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CA Foundation
Business Economics
Assignment & MCQ’s
Business Cycles & Nature and Scope of Business

Meaning:
It is the rhythmic fluctuations in aggregate economic activity that an economy experiences over a period
of time are called business cycle or trade cycle.

For example:
✓ During the 1920, the UK saw a rapid growth in Gross Domestic Product (GDP), production levels and
living standards. The growth was increasing just because of new technologies and production process
such as the assembly line.
✓ During Corona pandemic, the Indian economy is facing a rapid decline in the Gross Domestic Product
(GDP). The decline is just because of the lack of health equipment, lack of funds etc.

The business cycle refers to the alternative expansion and contraction of overall business activity as
manifested in fluctuation in measures of aggregate economic activity such as gross domestic product,
employment and income.

Phases of Business Cycle

A typical business cycle has four distinct.
✓ Expansion
✓ Peak or boom or prosperity
✓ Contraction
✓ Trough or depression

Expansion:
✓ An Increase in national output, employment, aggregate demand, capital and consumer expenditure,
sales, profits, rising stock and blank credit, characterized the expansion phase.
✓ This state continues till there is full employment of resources and production is at its maximum
possible level using the available productive resources, involuntary unemployment is almost zero.
✓ Price and cost rises faster
✓ Demand for all goods increases
✓ Increase the living standard of the people

Expansion:
✓ An increase in national output, employment, aggregate demand, capital and consumer expenditure,
sales, profits, rising stock and bank credit, characterizes the expansion phase.
✓ This state continues till there is full employment of resources and production is at its maximum
possible level using the available productive resources, involuntary unemployment is almost zero.
✓ Price and cost rises faster
✓ Demand for all goods increases
✓ Increase the living standard of the people

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Peak:
✓ It is the highest point of the business cycle
✓ In expansion, inputs are difficult to find as they are short of their demand which leads to increase the
price of the inputs.
✓ Output prices also rise, which leads to an increase in the living standard of the people.
✓ The consumer starts spending his income on durable household goods.
✓ It occurs when economic growth has reached a point where it stabilizes for a short period of time and
then moves in the reserve direction.

Contraction:
✓ The economy cannot grow endlessly
✓ After reaching its peak point, it starts declining in a specific sector
✓ There is a fall in the level of investment ad employment
✓ This leads to a mismatch between demand and supply (supply exceeds demand)
✓ This in turn, generates a chain of reaction in the input market and producers of capital goods and raw
material, responded by cancelling and their order.
✓ The producer reduces the prices to dispose of their inventory for meeting their financial obligations.
✓ Consumer excepts that more decrease in the price and postpones their purchase leads to falling in the
aggregate demand
✓ The difference between demand and supply gets widened and recession becomes server
✓ Investment, production and employment starts declining resulting in a further decline in income,
demand and consumption of both capital goods and consumer goods
✓ The process of recession is complete, and the sere contraction in the economic activities pushes the
economy in the phase of depression.

Trough and Depression:

✓ Depression is the serve form of recession and is characterized by too sluggish economic activity
✓ Growth rate becomes negative, and the level of national income and expenditure declines rapidly
✓ Prices of the product are at their lowest and forcing firms to shut down the production
✓ Consumer and capital goods industries suffer more
✓ At a depth of the depression, all the economic activities touch the bottom and phase of the trough is
reached.

Recovery:
✓ The economy cannot continue to contract endlessly. The trough is the lowest level of economic activity
and ten start a recovery
✓ It lasts for some time
✓ As the investment, production and employment start rising and consumer begin to increase their
expenditure.
✓ This process continues in the economy.

