HIGH ORDER THINKING SKILLS ( HOTS) QUESTIONS FOR BRIGHT
STUDENTS
UNIT I: INTRODUCTION TO MICRO ECONOMICS
1. Draw the PPC when MRT is constant. Give reason.
2. Does production take place only on PPC.
3. Price determination of a commodity is a subject matter of micro or micro
economics.
4. Is the study of cotton textile industry a macro economic study?
5. Is the study of cotton textile industry a micro economic study?
6. Is the study of price level a macro economic study?
7. Identify which of the following are the subject matter of micro or m micro
economics:
i)
National income
ii)
Supply by a firm
iii)
Iron and steel industry
iv)
Government budget
v)
Price determination of a commodity
vi)
General price level
UNIT II: CONSUMER BEHAVIOUR AND SUPPLY
1. What is the curve showing different combinations of two goods, maintaining the
same level of satisfaction known as?
2. Give the formula for calculating the slope of budget line.
3. Give the formula for calculating the slope of indifference curve
4. If a consumer is indifferent between combination A and combination B of two
good, what does it imply?
5. Explain why budget line is downward sloping?
6. Suppose a consumer’s preferences are monotonic. What can you say about her
preferences ranking over the bundles (10, 10), (10, 9), (9, 9)?
7. What happened to budget set if both the prices as well as the income doubled?
8. Why the indifference curve is convex to origin?
9. If the supply of X rises and it leads to fall in the supply for Y good, how are two
goods related?
10. If the supply of X rises and it leads to increase in the supply for Y good, how are
two goods related?
11. If the supply of X rises and it leads to fall in the supply for that good by that
consumer. What is the X good called?
12. When will rise in supply be called expansion of supply and when will it be called
an increase in supply?
13. How will an increase in price of tea affect the supply of sugar? Explain with the
help of a diagram.
14. If two negatively sloped demand curves intersect each other, will the elasticity at
the point of their intersection be equal to one?
15. What will be the price elasticity of supply if the supply curve is parallel to X axis?
16. What will be the price elasticity of supply if the supply curve is parallel to Y axis?
17. What is the relation between the slope of the supply curve and the elasticity of
supply?
18. Is the supply for the following elastic, moderate elastic highly elastic and
inelastic:
a)Salt , b) Needles, c)Petrol, d)Cars, e)Textbooks, f)Fridge, g)Seasonal vegetables,
h)milk, i)Medicines, j)Mobile phones, k)School uniform.
UNIT III: PRODUCER’S BEHAVIOUR AND SUPPLY
1. What will you say about MMP of a factor when TPP rises at an increasing rate?
2. What will you say about MMP of a factor when TPP rises at a diminishing rate?
3. What will you say about MMP of a factor when TPP falls?
4. What will you say about TPP of a factor when MPP is at zero?
5. When MPP is greater than APP what you will say about APP?
6. To increase the production of a good, only one input is increased while other
inputs are held constant. Explain its effects on total physical product. Give
reasons.
7. What is the shape of AFC curve?
8. Can the AC be less than the marginal cost when AC is rising?
9. A firm is producing 20 units. At this level of output, the ATC and AVC are
respectively equal to Rs.40 and Rs.37. Find out the TFC of the firm.
10. Classify the following into Fixed and Variable cost: Salary of permanent staff,
interest payment, wages to daily workers, expenditure on raw material, Excise
duty, and sales tax.
11. What is the shape of the MR when price remain same for every level of output?
12. What will you say about MR of a factor when TR rises at an increasing rate?
13. What will you say about MR of a factor when TR rises at a diminishing rate?
14. What will you say about MR of a factor when TR falls?
15. What will you say about TR of a factor when MR is at zero?
16. When MR is greater than AR what you will say about APP?
17. When MR is smaller than AR what you will say about AR?
19. When will fall in supply be called expansion of supply and when will it be called
an increase in supply?
