Booklet code- 512 DED-4

CA-FOUNDATION
BUSINESS ECONOMICS MOCK TEST [PAPER-1] (JAN-25)
Roll No. ______________________ Total No. of Printed Pages: 09
Total No. of Questions: 100 Maximum Marks: 100
Time Allowed: 2 Hours
1. Which of the following is an economic activity?
(a) Listening to music on the radio
(b) Teaching one's own son at home
(c) Medical Facilities rendered by a Charitable Dispensary
(d) A Housewife doing household duties
2. Integration of Economic theory with business practice is called -
(a) Managerial Economics (b) Business Economics
(c) Applied Economics (d) All of the above
3. In deciding "How to produce", the economy should decide on-
(a) types of goods to be produced (b) quantity of goods to be produced
(c) consumer goods and capital goods (d) methods of production
4. Consider the following and decide which, economy if any is without scarcity -
(a) The pre-independent Indian economy, where most people were farmers
(b) A mythical economy where everybody is a rich person
(c) Any economy where income is distributed equally among its people
(d) None of the above
5. An economy achieves "Productive Efficiency" only when-
(a) Resources are employed in their most highly valued uses
(b) Best resources are employed
(c) Total number of goods produced is greatest
(d) Goods and services are produced at least cost and no resources are wasted
6. In Economics, Production refers to any economic activity -
(a) Which results in a tangible or intangible product or service
(b) Which is directed at the satisfaction of human wants.
(c) Both (a) and (b)
(d) Neither (a) nor (b)
7. Work of a Professional (like Chartered Accountant) does not result in any tangible output. Hence, it is not
a Production Activity in Economics. This statement is -
(a) True (b) False (c) Partially True (d) None of the above
8. The basic minimum objective of all kinds of enterprises is to survive or to stay alive. It may be regarded as
_____________ objective of the enterprise.
(a) Organic (b) Economic (c) Social (d) National
9. The Incentive / Reward in respect of Entrepreneurial Ability is called-
(a) Rent (b) Wages (c) Interest (d) Profit
10. Which of these is included in "Land" as a Factor of Production?
(a) Fertility of Soil (b) Water (c) Air (d) All of the above
11. Which is not a characteristic of labour?
(a) Labour is not separable from labourer (b) Labour is perishable
(c) Labour is not a mobile factor (d) Labour is an active factor

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12. Generally, Supply of Labour and Wage Rates are directly related. However, at very high wage rates, there
is a paradox of reduction in labour. This paradox is attributed to -
(a) Preference to earn more money
(b) Preference to have more of rest and leisure
(c) Preference to restrict Supply
(d) None of the above
13. If current consumption is reduced for the purpose of Capital Formation, that represents a
(a) Uneconomic activity (b) Current sacrifice for future growth
(c) Decrease in demand (d) Decrease in resources
14. The difference between Economist’s Profit and Accountant’s Profit is
(a) Consideration of Direct Cost (b) Consideration of depreciation
(c) Consideration of Opportunity Cost (d) There is no difference
15. The point of tangency between any Isoquant and an Isocost Line gives the
(a) highest-cost combination of inputs and maximum level of output that can be produced
(b) lowest-cost combination of inputs and minimum level of output that can be produced
(c) lowest-cost combination of inputs and maximum level of output that can be produced
(d) highest-cost combination of inputs and minimum level of output that can be produced
16. The Market for ultimate consumers is known as __________
(a) Whole Sale Market (b) Retail Market
(c) Unregulated Market (d) Regulated Market
17. In which of the following market conditions, does a Firm maximizes its profit when its Marginal Revenue
is equal to Marginal Cost?
(a) Perfect Competition (b) Monopoly
(c) Monopolistic Competition (d) All of the above
18. Duopoly is a market situation in which -
(a) there are only two Firms in the market
(b) there is a Single Buyer of a product or service
(c) there is only a Single Buyer and a Single Seller
(d) none of the above
19. Which of the following statements regarding Perfect Competition is false?
(a) Supply and Demand forces determine the price of a commodity
(b) All Buyers in the Market are always in position to influence the market
(c) In the short run, the Firm takes Market Price as given
(d) Considering the Market Price, Firm adjusts the level of output to maximize profits
20. Monopolies are allocatively inefficient because
(a) they restrict the output to keep the price higher than under Perfect Competition.
(b) they charge a price higher than the Marginal Cost.
(c) both (a) and (b) are correct.
(d) both (a) and (b) are incorrect.
21. Price discrimination will not be profitable if elasticity of demand is ________ in different markets.
(a) Uniform (b) Different (c) Less (d) Zero
22. Which of these does not apply to Monopolistic Competition?
(a) Large Number of Buyers (b) Large Number of Sellers
(c) Product Differentiation (d) Price Competition

