Mock Test Paper - Series I: August, 2025 (b) Demand for Grants

Date of Paper: 14th August, 2025 (c) Finance Bill

Time of Paper: 2.00 P.M. to 4.00 P.M. (d) Macro-Economic Framework Statement
6. Non‐Plan Grants are determined by:
FOUNDATION COURSE
(a) Planning Commission
PAPER – 4: BUSINESS ECONOMICS
(b) Finance Commission
Time: 2 Hours Marks: 100
(c) Central Government
1. Bank Rate is the rate:
(d) State Government
(a) At which RBI lends to the commercial banks
7. Public Debt Management refers to:
(b) At which RBI rediscounts the bills of the commercial banks
(a) Terms of new bonds
(c) Both (a) and (b)
(b) Proportion of different components of public debt
(d) Neither (a) nor (b)
(c) Maturity
2. Which of the following is NOT an instrument of monetary policy?
(d) All the above
(a) Cash Reserve Ratio
8. Public Expenditure increases:
(b) Statutory Liquidity Ratio
(a) Interest rate
(c) Public Expenditure Management
(b) Employment
(d) Repo Rate
(c) Exports
3. Reverse Repo Rate is:
(d) Imports
(a) Rate at which RBI borrows from commercial banks
9. Which of the following are the instruments of money market?
(b) Rate at which RBI lends to the commercial banks
(a) Call money
(c) Both (a) and (b)
(b) Certificate of deposits
(d) Neither (a) nor (b)
(c) Trade bills
4. Fiscal deficit can be remedied by:
(d) All of the above
(a) Borrowing money
10. Who issues a treasury bill?
(b) Printing Currency
(a) Any nationalised bank
(c) Both (a) and (b)
(b) Any private sector bank
(d) Neither (a) nor (b)
(c) Reserve Bank of India
5. Which of the following Budget documents is mandated by Fiscal Responsibility and
(d) All of the above
Budget Management Act, 2003?
(a) Annual Financial Statement (AFS)

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11. It is a method by which banks borrow from each other to be able to maintain the cash (b) Industry
reserve ratio. (c) Service
(a) Commercial bill (d) None of these
(b) Commercial papers 17. Hedging is indicated by:
(c) Call money (a) Transaction in odd amounts
(d) None of the above (b) Presentation in documentary support
12. The Dumping word refers to: (c) Frequency of such transactions
(a) Tariffs should be cut to make more money. (d) None of these
(b) A lower-priced sale of goods abroad is below the cost and price of their home 18. In the long run____ affect the exchange rate:
market.
(a) Transaction in odd amount
(c) Buying goods at low prices in another country and selling them at a higher price
here. (b) Presentation of documentary support

(d) Expensive goods are being sold at low prices. (c) Frequency of such transaction

13. The margin for a currency long term must be retained with the repository by: (d) None of these

(a) The buyer 19. India’s foreign exchange rate system is:

(b) The seller (a) Free Float

(c) Both the buyer and the seller (b) Managed Float

(d) None (c) Fixed

14. Money cost is considered by: (d) Fixed target of bank

(a) Modern theory of trade 20. Which of the following measures of money supply is known as Broad Money?

(b) Comparative cost advantage (a) M1

(c) New Trade theory (b) M2

(d) Factor equalization theorem (c) M3

15. Factor abundance is considered to be part of international trade: (d) M4

(a) Heckscher Ohlin theory of international trade 21. Which one is not true regarding the Market Stabilization Scheme (MSS)?

(b) Comparative cost advantage theory (a) It absorbs surplus liquidity of enduring nature arising out of large capital flows

(c) New Trade theory (b) It absorbs surplus liquidity through sale of short, dated government securities and
treasury bills
(d) Factor Equalization theorem
(c) Mobilised surplus liquidity is held in the MSS accounts with the RBI
16. The most controversial topic in the Doha Agenda?
(a) Agriculture

