CUET Economics 2025 Slot 2 Past Year Paper with Solutions

Q1:

Micro

>

Production & Costs

Medium

According to the law of variable proportions, the marginal product of an input initially rises and then after a certain level of employment, it starts falling. The MP curve therefore looks like:

'U' Shaped

Convex to Origin.

'L' Shaped.

Inverse 'U' Shaped.

Correct Answer

Option 4

Correct Answer

Explanation

Q2:

Macro

>

Money & Banking

Medium

Arrange the following money measures into their high to low liquid form.

(A) M4

(B) M2

(C) M1

(D) M3

Choose the correct answer from the options given below:

(A), (B), (C), (D)

(A), (C), (B), (D)

(B), (A), (D), (C)

(C), (B), (D), (A)

Correct Answer

Option 4

Correct Answer

Explanation

Q3:

Micro

>

Introduction

Medium

When in an economy, available resources are fully utilized at that point production of a combination of goods is known as .........

Indifference Curve.

Isoquant.

Production Possibility Frontier.

Production Possibility Set.

Correct Answer

Option 3

Correct Answer

Explanation

Q4:

Micro

>

Forms of Market

Medium

What are the key components of a perfectly competitive market?

(A) Large number of buyers and sellers.

(B) Homogeneous product.

(C) Free Entry and exit.

(D) Asymmetric Information.

Choose the correct answer from the options given below:

(A), (B) and (D) only

(A), (B) and (C) only

(A), (B), (C) and (D)

(B), (C) and (D) only

Correct Answer

Option 2

Correct Answer

Explanation

Q5:

Macro

>

Income & Employment

Easy

Match List-I with List-II

List-I	List-II
(A) Marginal propensity to consume	(I) Change in savings per unit change in income.
(B) Marginal propensity to save	(II) Savings per unit of income.
(C) Average propensity to consume	(III) Change in consumption per unit change in income.
(D) Average propensity to save	(IV) Consumption per unit of income.

Choose the correct answer from the options given below:

(A) - (I), (B) - (II), (C) - (III), (D) - (IV)

(A) - (III), (B) - (I), (C) - (IV), (D) - (II)

(A) - (I), (B) - (II), (C) - (IV), (D) - (III)

(A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Correct Answer

Option 2

Correct Answer

Explanation

Q6:

Micro

>

Consumer Behaviour

Medium

Which among the following are the features of the indifference curve?

(A) Indifference curve slopes downwards from left to right.

(B) Higher indifference curve gives greater level of utility.

(C) Indifference curve reflects negative utility.

(D) Two indifference curves never intersect each other.

Choose the correct answer from the options given below:

(A), (C) and (D) only

(A), (B) and (C) only

(A), (B), (C) and (D)

(A), (B) and (D) only

Correct Answer

Option 4

Correct Answer

Explanation

Q7:

Micro

>

Market Equilibrium

Medium

Arrange the following elasticity degrees along the demand curve in their ascending order.

(A) Elasticity (eD) = 1

(B) Elasticity (eD) > 1

(C) Elasticity (eD) < 1

(D) Elasticity (eD) = 0

Choose the correct answer from the options given below:

(A), (B), (C), (D)

(A), (C), (B), (D)

(B), (A), (D), (C)

(D), (C), (A), (B)

Correct Answer

Option 4

Correct Answer

Explanation

Q8:

Macro

>

Income & Employment

Medium

If aggregate demand changes, the equilibrium level of income changes. This can happen in any one or combination of the following situations:

(A) Change in consumption.

(B) Multiplier Effect.

(C) Substitute Effect.

(D) Change in Investment.

Choose the correct answer from the options given below:

(A) and (D) only

(B) and (C) only

(A), (B), (C) and (D)

(A) and (D) only

Correct Answer

Option 1,4

Correct Answer

Explanation

Q9:

Macro

>

Balance of Payments

Medium

Match List-I with List-II

List-I	List-II
(A) Current Account	(I) Receipts < Payments
(B) Capital Account	(II) Net Investment Income.
(C) Current Account Deficit	(III) Transfer Payment
(D) Trade in Services	(IV) Portfolio Investment

Choose the correct answer from the options given below:

(A) - (I), (B) - (II), (C) - (III), (D) - (IV)

(A) - (I), (B) - (III), (C) - (II), (D) - (IV)

(A) - (I), (B) - (II), (C) - (IV), (D) - (III)

(A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Correct Answer

Option 4

Correct Answer

Explanation

Q10:

Macro

>

National Income

Easy

The benefits (or harms) a firm or an individual causes to another for which they are not paid (or penalized) is referred to as .........