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Features of Business cycle

✓ Business cycle occur periodically. They do not occur in for specific times, their time periods will vary
according to the industries and the economic conditions. For example, the firm may see tremendous
growth followed by a shallow short-lived depression phase.
✓ Business cycle have distinct phases of expansion, peak, contraction, and trough. These phases show
smoothness and regularity. The length of each phase is also not defined.
✓ Business cycle generally originate in a free market economics. Business cycles are not limited to one
firm or one industry. They originate in the free economy and are pervasive in nature. For example, a
recession in the steel industry will set off a chain reaction until there is a recession in the entire
economy.
✓ All sectors are adversely affected by business cycle some sectors like capital goods industries, durable
consumer goods industries etc. are disproportionately affected. So, the investment and the
consumption or capital goods and durable consumer goods face the maximum brunt of the cycle
fluctuations. Non-durable goods do not face such problems generally.
✓ Business cycle are exceeding complex phenomena. They do not have any uniformity. There are no set
causes for business cycles as well. Therefore, it is difficult to male accurate prediction of trade cycle
before there occurrence.
✓ Trade cycles are not only limited to the output of goods and services it has an effect on all other
variables as well such as employment, the rate of interest, price levels, investment activity etc.
✓ Trade cycles are contagious. They do not limit themselves to one country or one economy. Once they
start in one country they will spread to other countries and economies via trade relations and
international trade practices. For example, the great depression of 2020 in the china due to Corona
virus affect almost all the countries of the world.
✓ Business cycle have very serious consequences on the well-being of the society.

Causes of Business Cycle

Business cycle may cause due to the internal cause and external cause or the combination of both.

Internal Causes
Internal causes which may leaks to boom or bust in the economy are:

i) Fluctuation in effective demand

✓ According to the Keynes, fluctuation in the economic activities are due to fluctuation in the
aggregate demand.
✓ When the demand in an economy increase the firms start producing more goods to meet the
demand.
✓ There is more output, more employment, ore income, and higher profits. This will lead to a boom
in the economy. But excessive demand may also cause inflation.
✓ On the other hand, if the demand fails, so does the economic activity. This may lead to a bust,
which it continues for longer period of time may even lead to depression in the economy.
✓ Net export is the component of aggregate demand, variation in exports and imports can leads to
business fluctuation.

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ii) Fluctuation in Investment

✓ According to some economist’s fluctuation in investment is the price cause of business cycle.
✓ Investment spending is considered to be most violate component of aggregate demand.
✓ The investments will fluctuate on the basis of a lot of factors such as the rate of interest in the
economy, entrepreneurial interest, profit expectation etc.
✓ An increase in investment will lead to an increase in economic activities and cause expansion.
✓ A decrease in investment will have the opposite effect and may cause a trough or even
depression.

iii) Variation in Government spending

✓ Fluctuation in government spending with its impact on aggregate economic activity results in
business fluctuation.
✓ Government spending especially during and after wars. Has destabilizing effect on the economy.

iv) Macroeconomic policy

✓ The monetary policies (monetary and fiscal policy) and the economic policies of a nation will
also result in changes in the phases of a business cycle.
✓ If the monetary policies are looking to expand economic activities by promoting investment, then
the economy booms.
✓ On the other hand, if there is an increase in taxes or interest rates, we will see a slowdown or a
recession in the economy.

v) Money supply
✓ According to Hartery, trade cycle is purely monetary phenomena. So, changes in the money
supply will bring about the trade cycles
✓ An increase of money in the market will cause growth and expansion. However, excessive
increase in the credit and money also set off an inflation in the economy. Capital is easily available
therefore business and consumer are alike can borrow at low rate.
✓ But too much money supply may also cause inflation which is adverse. And the decrease in the
supply of money will initiate a recession in the economy.

vi) Psychological factor

✓ According to the Pigou, modern business activities are based on the anticipation of business
community and are affected by waves of optimism or permission.
✓ Business fluctuations are coming out of the psychological state of mind of a businessman.
✓ If businessman is optimistic about future market condition, he makes investment and as result
expansionary phase ma begin.
✓ With the reduced in the investment, employment, consumption and income also take a down
turn and the economy faces contraction in the economic activity.

