CA Foundation January 2026 Suggested Answers Paper 4 Business Economics

FOR CA FOUNDATION EXAM PREPARATION

CA Foundation 2026
Suggested Answers ·
Paper 4 Business
Economics
EXAM YEAR TYPE

CA Foundation 2026 Suggested Answers
SUBJECT DATE

Paper 4 Business Economics January 2026

Notes · Sample Papers · Previous Year Papers · Mock Tests

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SUGGESTED
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ANSWERS JANUARY 2026
la s
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ag4: BUSINESS ECONOMICS - FOUNDATION COURSE
PAPER

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PAPER – 4: BUSINESS ECONOMICS

All Question are compulsory.
Time: 2 Hours Marks: 100
1. Predominance of bureaucracy and the resulting inefficiency and delays
which may lead to corruption, red tapism is a demerit of:
(A) Capitalist economy
(C) Consumer sovereignty
(B) Socialist economy
(D) Normative economy
2. Consumer surplus is:
(A) What a consumer is ready to pay over what he actually pays
(B) Necessaries and comforts needed by a consumer
(C) Desire or wish to buy a commodity backed by adequate ability and
willingness to pay
(D) Actual demand by a consumer
3. Which of the following are types of measurement of supply-elasticity?
I. Point elasticity
II. Inelasticity
III. Arc elasticity
IV. Perfect elasticity
(A) I only
(B) II only
(C) Both I and IV
(D) Both I and III

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4. The price of a product is 100 per unit. If price falls by 20% the quantity
increases by 120 units. The price elasticity of demand is -1. The new
quantity demanded due to fall in price is:
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(A) 480 units
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(C) 680 .units
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(B)se600 units la
a 720 units
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5. Other things being equal, the demand for a good and the price of its
complement has:
(A) Positive relationship
(B) Direct relationship
(C) Inverse relationship

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(D) Proportional relationship

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Leftward Shift in Demand Curve?e
6. Which of the following is the effect

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(A) Rise in the price of a substitute good
(B) Rise in the price of a complement
(C) An Increase in number of buyers
(D) An expectation that the price will rise in the future
7. Which of the following is NOT a correct statement regarding opportunity
cost?

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(A) Is always recorded in the books of account

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(D) Is a useful concept in long-term cost calculations gl
(C) Represents the value of foregone opportunity

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ag 8. If cross-price elasticity between two products is zero, the goods are best
described as:
(A) Close substitutes

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BUSINESS ECONOMICS

(B) Totally unrelated
(C) Perfect substitutes
(D) Complements to each other
9 What does the term entrepreneur in economics refers to:
(A) The person combining factors of production, bearing risk, and
innovating
(B) The person who only owns land or property
(C) The head of the marketing department
(D) The investor in machinery and products
10. ___________ capital performs its function in production in a single use and
is not available for further use. Choose the correct option.
(A) Real
(B) Circulating
(C) Tangible
(D) Intangible
11. "Total Supply of land is perfectly inelastic from the point of view of the
economy", it means:
(A) Its supply increases with increase in demand
(B) Its supply is unaffected with change in demand
(C) Its supply decreases with increase in demand
(D) Its supply decreases with decrease in demand
12. Markets where firms buy the resources they need like land, labour etc. are
called:
(A) Product Markets
(B) Factor Markets
(C) National Markets
(D) Spot Markets

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13. A curve which shows all the different combinations of inputs that can
produce same level of output is known as:

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(A) Marginal Cost Curve

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(B) Isocost

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eTotal product curve
(C) Isoquant
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lWhich of the following is core characteristic of an oligopoly? a g
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(D)

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14.
(A) Efficient allocation of resources
(B) Lease advertising
(C) Unique product
(D) Interdependence between firms

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15. If output increases from 60 units to 70 units, leading to an increase in

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total revenue from 100 to 120. What is the marginal revenue?
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(A) ` 10
(B) ` 20
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(C) ` 100 a g
(D) ` 2
16. In a monopoly market if ATC > AR:
(A) Firm will earn normal profits
(B) Firm will earn super normal profits
(C) Firm will earn abnormal profit

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(D) Firm will incur losses
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cross elasticity of demand for monopolist's product and
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product is:

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(A) 1
(B) Less than 1
(C) Greater than 1

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BUSINESS ECONOMICS

(D) Zero or very small
18. Which of the following is not true for long run equilibrium of a perfectly
competitive industry?
(A) All firms in the industry are in equilibrium.
(B) All firms are earning super normal profits.
(C) The price of the product is such that quantity supplied by the industry
is equal to the quantity demanded by consumers.
(D) Plants are used to full capacity in the long run.
19. A market characterized by a small number of large buyers and is mostly
relevant to factor market is termed as:
(A) Duopoly
(B) Monopsony
(C) Oligopsony
(D) Bilateral monopoly
20. Purchase of foreign currency contract at future rate from bank is a
transaction involving:
(A) Forward Market
(B) Regulated Market
(C) Spot Market
(D) Retail Market
21. Which of the following is not a lagging economic indicator?
(A) Unemployment
(B) Corporate profits
(C) Labour cost per unit of output
(D) Changes in stock price

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22. Refer to the following data:
Sales: 1,000 Crores
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Depreciation: 70 Crores
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Opening stock:100 Crores
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s emstock: 90 Crores
Closing
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g a 100 Crores
lGST: a
a Intermediate consumption: ` 440 Crores
Based on the above data, compute the Gross Value Added at Market Price
(GVAmp).
(A) 380 crores
(B) 620 crores

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(C) 480 crores
(D) 550 crores c. o
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23. Which of the following is not a characteristic of contraction?