Free moment of goods

Externalities.

Public Goods.

Environmental freedom.

Correct Answer

Option 2

Correct Answer

Explanation

Q11:

Macro

>

National Income

Easy

Goods which are traded in large quantity and are not purchased by ordinary consumers. The price measure of such trading is known as .......

Whole Sale Price index.

Consumer Price Index.

Industrial Goods index.

Foodgrain Price Index.

Correct Answer

Option 1

Correct Answer

Explanation

Q12:

Macro

>

Money & Banking

Easy

When the Reserve Bank of India buys government bonds from the market, how does that affect money supply in the economy?

Increases Money Supply.

Decreases Money Supply.

Money Supply Remain Constant.

Increases the assets of government.

Correct Answer

Option 1

Correct Answer

Explanation

Q13:

Micro

>

Forms of Market

Easy

Price ceiling is one concept which provides safeguard to______

Producer.

Intermediateries.

Consumer.

Government.

Correct Answer

Option 3

Correct Answer

Explanation

Q14:

Micro

>

Market Equilibrium

Medium

When the price of a cricket ball is Rs10, let us assume that 200 cricket balls are produced in aggregate by the firms in the market. When the price of a cricket ball rises to Rs.30, let us assume that 1,000 cricket balls are produced in aggregate by the firms in the market. Calculate the elasticity of supply.

2

3

4

1

Correct Answer

Option 1

Correct Answer

Explanation

Q15:

Macro

>

Income & Employment

Medium

In the closed economy the ex ante aggregate demand for final goods is the sum total of:

Ex ante consumption expenditure and ex post investment expenditure on such goods.

Ex ante consumption expenditure and ex ante investment expenditure on such goods.

Ex post consumption expenditure and ex post investment expenditure on such goods

Ex post consumption expenditure and ex ante investment expenditure on such goods

Correct Answer

Option 2

Correct Answer

Explanation

Q16:

Macro

>

National Income

Easy

Addition to the stock of physical capital and changes in the inventory of a producer is known as .......

Asset.

Expenditure.

Investment.

Aggregate Demand.

Correct Answer

Option 3

Correct Answer

Explanation

Q17:

Macro

>

Income & Employment

Medium

The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called:

Money Multiplier.

GDP Multiplier.

Investment multiplier

Tax Multiplier.

Correct Answer

Option 3

Correct Answer

Explanation

Q18:

Macro

>

National Income

Medium

The ratio of nominal to real GDP refer to which economic concept?

National Product.

Wholesale Price Index.

Consumer Price Index.

GDP deflator.

Correct Answer

Option 4

Correct Answer

Explanation

Q19:

Indian Economic Development

>

Development Experience of India

Medium

Arrange the following in ascending order in respect of their year of implementation (in India).

(A) Goods and Service Tax.

(B) Demonetization of 500 and 1000 currency notes.

(C) Fiscal responsibility and Budget Management Act.

(D) Economic Reform.

Choose the correct answer from the options given below:

(A), (B), (C), (D)

(D), (C), (B), (A)

(B), (A), (D), (C)

(C), (B), (D), (A)

Correct Answer

Option 2

Correct Answer

Explanation

Q20:

Macro

>

Money & Banking

Medium

How much total credit creation can bank creates with Cash Reserve Rato of 20% when bank's reserves are Rs. 1000.

5000

10000

2000

4000

Correct Answer

Option 1

Correct Answer

Explanation

Q21:

Macro

>

Money & Banking

Medium

Match List-I with List-II

List-I	List-II
(A) Net Worth	(I) Currency + Deposits
(B) M₁	(II) Reserves + Loans
(C) Assets	(III) 1/ Cash Reserve Ratio
(D) Money Multiplier.	(IV) Assets – Liabilities

Choose the correct answer from the options given below:

(A) - (IV), (B) - (I), (C) - (II), (D) - (III)

(A) - (I), (B) - (III), (C) - (II), (D) - (IV)

(A) - (I), (B) - (II), (C) - (IV), (D) - (III)

(A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Correct Answer

Option 1

Correct Answer

Explanation

Q22:

Micro

>

Consumer Behaviour

Medium

Identify the factors of price elasticity of demand.