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External Causes
The external causes or exogenous factor which leads to boom or bust are:

i) Wars
✓ During War times, Production of wars goods like weapons and arms etc. increase and most of the
resource of the country are diverted of their production. This will lead to a fall in income,
employment, and economic activity. So, the economy will face a downturn during war times.
✓ This create contraction in the economy activity and Tiger downturn in economic activity.

ii) Post war reconstruction

✓ Post-war the focus will be on rebuilding Infrastructure needs to be reconstructed (houses, roads,
bridges, etc.) This will help the economy pick up again as progress is being made. Economic
activity will increase as effective demand will increase.

iii) Technology shocks

✓ Some exciting and new technology is always a boost to the economy. New technology will mean
new investment, increased employment, and subsequently higher incomes and profit.
✓ For example, the invention of the modern mobile phone was the reason for a huge boost in the
telecom industry.

iv) Natural factors

✓ Natural disasters like floods, droughts, hurricanes, etc. can cause damage to the crops and huge
losses to the agricultural sector. Shortage of food will cause a surge in prices and high inflation.
Capital goods may see a reduction in demand as well.

v) Population growth
✓ If the population growth is out of control that might be a problem for the economy. Basically, of
the population growth is higher than the economic growth the total savings of an economy will
start dwindling. Then the investments will reduce as well and the economy will face depression
or a slowdown.

The Relevance of The Business Cycle in Business Decision Making

✓ Business cycle affects all aspects of the economy. Understanding the business cycle is important for
the business of all types as they affect the demand for their products and in turn, their profits which
ultimately determines whether a business is successful or not.
✓ The business cycle has a tremendous influence on business decision. The stage of the business cycle
is crucial while making a managerial decision regarding expansion or downsizing.
✓ A business manager needs to work effectively to arrive at a sound strategic decision in a complex time
across the whole business cycle, managing through the boom, downturn, recession and recovery.

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Indicators

Economists use changes in a variety of activities to measure the business cycle and to predict where the
economy is headed towards. These are called indicators.

Leading Indicators Lagging Indicators Coincident Indicators

(Leading indicators often (Lagging indicators reflect (Coincident economic
change prior to large the economy’s historical indicators, also called
economic adjustments. performance and changes in concurrent indicators,
Changes in stock prices, these indicators are coincide or occur
profit margins and profits, observable only after an simultaneously with the
indices such as housing, economic trend or pattern business-cycle movements.
interest rates and prices are has already occurred. In Since they coincide fairly
generally seen as precursors other words, variable that closely with changes in the
of upturns or downturns. change after the real output cycle of economic activity,
Leading indicators, through changes are called ‘Lagging they describe the current
widely used to predict indicators’. If leading state of the business cycle. In
changes in the economy, are indicators’. If leading other words, these
not always accurate.) indicators signal the onset of indicators give information
business cycles, lagging about the rate of change of
indicators confirm these the expansion or contraction
trends. Lagging indicators of an economy more or less
consist of measures that at the same point of time it
change after an economy has happens. A few examples of
entered a period of coincident indicators are
fluctuation. Some examples Gross Domestic Product,
of lagging indicators are industrial production,
unemployment, corporate inflation, personal income,
profits, labour cost per unit retail sales and financial
of output, interest rates, the market trends such as stock
consumer price index and market prices.)
commercial lending
activity).

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MCQ’s

S. Questions Marks
No.
1. The term business cycle refers to: 1
a) The ups and downs in production of commodities
b) The fluctuating levels of economic activity over a period of time
c) Decline in economic activities over prolonged period of time
d) Increasing unemployment rate and diminishing rate of savings
Sol. b) The fluctuating levels of economic activity over a period of time 1
2. A signi-cant decline in general economic activity extending over a period of time is; 1
a) Business cycle
b) Contraction phase
c) Recession
d) Recovery
Sol. c) Recession 1
3. The trough of a business cycle occurs when ________ hits its lowest point. 1
a) In inflation in the economy
b) The money supply
c) Aggregate economic activity
d) The unemployment rate
Sol. c) Aggregate economic activity 1
4. The lowest point in the business cycle is referred to as the: 1
a) Expansion
b) Boom.
c) Peak.
d) Trough.
Sol. d) Trough. 1
5. A leading indicator is; 1
a) A variable that rends to move along with the level of economic activity
b) A variable that trends to move in advance of aggregate economic activity
c) A variable that trends to move consequent on the level of aggregate economic
activity
d) None of the above

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Sol. b) A variable that trends to move in advance of aggregate economic activity 1