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23. The Kinked Demand Curve model of Oligopoly assumes that -
(a) Response to a price increase is less than the response to a price decrease
(b) Response to a price increase is more than the response to a price decrease
(c) Elasticity of demand is constant regardless of whether price increases or decreases
(d) Elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases
24. When will the equilibrium price remain unchanged while the equilibrium quantity will increase.
(a) Both demand and supply rise in proportionately.
(b) Both demand and supply fall.
(c) Both demand and supply rise equally.
(d) Both demand and supply fall equally.
25. In the given figure, what does the area PQRS show;

(a) Normal Profit (b) Super Normal Profit

(c) Loss (d) Breakeven point
26. If the firm has no control over the price of commodity and it can sell as much as it wants at the prevailing
price, what will be the shape of its MR curve:
(a) Inverted U-shape (b) Downward sloping (c) Parallel to y-axis (d) Parallel to x-axis
27. If ed = 2.5 what will be the value of MR?
(a) Positive (b) Negative (c) Unity (d) Zero
28. The shut down price is the value of __________ that prevails at a level where it is ________ AVC.
(a) MR, = (b) AR, = (c) MR, > (d) AR, >
29. If supply increases while demand decreases:
(a) the equilibrium price will definitely increase.
(b) the equilibrium quantity will definitely increase.
(c) the equilibrium price will definitely decrease.
(d) the equilibrium quantity will definitely decrease.
30. How do monopoly arises:
(a) Strategic Control over scarce resources
(b) Governments granting exclusive rights to produce and sell a good or a service
(c) Stringent legal and regulatory requirements effectively discourages entry of new firms without being
specifically prohibited
(d) All of the above
31. Which of the following Ministry is responsible in India for the compilation of National Accounts Statistics?
(a) Ministry of Commerce & Industry
(b) Ministry of Social Affairs
(c) Ministry of Finance
(d) Ministry of Statistics and Program Implementation

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32. In a particular year, the value of nominal GNP of an economy was Rs. 9,000 crores. The value of GNP of that
economy during the same year, evaluated at the price of the base year, was Rs. 10,000 crores. The value of
GNP deflator for that year in percentage terms was:
(a) 110% (b) 111% (c) 90% (d) 10%
33. Which of the following is correct about Money Flow?
(a) It is the flow of money between firms and households
(b) It involves exchange of money.
(c) It is also known as Nominal flow.
(d) All of the above
34. Which one of following is not the model of Keynesian theory of income determination?
(a) The one-sector model (b) The two-sector model
(c) The three-sector model (d) The four-sector model
35. What will be the value of MPC?
(a) Always 1 (b) Always 0 (c) Between –1 and +1 (d) Between 0 and 1
36. Which of the following represents formula for calculating GDP (Gross Domestic Product)?
(a) GDP = Consumption + Government Spending + Investment + Exports – Imports
(b) GDP = Consumption + Government Spending – Investment + Exports + Imports
(c) GDP = Consumption + Government Spending – Investment + Exports – Imports
(d) GDP = Consumption Government Spending + Investment + Exports – Imports
37. If the GDP deflator for a particular year is 120.0, what does it indicate about the price level compared to
the base year?
(a) Prices have increased by 20% compared to the base year.
(b) Prices have decreased by 20% compared to the base year.
(c) Prices have remained the same as the base year.
(d) Prices have doubled compared to the base year
38. The concept of the marginal propensity to import (MPM) in a four-sector model refers to:
(a) The change in government spending due to changes in income.
(b) The change in consumption due to changes in income.
(c) The change in imports due to changes in income.
(d) The change in investment due to changes in interest rates
39. The System of Regional Accounts in India provides data at which level of geographical aggregation?
(a) District level (b) Regional (c) State level (d) Village level
40. Real GDP differs from Nominal GDP in that:
(a) Real GDP is adjusted for inflation, while Nominal GDP does not account for inflation
(b) Real GDP includes government spending, while Nominal GDP does not
(c) Real GDP is measured in current market prices, while Nominal GDP is adjusted for inflation
(d) Real GDP considers only the value of goods, while Nominal GDP includes services well
41. In an economy with a high investment multiplier, a decrease in investment can lead to:
(a) A significant decrease in national income and output
(b) An increase in consumer spending to compensate for the decrease in investment
(c) An increase in government spending to compensate for the decrease in investment
(d) No significant impact on the overall economy
42. Which of the following equations is correct?
(a) Value at Factor Cost = Value at Market Prices plus Indirect Taxes minus Subsidies
(b) Value at Factor Cost = Value at Market Prices plus Indirect Taxes plus Subsidies
(c) Value at Factor Cost = Value at Market Prices minus Indirect Taxes minus Subsidies
(d) Value at Factor Cost = Value at Market Prices minus Indirect Taxes plus Subsidies

