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Posted By: Kenny       Member Level: Gold       Posted Date: 22 May 2008

2005 ICFAI University M.B.A Question Paper Economics (MB141): October 2005 Question paper



Course: M.B.A   University: ICFAI University




Question Paper Economics (MB141): October 2005
• Answer all questions.
• Marks are indicated against each question.
1.
The proportionate change in quantity demanded due to the change in price can be expressed as
(a) Elasticity of demand
(b) Law of demand
(c) Law of supply
(d) Elasticity of supply
(e) Marginal rate of substitution.
(1 mark)
2.
In India, the demand for life saving drugs is assumed to be perfectly inelastic. If the governmentimposes a tax, the tax burden is borne by
(a) Only seller
(b) Only buyers
(c) More by the buyers and less by the suppliers
(d) Equally by both buyers and suppliers
(e) Less by the buyers and more by the suppliers.
(1 mark)
3.
The demand and supply functions of a good are
Qs = 400 + 15P
Qd = 600 – 10P
If the government fixes a price ceiling of Rs.12 for the product, there would be
(a) No supply of the good
(b) Shortage of the good
(c) Excess supply of the good
(d) Excess demand for the good
(e) No effect on demand and supply.
(2 marks)
4.
Marginal product of labor is the
(a) Cost of employing labor for producing one more unit of output
(b) Change in output from using one more unit of labor
(c) Change in revenue from selling one more unit of output
(d) Change in revenue from using one more unit of labor
(e) Change in cost from using two more units of labor.
(1 mark)
5.
The average cost of producing 500 units of a good is Rs.5. The firm incurs a fixed cost of Rs.500 in theform of rent paid for the building. If the current price of the good is Rs.10 and the firm increases its sales to 750 units, the profit earned by the business unit, assuming the marginal cost is constant, is
(a) Rs.3,500 (b) Rs.7,000 (c) Rs.4,500 (d) Rs.4,000 (e) Rs.7,500.
(2 marks)
6.
Diseconomies of scale refer to
(a) The forces which reduce the average cost of producing a good as the firm expands the size of its plant
(b) The forces which reduce the marginal cost of producing a good as the firm expands the size of its plant
(c) The forces which increase the average cost of producing a good as the firm expands the size of its plant
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(d) The forces which increase the marginal cost of producing a good as the firm expands the size of itsplant
(e) The forces which keep the average cost of producing a good constant as the firm expands the size of its plant.
(1 mark)
7.
A combination of Capital (K) and Labor (L) lies to the right of the firm’s cost line; it means that thecombination is
(a) Undesirable
(b) Efficient, given the budget
(c) Inefficient, given the budget
(d) Unattainable, given the budget
(e) Inferior to the points within the constraint in terms of production.
(1 mark)
8.
Long run cost function of a firm is TC = Q3 – 40Q2+ 450Q. What is the minimum possible average cost?
(a) Rs.30 (b) Rs.40 (c) Rs.50 (d) Rs.60 (e) Rs.70.
(2 marks)
9.
The quantity of foodgrains demanded by a wholesale merchant is Qd = 100-5P, where Qd is the quantity demanded. The value of the slope of the demand curve will be
(a) 5.0 (b) 0.2 (c) –0.2 (d) –5 (e) 0.01.
(1 mark)
10.
Which of the following is true of a perfectly competitive firm in long run equilibrium?
(a) P = MR = MC = AR (b) P = MR, but MR > MC
(c) P = MC, but MR < MC (d) MR = MC and P < MR
(e) MR = MC and P > MR.
(1 mark)
11.
If the marginal revenue for a product is Rs.15 and the elasticity of demand for the product is 2, the average revenue for the product will be
(a) Rs.7.50 (b) Rs.15.0 (c) Rs.30.0 (d) Rs.22.5 (e) Rs.20.0.
(2 marks)
12.
A consumer is willing to buy 100 units of a product at a price of Rs.10 per unit. If the current price ofthe product is Rs.9, the consumer surplus is
(a) Re.1 (b) Rs.50 (c) Rs.100 (d) Rs.900 (e) Rs.1,000.