20. How will an increase in price of mango jam affect the supply of mango juice?
Explain with the help of a diagram.
21. If two negatively sloped supply curves intersect each other, will the elasticity at
the point of their intersection be equal to one?
22. What will be the price elasticity of supply if the supply curve is parallel to X axis?
23. What will be the price elasticity of supply if the supply curve is parallel to Y axis?
24. What is the relation between the slope of the supply curve and the elasticity of
supply?
25. Is the supply for the following elastic, moderate elastic highly elastic and
inelastic:
a)vegetables , b) spinach, c)wheat, d)Cars, e)Textbooks, f)Fridge,
g)Seasonal vegetables, h)milk, i)Medicines.
UNIT IV: FORMS OF MARKET AND PRICE DETERMINATION
1.
2.
3.
4.
5.
Why the firm under perfect competition is a price taker and not a price maker?
In which market form the goods are sold at uniform price?
In which market form the product of very seller is homogeneous?
In which market form the AR and the MR of the firm are always equal?
In which market form the product of every producer is different from one
another?
6. Why the situation of monopoly arises?
7. Compare the demand curves facing a seller under conditions of perfect
competition, monopoly and monopolistic competition.
8. What attracts the new firm to enter in the market?
9. Explain why the demand curve facing a firm under monopolistic competition is
negatively sloped?
10. Explain why the demand curve facing a firm under monopolistic competition is
more elastic than that of monopoly firm?
UNIT VI: NATIONAL INCOME AND RELATED AGGREGATES
1. What is the difference between macro and micro economics?
2. Which branch of the economics deals with aggregates of the economy?
3. When will the domestic income be greater than national income?
4. What should be added to domestic income to get national income?
5. Distinguish between GNPat mp and NDP @ fc.
6. Explain the distinction between domestic product and national product on the
basis of concepts of residents and domestic territory.
7. Name two items which are deducted from personal income to get private income.
8. under what circumstances is:
i)
NNP @ mp< NDP @ mp
ii)
GDP @ fc > GNP @ fc
9. Describe the steps involved in the estimation of national income by value added
method. State any two precautions that must be taken while estimating national
income by this method.
10. Describe the steps involved in the estimation of national income by income
method. State any two precautions that must be taken while estimating national
income by this method.
11. Describe the steps involved in the estimation of national income by expenditure
method. State any two precautions that must be taken while estimating national
income by this method.
12. Why the imports are not included in national income while exports are added?
13. How the following treated in the estimation of national income also justify your
answer:
Transfer payments, Services of owner occupied houses, Commission received
from sale of second hand goods, Non marketable goods, Facto income from
abroad, Factor income paid to abroad, Salaries to Indian residents working in
American Embassy in India, Profits earned by a company in India owned by a
non resident, Profits earned by Indian firm in Japan, School fees paid by the
students, Purchase of shares of a domestic company, furniture purchased by house
hold, Bread purchased by house hold, Bread purchase by a canteenwala to make
bread pakoras, Puchase of raw material by a firm, Puchase of machinery by a
firm, Interest paid on loan taken to buy a personal car, income received by a
lawyer, payment of income to a lawyer by a firm for his services to it, Rent-free
house to an employee by the employer, Expenditure by Govt to provide free
education, Expenditure by govt. on subsidies, Puchase of truck by a production
unit, remittances from non-residents Indians to their families in India, Rent paid
by the branch of a foreign bank in India.
14. How the following treated in the estimation of Domestic income also justify your
answer:
Profits earned by a foreign banks from their branches in India, Salaries received by
Indian residents working in American Embassy in India, Salaries received by
American residents working in Indian Embassy in America, Pofits earned by Indian
company from its branch in Singapore, Rent received by Indian residents from the
Russian Embassy in India, Profits earned by State Bank of India from England,
Financial help given to flood victims by Indian govt, Interest received by an
individual from banks, Brokerage payment on sale of shares, Purchase of shares.
UNIT VII: MONEY AND BANKING
1.