6. A variable that tends to move later than aggregate economic activity is called; 1
a) A leading variable.
b) A coincident variable.
c) A lagging variable.
d) A cyclical variable.
Sol. c) A lagging variable. 1
7. Industries that are extremely sensitive to the business cycle are the; 1
a) Durable goods and service sectors.
b) Non-durable goods and service sectors.
c) Capital goods and non-durable goods sectors.
d) Capital goods and durable goods sectors.
Sol. d) Capital goods and durable goods sectors. 1
8. A decrease in government spending would cause; 1
a) The aggregate demand curve to shift to the right.
b) The aggregate demand curve to shift to the left.
c) A movement down and to the right along the aggregate demand curve.
d) A movement up and to the left along the aggregate demand curve.
Sol. b) The aggregate demand curve to shift to the left. 1
9. Which of the following does not occur during an expansion? 1
a) Consumer purchases of all types of goods tend to increase.
b) Employment increase as demand for labour rises.
c) Business profits and business confidence tend to increase.
d) None of the above.
Sol. d) None of the above. 1
10. Which of the following best describes a typical business cycle? 1
a) Economic expansions are followed by economic contractions.
b) Inflation is followed by rising income and unemployment.
c) Economic expansions are followed by economic growth and development.
d) Stagflation is followed by inflationary economic growth.
Sol. a) Economic expansions are followed by economic contractions. 1
11. During recession, the unemployment rate _________ and output_______ 1
a) Rises; falls
b) Rises; rises

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c) Falls; rises
d) Falls; falls
Sol. a) Rises; falls 1
12. The four phases of the business cycle are; 1
a) Peak, recession, trough, and boom
b) Peak, depression, trough, and boom
c) Peak, recession, trough, and recovery
d) Peak, depression, bust, and boom
Sol. c) Peak, recession, trough and recovery 1
13. Leading economic indicators; 1
a) Are used to forecast probable shifts in economic policies
b) Are generally used to forecast economic fluctuations
c) Are Indicators of stock prices existing in an economy
d) Are indicators of probable recession and depression
Sol. b) Are generally used to forecast economic fluctuations 1
14. When aggregate economic activity is declining, the economy is said to be in; 1
a) Contraction.
b) An expansion.
c) A trough.
d) A turning point.
Sol. a) Contraction. 1
15. Peaks and troughs of the business cycle are known collectively as; 1
a) Volatility
b) Turning points.
c) Equilibrium points.
d) Real business cycle events.
Sol. b) Turning points. 1
16. The most probable outcome of an increase in the money supply is: 1
a) Interest rates to rise, investment spending to rise, and aggregate demand to rise
b) Interest rates to rise, investment spending t fall, and aggregate demand to fall
c) Interest rates to fall, investment spending to rise, and aggregate demand to rise
d) Interest rates to fall, investment spending to fall, and aggregate demand to fall.
Sol. c) Interest rates to fall, investment spending to rise, and aggregate demand to rise 1
17. Which of the following is not a characteristic of business cycles; 1

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a) Business cycles have serious consequences on the well being of the society.
b) Business cycles occur periodically, although they do not exhibit the same regularity.
c) Business cycles have uniform characteristics and causes.
d) Business cycles are contagious unpredictable.
Sol. c) Business cycles have uniform characteristics and causes. 1
18. Economic recession shares all of these characteristics except. 1
a) Fall in the levels of investment, employment
b) Incomes of wage and interest earners gradually decline resulting in decreased
demand for goods and services
c) Investor confidence is adversely affected and new investments may not be
forthcoming
d) Increase in the price of inputs due to increased demand for inputs
Sol. d) Increase in the price of inputs due to increased demand for inputs 1
19. The different phases of a business cycle; 1
a) Do not have the same length and severity
b) Expansion phase always last more than ten years
c) Last many years and are difficult to get over in short periods
d) None of the above
Sol. a) Do not have the same length and severity 1
20. Which of the following is not an example of coincident indicator? 1
a) Industrial production
b) Inflation
c) Retail sales
d) New orders for plant and equipment
Sol. d) New orders for plant and equipment 1

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Nature and Scope of Business

1) Economics owes its origin from the Greek word ‘Oikonomia’ meaning ‘household’. The study of
economics is individual and social choice in the face of scarcity.

