CBSE Class 12 Economics HOTs Economics Forms of Market and Price Determination Set 03

1. Objective Type Questions (Remembering & Understanding based Questions)

A. Multiple Choice Questions

Choose the correct option:

Question. Household inventory is:
(a) not included in national income
(b) a stock concept
(c) both (a) and (b)
(d) None of the options
Answer: (c) both (a) and (b)

Question. Remittances from a relative working abroad are:
(a) included in national income
(b) not included in national income
(c) transfer payments
(d) both (b) and (c)
Answer: (d) both (b) and (c)

Question. Own account production of goods is included in national income because:
(a) goods are tangible
(b) their valuation is possible
(c) goods are more productive than services
(d) None of the options
Answer: (b) their valuation is possible

Question. Value added refers to:
(a) production of durable goods
(b) output – intermediate consumption
(c) production of non-durable goods
(d) expenditure on intermediate goods
Answer: (b) output – intermediate consumption

Question. Gross domestic capital formation is the sum total of:
(a) expenditure on fixed assets
(b) gross domestic fixed capital formation and change in stock
(c) net domestic fixed capital formation + inventory investment + depreciation
(d) both (b) and (c)
Answer: (d) both (b) and (c)

Question. Value added method measures the contribution of which of the following within the domestic territory of a country?
(a) Household consumers
(b) The producing enterprises owned by residents of the country
(c) The producing enterprises owned by the non-residents of the country
(d) Both (b) and (c)
Answer: (d) Both (b) and (c)

Question. Which of the following items is not included while estimating national income by income method?
(a) Rent
(b) Mixed income
(c) Fixed investment
(d) Undistributed profits
Answer: (c) Fixed investment

Question. Which of the following is not an element of final consumption expenditure?
(a) Household expenditure on food
(b) Government final consumption expenditure
(c) Household expenditure on education
(d) Expenditure on raw material
Answer: (d) Expenditure on raw material

Question. As a result of double counting, national income is:
(a) over-estimated
(b) under-estimated
(c) correctly estimated
(d) not estimated for the entire year of accounting
Answer: (a) over-estimated

Question. Which of the following is not included in national income?
(a) Receipt of a gift cheque sent by your parents settled abroad
(b) Repatriation of wages earned by the NRIs to their parents in India
(c) Excise duty on domestic production
(d) All of the options
Answer: (d) All of the options

Question. Which of the following is not a transfer payment?
(a) Interest on national debt
(b) Retirement pensions
(c) Old-age pensions
(d) Donations
Answer: (b) Retirement pensions

Question. Which of the following items is not included while estimating GNP of a country at market price?
(a) Sales of the enterprises
(b) Indirect taxes
(c) Remittances by NRIs
(d) Subsidy
Answer: (c) Remittances by NRIs

Question. Own account production of services is not included in national income because:
(a) services are different from goods
(b) services are not productive
(c) it is difficult to measure market value of such services
(d) None of the options
Answer: (c) it is difficult to measure market value of such services

Question. Difference between closing stock and opening stock during an accounting year is known as:
(a) increase in stock
(b) change in stock
(c) decrease in stock
(d) None of the options
Answer: (b) change in stock

Question. Compensation of employees includes:
(a) wages and salaries in cash
(b) wages and salaries in kind
(c) pension on retirement
(d) All of the options
Answer: (d) All of the options

Question. Operating surplus =
(a) Rent + Profit + Interest
(b) Rent + Interest + Compensation of employees
(c) \( NDP_{FC} \) – Compensation of employees – Mixed income of self-employed
(d) both (a) and (c)
Answer: (d) both (a) and (c)

Question. Which of the following is not included in inventory investment?
(a) Change in stock of finished goods
(b) Change in stock of semi-finished goods
(c) Change in stock of raw material
(d) Change in sales during the year
Answer: (d) Change in sales during the year

