (i) only (b) (ii) only(c) both (d) none

14. The net value of GDP after deducting depreciation from GDP is(a) Net national product (b) Net domestic product(c) Gross national product (d) Disposable income

15. When depreciation is deducted from GNP, the net value is(a) Net national product (b) Net domestic product(c) Gross national product (d) Disposable income

16. The value of NNP at consumer point is(a) NNP at factor cost (b) NNP at market price(c) GNP at market price (d) GNP at factor cost

17. The value of NNP at production point is called(a) NNP at factor cost (b) NNP at market price(c) GNP at market price (d) GNP at factor cost

18. The value of national income adjusted for inflation is called(a) Per capita income (b) Disposable income(c) Inflation rate (d) Real national income

19. The average income of the country is(a) Per capita income (b) Disposable income(c) Inflation rate (d) Real national income

20. Which among the following statement in true ____________.(a) National Expenditure = National Income(b) National Expenditure = National Income+ National savings(c) National Expenditure = National Income +Taxes(d) National Expenditure = National Income – Taxes

21. Which statement is true?(a) National Income = National expenditure - Indirect taxes(b) NI = GNP – NNP(c) NI = NNP – Indirect taxes(d) NI = PI


22. How many methods are there to measure the national income ____________.(a) 1 (b) 5 (c) 3 (d) 4

23. If we compare GDP and GNP, then:(a) GNP = GDP – net income from abroad(b) GNP = GDP + net income from abroad(c) GNP = NNP – net income from abroad(d) GNP = NNP + net income from abroad

24. It is deducted from GNP to get NNP:(a) Indirect taxes (b) Depreciation(c) Direct taxes (d) Transfer payment

25. It is added to GDP to get GNP ____________.(a) allowance (b) Direct taxes(c) Subsidies (d) Net income from abroad

26. Which is among the following has a largest figure ____________.(a) NNP (b) GNP(c) PCI (d) PI

27. The largest part of national income goes to ____________.(a) Consumption (b) Investment(c) Saving (d) Transfer payment

28. When national income is estimated by expenditure method, we include:(a) All Govt. Expenditure(b) All household expenditure(c) All expenditure of the business sector(d) All of the above

29. Total value of all final goods and services produced in a country during one year is:(a) GDP (b) GNP(c) NNP (d) NI

30. It is not included in estimation of national income:(a) Illegal income (b) Services of housewife(c) Imports (d) None of these

31. Which statement among the following is true ____________.(a) NI = rent + interest + wages + profit(b) NI = rent + interest + wages + taxes(c) NI = Govt. expenditure + interest + wages + profit(d) NI = rent + interest + wages + pensions

32. Determinants of national income are ____________.(a) Natural resources, human resources, monetary resources(b) Natural resources, capital resources, monetary resources


(c) Natural resources, capital resources, human resources(d) Natural resources, capital resources, foreign resources

33. What is GDP?(a) Value of product in financial year.(b) Value of product in financial year within country(c) Total consumption and income in a financial year within country(d) It includes import and export

34. How real GDP is calculated?(a) Constant price (b) Current Price(c) Cost plus price (d) mark-up price

35. WTO superseded which organization?(a) International Trade Organization(b) General Agreement on Tariff and Trade(c) General Agreement on Trade and services(d) International Chamber of Commerce

36. Union budget of India is presented in which month?(a) January (b) March(c) February (d) April

37. How many countries are the member of WTO in present?(a) 23 (b) 130(c) 160 (d) 159

38. What is factor cost?(a) MP – Indirect tax + Subsidies (b) MP + Indirect tax + Subsidies(c) MP + Indirect tax – Subsidies (d) MP – Indirect tax – Subsidies

39. What is market price?(a) FC + Indirect tax – Subsidies (b) FC + Indirect tax + Subsidies(c) FC – Indirect tax – Subsidies (d) FC – Indirect tax + Subsidies

40. In which year Indian economy introduced LPG policy?(a) 1990 (b) 1991(c) 1947 (d) 2001

41. When GATT was established?(a) 1945 (b) 1995(c) 1947 (d) 1950

42. How many countries were the member when GATT was established?(a) 19 (b) 23(c) 123 (d) 69

43. Who is the director general of WTO?(a) Barak Obama (b) Roberto Azevedo(c) Pascal Lamy (d) Ban ki Moon


44. Who presents union budget in India?(a) Prime Minister (b) Home Minister(c) Commerce Minister (d) Finance Minister

45. Revenue account of budget does not consists of ____________.(a) Exports (b) Direct Tax(c) FDI (d) Indirect Tax

46. Capital account of budget includes(a) Exports Income (b) Direct Tax(c) Indirect Tax (d) FDI

47. Revenue deficit is defined as(a) Expenditure – Income(b) Income – Expenditure(c) Planned revenue – Achieved revenue(d) Planned Revenue – Planned Expenditure

48. Fiscal deficit is defined as(a) Expenditure > Income (b) Income > Expenditure(c) Cost > Profit (d) Income = Expenditure

49. Which among the following is not the part of non-planned expenditure of budget?(a) Interest Payments (b) Rural Development(c) Subsidies (d) Wages & Salary

50. Which is not the part of planned expenditure of budget?(a) Electricity Generation (b) Rural Development(c) Subsidies (d) Road Construction


1. (b) 11. (c) 21. (c) 31. (a) 41. (c)2. (c) 12. (c) 22. (c) 32. (c) 42. (b)3. (d) 13. (c) 23. (b) 33. (b) 43. (b)4. (c) 14. (b) 24. (b) 34. (a) 44. (d)5. (a) 15. (a) 25. (d) 35. (b) 45. (c)6. (c) 16. (b) 26. (b) 36. (c) 46. (d)7. (d) 17. (a) 27. (a) 37. (c) 47. (c)8. (a) 18. (d) 28. (d) 38. (a) 48. (a)9. (d) 19. (a) 29. (a) 39. (a) 49. (b)

10. (b) 20. (a) 30. (d) 40. (b) 50. (c)

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Economic Analysis for Business Decisions - Neville Wadia