2) Economic problem arises due to two reasons

a) Unlimited wants
b) Scarce resources

3) Definitions of economics by different economists.

a) Science of wealth “Adam Smith”
According to Adam Smith “Economics is an inquiry into the nature and cause of the wealth of the
nations”
b) Science of material well-being “Alfred Marshall”
According to Alfred Marshall “Economics is a study of mankind in the ordinary business of life. It
examines that part of individual and social action, which is most closely connected with the
attainment and with the use of the material requisites of well-being”.
c) Science of choice making. “Robbins”
According to Robbins “Economics is the science which studies human behavior as a relationship
between ends and scarce which have alternative uses”.
d) Science of Dynamic growth and development Paul A. Samuelson
According to Paul A. Samuelson “Economics is the study of how men and society choose, with or
without use of money to employ scarce productive resources which could have alternative uses, to
produce various commodities over time and distribute them for consumption”.

4) Micro Economics: - It is the study of particular firm, particular household, wages, income and
particular commodity (It is a study of a particular unit rather than units combined).
Under micro economics we study: -
i) Theory of product pricing / price theory
ii) Theory of consumer behavior
iii) Theory of factor pricing
iv) Study of a firm

5) Macro Economics: - It is that part of economics which studies the overall average and aggregate of
the system, such as total production, total consumption etc. (macro-economic study overall
phenomena as a whole rather than its individual parts.)
Under macroeconomics we study: -
a) Theory of National Income, Employment and money
b) Theory of general price level
c) Theory of economic growth and development
d) Theory of international trade.

6) Economics is Science or art or both?

Economics is a science: - Because of following reasons-
i) It has cause and relationship for e.g. law of demand.

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ii) It has its own methodology of study.

iii) It forecasts the future market condition with help of various statistical and non-statistical tools.

7) Economics is an art: - Economics is an art because it provides practical solution of various economic
problems we face in our day-to-day life.

8) Economics is both science and art: - Economics is both science an art. It is science in its methodology
and art in its application.

9) Economics as Positive Science or a Normative Science:

Positive Science: - It states ‘what is ‘or it makes a real description of an economy. According to
Robbins- Economics is natural between ends. It does not pass value judgments. Anyone with the
limited amount of money may use it for buying liquor and not milk.
Example of positive science:
a) Planned economics allocate resources via government departments.
b) Problems of falling output and raising prices.
c) Greater degree of consumer sovereignty.

10) Normative Science: - It refers to “What ought to be” or it makes an assessment of an activity and
offers advice. It is based on welfare economics – (Marshall and Pigou). It pass value judgment.
Example of normative science:
a) Reducing inequality should be major priority for mixed economy.
b) Government ought to guarantee that farmer’s income will not fall if harvest is poor.

11) Deductive Method: - Deductive method is the process of reasoning from general to particular or
universal to individual. This method is called abstract, hypothetical or a priori because it is based on
abstract reasoning and not on actual facts. e.g. direct relationship b/w price and supply.

12) Inductive Method: - Inductive method is the process of reasoning from particular to general from
individual to the universal. E.g. relationship b/w income and consumption.

13) Central Economic Problems: -

i) What to produce: - Humans wants are unlimited and resources are limited to satisfy human wants.
The question arises what goods are to be produced and in what quantity these goods to be
produced. Either consumer goods or capital goods.
ii) How to produce: - This problem is related to the choice of technique for producing a commodity.
An economy has to choose between.
a) Labour intensive technique and
b) Capital-intensive technique
iii) For whom to produce: - Problem of “for whom to produce” means how the national product i.e.,
national income is to distributed among the factors of production that helped to produce it. It is
rent, wages, interest and profits.

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14) Economic System:

It refers to the mode of production, exchange and distribution of goods and services in a society. It
may be of three types-
i) Capitalist Economy
ii) Socialist Economy
iii) Mixed Economy

15) Capitalist Economy (Free market Economy):

Capitalist economy is one in which the factors of production are privately owned and managed and in
which production takes place on the initiative for private profits. It is a free economy in which
government interference is not found.