(1 mark)
13.
Maximum point on the average product curve is reached when
(a) Marginal product is zero
(b) Marginal product is maximum
(c) Marginal product is minimum
(d) Marginal product is negative
(e) Marginal product equals average product.
(1 mark)
14.
The total fixed cost of a firm producing ballpoint pen is Rs.20,000. If each pen sells at Rs.20 and has anaverage variable cost of Rs.15 per pen, what should be the output of the firm if it wants to earn a profitof Rs.30,000?
(a) 5,000 units (b) 10,000 units (c) 15,000 units (d) 20,000 units (e) 6,000 units.
(2 marks)
15.
A firm operating in a perfectly competitive industry has the following cost function.
TC = 500 + 8Q + 0.035Q2
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Supply and demand functions for the industry are given as follows:
QS = 8,500 + 100P
QD = 14,500 – 300P
The profit maximizing output for the firm will be
(a) 100 units (b) 200 units (c) 10 units (d) 50 units (e) 250 units.
(2 marks)
16.
The demand function for a firm is Q = 2,000 –50P. If the firm wants to maximize total revenue, its output should be
(a) 1,200 units (b) 800 units (c) 750 units (d) 1,000 units (e) 500 units.
(2 marks)
17.
The data pertaining to price and quantity demanded of a good are as follows:
Price (Rs)
Quantity demanded (units)
10
20
15
15
The value of arc elasticity of demand for the good is
(a) 0.510 (b) 1.00 (c) 2.00 (d) 0.402 (e) 0.714.
(2 marks)
18.
An automobile manufacturer estimates the price elasticity of demand for bikes to be unitary. The price of the bike is currently Rs.10,000 and the manufacturer wants to increase the quantity demanded ofbikes from 30 to 60 units. If the manufacturer wants to sell 60 bikes, at what price should he sell these bikes?
(a) Rs.10,000 (b) Rs.50,000 (c) Rs.5,000 (d) Rs.15,000 (e) Rs.20,000.
(2 marks)
19.
Which among the following causes the indifference curves to be convex to the origin?
(a) Diminishing marginal rate of substitution
(b) Increasing marginal rate of substitution
(c) Constant marginal rate of substitution
(d) Increasing marginal rate of technical substitution
(e) Constant marginal rate of technical substitution.
(1 mark)
20.
Law of diminishing returns is not relevant when
(a) Factors are not perfect substitutes of each other
(b) The time period is short
(c) All factor inputs are increased by the same proportion
(d) Technology remains constant
(e) Capital is held constant with varying amounts of labour.
(1 mark)
21.
Break even point of a firm is achieved where
(a) Total costs equal total revenue
(b) Marginal costs equal marginal revenue
(c) Average revenue equals marginal revenue
(d) Marginal product equals average product
(e) Marginal revenue equals average cost.
(1 mark)
22.
The total cost function for Lignite Corporation is estimated as TC = 200 + 4Q + 2Q2. The firm is a perfectly competitive firm and is selling the goods at Rs. 24. If the output produced and sold by Lignite
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Corporation is 5 units, the profit/loss earned by Lignite Corporation is
(a) Rs. 150 (profit) (b) Rs. 125 (loss) (c) Rs. 150 (loss)
(d) Rs. 125 (profit) (e) Rs. 250 (loss).
(2 marks)
23.
If the production function is Q = 20K 0.3 L 0.3, what is the marginal rate of technical substitution of labor for capital?
(a) 0.3 LK (b) 0.3 KL (c) LK (d) KL (e) K –L.
(2 marks)
24.
Which of the following statements is false?
(a) Different points on an indifference curve stand for different combinations of two goods
(b) Different points on an indifference curve stand for the same level of satisfaction
(c) The slope of an indifference curve is the marginal rate of substitution
(d) Indifference curves always slope upwards
(e) Two indifference curves can never intersect each other.
(1 mark)
25.
The highly elastic demand curve of the firm in a monopolistically competitive market indicates that theproducts are
(a) Homogeneous
(b) Differentiated and close substitutes
(c) Differentiated but not close substitutes of each other
(d) Differentiated and perfect substitutes
(e) Heterogeneous and perfect substitutes.