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 (d) MSS account liquidity can be used for normal government expenditure of capital (b) Luxuries and Inferior good
nature (c) necessities and Luxuries
22. Business Economics is: (d) None of the above
(a) A normative science 28. How would that budget line be affected if the price of both goods fell?
(b) Interdisciplinary (a) The budget line could not shift
(c) Pragmatic
(b) The new budget line must be parallel to the old budget line
(d) All the above
(c) The new budget line will have the same slope as the original so long as the prices
23. In the free market economy the allocation of resources is determined by ______ of both goods change in the same proportion
(a) voting done by consumers (d) None of these
(b) A Central Planning Authority 29. Exception to the law of demand includes ___________
(c) Consumer Preferences (a) Giffen goods
(d) The level of profits of firms (b) Speculative goods
24. Unlimited ends and limited means together present the problem of _______ (c) Conspicuous necessities
(a) Scarcity of Resources (d) All the above
(b) Distribution 30. What are the Characteristics of labour?
(c) Choice (a) Labour is perishable
(d) None of these (b) Labour is an active
25. When two goods are complementary to each other the cross elasticity between them is:
(c) Labour is mobile
(a) Negative
(d) All the above
(b) Positive
31. A consumer buys 80 units of a good at a price of ` 4 per unit. Suppose the price elasticity
(c) Constant of demand is -4. At what prices will he buys 60 units.
(d) None of these (a) 4.2 per unit
26. The Indifference curve analysis is superior to utility analysis: (b) 3.8 per unit
(a) It dispenses with the assumption of measurability of Utility (c) 4 per unit
(b) It studies more than one commodity at a time (d) None of these
(c) It segregate income effect from substitution effect 32. A vertical supply curve parallel to Y axis implies that the elasticity of supply is:
(d) All the above (a) Zero
27. Comfort lie between: (b) Infinity
(a) Inferior goods and necessities (c) Equal to One

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 (d) None of these (c) The Low LAC Costs
33. In the third of three stages of Production: (d) Advertising
(a) The marginal Product curve had a positive slope 39. Full capacity is utilized only when there is:
(b) The marginal product curve lies completely below the average product curve (a) Monopoly
(c) The Total Product Increases (b) Perfect Competition
(d) None of these (c) Price discrimination
34. Time element was conceived by: (d) Oligopoly
(a) Adam Smith 40. The Kinked demand hypothesis is designed to explain in the context of oligopoly:
(b) Alfred Marshall (a) Price and output determination
(c) Pigou (b) Price rigidity
(d) None of these (c) Collusion among rivals
35. The Firm and the Industry are one and the same in: (d) None of these
(a) Perfect Competition 41. Which of the following is not a variable in the Index of leading indicators:
(b) Monopolistic Competition’ (a) New consumer good orders
(c) Monopoly (b) Prime rate
(d) Oligopoly (c) New building permits
36. A rational person does not act unless: (d) None of these
(a) The action is ethical 42. The main thrust of New Industrial Policy is to invite greater participation of:
(b) The action produces marginal costs that exceed marginal benefit (a) Public sector
(c) The action makes money for the person (b) Private sector
(d) The marginal benefits that exceed marginal cost (c) Stock Holders
37. The Structure of the Cold drink Industry in India is best described as: (d) Bank
(a) Perfectly Competitive 43. Pump Priming should be resorted to at the time of:
(b) Monopolistic (a) Inflation
(c) Oligopolistic (b) Deflation
(d) Monopolistically Competitive (c) Reflation
38. In the long run equilibrium, the pure monopolist can make pure profits because of: (d) Stagflation
(a) Blocked entry 44. The expansion of the government debt could result in:
(b) The high price he charges (a) A decline in savings

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 (b) An increase in interest (d) Custom Union
(c) A decline in Investment 49. Margin requirement specified under instrument of monetary policy:
(d) All the above (a) Variable reserve requirement
45. Psychological law of consumption is given by: (b) Statutory liquidity requirement
(a) Milton Friedman (c) Selective credit control
(b) Pigou (d) Open market operation
(c) Tobin 50. High growth of which Industry provide a positive signal for Industrial Growth in Future?
(d) Keynes (a) Capital good industries
46. One of the most important factors in trade reforms is to: (b) Basic good industries
(a) Increase export duties (c) Durable consumer good industries
(b) Reduce import duties (d) Intermediate good Industries
(c) Keep export duties constant 51. Even as fixed average cost continues to fall the average variable cost begins to rise
(d) Keep import duties constant because:

47. Fiscal Policy relates to government decision in respect of: (a) return to factor start diminishing

(i) Taxation (b) return to factor start rising

(ii) Government spending (c) input price start rising

(iii) Government borrowing (d) producer budget starts shrinking

(iv) Public debt 52. Adverse Selection arises because of:

Codes (a) Lack of information

(a) iii and iv are correct (b) Wrong Information

(b) ii, iii, iv (c) Asymmetrical Information

(c) i and ii are correct (d) Uncertainty of future

(d) All the above are correct 53. Which of the following is not used to measure inflation?