Question. Which of the following is not a part of final expenditure?
(a) Consumer goods purchased by the government
(b) Consumer goods exported to rest of the world
(c) Seeds purchased by the farmers
(d) Government fixed investment expenditure
Answer: (c) Seeds purchased by the farmers

Question. Problem of double counting can be avoided by using:
(a) final output method
(b) value added method
(c) both (a) and (b)
(d) Neither (a) nor (b)
Answer: (c) both (a) and (b)

Question. Which of the following is irrelevant in the estimation of compensation of employees?
(a) Free accommodation provided to the school principals
(b) Free education of the students whose parents are working in schools
(c) Wages and salaries in cash
(d) Old-age pensions
Answer: (d) Old-age pensions

B. Fill in the Blanks

Choose appropriate word and fill in the blank:

Question. ________ is the market value of final goods and services produced in the economy during the period of one year. (\( GDP_{MP}/NDP_{MP} \))
Answer: \( GDP_{MP} \)

Question. Value added method is also known as ________. (Industrial Origin Method/Factor Payment Method)
Answer: Industrial Origin Method

Question. Value of Output = Sales, if entire output of the year is ________ by the producers during the year. (sold/stocked)
Answer: sold

Question. ________ include land, labour, capital and entrepreneurship. (Factor inputs/Non-factor inputs)
Answer: Factor inputs

Question. ________ is that part of the profit which is distributed among the shareholders. (Distributed profit/Undistributed profit)
Answer: Distributed profit

Question. Sum total of factor incomes generated within the domestic territory of a country during an accounting year is called ________. (domestic income/national income)
Answer: domestic income

Question. Commissions paid on the sale and purchase of second-hand goods ________ included in national income. (are/are not)
Answer: are

Question. ________ is used to avoid the problem of double counting. (Value Added Method/Expenditure Method)
Answer: Value Added Method

Question. Income tax is treated as ________ in the estimation of national income. (factor income/transfer income)
Answer: transfer income

Question. ________ investment refers to change in stock during the year. (Fixed/Inventory)
Answer: Inventory

C. True or False

State whether the following statements are True or False:

Question. Goods used as inputs are called intermediate goods.
Answer: True

Question. In case of mixed income, factors of production are hired/purchased from the market.
Answer: False

Question. In the general government sector, production is meant only for collective consumption.
Answer: True

Question. Transfer payments do not cause any value addition in the economy.
Answer: True

Question. Value added includes the value of intermediate goods used in production.
Answer: False

Question. According to Distributed Share Method, national income is estimated in terms of factor payments during an accounting year.
Answer: True

Question. Undistributed profit is retained by the firms to meet some contingent expenses.
Answer: True

Question. Non-durable consumer goods are repeatedly used for several years.
Answer: False

Question. Rice produced and consumed by the farming families themselves is not included in national income.
Answer: False

Question. Retirement pensions are like a deferred wage.
Answer: True

D. Matching the Correct Statements

I. From the set of statements given in Column I and Column II, choose the correct pair of statements:

Column I
(a) Imputed rent of owner occupied houses
(b) Net exports
(c) Pension on retirement
(d) Expenditure on second-hand goods
(e) Gifts from abroad

Column II
(i) Included in the estimation of national income
(ii) Difference between imports and exports during an accounting year
(iii) Old-age pension
(iv) Included in the estimation of national income
(v) Factor payments

Answer: (a) Imputed rent of owner occupied houses—(i) Included in the estimation of national income

II. Identify the correct sequence of alternatives given in Column II by matching them with respective items in Column I:

Column I
(a) Old-age pensions
(b) Value of non-factor inputs
(c) Corporate tax
(d) Change in stock
(e) Income method

Column II
(i) A component of corporate profit
(ii) Closing Stock – Opening Stock
(iii) Factor Payment Method
(iv) Unilateral payments
(v) Intermediate consumption

Answer: (a)—(iv), (b)—(v), (c)—(i), (d)—(ii), (e)—(iii)