(A) Nature of Goods.

(B) Availability of Substitution.

(C) Complementary Goods

(D) Cost of Goods.

Choose the correct answer from the options given below:

(A), (B) and (D) only

(A), (C) and (D) only

(A), (B), and (C)

(B), (C) and (D) only

Correct Answer

Option 3

Correct Answer

Explanation

Q23:

Macro

>

National Income

Easy

Consumer Price Index (CPI) is measured by_______

Measuring Wholesale price of commodities.

Basket of commodities bought by representative consumers.

Measuring Foodgrain Prices in economy.

Measuring Consumables Prices at a particular time point.

Correct Answer

Option 2

Correct Answer

Explanation

Q24:

Micro

>

Market Equilibrium

Easy

Minimum support price of a foodgrain is the example of _______

Floor Pricing.

Price Ceiling.

Maximum retail Price.

Price Discrimination.

Correct Answer

Option 1

Correct Answer

Explanation

Q25:

Micro

>

Production & Costs

Medium

In given production function $q = f(x_1, x_2)$ what is depicted by $f(tx_1, tx_2) < tf(x_1, x_2)$ .

Constant returns to scale.

Increasing returns to scale.

Decreasing returns to scale

Marginal returns to scale.

Correct Answer

Option 3

Correct Answer

Explanation

Q26:

Macro

>

National Income

Hard

Match List-I with List-II

List-I	List-II
(A) Net National Product at Market Prices (NNP_MP)	(I) GNP_MP - Net Product Taxes - Net Production Taxes
(B) Gross National Product at Market Prices (GNP_MP)	(II) GDP at market prices
(C) Gross National Product at Factor Cost (GNP_FC)	(III) GNP_MP - Depreciation
(D) GVA at Market Prices	(IV) GDP_MP + NFIA

Choose the correct answer from the options given below:

(A) - (I), (B) - (II), (C) - (III), (D) - (IV)

(A) - (I), (B) - (III), (C) - (II), (D) - (IV)

(A) - (I), (B) - (II), (C) - (IV), (D) - (III)

(A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Correct Answer

Option 4

Correct Answer

Explanation

Q27:

Micro

>

Production & Costs

Easy

Set of all possible combinations of the two inputs that yield the same maximum possible level of output is known as.........

Indifference Curve.

Production Possibility Curve.

Isoquant.

Budget Line.

Correct Answer

Option 3

Correct Answer

Explanation

Q28:

Macro

>

Introduction

Easy

Any concept or saying, that describes the functioning of an imaginary economy is called ........

Macroeconomic Model

Microeconomic Model.

Economic Performance.

Production Method.

Correct Answer

Option 1

Correct Answer

Explanation

Q29:

Micro

>

Production & Costs

Medium

The tendency where marginal productivity first increases then starts falling is known as ______

Law of variable proportions.

Marginal rate of substitution.

Increasing cost.

Marginal productivity.

Correct Answer

Option 1

Correct Answer

Explanation

Q30:

Macro

>

National Income

Medium

What government planned for different economic activities is an application of which of the following?

Ex-post.

Ex-policy.

Ex-data.

Ex-ante.

Correct Answer

Option 4

Correct Answer

Explanation

Q31:

Micro

>

Consumer Behaviour

Medium

Match List-I with List-II

List-I	List-II
(A) Satisfaction derived from consuming the given amount of some commodity x.	(I) Marginal rate of substitution.
(B) Change in total utility due to consumption of one additional unit of a commodity.	(II) Ordinal Utility
(C) Ranking of various consumption bundle.	(III) Marginal Utility
(D) Downward slope of indifference curve.	(IV) Total Utility

Choose the correct answer from the options given below:

(A) - (IV), (B) - (III), (C) - (II), (D) - (I)

(A) - (I), (B) - (III), (C) - (II), (D) - (IV)

(A) - (I), (B) - (II), (C) - (IV), (D) - (III)

(A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Correct Answer

Option 1

Correct Answer

Explanation

Q32:

Macro

>

Money & Banking

Hard

Arrange the following central bank reserve rates in their descending rates.

(A) Cash Reserve Ratio

(B) Repo Rate.

(C) Reverse Repo Rate.