48. An agreement between two countries to maintain a free trade area, a common external (a) Wholesale Price Index Number
tariff free mobility of capital and labour and degree of unification in government policies (b) Consumer Price Index number
and monetary policy is called: (c) Purchasing Power Parity Prices
(a) Common market (d) GDP deflator
(b) Free Trade Area 54. Public goods are characterized by:
(c) Economic Union (1) Collective Consumption

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 (2) Divisibility 59. The slope of aggregate demand becomes flatter?
(3) Non-Exclusion (a) The more sensitive investment spending is to the rate of interest
(4) Rival Consumption (b) The more sensitive the demand for money is to the rate of interest
Select the correct answer from the code given below: (c) The larger the nominal money supply
(a) 1 & 2 are correct (d) None of these
(b) 1 & 3 are correct 60. When exchange rate is flexible a decrease in country B’s taxes:
(c) 1 &4 are correct (a) Has no effect upon output in country B
(d) 2 & 4 are correct (b) Causes output in country B to increase
55. Giffen Paradox occurs when income effect is: (c) Results in an increase in country B’s export
(a) Greater than the substitution effect (d) None of these
(b) Equal to the substitution effect 61. Crowding Out occurs when _________
(c) Less than substitution effect (a) A decrease in the money supply raises the rate of interest which crowds out
(d) Negative and is greater than substitution effect interest sensitive private sector spending

56. In case of deficit budget when the deficit are covered through taxes that budget is called: (b) An increase in taxes for the private sector reduces private sector disposable
income and spending
(a) Unbalanced budget
(c) A reduction in income taxes results in a higher interest rate which crowds out
(b) Surplus budget interest sensitive private sector spending
(c) Balanced budget (d) None of these
(d) None of these 62. A change in autonomous spending is represented by:
57. Which of the following is credited with Introduction of LPG Model of economic (a) A movement along (C+I+G) spending line
development in India?
(b) A shift of a (C+I+G) spending line
(a) Dr. C Rangarajan
(c) A change in the behavioural coefficient
(b) Dr. Montek Singh Ahluwalia
(d) None of these
(c) Dr. Manmohan Singh
63. In mixed economy the feature include existence of:
(d) None of these
(a) Private Sector
58. In which of the following market situations/forms, firms are able to maximise profits?
(b) Public Sector
(a) Price Leadership
(c) Combined Sector
(b) Cartel
(d) All of these
(c) At the Kink Point
64. Which of the following is demerit of capitalism:
(d) Monopolistic Competition
(a) There is precedence of property rights over human right

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 (b) It functions in a domestic framework 70. Indifference Curve Analysis was proposed by _________
(c) High degree of operative efficiency (a) J. R Hicks and R.G.D Allen
(d) None of these (b) Alfred Marshall
65. Which of the following is included in study of Micro Economics: (c) Jeremy Bentham
(a) Product Pricing (d) None of these
(b) Factor Pricing 71. The rate at which the consumer is prepared to exchange-good x and y is:
(c) Both (a) and (b) (a) Marginal rate of Substitution
(d) None of these (b) Elasticity of Substitution
66. Scarcity definition is economics is given by: (c) Diminishing Marginal Utility
(a) Lipsey (d) None of these
(b) Adam Smith 72. Contraction of demand is the result of:
(c) J B Say (a) Decrease in the number of consumers
(d) Robinson (b) Increase in the price of the good concerned
67. Snob effect is explained as: (c) Price of related products
(a) It is a function of consumption of others (d) None of these
(b) It is a function of price 73. Economic indicator required to predict the turning point of business cycle is:
(c) Both (a) and (b) (a) Leading Indicator
(d) None of these (b) Lagging Indicator
68. Which of the following are the determinant of price elasticity of demand: (c) Coincident Indicator
(a) Availability of substitutes (d) All the above
(b) Time period 74. Empirical evidence of liquidity trap is found during:
(c) Tied demand (a) COVID – 19
(d) All of these (b) Great Recession
69. If the cross elasticity is only- slightly below zero which of the following is correct? (c) Global Financial Crisis
(a) They are weak complements (d) None of the above
(b) Negative and very high they are strong complements 75. New Trade Theory was developed in:
(c) Both (a) and (b) (a) 1919
(d) None of these (b) 1970
(c) 2008