(1 mark)
26.
Which of the following indicates the same level of total output for any combination of inputs?
(a) Indifference curve (b) Isoquant
(c) Production possibility frontier (d) Isocost line
(e) Marginal product curve.
(1 mark)
27.
Which of the following costs remain constant as the output increases?
(a) Marginal cost (b) Average variable cost
(c) Average fixed cost (d) Total variable cost
(e) None of the above.
(1 mark)
28.
A wheat producer finds that the price elasticity of demand for wheat is infinity. If the manufacturer decides to increase the price of the wheat by 10 %, the demand for wheat will
(a) Increase by 10%
(b) Remain the same
(c) Decline to zero
(d) Decrease by 10%
(e) Inadequate information.
(1 mark)
29.
If the total variable cost of a bottling plant increased from Rs. 100 to Rs. 130 with the increase in outputfrom 50 units to 51 units, the marginal cost of the firm will be
(a) Rs.25 (b) Rs.26 (c) Rs.30 (d) Rs.150 (e) Rs.130.
(1 mark)
30.
The demand schedule of a certain brand of tea is given below:
Price (Rs)
100
80
50
30
20
Quantity demanded (units)
10
30
40
60
80
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The total revenue for the company producing this brand of tea is maximum when quantity demanded isequal to
(a) 10 units (b) 30 units (c) 40 units (d) 60 units (e) 80 units.
(1 mark)
31.
A person will continue to pursue an activity up to the point where
(a) Total benefit from that activity is equal to total cost of that activity
(b) Average benefit from that activity is equal to average cost of that activity
(c) Marginal benefit from that activity is equal to zero
(d) Marginal benefit from that activity is equal to marginal cost of that activity
(e) Average benefit from that activity is equal to marginal cost of that activity.
(1 mark)
32.
Production function of a firm is Q = 10L2 – 0.5L3. If the labor input is 10 units, average product of labor is
(a) 10.0 units (b) 50.0 units (c) 1.0 units (d) 0.5 units (e) 150.0 units.
(2 marks)
33.
When marginal utility is negative, total utility is
(a) Increasing (b) At a minimum (c) Equal to zero (d) Decreasing (e) At a maximum.
(1 mark)
34.
For a firm in a perfectly competitive market, the average and marginal revenue curves coincide because
(a) The firm is a price taker
(b) There are constant returns to scale
(c) There are constant returns to the variable factors
(d) It is a condition of profit maximization
(e) It is a condition of perfectly inelastic demand.
(1 mark)
35.
For a firm, the average cost function is estimated as
AC = 100Q + 20 + 4Q
What is total variable cost for the firm at an output of 15 units?
(a) Rs.100 (b) Rs.750 (c) Rs.1,200 (d) Rs.1,340 (e) Rs.2,100.
(2 marks)
36.
A profit maximizing firm will stop production in the short run if price is
(a) Less than average cost
(b) Less than marginal cost
(c) Less than the average variable cost
(d) Equal to average cost
(e) Less than total cost.
(1 mark)
37.
The value of all the goods and services produced in an economy during a period of time and adjustedfor inflation is called
(a) Real GDP (b) Nominal GDP
(c) Real National income (d) Nominal national income
(e) Per capita income.
(1 mark)
38.
Which of the following ratios best describes the GNP deflator?
(a) Nominal GNP to real GNP
(b) Real GNP to nominal GNP
(c) Nominal GNP to real GDP
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(d) Real GNP to nominal GDP
(e) Nominal wage to real wage.
(1 mark)
39.
The following information is extracted from National Income Accounts of a country for the year 2005:
Particulars
MUC
NNP at factor cost
8,400
Indirect taxes
1,900
Subsidies
200
NDP at market prices
10,000
The net factor income from abroad of the economy for the year 2005 would be
(a) 500 MUC (b) 1,000 MUC (c) 100 MUC (d) 200 MUC (e) 300 MUC.
(2 marks)
40.