16) Merits of Capitalist economy: -

i) New varieties of goods
ii) High standard of living
iii) Benefits of Price mechanism
iv) Liberty and freedom
v) Right to private property
vi) Growth of business

17) Demerits of Capitalist economy: -

i) Rich and poor class
ii) Welfare ignored
iii) Economic instability
iv) Wastage of money on advertisements etc.
v) Employer-employee class conflict
vi) Sticks and lock outs
vii) Resources used for luxuries
viii) Formation of monopolies
ix) Insecurity of employment

18) Socialist Economy (Controlled Economy):

In a Socialist economy, all material means of production i.e. land, capital and mines etc. are owned by
the whole community represented by the STATE. The state works for the welfare of the society and
profits motive is not important for it.

19) Merits of Socialism: -

i) Equitable distribution and equal opportunity
ii) Better utilization of resources
iii) Waste avoided through economic planning
iv) Economic stability
v) Co-operative mentality and avoids class war
vi) Ensure right to work and minimum standard of living
vii) Protected from the exploitation

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20) Demerits of Socialism: -

i) Restriction on freedom
ii) No right of private property.
iii) Absence of profit earning and No incentive for hard work
iv) State monopolies become incontrollable
v) No freedom for choice

21) Mixed Economy (India): -

An economic system, which contains element of both private and public sectors, is called mixed
economy. The concept of mixed economy is given by J.M. Keynes.

22) Merits of Mixed Economy-

i) Merits of both capitalism and socialism and avoids there evils
ii) Protects individual freedom
iii) Role of price mechanism
iv) Reducing the inequalities and class struggle
v) Useful for underdeveloped countries
vi) Rapid and balance economic development

23) Demerits of Mixed Economy: -

i) Difficult to adjust the private and public sector
ii) Excessive control and heavy taxes
iii) Discourage to private sector

Price theory: The theory of price is an economic theory that states that the price for any specific good or
service is based on the relationship between its supply and demand.
General theory: The phrase ‘general theory’ is not common, but it normally means a theory meant to
apply to a broad range of contexts, rather than a theory that is focused in on specific material.

Theory of consumer behaviour: Theory of consumer behaviour in Economics describes how consumers
allocate incomes among different goods and services to maximize their utility…Consumer’s limited
purchasing power (budget) makes them to allocate the same in a way that maximize satisfaction of their
wants and needs.

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MCQ’s
Q. Questions & Solutions Marks
No.
1. The classical economists defined Economics as; 1
a) The science of welfare
b) The science of scarcity
c) The science of wealth
d) The science of wealth and welfare
Ans. c) The science of wealth
2. Lionel Robins Published his famous book “Nature of significance of Economics” in the 1
year.
a) 1935
b) 1933
c) 1931
d) 1937
Ans. c) 1931
3. According to ______________ Economics is the “the study of how in a civilized society one 1
obtains the share of what other people have produced and of how the total product
of society changes and is determined.”
a) Jacob Viner
b) Henry Smith
c) Pigou
d) Paul A. Samuelson
Ans. b) Henry Smith
4. ‘Economics is what Economists do’ is given by; 1
a) Jacob Viner
b) Henry Smith
c) Pigou
d) Paul A. Samuelson
Ans. a) Jacob Viner
5. Larger production of __________ goods would lend to higher production in future. 1
a) Consumer goods
b) Capital goods
c) Agricultural goods
d) Public goods
Ans. a) Consumer goods
6. Capital intensive technique would get chosen in a; 1
a) Labour surplus economy.
b) Capital surplus economy.
c) Developed economy.
d) Developing economy.
Ans. b) Capital surplus economy.
7. Consider the following and decide which, if any, economy is without scarcity; 1
a) The pre-independent Indian economy, where most people were farmers.
b) A mythical economy where everybody is a billionaire.