(D) Statutory Liquidity Ratio.

Choose the correct answer from the options given below:

(A), (B), (C), (D)

(A), (C), (B), (D)

(D), (B), (C), (A)

(C), (B), (D), (A)

Correct Answer

Option 3

Correct Answer

Explanation

Q33:

Micro

>

Introduction

Easy

The economic approach in which we try to understand whether given mechanisms are desirable or not is known as ..........

Normative Economics

Positive Economics.

Cordinal Approach.

Ordinal Approach.

Correct Answer

Option 1

Correct Answer

Explanation

Q34:

Micro

>

Production & Costs

Easy

Change in total cost per unit of change in output is defined as:

Short run marginal cost.

Average fixed cost.

Short run average cost.

Average variable cost.

Correct Answer

Option 1

Correct Answer

Explanation

Q35:

Micro

>

Production & Costs

Medium

In the short run, which of the following condition is mandatory for a firm for its profit maximization at q₀?

Price must be greater than the average cost

The price must be greater than the marginal cost.

Marginal cost must be deceasing at q₀.

Price must be greater than the average variable cost

Correct Answer

Option 4

Correct Answer

Explanation

Q36:

Micro

>

Consumer Behaviour

Easy

From which of the following, consumers can choose their consumption bundle?

Budget Line.

Budget Set.

Indifference Curve.

Marginal Rate of Substitution.

Correct Answer

Option 2

Correct Answer

Explanation

Q37:

Macro

>

Introduction

Easy

Identify the economic agents from the following.

(A) Consumers.

(B) Institutions like banks or corporations.

(C) Producer.

(D) Government.

Choose the correct answer from the options given below:

(A), (B) and (D) only

(A), (B) and (C) only

(A), (B), (C) and (D)

(B), (C) and (D) only

Correct Answer

Option 3

Correct Answer

Explanation

Q38:

Macro

>

Government Budget

Easy

The government can change the distribution of income and bring about a distribution that is considered 'fair' by society. This policy decision is called ........

Stabalization Function.

Allocative Function.

Redistribution function.

Transactory Function.

Correct Answer

Option 3

Correct Answer

Explanation

Q39:

Macro

>

Government Budget

Medium

From the following, identify the main features of Fiscal responsibility and Budget Management act.

(A) The actual deficits may exceed the targets specified only on grounds of national security or natural calamity or such other exceptional grounds as the central government may specify.

(B) The Act mandates the central government to take appropriate measures to reduce fiscal deficit to not more than 3 percent of GDP

(C) The central government shall not borrow from the Reserve Bank of India except under specified conditions.

(D) Measures to be taken to ensure greater transparency in fiscal operations.

Choose the correct answer from the options given below:

(A), (B) and (D) only

(A), (B) and (C) only

(A), (B), (C) and (D)

(B), (C) and (D) only

Correct Answer

Option 3

Correct Answer

Explanation

Q40:

Macro

>

Government Budget

Medium

Match List-I with List-II

List-I	List-II
(A) Public Provision	(I) No feasible way to deny anyone to use public goods.
(B) Stabalisation Function	(II) Goods are produced directly by the government.
(C) Non-Excludable	(III) Financed through the budget and can be used without any direct payment.
(D) Public Production	(IV) Whether to expand demand or reduce it.

Choose the correct answer from the options given below:

(A) - (III), (B) - (IV), (C) - (I), (D) - (II)

(A) - (I), (B) - (III), (C) - (II), (D) - (IV)

(A) - (I), (B) - (II), (C) - (IV), (D) - (III)

(A) - (I), (B) - (II), (C) - (III), (D) - (IV)

Correct Answer

Option 1

Correct Answer

Explanation

Q41:

Micro

>

Production & Costs

Easy

Comprehension:

Increasing return to scale (IRS) implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. In other words, to increase output by a certain proportion, inputs need to be increased by less than that proportion. With the input prices given, cost also increases by a lesser proportion. For example, suppose we want to double the output. To do that, inputs need to be increased, but less than double. The cost that the firm incurs to hire those inputs therefore also need to be increased by less than double. What is happening to the average cost here? It must be the case that as long as IRS operates, average cost falls as the firm increases output. Decreasing return to scale (DRS) implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. As a result, cost also increases by more than that proportion. So, as long as DRS operates, the average cost must be rising as the firm increases output. Constant return to scale (CRS) implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. It is argued that in a typical firm IRS is observed at the initial level of production. This is then followed by the CRS and then by the DRS. Accordingly, the LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed.