Which of the following statements is true?
(a) There is a surplus output to the right of the Keynesian equilibrium output
(b) At the Keynesian equilibrium, consumption is greater than disposable income
(c) The Keynesian equilibrium output is necessarily at the full employment output
(d) At the Keynesian equilibrium output, consumption is less than disposable income
(e) At the Keynesian equilibrium, there will be unintended inventories.
(1 mark)
41.
The following information is given for an economy:
Consumption
(C)
100+0.75Yd
Investment
(I)
80 MUC
Taxes
(T)
0.20Y
Government Expenditure
(G)
150 MUC
The equilibrium income for the economy is
(a) 900 MUC (b) 825 MUC (c) 950 MUC (d) 930 MUC (e) 910 MUC.
(2 marks)
42.
When a central bank wants to pursue an expansionary monetary policy, it will
(a) Increase the bank rate and decrease the reserve requirements
(b) Decrease bank rate and increase reserve requirements
(c) Increase both the bank rate and the reserve requirements
(d) Decrease both the bank rate and reserve requirements
(e) Induce no changes in the bank rate and the reserve requirements.
(1 mark)
43.
GDP of a country is 8,000 MUC. Value of output produced in domestic country by foreign factors ofproduction is 200 MUC and value of the output produced by domestic factors of production in foreigncountries is 100 MUC. GNP of the country is
(a) 7,700 MUC (b) 7,800 MUC (c) 7,900 MUC (d) 8,100 MUC (e) 8,200 MUC.
(2 marks)
44.
Consider the following data for an economy:
Particulars
MUC
Earnings on loans and investments from abroad
500
Earnings on loans and investments to abroad
2,500
Import of services
4,000
Private remittances to abroad (transfers)
500
Private remittances from abroad (transfers)
500
Exports of services
2,000
Merchandize exports
15,000
Merchandize imports
12,000
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Merchandize imports
12,000
The current account balance for the economy is
(a) 1,000 MUC (Surplus) (b) 1,000 MUC (Deficit)
(c) 500 MUC (Deficit) (d) 500 MUC (Surplus) (e) Zero.
(2 marks)
45.
Automatic stabilizers refer to
(a) Inherent mechanisms in the stock market that automatically cause stock market gains to becancelled out by losses, which make expected long-run returns equal to zero
(b) The invisible hand mechanisms which automatically bring the economy out of a recession
(c) Government revenue and expenditure items that change automatically in response to changes ineconomic activity
(d) Discretionary monetary policy maneuvers designed to keep inflation under control automatically
(e) Monetary policy that aims at stabilizing interest rates in the economy.
(1 mark)
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46.
Which of the following statements is false?
(a) The difference between gross and net investment is depreciation
(b) GDP is represented as the sum of consumption, investment, government expenditure and transfer payments
(c) Depreciation is that part of the GDP that does not flow to households
(d) Households’ earn income by contributing factor inputs to the reduction of consumer goods and capital goods
(e) The difference between national income and domestic income is the net factor income from abroad.
(1 mark)
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47.
The following data is taken from National Income Accounts of a country:
Particulars
Rs. Cr.
GNP at market prices
1,700
Transfer payments
242
Indirect taxes
173
Personal taxes
203
Consumption of capital
190
Undistributed corporate profits
28
Corporate tax
75
Subsidies
20
Personal income in the country is
(a) Rs.1,363 cr (b) Rs.1,121 cr (c) Rs.1,230 cr (d) Rs.1,296 cr (e) Rs.1,496 cr.
(2 marks)
< Answer >
48.
Which of the following schools of thought believes in an active government role in the macroeconomy?
(a) Keynesian economics (b) Monetarism
(c) New classical economics (d) Classical economics
(e) Rational expectations.
(1 mark)
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49.
According to the classical theory, at a level of output corresponding to the full employment level ofoutput
(a) The aggregate supply curve will be horizontal
(b) The aggregate supply curve will be vertical
(c) The aggregate supply curve will be upward sloping
(d) The aggregate supply curve will be downward sloping
(e) The aggregate supply curve is absent.
