Chapter 18: National Income And GDP Concepts (JAIIB MODULE-B)
1. Which of the following is included in the computation of GDP using the expenditure method?
A. Transfer payments like pensions
B. Purchase of second-hand goods
C. Private consumption expenditure
D. Stock market transactions
GDP (expenditure method) = C + I + G + (X-M). Private consumption expenditure (C) is a major component, while transfer payments and second-hand goods are excluded.
2. If a country has the following data: Consumption = ₹5000 crore, Investment = ₹1500 crore, Government spending = ₹2000 crore, Exports = ₹800 crore, Imports = ₹600 crore. What is the GDP?
A. ₹8700 crore
B. ₹8500 crore
C. ₹9000 crore
D. ₹8000 crore
GDP = C + I + G + (X-M) = 5000 + 1500 + 2000 + (800-600) = ₹8700 crore.
3. Which of the following is NOT included in the computation of GDP by the income method?
A. Wages and salaries
B. Rent from land
C. Profits of firms
D. Sale of used goods
Income method includes wages, rent, interest, and profits from current production. Sale of used goods is excluded as it does not reflect current production.
4. A factory produces goods worth ₹100 crore. It uses raw materials worth ₹40 crore and machinery depreciation is ₹10 crore. Using the value-added method, what is the contribution of this factory to GDP?
5. Which of the following statements is correct regarding GDP and GNP?
A. GDP includes income earned by citizens abroad
B. GNP excludes income earned by residents abroad
C. GNP = GDP + Net Factor Income from Abroad
D. GDP is always higher than GNP
GNP = GDP + Net Factor Income from Abroad (income earned by citizens abroad minus income earned by foreigners domestically).
6. A bank finances the construction of a commercial complex worth ₹500 crore. If the cost of raw materials is ₹300 crore, what is the contribution of this project to GDP using the value-added approach?
7. In a financial year, a country's GDP by expenditure method is computed as: C = ₹7000 cr, I = ₹2000 cr, G = ₹1500 cr, X = ₹1200 cr, M = ₹1000 cr. What is the net export?
A. ₹1500 crore
B. ₹1200 crore
C. ₹200 crore
D. ₹1000 crore
Net Export = X - M = 1200 - 1000 = ₹200 crore.
8. Which of the following items would be counted in GNP but not in GDP of India?
A. Income of a foreign company operating in India
B. Purchase of machinery by an Indian company domestically
C. Government spending on salaries in India
D. Income earned by an Indian citizen working abroad
GNP = GDP + Net Factor Income from Abroad, so income of citizens working abroad is added to GNP but not GDP.
9. A bank lends ₹50 lakh to a small business for production. The business produces goods worth ₹80 lakh, using raw materials worth ₹30 lakh. What is the value-added contribution to GDP?
16. Which of the following best defines utility in economics?
A. The price of a good in the market
B. The total income of a consumer
C. The satisfaction or pleasure derived from consuming a good or service
D. The cost incurred in production of a good
Utility is the economic concept that measures the satisfaction or pleasure a consumer gets from consuming a good or service.
17. If the total utility from consuming 3 units of a product is 30 utils and from 4 units is 36 utils, what is the marginal utility of the 4th unit?
A. 6 utils
B. 36 utils
C. 30 utils
D. 4 utils
Marginal utility = Change in total utility = 36 - 30 = 6 utils.
18. The law of diminishing marginal utility states that:
A. Total utility decreases as consumption increases
B. Marginal utility remains constant
C. Utility cannot be measured
D. Marginal utility of a good declines as more units are consumed
The law of diminishing marginal utility states that as consumption of a good increases, the additional satisfaction from consuming each extra unit declines.
19. A customer consumes 5 units of a commodity. Total utility for 4 units is 40 utils, and for 5 units is 44 utils. If the price of one unit is ₹2, should the customer buy the 5th unit?
A. No, because total utility decreases
B. Yes, because marginal utility (4 utils) exceeds price (₹2)
C. No, because marginal utility is less than price
D. Cannot determine
Marginal utility = 44 - 40 = 4 utils. Since the utility (4) exceeds the price (₹2), it is rational to buy the 5th unit.
20. Which of the following represents cardinal measurement of utility?
A. Ranking goods from most preferred to least preferred
B. Observing choices without measuring satisfaction
C. Measuring utility in numerical units (utils)
D. Determining income elasticity
Cardinal utility assumes utility can be measured in numbers (utils), unlike ordinal utility which only ranks preferences.
21. If the price of a good rises, according to utility theory, a consumer will:
A. Buy more of the good
B. Reduce consumption of the good to maximize utility
C. Utility will increase automatically
D. Consume the same quantity
Rational consumers adjust consumption based on price changes to maximize total utility, reducing consumption if the good becomes more expensive.
22. A consumer has ₹20 and wants to buy apples at ₹5 each. The marginal utility of the 1st, 2nd, 3rd, and 4th apple is 12, 10, 8, and 6 utils respectively. How many apples should the consumer buy to maximize utility?
A. 3 apples
B. 4 apples
C. 2 apples
D. 1 apple
Price per apple = ₹5. Consume units until MU ≥ price: MU of 1st=12, 2nd=10, 3rd=8, 4th=6. Stop at 3rd apple (MU=8 ≥ 5), total spending = 3×5=₹15 ≤ ₹20.
23. Which of the following is an example of ordinal utility?
A. Measuring satisfaction in utils
B. Calculating total utility numerically
C. Using numbers to compare utility between goods
D. Ranking goods as most preferred, second preferred, etc.
Ordinal utility ranks preferences without assigning numerical values to satisfaction.
24. A consumer derives 50 utils from 2 units of a commodity and 80 utils from 3 units. The price per unit is ₹20. What is the marginal utility per rupee for the 3rd unit?
A. The relationship between income and consumption
B. Combinations of two goods giving the same level of satisfaction
C. The price of a good over time
D. The total utility from a single good
An indifference curve shows all combinations of two goods between which a consumer is indifferent, i.e., each combination provides the same satisfaction.
26. Which of the following is true about indifference curves?
A. They can intersect
B. They slope upwards
C. They are convex to the origin
D. They represent income changes
Indifference curves are convex to the origin due to the principle of diminishing marginal rate of substitution.
27. Marginal Rate of Substitution (MRS) refers to:
A. The rate at which price changes with income
B. Ratio of total utility of two goods
C. Change in income required to maintain utility
D. The rate at which a consumer is willing to give up one good for another while maintaining same satisfaction
MRS measures the amount of one good a consumer is willing to give up to get one more unit of another good while keeping total satisfaction constant.
28. Consumer equilibrium is achieved when:
A. Income is zero
B. Total utility is zero
C. MRS between two goods equals the ratio of their prices
D. Prices of goods are equal
Consumer equilibrium occurs when the consumer maximizes utility given the budget constraint: MRSxy = Px/Py.
29. A consumer has ₹100 to spend on two goods X and Y. Price of X = ₹10/unit, Y = ₹20/unit. If marginal utility per rupee for X is 4 utils and Y is 6 utils, what should the consumer do to maximize utility?
A. Buy more Y and less X
B. Buy more X and less Y
C. Buy equal quantities
D. Cannot determine
Marginal utility per rupee = MU / Price. X = 4/10 = 0.4, Y = 6/20 = 0.3. Consumer should buy more X to equalize MU per rupee, maximizing utility.
30. An indifference map:
A. Shows one indifference curve only
B. Consists of a set of indifference curves representing different levels of satisfaction
C. Represents income changes over time
D. Represents production possibilities
An indifference map is a set of indifference curves showing different satisfaction levels; higher curves indicate higher utility.