2.
3.
4.
5.
6.
7.
How the monetary system solved the problems of barter system?
Define M1 also explain the meaning of its components.
Explain unit of value function of money.
How was the money evolved?
Explain how the commercial banks create credit.
Explain the Banker’s bank and Supervisor function of Central Bank.
How the Central bank of a country control the credit creation in the
economy? Explain any three measures.
8. Why the Post Offices and LIC are not bank?
9. Give the four definitions used by the Reserve Bank of India to estimate
money supply in the Economy,
UNIT VIII: DETERMINATION OF INCOME AND EMPLOYMENT
Q.1 What is aggregate demand?
Ans:- It refers to consumption, investment and government expenditure as well as net
exports in the economy during the period of one year.
Q.2 What is meant by aggregate supply in macro economics?
Ans:- Aggregate supply is the money value of the final goods and services or national
product produced in an economy during one year. It is equal to income generated. So
that,
AS=Y=C+S
Q.3 Define MPC.
Ans:- MPC is the ratio of the change in computation to change in income.
MPC=∆c/∆y
Q.4 What is the saving function?
Ans:- Saving function refers to the functional relationship between saving and income.
S=-a+βY
Here,
S=Saving
-a=Saving when income level is zero=minimum consumption when y=0.
β=MPS
Y= income
Q.5 Define MPS
Ans:- MPS is the ratio of change in saving to change in income.
MPS=∆S/∆Y
Q.6 If in an economy investment is greater than saving, what is the effect on the national
income?
Ans:- The level of income will rise so long as full employment is not reached.
Q.7 What is meant by equilibrium?
Ans:- Equilibrium is a situation in which aggregate demand is equal to aggregate supply.
AD=AS
Q.8 What is under employment equilibrium?
Ans:- Under employment equilibrium is a state of equilibrium where some resources
continue to be unemployed.
Q.9 What is the meaning of excess demand in an economy?
Ans:- Excess demand refer to the situation when aggregate demand is in excess of
aggregate supply corresponding to full employment.
Q.10 When does a situation deficient demand arise in an economy?
Ans :- Deficient demand arises when aggregate demand is short of aggregate supply
corresponding to full employment in an economy.
Short Answers Questions carrying 3 Mark
Q.1 State any three components of aggregate demand. Explain any one of them.
Ans:- Components of AD are
1. House hold consumption demand.
2. Private investment demand.
3. Government demand
Private investment demand:Private investment is expenditure on creation of new productive assets and
inventories by house hold, Private business firms and Govt.
Q.2 Give the meaning of MPS and APS. Can the value of APS be negative? If yes, when?
Ans:- APS is the ratio of aggregate saving to aggregate income.
APS=S/Y
MPS is the ratio of change in saving to change in income.
MPS=∆S/∆Y.
Value of APS is negative when APC > 1, it happens when C > Y.
Q.3 What is difference between plant (Expost) and actual (Exante) investments?
Ans:Planned investment
Actual
investment
1.Planned investment refers to the desired
1. Actual investment refers to
the relised level
Level of investment.
Of investment.
2.In the context of equilibrium level of output,
2. According to the principle of
national income
Planned investment may or may not be equal to
accounting, actual investment is
always equal to
Planned saving.
Actual saving.
3.Equilibrum level of income is determined
3. Actual investment has no
relevance in
Where planned investment = planned saving.
Equilibrium level of income.
Q.4 Differentiate between Full employment and Under employment equilibrium?
Ans:Full employment
Under
employment
1.Full employment equilibrium refers to the
1.Under employment
equilibrium refers to the
Situation where aggregate demand = aggregate
situation where AD=AS but all
those who are
Supply and all those who are able to work and
able to work and willing to work
do not get
Willing to work get work.
Work.
2. Full employment equilibrium is a stable
2. Under employment equilibrium
is not a stable
Equilibrium and real out put reaches its maximum
equilibrium and real out put does
not reach Its
Point.