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c) Any economy where income where income is distributed equally among its
people.
d) None of the above.
Ans. d) None of the above.
8. Which of the following is not a micro economic subject matter? 1
a) The price of mangoes.
b) The cost of producing a fire truck for the fire department of Delhi, India.
c) The quantity of mangoes produced for the mangoes market.
d) The national economy’s annual rate of growth.
Ans. d) The national economy’s annual rate of growth.
9. What is the opportunity cost of moving from point A to point B? 1
a) 100 units of capital goods.
b) 8 units of consumer goods.
c) 90 units of capital goods.
d) 10 units of capital goods.
Ans. d) 10 units of capital goods.
10. In a free market economy the allocation of resources is determined by; 1
a) Votes taken by consumers.
b) A central planning authority
c) By consumer preference.
d) The level of profits of firms.
Ans. c) By consumer preference.
11. All wants of an individual are not of; 1
a) Equal importance
b) Immediate importance
c) Fixed importance
d) All of the above
Ans. a) Equal importance
12. Human wants are __________ in response to satisfy their wants? 1
a) Unlimited
b) Limited
c) Scarce
d) Multiple
Ans. a) Unlimited
13. The meaning of time element in Economics is; 1
a) Calendar time
b) Clock time
c) Operational time in which supply adjusts with the market demand
d) None of the above
Ans. c) Operational time in which supply adjusts with the market demand
14. Business Economics is also known as? 1
a) Applied Economics
b) Managerial Economics
c) Micro Economics
d) All of the above

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Ans. b) Managerial Economics

15. Concept of Business Economics was given by; 1
a) Joel Dean
b) Alfred Marshall
c) Adam Smith
d) L. Robbins
Ans. a) Joel Dean
16. Which of the following falls under micro economics? 1
a) National Income
b) General Price Level
c) Factor pricing
d) National saving and investment
Ans. c) Factor pricing
17. Micro economics is also known as ____________. 1
a) Public economics
b) Price theory
c) Income theory
d) Demand theory
Ans. b) Price theory
18. Macro Economics is also called _____________ economics. 1
a) Applied
b) Aggregate
c) Experimental
d) None of the above
Ans. b) Aggregate
19. Macroeconomics include; 1
a) Product pricing
b) Consumer behaviour
c) External value of money
d) Location of industry
Ans. c) External value of money
20. Which of the following is a part of the subject matter of macroeconomics? 1
a) Study of firms
b) Aggregate profits of a firm
c) Market demand for a product
d) Net National Product
Ans. d) Net National Product
21. Business Economics is _____________ in its approach as it tackles practical problems 1
which the firm faces in the real world.
a) Theoretical
b) Scientific
c) Programmatic
d) Mathematical
Ans. c) Programmatic

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22. Normative Economics is based on; 1

a) Ethical Considerations
b) Facts and Generalization
c) What is?
d) All of the above
Ans. a) Ethical Considerations
23. Deductive and Inductive methods are complimentary to each other. It is; 1
a) Absolutely correct
b) Absolutely incorrect
c) Partially incorrect
d) None of the above
Ans. a) Absolutely correct
24. In inductive method, logic proceeds from; 1
a) General to Particular
b) Particular to General
c) Both a) and b)
d) None of these
Ans. b) Particular to General
25. Under Inductive method logic proceeds from; 1
a) General to Particular
b) Positive to normative
c) Normative to positive
d) Particular to general
Ans. d) Particular to general
26. Which of the following statement is false? 1
a) The resources are limited.
b) The Resources are alternative uses.
c) If resources are unlimited, people would be able to satisfy all their wants.
d) The economics problem arises because resource has only a single use.
Ans. d) The economics problem arises because resource has only a single use.
27. ____________ explains the relationship between inputs and output. 1
a) Production Theory
b) Demand Analysis
c) Inventory Management
d) None of the above
Ans. a) Production Theory
28. In a capitalist economy, allocation of resources is done by; 1
a) Producers
b) Government
c) Planners
d) Price mechanism
Ans. d) Price mechanism
29. Economics problem arises when; 1
a) Wants are unlimited
b) Resources are limited

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c) Alternative uses of resources

d) All of the above
Ans. d) All of the above
30. Exploitation and inequality will be more in ___________. 1
a) Socialism
b) Capitalism
c) Mixed
d) All of the above
Ans. b) Capitalism

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