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(A) Fall in level of investments
(B) Fall in employment levels
(C) Decrease in input demand pulls input prices down
(D) Bank credit expands
24. Which item is not included when calculating national income using the
income method?
(A) Compensation of employees
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(B) Mixed income of self-employed
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ag 25. Calculate real GDP if nominal GDP is 450 and price index is 120.
(A) 540
(B) 350

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BUSINESS ECONOMICS

(C) 375
(D) 475
Use the following data to answer question 26 and 27:

Particular ` Crores
Operating surplus 2,500
Mixed income of Self Employed 1,500
Rent 680
Profit 720
Interest 1,100
Net indirect tax 400
Consumption of fixed capital 300
Compensation of employees 1,000

26. Calculate GDPMP
(A) ` 5,700 crores
(B) ` 8,200 crores
(C) ` 5,000 crores
(D) ` 7,500 crores
27. Calculate GDPFc
(A) ` 5,000 crores
(B) ` 7,100 crores
(C) ` 7,500 crores
(D) ` 5,300 crores
28. Operating surplus includes:
(A) Rent, Interest and Compensation of employees
(B) Rent, Interest and Profit
(C) Rent, Profit and Compensation of employees
(D) Rent, Interest and Taxes
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29. Governments redistribution function leads to dead weight losses because:
(A) It leads to lower taxes on the rich for the government
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(B) It emphasizes on production of merit goods only
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(C) It acts as a disincentive to entrepreneurship and work
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(D) eItm a
a s decreases social security costs
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30. lStatement 1: During recession, the government increases its expenditurea
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Statement 2: Deficit budgets are expected to stimulate economic activity
while surplus budget tends to slowdown economic growth.
(A) Both statements (1) and (2) are correct
(B) Statement (1) is correct while statement (2) is incorrect
(C) Statement (1) is incorrect while statement (2) is correct

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(D) Both statements (1) and (2) are incorrect
31. Which of the following is not onem
s e of the three main macroeconomic goals

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for any nation:

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(A) Universal education tog
(C) High level of employment
(B) Economic growth
(D) Price stability
32. Stagflation is:
(A) Increased taxes leading to reduced disposable income
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(B) Economic situation where inflation and unemployment exist side by

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(C) Easy transmission of economic instability from one country
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a (D) Improved economic stability
33. GST is a:
(A) Production based taxation system
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BUSINESS ECONOMICS

(B) Income based taxation system
(C) Turnover based taxation system
(D) Consumption based taxation system
34. Which equation accurately represents the expanded version of the
equation of exchange?
(A) P=MV
(B) P=M'V'
(C) PTMV + M'V'
(D) PTMV-M'V'
35. Speculative demand for money can be closely linked to which of the
following situation?
(A) Unforeseen and unpredictable contingencies
(B) Current transaction for business exchange
(C) Mismatch between receipt of salary and household expenses
(D) Attractive investment opportunity
36. Which of the following is not a channel of monetary policy transmission?
(A) Saving and Investment channel
(C) Exchange Rate channel
(B) Cash-flow channel
(D) Open Market channel
37. Tobin, in his theory of liquidity preference function, framed the
relationship between which of the following?
(A) Demand for money and supply of money
(B) Rate of inflation and demand for money
(C) Rate of interest and demand for money
(D) Rate of interest and disposable income

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38. Given the required reserve ratio (RRR) is 8% and 12.5% for every 1,00,000
deposited in the banking system, compute the credit multipliers.

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(A) 12.5; 8

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(B) 8; 12.5
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(C) 12.5;
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(D)

a39. Which of the following is not a benefit of International Trade?
(A) Provides greater stimulus to innovative services
(B) Trade provides access to new markets and new materials
(C) Underprivileged countries will be less vulnerable to exploitation by
corporations operating globally
(D) Improvement in the quality of output of goods and services for

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emerging economies

m. of two policy instruments quotas
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40. Which of the following is a combination
and tariffs?
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(A) Tariff rate quotas
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(B) Compound tariffs
(C) Mixed tariffs
(D) Applied tariffs
41. Which of the following represents a technical measure within Non-Tariff
Measures (NTMs)?