Maximum.
3.Attempt to increase production beyond full
3. Attempt to increase production
beyond under
Employment equilibrium causes inflationary
employment equilibrium does
not cause
Gap.
inflationary gap.
Q.5 Explain two physical measures by which excess demand in an economy can be
reduce.
Ans:-Excess demand refers to a situation in which aggregate demand exceed aggregate
supply corresponding to full employment. The physical measure to reduce excess demand
are follows
1.
Surplus Budget policy- It is necessary
that government’s expenditure should be less than its income in order to correct
the situation of excess demand. Demand will decrease following decrease in
expenditure.
2.
Increase in Taxes:- The government
should levy new taxes and enhance the rate of existing one’s. This would reduce
disposable income of the paper. Accordingly aggregate demand will shrink.
short Answers Questions carrying 4 Marks
Q.1 What is deficient demand in an economy? What is its impact on out put,
employment and prices?
Ans:- Deficient demand refers to the situation when aggregate demand is short of
aggregate supply corresponding to full employment in an economy.
1. Effect on Output- Low level of investment and employment implies low level of
output.
2. Effect on employment- Because of deficiency of demand investment level is
reduced. Accordingly, level of employment tends to fall.
3. Effect of prices:- Fall in prices is the immediate consequence of deficient
demand.
Q.2:- With help of a diagram explain the concept of inflationary gap.
Ans:- inflationary gap is the excess of aggregate demand over the and above its level
required to maintain full employment equilibrium in the economy.
In this fig. Full employment equilibrium struck at point E. If the level of demand
increases to AD1 it is in excess of what is required to maintain full employment. This
causes inflation. Hence, the difference between AD1 And AD(E E1) is called inflationary
gap.
Q.3 What is minority policy? Explain the role of 1. Bank Rate and 2. Margin
requirement in influencing the available of the credit in an economy.
Ans:- Monitory policy is the policy relating to the regulation of
1.
2.
3.
Supply of money.
Rate of interest and
Available of money, with a view to
combating the situation of inflationary or deflationary gap in the economy.
1.
Bank Rate:- It is the rate at which the
central bank offers loans to the commercial banks as ‘a lender of lost resort’.
During inflation when supply of money/credit is to be reduced, bank rate is
increased. This reduces borrowing by the commercial banks implying a reduction
in their cash reserve and therefore a reduction in their capacity to create credit.
Following increase in bank rate market rate of interest is also raised, implying a
check on borrowing form the commercial banks. Thus, overall supply of
money/credit is reduced in the economy. Exactly opposite is done to combat
inflation; bank rate is lowered two the supply of money/credit.
2.
Margin Requirement:- A margin refers
to the difference between market value of the security offered the loan and the
amount of loan offered by the commercial banks. During inflation, supply of
money /credit is reduced by raising the requirement of margin. During deflation,
supply of money/credit is increased by lowering the requirement of margin. This
measure is often used to discourage the flow of credit into speculative business
activities.
Long Answers Questions carrying 6 Marks
Q.1 Explain the theory of determination of income and employment with the help of
aggregate demand and aggregate supply curves.
Ans:-According to Modern theory of income an employment determination, in any
economy at any given time, income and employment are determined at that level where
AD=AS
In the Fig. AD represent aggregate demand curve and 45° line is the line of reference
where AS=AD. Equilibrium level of income Y is determined at point E, where AD and
AS are equal. Prior to point E, aggregate demand exceed to aggregate supply leading to
an increase in level of income up to point E. Beyond point E aggregate supply will
exceed AD leading to a fall in income back towards point E.
Q.2 Explain the concept of under employment equilibrium with the help of a diagram.
Show on the same diagram the additional investment expenditure required to reach full
employment equilibrium.
Ans:- Underemployment equilibrium refers to the situation of equality between AS and
AD when their level is less than of full employment.
Underemployment equilibrium level of income = OL, while full employment equilibrium
level of income =OL1.