In which of the following conditions, output increases with the same proportion of input?

Increasing return to sacle.

Decreasing return to scale.

Constant return to scale.

Diminishing marginal productivity.

Correct Answer

Option 3

Correct Answer

Explanation

Q42:

Micro

>

Production & Costs

Easy

Comprehension:

Increasing return to scale (IRS) implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. In other words, to increase output by a certain proportion, inputs need to be increased by less than that proportion. With the input prices given, cost also increases by a lesser proportion. For example, suppose we want to double the output. To do that, inputs need to be increased, but less than double. The cost that the firm incurs to hire those inputs therefore also need to be increased by less than double. What is happening to the average cost here? It must be the case that as long as IRS operates, average cost falls as the firm increases output. Decreasing return to scale (DRS) implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. As a result, cost also increases by more than that proportion. So, as long as DRS operates, the average cost must be rising as the firm increases output. Constant return to scale (CRS) implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. It is argued that in a typical firm IRS is observed at the initial level of production. This is then followed by the CRS and then by the DRS. Accordingly, the LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed.

When we have proportionately more output than input this economic concept is known as .........

Constant return to scale

Decreasing return to scale

Marginal rate of substitution.

Increasing return to scale

Correct Answer

Option 4

Correct Answer

Explanation

Q43:

Micro

>

Production & Costs

Medium

Comprehension:

Increasing return to scale (IRS) implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. In other words, to increase output by a certain proportion, inputs need to be increased by less than that proportion. With the input prices given, cost also increases by a lesser proportion. For example, suppose we want to double the output. To do that, inputs need to be increased, but less than double. The cost that the firm incurs to hire those inputs therefore also need to be increased by less than double. What is happening to the average cost here? It must be the case that as long as IRS operates, average cost falls as the firm increases output. Decreasing return to scale (DRS) implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. As a result, cost also increases by more than that proportion. So, as long as DRS operates, the average cost must be rising as the firm increases output. Constant return to scale (CRS) implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. It is argued that in a typical firm IRS is observed at the initial level of production. This is then followed by the CRS and then by the DRS. Accordingly, the LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed.

In which condition, the average cost of a firm declines when output increases?

Marginal produvtivity.

Constant return to scale.

Decresing return to scale

Increasing return to scale.

Correct Answer

Option 4

Correct Answer

Explanation

Q44:

Micro

>

Production & Costs

Medium

Comprehension:

Increasing return to scale (IRS) implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. In other words, to increase output by a certain proportion, inputs need to be increased by less than that proportion. With the input prices given, cost also increases by a lesser proportion. For example, suppose we want to double the output. To do that, inputs need to be increased, but less than double. The cost that the firm incurs to hire those inputs therefore also need to be increased by less than double. What is happening to the average cost here? It must be the case that as long as IRS operates, average cost falls as the firm increases output. Decreasing return to scale (DRS) implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. As a result, cost also increases by more than that proportion. So, as long as DRS operates, the average cost must be rising as the firm increases output. Constant return to scale (CRS) implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. It is argued that in a typical firm IRS is observed at the initial level of production. This is then followed by the CRS and then by the DRS. Accordingly, the LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed.

In a long run average cost curve which point is said to be the constant return to scale?

Upward Slope

Minimum Point.

Mid-point in upward slope.

Downward Slope.

Correct Answer

Option 2

Correct Answer

Explanation

Q45:

Micro

>

Production & Costs

Medium

Comprehension:

Increasing return to scale (IRS) implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. In other words, to increase output by a certain proportion, inputs need to be increased by less than that proportion. With the input prices given, cost also increases by a lesser proportion. For example, suppose we want to double the output. To do that, inputs need to be increased, but less than double. The cost that the firm incurs to hire those inputs therefore also need to be increased by less than double. What is happening to the average cost here? It must be the case that as long as IRS operates, average cost falls as the firm increases output. Decreasing return to scale (DRS) implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. As a result, cost also increases by more than that proportion. So, as long as DRS operates, the average cost must be rising as the firm increases output. Constant return to scale (CRS) implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. It is argued that in a typical firm IRS is observed at the initial level of production. This is then followed by the CRS and then by the DRS. Accordingly, the LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed.