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43. The leakage in the four-sector model refers to:
(a) Money flowing into the economy due to exports
(b) Money flowing out of the economy due to imports
(c) Taxes, savings, and imports that reduce the flow of income
(d) Government spending and investments that increase the flow of income
44. Consumption of a particular good or service depends on various factors such as weather, tastes and
preferences of the customer availability of the product and its substitutes, etc. But consumption is
primarily determined by -
(a) Spending Habits (b) Taxes (c) Disposable Income (d) Savings
45. The marginal propensity to consume (MPC) can be defined as
(a) a change in spending due to a change in income
(b) a change in income that is saved after consumption
(c) part of income that is spent on consumption.
(d) part of income that is not saved
46. In the pre-liberalization period-
(a) Full support was given to Private Sector in all industries
(b) Industries were reserved exclusively for Public Sector
(c) Both (a) and (b)
(d) Neither (a) nor (b)
47. Which of the following statements is correct with regard to External Sector in the pre-reform period?
(a) Foreign Trade Policy was very liberal, it allowed import of all types of goods.
(b) Import of Food grains was strictly prohibited
(c) Balance of Payments situation was quite comfortable
(d) None of the above
48. In __________, we remove tariff restrictions, subsidies on the flow of goods and services between countries.
(a) Globalisation (b) Liberalisation (c) Privatisation (d) Disinvestment
49. Presently, Industrial Licensing is applicable for
(a) Alcohol (b) Cigarettes
(c) Hazardous Chemicals (d) All of the above
50. Which of the following does not relate to the External Sector Reforms in 1991?
(a) Upward Valuation of the Rupee
(b) Lowering of Import / Export Duty Rates
(c) Removal of Quantitative Restrictions
(d) Encouragement of Foreign Direct Investment
51. Rupee was devalued by ________ against the dollar during the reforms of 1991.
(a) 12% (b) 10% (c) 18% (d) 20%
52. When did the government decide to establish a dual exchange rate?
(a) 1990 (b) 1991 (c) 1992 (d) 1993
53. India started following the __________ exchange rate system from 1993 onwards.
(a) Fixed (b) Managed floating (c) Flexible (d) Floating
54. When did NITI Aayog come into existence?
(a) 1st January 2014 (b) 1st July 2015 (c) 1st January 2015 (d) 1st July 2014
55. India was a food deficient nation till the end of:
(a) 1960s (b) 1970s (c) 1980s (d) 1990s

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56. ______________ refers to the way in which the available resources or factors of production are allocated among
the various uses to which they might be put.
(a) Redistribution of Income & Wealth (b) Resource Allocation
(c) Price Stability (d) Employment Generation
57. A state of affairs in which inflation & unemployment exist side by side is called?
(a) Inflation (b) Recession (c) Deflation (d) Stagflation
58. If there is high unemployment the government might increase government spending, reduce taxes, and/or
increase the money supply. This policy is called ____________
(a) Expansionary Fiscal Policy (b) Contractionary Fiscal Policy
(c) Recessionary Fiscal Policy (d) Deflationary Fiscal Policy
59. An argument that in exercising the redistributive function, there would be a conflict between efficiency and
equity. In other words, governments’ redistribution policies which interfere with producer choices or
consumer choices are likely to have efficiency costs this cost is called ____________
(a) Dead pool loss (b) Dead weight loss (c) Dead live loss (d) Dead war loss
60. The concept of "market failure" refers to:
(a) The government's inability to efficiently allocate resources.
(b) The inability of markets to achieve an equitable distribution of wealth.
(c) Situations where the market does not efficiently allocate resources to produce goods and services.
(d) The government's inability to provide public goods and services.
61. Article 275 related with ___________
(a) Grants for any public purpose
(b) Loans for any public purpose
(c) Statutory Grants in-aid from the union to certain states.
(d) None of these
62. Which of the following is the flows for those transactions were the government merely acts as a banker?
(a) Contingency Fund (b) Profit and Loss A/c (c) Consolidated Fund (d) Public Account
63. What does "asymmetric information" refer to in economics?
(a) A situation where buyers and sellers have the same level of information
(b) A situation where one party in a transaction has more information than the other
(c) A situation where prices are the same for all participants in the market
(d) A situation where there is no information available to make decisions
64. Which concept refers to a situation where the presence of asymmetric information causes the deterioration
of the quality of goods or services traded in the market?
(a) Moral hazard (b) Market equilibrium (c) Gresham's Law (d) Lemons problem
65. Calculate Primary deficit from following data _____.
Rs. Crores
Revenue receipts 40,000
Recovery of loans 3,000
Borrowing 30,000
Other Receipts 10,000
Expenditure on revenue account 49,000
Expenditure on capital account 52,000
Interest Payments 4,000
(a) 30,000 (b) 26,000 (c) 34,000 (d) 4,000

