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Free CA Business Economics Practice Questions & Answers
501 exam-style Business Economics questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 211
Net national product at market price equals gross national product at market price minus:
Select an option first.
Correct answer: B — Depreciation
Explanation: The gross-to-net step is always depreciation, whatever the valuation basis or the domestic-national coverage. Deducting NET INDIRECT TAXES as well would move it further to NNP at factor cost, which is national income proper.
Question 212
Net value added at factor cost is gross value added at market price minus:
Select an option first.
Correct answer: B — Depreciation and net indirect taxes
Explanation: Two adjustments are needed: depreciation converts gross to net, and net indirect taxes convert market price to factor cost. The result is the income actually generated for the factors of production by that unit.
Question 213
If nominal GDP grows by 11% while prices rise by 6%, real growth is approximately:
Select an option first.
Correct answer: D — 5%
Explanation: Real growth is approximately nominal growth less the rate of inflation: 11 - 6 = 5%. The approximation is close for small rates; the exact figure comes from dividing the two index numbers. If inflation had exceeded 11%, real growth would have been NEGATIVE despite the rising nominal figure.
Question 214
Per capita income is obtained by dividing national income by:
Select an option first.
Correct answer: A — The total population
Explanation: Per capita income is a crude average over the whole population and says nothing about DISTRIBUTION - a country may show a rising figure while most people are no better off. That limitation is why development is measured by additional indicators of health, education and inequality.
Question 215
Personal disposable income equals personal income minus:
Select an option first.
Correct answer: A — Direct taxes and other compulsory payments to government
Explanation: Disposable income is what a household is actually free to spend or save, so only DIRECT taxes such as income tax are deducted. Indirect taxes are already embedded in the prices of goods and are deducted earlier, when moving from market price to factor cost - keeping the two deductions in their proper places is what the question tests.
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Question 216
Personal income is:
Select an option first.
Correct answer: B — The income actually RECEIVED by households, including transfer payments
Explanation: Personal income adds transfer payments to earned income and deducts income earned but not received - corporate retained earnings and social security contributions. Deducting direct taxes from it gives personal DISPOSABLE income, which is distractor D.
Question 217
In the expenditure method, which of the following must be EXCLUDED?
Select an option first.
Correct answer: D — Expenditure on INTERMEDIATE goods and on second-hand goods
Explanation: Only expenditure on FINAL goods counts; intermediate purchases are already embedded in the final price. Purchases of financial assets are excluded too, since buying a share transfers ownership rather than creating output.
Question 218
In the income method, which of the following must be EXCLUDED?
Select an option first.
Correct answer: B — TRANSFER payments such as pensions and scholarships
Explanation: Transfer payments correspond to no current production and would double count income already earned elsewhere. Also excluded are windfall gains, illegal incomes and the sale value of second-hand goods - none of which represents a factor payment for current output.
Question 219
In the product or value added method, which of the following must be EXCLUDED?
Select an option first.
Correct answer: C — The value of INTERMEDIATE goods, and sales of second-hand goods
Explanation: Intermediate goods would be double counted, and second-hand goods were counted when originally produced - only the commission on their resale is a current service. Own-account production such as food grown and eaten by the farmer IS included, at an imputed value.
Question 220
The marginal propensity to consume plus the marginal propensity to save equals:
Select an option first.
Correct answer: D — One
Explanation: Every additional rupee of income is either spent or saved, so the two fractions must exhaust it. It follows that a high MPC implies a low MPS and therefore a LARGE multiplier - which is why the propensity to consume is central to Keynesian income determination.
Question 221
Real GDP differs from nominal GDP in that real GDP is measured at:
Select an option first.
Correct answer: C — Constant prices of a base year
Explanation: Nominal GDP rises when either output or prices rise, so it cannot show whether the economy has actually grown. Valuing every year's output at BASE YEAR prices strips out price change and isolates the change in real output. The ratio of nominal to real GDP, multiplied by 100, is the GDP deflator.
Question 222
The base year of the national income series is revised periodically in order to:
Select an option first.
Correct answer: A — Reflect changes in the STRUCTURE of the economy and in relative prices
Explanation: As new products appear and relative prices shift, an old base gives increasingly misleading weights. Revision restores accuracy but breaks comparability, which is why figures on the old and new bases cannot simply be placed side by side.
Question 223
Say's law of markets holds that:
Select an option first.
Correct answer: D — Supply creates its own demand, so general overproduction is impossible
Explanation: On the classical view, producing goods generates exactly the income needed to buy them, so a general glut cannot occur and full employment is automatic. Keynes attacked precisely this proposition, arguing that income may be saved rather than spent, breaking the link between production and demand.
Question 224
The GDP deflator is:
Select an option first.
Correct answer: D — Nominal GDP divided by real GDP, multiplied by 100
Explanation: The deflator is a broad price index covering every good and service in GDP, wider in coverage than the consumer price index, which uses a fixed household basket. A deflator of 120 means prices are 20% above the base year, and real GDP is nominal GDP scaled back by that factor.
Question 225
In the consumption function C = a + bY, the term b represents:
Select an option first.
Correct answer: A — The marginal propensity to consume
Explanation: The slope b shows the fraction of each additional rupee of income that is spent, and it lies between 0 and 1. The intercept a is AUTONOMOUS consumption - the amount spent even at zero income, financed by past saving or borrowing - which is what distractor B describes.