To increase the output by a certain proportion, if inputs need to be increased by more than that proportion, that condition lies in which of the following?

Increasing return to scale.

Decreasing return to scale.

Constant return to scale.

Proportinate return.

Correct Answer

Option 2

Correct Answer

Explanation

Q46:

Macro

>

Balance of Payments

Easy

Comprehension:

THE FOREIGN EXCHANGE MARKET

The market in which national currencies are traded with one another is known as the foreign exchange market. The major participants in the foreign exchange market are commercial banks, foreign exchange brokers and other authorized dealers and monetary authorities. It is important to note that although participants themselves may have their own trading centers, the market itself is world-wide. There is close and continuous contact between the trading centers and the participants deal in more than one market.

Foreign currency flows into the home country for the following reasons: exports by a country lead to the purchase of its domestic goods and services by foreigners; foreigners send gifts or make transfers; and, the assets of a home country are bought by foreigners. A rise in the price of foreign exchange will reduce foreigners’ costs while purchasing products from India and other things will remain constant. This increases India’s exports and hence the supply of foreign exchange may increase.

Different countries have different methods of determining their currency’s exchange rate. It can be determined through Flexible Exchange Rate, Fixed Exchange Rate or Managed Floating Exchange Rate. Floating exchange rate is determined by the market forces of demand and supply. Where fixed exchange rate is determined by the government at a particular level. In floating exchange rate increasing value of currency is known as appreciation and a decreasing value is known as devaluation where in fix exchange rate decreased value is known as devaluation. Managed floating exchange rate is combination of flexible and fixed exchange rate where at certain movement central intervene through market operation to manage currency exchange rate.

An increase in exchange rate implies that the price of foreign currency in terms of domestic currency has increased; this is called ........

Appreciation of the domestic currency.

Devaluation of domestic currency.

Depreciation of domestic currency.

Dirty floating.

Correct Answer

Option 3

Correct Answer

Explanation

Q47:

Macro

>

Balance of Payments

Easy

Comprehension:

THE FOREIGN EXCHANGE MARKET

The market in which national currencies are traded with one another is known as the foreign exchange market. The major participants in the foreign exchange market are commercial banks, foreign exchange brokers and other authorized dealers and monetary authorities. It is important to note that although participants themselves may have their own trading centers, the market itself is world-wide. There is close and continuous contact between the trading centers and the participants deal in more than one market.

Foreign currency flows into the home country for the following reasons: exports by a country lead to the purchase of its domestic goods and services by foreigners; foreigners send gifts or make transfers; and, the assets of a home country are bought by foreigners. A rise in the price of foreign exchange will reduce foreigners’ costs while purchasing products from India and other things will remain constant. This increases India’s exports and hence the supply of foreign exchange may increase.

Different countries have different methods of determining their currency’s exchange rate. It can be determined through Flexible Exchange Rate, Fixed Exchange Rate or Managed Floating Exchange Rate. Floating exchange rate is determined by the market forces of demand and supply. Where fixed exchange rate is determined by the government at a particular level. In floating exchange rate increasing value of currency is known as appreciation and a decreasing value is known as devaluation where in fix exchange rate decreased value is known as devaluation. Managed floating exchange rate is combination of flexible and fixed exchange rate where at certain movement central intervene through market operation to manage currency exchange rate.

When the central bank intervenes to control the exchange rate through sell/purchase of foreign currencies, this process is called______

Managed Floating exchange rate.

Flexible Exchange rate.

Fixed Exchange rate.

Open market operation.

Correct Answer

Option 1

Correct Answer

Explanation

Q48:

Macro

>

Balance of Payments

Easy

Comprehension:

THE FOREIGN EXCHANGE MARKET

The market in which national currencies are traded with one another is known as the foreign exchange market. The major participants in the foreign exchange market are commercial banks, foreign exchange brokers and other authorized dealers and monetary authorities. It is important to note that although participants themselves may have their own trading centers, the market itself is world-wide. There is close and continuous contact between the trading centers and the participants deal in more than one market.

Foreign currency flows into the home country for the following reasons: exports by a country lead to the purchase of its domestic goods and services by foreigners; foreigners send gifts or make transfers; and, the assets of a home country are bought by foreigners. A rise in the price of foreign exchange will reduce foreigners’ costs while purchasing products from India and other things will remain constant. This increases India’s exports and hence the supply of foreign exchange may increase.