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66. Fiat money is materially _________ but has __________ simply because a nation collectively agreed to ascribe a
value to it.
(a) Worthless, value (b) Valuable, worthless
(c) Transparent, liquid (d) Liquid, exchangeability
67. The Individual speculative Demand for money curve is __________
(a) Downward sloping (b) Upward sloping
(c) Discontinuous (d) None of these
68. Match the column
(A) Classical Theory of Demand for money (i) Tobin
(B) Liquidity Preference Theory (ii) J.M. Keynes
(C) Behaviour toward Risk Theory (iii) M. Friedman
(D) Restatement Theory of Demand for money. (iv) Irving fisher
(a) (A-i) (B-ii) (C-iii) (D-iv) (b) (A-iv) (B-ii) (C-iii) (D-i)
(c) (A-iv) (B-iii) (C-ii) (D-i) (d) (A-iv) (B-ii) (C-i) (D-iii)
69. In an economy, the money supply (M) is Rs. 500 crores, the velocity of money (V) is 5 and the total number
of transactions (T) is 10,000. Calculate the average price level (P) in the economy.
(a) Rs. 25 thousand (b) Rs. 25 lakhs (c) Rs. 50 lakhs (d) Rs. 50 thousand
70. While discussing the definition of "Supply of Money" and the Standard measures of money, ___________ is/are
not included.
(a) Inter bank Deposits (b) Money held by the Government
(c) Banking System (d) All of the above
71. If RBI reduce the rate of interest on Bank deposits, it will affect the exchange rate. Result in Home Currency
_________.
(a) Depreciation (b) Appreciation (c) Revaluation (d) Devaluation
72. A contractionary monetary policy-induced increase in interest rates.
(a) Increases the cost of capital and the real cost of borrowing for firms
(b) Increases the cost of capital and the real cost of borrowing for firms and households
(c) Decreases the cost of capital and the real cost of borrowing for firms
(d) Has no interest rate effect on firms and households
73. Choose the correct statement.
(a) MSF = Repo Rate +1 (b) MSF = Repo Rate – 1
(c) MSF = Repo Rate × 0.1% (d) MSF = Repo Rate × 0.01%
74. Calculate value of multiplier if monetary base in economy is 400 cr. and money supply in the economy is
1200 cr.
(a) 0.67 (b) 4 (c) 3 (d) 0.3
75. Calculate M3 from the following data.
1. Currency with Public 84,000
2. Demand deposits with banks 68,000
3. Other deposits with RBI 3,612
4. Total deposits with Post Office 22,500
5. Time deposits with banks 1,00,000
6. Post Office saving bank deposits 5,528
(a) 155612 (b) 255612 (c) 161140 (d) 378112

