Posted by Anjali Kaur on Nov 22, 2021

Practice Test 5

Practice Test 5, macroeconomics, class XII, CBSE. Questions based on assertion, reasoning and multiple choice options.

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1. Read the following statements

Assertion (A) and Reason (R):

Assertion (A) :Farmers were not able to get fair price for their crops. Reason (R): There was lack of proper marketing facilities.
FROM THE GIVEN ALTERNATIVES CHOOSE THE CORRECT
ONE ALTERNATIVES:

a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correctexplanation of Assertion
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.

Answer. Here, the assertion is true. Farmers were not able to get fair prices for their crops because of the removal of the Minimum Support Price. Hence reason is false.

c. Assertion (A) is true but Reason (R) is false. Is the correct option. You can read here, it is one the latest topic.

https://thewire.in/agriculture/punjab-farmers-protest-msp-returns

2. Read the following statements Assertion (A) and Reason (R), choose one of the correct alternatives given below:
Assertion (A) : An efficient and effective rural credit delivery system is crucial for raising agricultural productivity and incomes.
Reason (R) : The agriculture inputs have to be bought from the market for adopting modern day methods of production.
ALTERNATIVES:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correctexplanation of Assertion (A).
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not thecorrect explanation of Assertion (A).
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.

Answer. The assertion is wrong because:

Agriculture is a key sector of the Indian economy in view of its contribution to employment and GDP. Agricultural credit plays a vital role in farm sector development and facilitates the adoption of new technologies. However, any amount of credit even at the most reasonable rates cannot guarantee higher productivity or adequate income among the farmers, as the success depends upon many other supporting factors including the availability of agricultural inputs, services, and remunerative markets for the products.

Reason is correct. Read here: https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=942

So, option d. Assertion (A) is false but Reason (R) is true.

3. Read the following statements Assertion (A) and Reason (R):
Assertion (A) : Demand Deposits are not a part of money supply.
Reason (R) The amount available in the demand deposit can be used for purchasing goods and services.
FROM THE GIVEN ALTERNATIVES CHOOSE THE CORRECT ALTERNATIVE:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correctexplanation of Assertion (A).
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not thecorrect explanation of Assertion (A).
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.

Answer. Demand deposits are a part of money supply, so assertion is wrong. Read here: Components of money supply

The reason is correct, because demand deposits are those which can be availed on demand, so yes these can be used to buy goods and services. We use our debit card for online transactions is an example of demand deposits.

Option d Assertion (A) is false but Reason (R) is true.

4. If there is deficit in the current account of balance of payment the balance of trade will also be (Fill up the blank with correct alternative)

a. In surplus

b. In deficit

c. Both a. or b.

d. None of these

Answer. If there is a deficit in the current account of BOP, then the Balance of trade which only includes the difference between exports and imports of goods could be in surplus or in deficit.

Hence, option c. Both a. or b.

5. READ THE FOLLOWING STATEMENTS CAREFULLY AND CHOOSE THE CORRECT ALTERNATIVE FROM THE FOLLOWING:
Statement 1 : Government of India has started many employment generation schemes for alleviation of poverty.
Statement 2 : Job less growth has not resulted in a significant decline in poverty situation.
ALTERNATIVES:
a. Both the statements are true.
b. Both the statements are false.
c. Statement is true and Statement is false.
d. Statement 2 is true and Statement 1 is false.

Answer. Statement 1 is correct, as government of India has started many program to remove poverty.

In a jobless growth economy, unemployment remains stubbornly high even as the economy grows. This tends to happen when a relatively large number of people have lost their jobs, and the ensuing recovery is insufficient to absorb the unemployed, under-employed, and those first entering the workforce.

Statement 2 is also correct, if there is no employment opportunities, then poverty can not be reduced.

Employment acts as a link between economic growth and poverty reduction. 

Hence, option A Both the statements are true.

6. Read the following statements Assertion (A) and Reason (R):
Assertion (A) : Balance of Payment is a systematic record of all the economic transactions which are made by Government and Residents of country with residents of other countries within a year.
Reason (R) : Balance of payments only records the inflow and outflow of the foreign currency.
FROM THE GIVEN ALTERNATIVES CHOOSE THE CORRECT ONE:
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correctexplanation of Assertion
b.Both Assertion (A) and Reason (R) are true and Reason (R) is not thecorrect explanation of Assertion (A)

c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.

Answer. Assertion is the correct meaning of Balance of Payment.

But reason is incomplete, it records inflow and outflow of foreign currency by resident country with rest of the world.

Read here: Balance of Payment

Option c. Assertion (A) is true but Reason (R) is false.

7. Identify the correct statement from the following:
(Choose the correct alternative)

a. Indian economy was a vibrant economy at the time of independence.
b. 85% population was engaged in agriculture.

c. There was a lack of the basic and heavy industries in the country at the time of independence.
d. Coastal canal water way project was a success as it was a preferred mode oftransportation during the British rule.

Answer. b. a. Indian economy was a vibrant economy at the time of independence.
b. 85% population was engaged in agriculture. Read here; Indian Economy

8. Read the following hypothetical text and answer the given questions:

“Budgetary expenditure is an important tool to stabilize the economic fluctuations like inflation and deflation. In case of inflation the government expenditure is to be cut down as it will bring a fall in the disposable income of the consumers. The government creates additional demand in the economy by the way of higher spending.
By offering old-age pensions, as well as by providing free food, education, and health services to the Below Poverty Line Population the long term objectiveof economic planning of social justice IS met.
Thus Public expenditure plays a significant role in restoring economic stability, Production linked incentives have been a major tool to attract the foreign production unit to produce under the make in India program , such program promote inducement to investment. Briefly, public expenditure is indispensable in any welfare state like India. It not only promotes GDP growth, but also promotes social welfare and well being of its citizens. All the expenditures done by the government are categorized as either capital expenditures or revenue expenditures”.