Different countries have different methods of determining their currency’s exchange rate. It can be determined through Flexible Exchange Rate, Fixed Exchange Rate or Managed Floating Exchange Rate. Floating exchange rate is determined by the market forces of demand and supply. Where fixed exchange rate is determined by the government at a particular level. In floating exchange rate increasing value of currency is known as appreciation and a decreasing value is known as devaluation where in fix exchange rate decreased value is known as devaluation. Managed floating exchange rate is combination of flexible and fixed exchange rate where at certain movement central intervene through market operation to manage currency exchange rate.

In an economy, to control a high balance of payment problem if government decided to reduce its currency value against globally accepted foreign currency, this process this known as:

Appreciation of Domestic currency.

Depreciation of Domestic currency.

Dirty Floating.

Devaluation of Domestic Currency.

Correct Answer

Option 4

Correct Answer

Explanation

Q49:

Macro

>

Balance of Payments

Easy

Comprehension:

THE FOREIGN EXCHANGE MARKET

The market in which national currencies are traded with one another is known as the foreign exchange market. The major participants in the foreign exchange market are commercial banks, foreign exchange brokers and other authorized dealers and monetary authorities. It is important to note that although participants themselves may have their own trading centers, the market itself is world-wide. There is close and continuous contact between the trading centers and the participants deal in more than one market.

Foreign currency flows into the home country for the following reasons: exports by a country lead to the purchase of its domestic goods and services by foreigners; foreigners send gifts or make transfers; and, the assets of a home country are bought by foreigners. A rise in the price of foreign exchange will reduce foreigners’ costs while purchasing products from India and other things will remain constant. This increases India’s exports and hence the supply of foreign exchange may increase.

Different countries have different methods of determining their currency’s exchange rate. It can be determined through Flexible Exchange Rate, Fixed Exchange Rate or Managed Floating Exchange Rate. Floating exchange rate is determined by the market forces of demand and supply. Where fixed exchange rate is determined by the government at a particular level. In floating exchange rate increasing value of currency is known as appreciation and a decreasing value is known as devaluation where in fix exchange rate decreased value is known as devaluation. Managed floating exchange rate is combination of flexible and fixed exchange rate where at certain movement central intervene through market operation to manage currency exchange rate.

When income increases and due to increase in income the demand for foreign goods increases then in this scenario what impact does economy face on foreign exchange rate ?

Appreciation of domestic currency.

Devaluation of domestic currency.

No change in domestic currency rate.

Depreciation of domestic currency.

Correct Answer

Option 4

Correct Answer

Explanation

Q50:

Macro

>

Balance of Payments

Easy

Comprehension:

THE FOREIGN EXCHANGE MARKET

The market in which national currencies are traded with one another is known as the foreign exchange market. The major participants in the foreign exchange market are commercial banks, foreign exchange brokers and other authorized dealers and monetary authorities. It is important to note that although participants themselves may have their own trading centers, the market itself is world-wide. There is close and continuous contact between the trading centers and the participants deal in more than one market.

Foreign currency flows into the home country for the following reasons: exports by a country lead to the purchase of its domestic goods and services by foreigners; foreigners send gifts or make transfers; and, the assets of a home country are bought by foreigners. A rise in the price of foreign exchange will reduce foreigners’ costs while purchasing products from India and other things will remain constant. This increases India’s exports and hence the supply of foreign exchange may increase.

Different countries have different methods of determining their currency’s exchange rate. It can be determined through Flexible Exchange Rate, Fixed Exchange Rate or Managed Floating Exchange Rate. Floating exchange rate is determined by the market forces of demand and supply. Where fixed exchange rate is determined by the government at a particular level. In floating exchange rate increasing value of currency is known as appreciation and a decreasing value is known as devaluation where in fix exchange rate decreased value is known as devaluation. Managed floating exchange rate is combination of flexible and fixed exchange rate where at certain movement central intervene through market operation to manage currency exchange rate.

The place where currencies are traded is known as .........

Foreign Exchange Market.

Commercial Bank.

Investment Bank.

Money Market.

Correct Answer

Option 1

Correct Answer

Explanation

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CUET Economics 2025 13 May Shift 2 Past Year Question Paper

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