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76. Match the column
(A) Absolute Advantage (i) David Ricardo
(B) comparative Advantage (ii) Heksher-ohlin
(C) factor-endowment (iii) Paul Krugman
(D) New international Trade (iv) Adam smith
(a) (A-i) (B-ii) (C-iii) (D-iv) (b) (A-iv) (B-iii) (C- ii) (D-i)
(c) (A-ii) (B-iv) (C- i) (D-iii) (d) (A-iv) (B- i) (c-ii) (D-iii)
77. As Per comparative Advantage Theory _________ the commodity with _________ opportunity cost.
(a) Import, Less (b) Export, less (c) Export, High (d) None of these
78. Measures related to trade requirements such as-
Shipping requirements, custom formalities trade rules, Taxation policies etc.
(a) Technical measures (b) Non-Technical measures
(c) Tariff measures (d) None of these
79. _____________ may be initiated as a safeguard instrument by imposing additional import duties/tariffs so as
to offset the foreign firm's unfair price advantage, of Dumping.
(a) countervailing Duty (b) Anti subsidy Duty
(c) Anti dumping Duty (d) Anti Export Duty
80. It is a group of countries that eliminate all tariffs on trade among themselves but maintain a common
external tariff on trade with countries outside the union
(a) Economic Union (b) Custom Union (c) Common market (d) monetary Union
81. Which of the following culminated in the establishment of the World Trade Organization?
(a) The Doha Round (b) The Tokyo Round
(c) The Uruguay Round (d) The Kennedy Round
82. ____________ refers to the market in which sale and purchase of Foreign currency is settled on a specified
future date at a rate agreed upon today.
(a) Spot Market (b) Forward Market (c) Direct Market (d) Indirect Market
83. An increase in the supply of foreign exchange.
(a) shifts the supply curve to the right and as a consequence, the exchange rate declines.
(b) shifts the supply curve to the right and as a consequence, the exchange rate increases.
(c) more units of domestic currency are required to buy a unit of foreign exchange.
(d) the domestic currency depreciates and the foreign currency appreciates.
84. When Burger King the MNC invest in India in meat processing units. It is called ___________ foreign direct
investment.
(a) Horizontal (b) Vertical (c) Conglomerate (d) Cogeneric
85. FDI which makes use of the existing Infra by merging, acquiring, leasing instead of developing a New One
is called _________.
(a) Green Field Investment (b) Brown Field Investment
(c) Yellow Field Investment (d) Red Field Investment
86. During recession, the unemployment rate ___________ and output ___________.
(a) Rises; falls (b) Rises; rises (c) Falls; rises (d) Falls; falls
87. When aggregate economic activity is declining, the economy is said to be in
(a) Contraction (b) an expansion (c) a trough (d) a turning point
88. According to ________________ trade cycles occur due to onset of innovations.
(a) Hawtrey (b) Adam Smith (c) J M Keynes (d) Schumpeter
89. Which economic indicator is required to predict the turning point of business cycle?
(a) Leading indicator (b) Lagging indicator (c) Coincident (d) All of the above

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90. Which of the following statements is correct?
(a) The business cycle largely affects the agricultural sector
(b) The business cycle largely affects small employees
(c) The business cycle generally affects all sectors of economy but business sector in particular.
(d) The business cycle affects low wages workers
91. Contraction of demand is the result of :
(a) decrease in the number of consumers.
(b) increase in the price of the good concerned.
(c) increase in the prices of other goods.
(d) decrease in the income of purchasers.
92. In the case of a straight line demand curve meeting the two axes, the price-elasticity of demand at the mid-
point of the line would be:
(a) 0 (b) 1 (c) 1.5 (d) 2
93. Identify the factor which generally keeps the price-elasticity of demand for a good low:
(a) Variety of uses for that good.
(b) Very low price of a commodity
(c) Close substitutes for that good.
(d) High proportion of the consumer’s income spent on it.
94. In the case of an inferior good, the income elasticity of demand is:
(a) positive (b) Zero (c) Negative (d) infinite
95. If regardless of changes in its price, the quantity demanded of a good remains unchanged, then the demand
curve for the good will be:
(a) horizontal (b) Vertical (c) positively sloped (d) negatively sloped
96. Suppose the price of Pepsi increases, we will expect the demand curve of Coca Cola to:
(a) Shift towards left since these are substitutes
(b) Shift towards right since these are substitutes
(c) Remain at the same level
(d) None of the above
97. If the price of Pepsi decreases relative to the price of Coke and 7-UP, the demand for:
(a) Coke will decrease. (b) 7-Up will decrease.
(c) Coke and 7-UP will increase. (d) Coke and 7-Up will decrease.
98. If the quantity demanded of mutton increases by 5% when the price of chicken increases by 20%, the cross-
price elasticity of demand between mutton and chicken is
(a) -0.25 (b) 0.25 (c) -4 (d) 4
99. Suppose the price of movies seen at a theatre rises from Rs. 120 per person to Rs. 200 per person. The
theatre manager observes that the rise in price causes attendance at a given movie to fall from 300 persons
to 200 persons. What is the price elasticity of demand for movies? (Use Arc Elasticity Method)
(a) .5 (b) .8 (c) 1.0 (d) 1.2
100. When the numerical value of cross elasticity between two goods is very high, it means
(a) The goods are perfect complements and therefore have to be used together
(b) The goods are perfect substitutes and can be used with ease in place of one another
(c) There is a high degree of substitutability between the two goods
(d) The goods are neutral and therefore cannot be considered as substitutes