MCQ Walkthrough 9708/32 (India) (Q21 - Q30)

 

Comparison of GDP would be more meaningful if shadow/ parallel/ hidden/ underground economies could be accurately accounted for. It would be more prevalent in developing countries than developed. As such, comparisons between rich and poor countries are often inaccurate. Very often, least developed countries are thought to be very poor when that is not necessarily the case. Answer is therefore (C)

 

Initially, an increase in income would be followed by an increase in income inequality. However, over the time, as a country progresses or moving towards more developed, the income inequality will diminish. This is true as seen in many developed nations where direct tax rates are more progressive and benefits are generous. Answer is (A)

 

k = 1/ mpw = 1/ 0.8 = 1.25. Answer is (A)

 

National income = C + I + G + (X - M) = 600 = 720 - M. M is therefore 120. Answer is (B)

 

This is an expansionary monetary policy. The central bank tries to increase liquidity within the banking system hoping that it could lend out more money than before and this could spur economic activities. The answer is (B)

 

The answer is (C). The income per capita would increase rapidly, with birth rate falling (due to rising cost of living, better knowledge and availability of contraceptives) and saving ratio increasing. Households will have more income to be set aside. In addition, increase in liquidity would allow banking institutions to generate more lending and this could lead to greater investment. Answer is (C)

 

The answer is (B). A large increase in indirect taxes would increase the price level. Goods and services would become more expensive. There will be a decline in purchasing power. Eventually people will make fewer purchases and this leads to rising unemployment

 

The answer is (C). The government would have to pursue an expansionary fiscal policy. A rise in AD would lead to more workers needed to produce those goods and services

 

The answer is (D). A curve that illustrates the relationship between unemployment and inflation would be the Philips curve

 

The answer is (C). Rise in protectionism would imply that people start buying goods and services domestically since imports have become less price competitive. Ceteris paribus, this would support domestic jobs