Which of the following is not a function of the government budget?(Choose the correct alternative)

a. Economic growth

b. Creating a surplus BOP

c. Economic stability

d. Redistribution of income

Answer. b. Creating a surplus BOP

Government budget has specific functions, read here:

Objectives of the Government budget

1. To increase GDP in terms of the flow of goods and services in the economy. [Economic Growth]
2. To promote the development of the backward region of the country with a view to minimizing regional disparities. [Economic stability]
3. Reallocation of resources with a view to maximizing social welfare.
4. Abundant provisions of public goods particularly in terms of law and order, defense. So that the people of the country can live in a peaceful environment.
5. Redistribution of income and wealth with a view to reducing the gap between rich and poor.
6. Investment in public enterprises with a view to generating more employment opportunities.

9. Below questions are to be answered on the basis of the following text:
“The year 1991 saw financial crisis on the government that forced and motivated government to several factors like for economic reforms that were pending for quite some time, The crisis was losses of the public sector the gulf war that pushed up oil prices, high rate of inflation, heavy the result of undertakings had osher remitances from gulf, foreign reserves at all time low as it was ignoring the policy of export promotion.
This forced the government to launch new set of economic policy measures that was needed to solve this situation under the leadership of PV Narsimha Rao. The government approached the Bank of Reconstruction and development (I.B.R.D.) now known as World Bank and the International International Monetary Fund (I.M.F.) to give a loan so that the financial assistance came with condition to open up the economy and remove restrictions on the private sector and foreign capital. This set of measures was announced in 1991 as the New Economic Policy.
The policy had measures which came under two heads: Stabilization measures and Structural reform measures that improve efficiency of economy and increase international competitiveness by removing rigidity in various economic segments. The policy focused on liberalization, privatization and outcome was globalization. The policy of the disinvestment was adopted as a measure to reduce the losses of the public sector”

Ques. In which year the new economic policy was adopted by India.(Choose the correct alternative)

a. 1991

b. 1988

c. 1996

d. 2001

Answer: a. 1991

Ques. READ THE FOLLOWING STATEMENTS CAREFULLY AND CHOOSE THE CORRECT ALTERNATIVEFROM THE FOLLOWING:
Statement 1: The financial crisis was the end result of restrictive policies of the government.
Statement 2 : The government adopted structural reforms measures for the short term solution of the financial crisis
ALTERNATIVES:
a. Both the statements are true.

b. Both the statements are false.

c. Statement 1 is true and Statement 2 is false.
d. Statement 2 is true and Statement is false.

Answer. c. Statement 1 is true and Statement 2 is false. Read about structural reforms.

Ques. Read the following statements Assertion (A) and Reason (R):

Assertion (A) : India adopted the new economic policy or adopted economic reforms under pressure.
Reason (R) : The financial assistance to face the financial crisis came with a condition to open up the economy.
FROM THE GIVEN ALTERNATIVES CHOOSE THE CORRECT ONE:
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not thecorrect explanation of Assertion (A).
c. Assertion (A) is but Reason (R) is false.
d. Assertion (A. false but Reason (R) is true.

Answer. a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A). Read about the new economic policy.

10. Identify which of the following creates bank money?(Choose the correct alternative)

a. NABARD

b. Reserve Bank of India

c. Central Bank of India

d. LIC

Answer. Bank money means credit creation process by the commercial bank. Hence,

c. Central Bank of India (Remember Central Bank of India is not the central bank, it is a commercial bank)

11. Identify which of the following is not true about the Reserve Bank of India?
(Choose the correct alternative)

a. It accepts deposits of the government.
b. It gives loans to government
c. It creates bank money

d. It does not issue all currency notes.

Answer. c. It creates bank money (This is what commercial banks do)

12. Which of the following is not associated with the poverty measurement.(Choose correct alternative)

a. Poverty line

b. MPCE, monthly per capita consumption expenditure

c. Sen index

d. Population growth rate

Answer. d. Population growth rate. Rest of them are poverty measurement methods.

13. In which of the following case the credit creation will be unlimited(Choose correct alternative)

a. CRR is 70%
b. primary deposits are zero

c. secondary deposits are zero

d. none of these

Answer. d. none of these

14. “India at the time of independence was _________ of agricultural goods (Fill up the blank with correct alternative)

a. Net importer

b. Net exporter

c. Raw importer

d. Gross importer

Answer. b. Net exporter Read de industrialization

15. Identify the incorrect statement from the following:
(Choose the correct alternative)

a. Operation flood is associated with milk production.
b. Diversification of agriculture is playing an important role in rural development.

c.Self help groups are under non institutional rural credit.
d. Micro credit system has reduced the gap between the banks and rural borrowers.

Answer. c.Self help groups are under non institutional rural credit.

Microcredit is a common form of microfinance that involves an extremely small loan given to an individual to help them become self-employed or grow a small business. These borrowers tend to be low-income individuals, especially from less developed countries (LDCs).

16. Financial institution to become a bank are;(Choose the essential condition/conditions for correct alternative)

a. lending

b. accepting deposits

c. printing currency notes

d. (a) and (b) both

Answer. d. (a) and (b) both

Accepting deposits and lending loans are the basic and the primary function of any commercial bank.

Thank You!

Try some more tests:

1. Practice test 1
2. Practice test 2
3. Practice test 3
4. Practice test 4

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