Question 226
The paradox of thrift states that if everyone tries to save more:
Select an option first.
Correct answer: B — Income may fall so much that total saving does not rise, and may even fall
Explanation: One person saving more is prudent; everyone doing so at once cuts consumption, output and income, and since saving depends on income, the attempt can be self-defeating. What is rational for an individual may be damaging in aggregate - the classic fallacy of composition.
Question 227
The existence of a large unrecorded or underground economy means that measured national income:
Select an option first.
Correct answer: B — UNDERSTATES true economic activity
Explanation: Transactions concealed to evade tax or regulation, and unpaid household work, generate real output that never enters the statistics. This is one reason cross-country comparisons of national income must be treated with caution, since the size of the unrecorded sector varies widely.
Question 228
Transfer payments such as old-age pensions and scholarships are excluded from national income because:
Select an option first.
Correct answer: C — No corresponding good or service is produced in return
Explanation: National income measures production, and a transfer merely redistributes purchasing power without any output being created. Including them would count the same income twice - once when earned by the taxpayer and again when received by the beneficiary.
Question 229
Keynes argued that an economy can be in equilibrium:
Select an option first.
Correct answer: B — At less than full employment, with no automatic force restoring it
Explanation: Classical economists held that flexible wages and prices would always restore full employment. Keynes denied it: if effective demand is deficient the economy can settle and remain at high unemployment, which is why he argued for deliberate government action to raise demand.
Question 230
Under the value added method, national income is computed as:
Select an option first.
Correct answer: B — The sum of the value ADDED by each producing unit
Explanation: Value added is the value of output less the value of intermediate consumption, which prevents the same output being counted at every stage of production. Summing all sales, as distractor A proposes, is precisely the double counting the method exists to avoid.
Question 231
A defining feature of Indian agriculture is that its share of:
Select an option first.
Correct answer: C — EMPLOYMENT far exceeds its share of national output
Explanation: Agriculture supports a far larger proportion of the workforce than the proportion of income it generates, which means low productivity per worker and low rural incomes. Shifting labour out of agriculture into industry and services is the central structural challenge.
Question 232
Cost-push inflation is caused by:
Select an option first.
Correct answer: C — A rise in the costs of production, such as wages or imported oil
Explanation: Cost-push inflation raises prices while output and employment FALL - the stagflation combination that makes it hard to treat, since demand management cures one problem only by worsening the other. Demand-pull inflation, described in distractor A, responds to ordinary demand restraint.
Question 233
The demographic dividend refers to:
Select an option first.
Correct answer: C — The potential growth arising from a large share of the population being of WORKING age
Explanation: A bulge in the working-age population relative to dependants can raise output and saving - but only if that population is educated, healthy and actually employed. Without those conditions the dividend becomes a liability, which is why it is described as a potential rather than an automatic gain.
Question 234
Foreign direct investment differs from foreign portfolio investment in that FDI:
Select an option first.
Correct answer: B — Involves a lasting interest and some degree of management control
Explanation: FDI brings technology, management and market access along with capital, and is relatively stable. Portfolio investment in shares and bonds carries no control and can reverse rapidly - which is why it is called hot money and why a heavy reliance on it is a source of vulnerability.
Question 235
Disinvestment refers to:
Select an option first.
Correct answer: C — The sale by government of part or all of its stake in a public sector undertaking
Explanation: Disinvestment raises revenue, is treated as a CAPITAL receipt since it reduces an asset, and is intended to improve efficiency by bringing in private management and market discipline. Where the government sells enough to transfer control, the transaction becomes privatisation proper.
Question 236
Substantial economic liberalisation in India began in:
Select an option first.
Correct answer: B — 1991
Explanation: The 1991 reforms, prompted by a balance of payments crisis, dismantled much of the industrial licensing system, reduced tariffs and opened the economy to foreign investment - the LPG programme of liberalisation, privatisation and globalisation. 1969 saw bank nationalisation, which moved in the opposite direction.
Question 237
Financial inclusion refers to:
Select an option first.
Correct answer: D — Ensuring access to affordable banking, credit and insurance for all sections, especially the poor
Explanation: Bringing households into the formal financial system reduces dependence on moneylenders, enables direct transfer of benefits and mobilises small savings. Programmes of basic bank accounts, together with digital payments, have been the principal instruments.
Question 238
The Goods and Services Tax introduced in India in 2017 is:
Select an option first.
Correct answer: A — A comprehensive INDIRECT tax on the supply of goods and services, with credit for tax paid on inputs
Explanation: GST replaced a multiplicity of central and state indirect taxes with a single destination-based levy, and the input tax credit chain removes the cascading of tax upon tax. It is administered jointly by the centre and the states through the GST Council.
Question 239
The Human Development Index combines indicators of:
Select an option first.
Correct answer: A — Health, education and standard of living
Explanation: Published by the UNDP, the HDI uses life expectancy, years of schooling and gross national income per head. Its purpose is to show that development is broader than income, so a country may rank far higher or lower on HDI than on GDP per capita alone.
Question 240
Under a flexible inflation targeting framework, the central bank is required to:
Select an option first.
Correct answer: B — Keep inflation within a specified band, while having regard to growth
Explanation: A statutory target anchors expectations and clarifies accountability, while the word FLEXIBLE preserves some discretion to support output. Verify the current target and band, and the composition of the Monetary Policy Committee, against the ICAI study material for your attempt.
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