(1 mark)
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50.
In a deflationary period, the appropriate policy for the RBI would be to
(a) Buy government securities in the open market
(b) Discourage commercial banks to increase their loans
(c) Increase Cash Reserve Ratio
(d) Increase bank rate
(e) Reduce the credit to government.
(1 mark)
51.
In a two-sector economy, the marginal propensity to consume (MPC) is estimated to be 0.6. To bring about a Rs.500 billion change in equilibrium national income (Y), the required increase in corporateinvestment (I) is
(a) Rs.125 billion (b) Rs.200 billion (c) Rs.240 billion (d) Rs.300 billion (e) Rs.360 billion.
(2 marks)
52.
The overall balance of payment of an economy for the year 2005 is given below:
Rs. (million)
Items
Credit
Debit
Merchandise
53000
65474
Services
24986
18780
Transfers
15225
367
Income
2826
7708
Foreign Direct Investment
4790
1179
Portfolio Investment
7535
6591
External Assistance
2773
5233
Commercial Borrowings (MT & LT)
2737
4435
Commercial Borrowings (Short Term)
8189
7210
Commercial Banks
16926
8973
Others
536
246
Rupee Debt Service

474
Other Capital
6402
2909
Errors & Omissions
634

During the year 2005, trade deficit for the economy is
(a) Rs.12,474 million (b) Rs.12,574 million
(c) Rs.12,974 million (d) Rs.13,821 million (e) Rs.13,980 million.
(2 marks)
53.
Which of the following is included in the aggregate demand of an economy?
I. Consumption demand.
II. Investment demand.
III. Net exports.
(a) Only (I) above (b) Only (II) above
(c) Both (I) and (II) above (d) Both (II) and (III) above
(e) (I), (II) and (III) above.
(1 mark)
54.
The business cycle is defined as
(a) The annual cycle of output
(b) The change in nominal wage rate in an year for a country
(c) The variation in the economic activity with a regular pattern
(d) The change in the foreign exchange reserves of a country
(e) The change in inflation in a year for a country.
(1 mark)
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55.
In national income analysis, when the consumption and investment schedules are added, we obtain an
(a) Aggregate supply schedule
(b) Aggregate demand schedule
(c) Aggregate gross investment schedule
(d) Aggregate net investment schedule
(e) Aggregate saving schedule.
(1 mark)
56.
If marginal propensity to consume is 0.75 the multiplier is
(a) 0.75 (b) 1.33 (c) 4.00 (d) 7.50 (e) 0.25.
(1 mark)
57.
In a two-sector economy, the consumption function is estimated to be C = 20 + 0.70Yd. If the equilibrium output is 600 MUC, the level of investment in the economy is
(a) 140 MUC (b) 150 MUC (c) 160 MUC (d) 130 MUC (e) 170 MUC.
(2 marks)
58.
If a scheduled bank meets its cash reserve requirement of 3% by depositing Rs.7.5 crore with the RBI,then the total deposit liabilities of the bank are
(a) Rs.22.50 crore
(b) Rs.225.00 crore
(c) Rs.250.00 crore
(d) Rs.150.00 crore
(e) Rs.175.00 crore.
(1 mark)
59.
The real rate of interest
(a) Equals the nominal rate of interest plus the rate of inflation
(b) Equals the rate of inflation minus the nominal rate of interest
(c) Equals the nominal rate of interest minus the rate of inflation
(d) Tends to increase when inflation increases
(e) Is more relevant to investors than consumers.
(1 mark)
60.
The monetary liabilities of a Central Bank are estimated as 1,275 MUC and the government money is25MUC. The currency deposit ratio for the economy is 0.20. Reserve ratio imposed by the CentralBank is 5%. The money supply in the economy will be
(a) 6,200 MUC (b) 6,240 MUC (c) 7,000 MUC (d) 7,240 MUC (e) 5,500 MJUC.
(2 marks)
61.
In an economy, the high-powered money and money supply are 4,300 MUC and 17,200 MUCrespectively. If the reserve ratio is 10%, currency deposit ratio for the economy is
(a) 0.17 (b) 0.20 (c) 0.24 (d) 0.27 (e) 0.29.