In order to achieve full employment equilibrium deficiency of demand must be corrected
though additional investment expenditure. In the diagram, deficiency of AD =FK =RS.
Thus RS amount of additional investment required to reach the level of full employment.
1. What does the MPC shows?
2. If MPS is 0.23, what does it mean?
3. Why can the value of MPC be not greater than one?
4. What is the value of MPC when MPS is zero?
5. Does the Economy can be at equilibrium if it is not at full employment.
Explain with the help of a diagram.
6. When the disposable income rises from Rs.1000 to Rs.1100, saving rises by
Rs.30. Find out MPC.
7. What happened to equilibrium level of national income if Aggregate demand
is greater than Aggregate supply?
8. What happened to equilibrium level of national income if intended savings
exceeds intended investment?
9. In a two sector economy the saving and investment functions are as follows:
S= -10+0.2Y
I = -3+ 0.1Y
What will be the equilibrium level of income?
10. If C = 50+0.8Y and Investment rises by Rs.50 Crores, Calculate
i)Equilibrium level of income, ii) Level of consumption at this level of
income, iii)Savings at this level of income.
11. Derive the MPS with the help of MPC with the help of a diagram.
12. Describe three fiscal and monetary measures each taken by the govt. to tackle
the problem of excess demand.
13. Describe three fiscal and monetary measures each taken by the govt. to tackle
the problem of Deficient demand.
UNIT IX : GOVERNMENT BUDGET AND THE ECONOMY
1.
2.
3.
4.
Why is tax not a capital receipt?
What happened to aggregate demand when the govt. budget is in surplus?
What happened to aggregate demand when the govt. budget is in deficit?
Would you advocate deficit or surplus budget if there is excess demand in the
economy?
5. Would you advocate deficit or surplus budget if there is deficient demand in
the economy?
6. Can there be fiscal deficit if there is no deficit in revenue account?
7. Why repayment loan is a capital expenditure?
8. What type of expenditure is the payment of interest/
9. Why the receipt of interest on load treated as revenue receipts?
10. Categorise the following into revenue receipts and capital receipts by giving
the reason:
Recovery of loans, Corporation tax, Dividends on investment made
by govt., sale of PSU, interest on loan given to other countries.
11. Categorise the following into revenue expenditure and capital expenditure by
giving the reason:
Subsidies, Grant given to state govt., repayment of loans, construction of school
building, dam or railway lines.
12. On what basis the expenditure of the Govt. is divided into revenue and
capital?
13. On what basis the receipts of the Govt. is divided into revenue and capital?
UNIT 10: BALANCE OF PAYMENTS
1. Ten dollars are exchanged for five hundred rupees. What is the exchange rate
of Indian currency?
2. What does a change from $3 = ₤1 to $2 = ₤1 represent?
3. What happen to exchange rate if the supply of foreign currency increases?
Explain with the help of a diagram.
4. What happen to exchange rate if the demand of foreign currency decreases?
Explain with the help of a diagram.
5. Explain the relation between balance of payment and FOREX rate.
6. Explain the relationship between foreign exchange rate and the demand for
FOREX.
7. Explain the relationship between foreign exchange rate and the supply of
FOREX.
8. Explain how foreign exchange rate is determined in a foreign exchange
market? Use diagram
9. How the flexible or floating exchange rate is different from the managed
floating exchange rate?
10. A country’s BoT is Rs. (-)60 crores and the value of import of goods is Rs.100
Crores. Find out the value of exports.
11. How is the balance of trade different from balance of payments?
12. Balance of trade shows the deficit of Rs. 5000 crores. Value of export is
Rs.4000 crores. Find out the value of imports.
13. Differentiate between devaluation and depreciation.
14. Differentiate between revaluation and appreciation.
15. Are the following transactions entered on the credit or debit side of balance of
payments account:
Exports, Imports, Borrowings from rest of the world, Lending to rest of the
world, Import of software services.