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 (d) 1991 (b) Decrease,
76. Which one is included in National Income? (c) Remain unchanged,
(a) Transfer Earnings (d) any of the above.
(b) Sale proceeds of Shares and Bonds 82. At the point of producer equilibrium:
(c) Black Money (a) The isoquant is tangent to the isocost,
(d) None of the Above (b) The MRTSLK equals PL/PK,
77. The major reasons for market failure is: (c) MPL/PL / MPK/PK,
(a) Market Power (d) All of the above.
(b) Externalities 83. Price varies by attributes such as location or by customer segment is _______degree of
(c) Incomplete Information price discrimination:

(d) All the above (a) First

78. Which of the following instrument is not FDI Compliant Instrument: (b) Second

(a) Equity Shares (c) Third

(b) Compulsorily Convertible Debentures (d) None of these

(c) Redeemable Preference Share 84. The Idea of ________in economics is that we have unlimited wants but limited resources:

(d) None of the above (a) Opportunity Costs.

79. An expansionary fiscal policy is used for: (b) Scarcity

(a) Reduction in Inflation (c) Marginal Analysis

(b) Increase in Exports. (d) Specialization

(c) Appreciation of Currency 85. Which of the following is a key assumption of the monopoly model?

(d) Close recessionary gap (a) Barriers to entry

80. What is GDP Deflector? (b) A product with several substitutes

(a) It is GDP of Base Year (c) Price-taking behavior

(b) It is ratio of nominal GDP in a given year to real GDP of that year (d) Many identical producers

(c) It is GDP at current price 86. What is the full form of LIFE?

(d) It is GDP of current year at base year price (a) Lifestyle for Economy

81. An increase in the price of a commodity when demand is inelastic causes the total (b) Life for Everyone
expenditures of consumers of the commodity to: (c) Lifestyle for Environment
(a) Increase, (d) Living in Financial Equality

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87. Which program was launched to promote organic farming? (d) Government Spending
(a) MIDH 93. According to Baumol, cash balances are kept to:
(b) PMFBY (a) Invest in stock
(c) PKVY (b) Earn capital gains
(d) None of these (c) Minimize total transaction cost
88. Which of the following is a non-tariff barrier? (d) Hedge inflation
(a) Ad valorem duty
94. When demand increases and supply remains constant, what happens to equilibrium
(b) Quotas price?
(c) Countervailing duty (a) Falls
(d) None of these (b) Rises
89. Most-Favoured Nation (MFN) principle under WTO means: (c) Remains same
(a) Preferential tariffs for allies
(d) Cannot say
(b) Equal treatment to all members
95. Mixed income of self-employed includes:
(c) Protection to domestic producers
(a) Rent and Interest only
(d) All of these
(b) Wages only
90. Which agreement replaced GATT and created WTO?
(c) Capital and Labour income that cannot be separated
(a) Doha Round
(d) Only profit
(b) Tokyo Round
96. The LAC curve is also known as:
(c) Uruguay Round
(a) Shut down curve
(d) Marrakesh Protocol
91. What is a liquidity trap? (b) Expansion path

(a) Money becomes illiquid due to inflation (c) Planning curve

(b) Money supply becomes ineffective at zero interest rate (d) None of these
(c) Interest rate becomes infinite 97. Fiscal federalism refers to:
(d) All the above (a) Sharing of political power
92. According to Friedman, the key determinant of money demand is: (b) Sharing of fiscal functions and resources
(a) Current Income (c) Decentralization of planning
(b) Future expectations only (d) None of these
(c) Permanent Income

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98. The percentage of Central tax share for 2021–26 is:
(a) 38%
(b) 41%
(c) 46%
(d) Not decided
99. Liquidity Adjustment Facility (LAF) includes:
(a) Only Repo
(b) Repo and Reverse Repo
(c) Only Reverse Repo
(d) None of these
100. The Monetary Policy Committee Sets:
(a) SLR
(b) CRR
(c) Repo rate
(d) Bank rate

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