(2 marks)
62.
Which of the following variables will be at low levels during boom phase of a business cycle?
(a) Bank reserves (b) Wage rates
(c) Bank credit (d) Inventory
(e) Cost of production.
(1 mark)
63.
Which of the following is a consequence of a reduction in the required reserve ratio?
(a) Decrease in the credit creation and decrease in the money supply
(b) An increase in the credit creation and decrease in the money supply
(c) Increase in the credit creation and increase in the money supply
(d) Decrease in credit creation and increase in the money supply
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(e) The money supply remains unaffected.
(1 mark)
64.
In a two sector economy the savings function is S = –60 + 0.25Yd. If the investment in the economy is 100 MUC, equilibrium income will be
(a) 1,020 MUC (b) 640 MUC
(c) 660 MUC (d) 1,040 MUC (e) 1,240 MUC.
(1 mark)
65.
Which of the following best describes bank rate?
(a) The rate at which the central bank discounts foreign bills
(b) The rate at which the central bank discounts the government’s bills
(c) The rate at which the central bank discounts the commercial bank bills
(d) The rates at which loans are given to costumers by commercial banks
(e) The rate at which deposits are mobilized by commercial banks.
(1 mark)
66.
The consumption function shows the relationship between Consumption and
(a) disposable income
(b) expectations
(c) price level
(d) money supply
(e) rate of interest.
(1 mark)
67.
Which of the following is an example of variable cost of production?
(a) Cost of buildings (b) Purchasing heavy machines
(c) Salaries of top-level managers (d) Salaries of temporary staff
(e) Acquiring copy-rights of the products.
(1 mark)
68.
The following balances are taken from the balance sheet of the Central Bank of a country.
Particulars
MUC
Financial Assets
24,000
Other Assets
100
Net worth
1,000
Other non-monetary liabilities
525
The amount of Government money is 25 MUC. The high-powered money in the economy would be
(a) 22,600 MUC (b) 22,575 MUC
(c) 20,000 MUC (d) 21,500 MUC (e) 19,500 MUC.
(2 marks)
69.
If the marginal propensity to consume is 0.8 and the autonomous investment increases by Rs.100 crores, then the change in equilibrium output is
(a) Rs.125 crores (b) Rs.200 crores
(c) Rs.300 crores (d) Rs.325 crores (e) Rs.500 crores.
(2 marks)
70.
Which of the following happens when the central bank increases open market purchases?
(a) Aggregate supply decreases
(b) Rate of inflation increases
(c) Interest rates will increase
(d) Aggregate demand decreases
(e) Total output decreases.
(1 mark)
71.
Current account deficit for an economy is 5,000 MUC. If foreign exchange reserves increase by 1,000 MUC for the same period, capital account balance is
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(a) 1,000 MUC (b) 4,000 MUC
(c) 5,000 MUC (d) 6,000 MUC (e) 10,000 MUC.
(1 mark)
72.
Which of the following statements correctly illustrates the multiplier?
(a) Any increase in aggregate spending that causes the aggregate demand curve to shift will result in a larger increase in national income
(b) Any increase in autonomous investment will create a multiplier effect which will decrease the marginal propensity to consume
(c) Any increase in national income will result in a larger increase in aggregate spending
(d) For any given increase in income, there will be a less than proportionate increase in consumer spending
(e) For any given increase in income, there is no increase in consumer spending.
(1 mark)
73.
Which of the following is a stock variable?
(a) Gross Domestic Product (b) Inventory of a firm
(c) Inflation (d) Exports
(e) Investment.
(1 mark)
74.
The following information is extracted from National Income Accounts of a country:
Particulars
Million units of currency (MUC)
NDP at market prices
10,000
Indirect taxes
700
Subsidies
200
Gross domestic investment
1,600
Net domestic investment
1,300
The GDP at factor cost would be
(a) 8,000 MUC (b) 8,800 MUC (c) 9,800 MUC (d) 11,800 MUC (e) 12,000 MUC.
(2 marks)
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