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(A) Custom formalities

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(D) Trade-related finance and Investment measures gl
(C) Production Processes

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ag 42. Calculate the Nominal exchange rate considering the following data:
Real exchange rate 25
Domestic price index 14070
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BUSINESS ECONOMICS

Foreign price index 70
Choose the correct answer from the following options:
(A) 50.0
(B) 12.5
(C) 40.0
(D) 35.0
43. Which initiative of the NITI Aayog is a one-stop destination for all
information on electric vehicles?
(A) Shoonya Campaign
(B) E-Amrit
(C) Methanol economy
(D) Life
44. Make in India 2.0 focuses on
(A) 15 manufacturing and 12 service sectors
(B) 12 manufacturing and 15 service sectors
(C) 22 manufacturing and 18 service sectors
(D) 18 manufacturing and 22 service sectors
45. Which of the following industries is included in the eight core sectors
assessed by the Index of Industrial Production (IIP)?
(A) Pharmaceuticals
(B) Textiles
(C) Coal
(D) Tourism
46. What does a Brownfield investment in Foreign Direct Investment (FDI)
imply:
(A) Developing entirely new infrastructure

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(B) Utilizing existing infrastructure by means of mergers, acquisitions or
leasing

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(C) Forming partnerships with foreign companies

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(D) Establishing a new subsidiary in another country
47. Whichm s e
s e sector accounts for the largest recipient of FDI inflows in India?
g l a
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(A) Service

(C) Primary
(D) Secondary
48. Which of the following was not a major reform introduced during the
1980s in India?
(A) Industrial delicensing

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(B) Formation of SEBI
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(C) Currency demonetization

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(D) Implementation of MODVAT
la
aa normative statement?
49. Which of the following is
(A) Public healthcare increases public expenditure
(B) Higher interest rates as set by the government's economic policy will
reduce house prices
(C) If consumer income drops, consumers will have less money to spend
(D) The government should provide healthcare for all
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c. o Column A Column B
se
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(i) Capitalist Economy (a) Command Economy
(b) High Degree ofaoperative Efficiency
ag (ii) Socialist Economy
(iii) Mixed Economy (c) Encourages enterprise and Risk taking
(A) (i)-(a), (ii)-(b), (iii)-(c)

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BUSINESS ECONOMICS

(B) (i)-(b), (ii)-(c), (iii)-(a)
(C) (i)-(b), (ii)-(a), (iii)-(c)
(D) (i)-(c), (ii)-(a), (iii)-(b)
51. Which of the following is not covered in microeconomics?
(A) Product pricing
(B) Factor pricing
(C) The general price level and interest rates
(D) The economic conditions of a section of people
52. Precedence of property rights over human rights is a demerit of which
type of economy?
(A) Micro economy
(C) Capitalist economy
(B) Macro economy
(D) Socialist economy
53. When even after increase in price, total revenue remains the same the
demand is 53. said to be:
(A) Perfectly elastic
(C) Inelastic
(B) Elastic
(D) Unitary elastic
54. Which of these is the correct expression for Arc Elasticity?
(A) (P2-P)/(P2+P1) (Q2+Q₁)/(Q2-Q)
(B) (P2P) (P2+P₁)/(Q2+Q1) × (Q2-Q1)
(C) (P2+P₁)/(P2-P) × (Q2-Q1)/(Q2+Q1)
(D) (P2+P1) (P2-P1)/(Q2-Q1) × (Q₂+Q1)

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55. The product of price quantity ratio at a particular point on the demand
curve and the reciprocal of the slope of the demand line is called:

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(A) Point elasticity

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(B) Arc elasticity

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(C) Total outlay method of elasticity
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a56.g Consider the indifference curves given below. What can you infer about
(D) Total revenue method of elasticity

the relationship between Good X and Good Y?

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(A) Good X and Good Y are perfect substitutes of each other

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(B) Good X and Good Y are perfect complements

m (C) The relationship between Good X and Good Y is logically absurd
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(D) Good X and Good Y are same

s g la
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Use the table to answer questions 57 and 58:

g 3 a 4
a Output
Total Cost (`)
0
270
1
370
2
460 540 610
5
690
6
780

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57. The average fixed cost of 3 units of output is:
(A) ` 90
(B) ` 100
(C) ` 150
(D) ` 180
58. Average variable cost for 4 units of output is:
(A) ` 150
(B) ` 125
(C) ` 100
(D) ` 85
59. Which of the following is not true with regard to stage of diminishing
returns?
(A) Total product continues to decrease
(B) Both marginal product and average product of the variable factor are
diminishing but are positive
(C) A rational producer will seek to produce within the range of this
stage
(D) By the end of this stage, total product reaches its maximum
60. Which of the following factors does not lead to internal economies of
scale:
(A) Specialisation of labour
(B) Use of superior techniques
(C) Use of by-products
(D) Supply of skilled labour
61. Relationship between inputs and outputs, when all inputs are changed in
the same proportion are called:
(A) Law of variable proportion
(B) Returns to scale
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(C) Isoquants
(D) Iso-cost lines
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62. If the price elasticity of demand is 1, MR will be
c. o
(A) 0
c. o s e m
(B) e1m
a s Positive g la
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ag (D) Negative
(C)

63. Consider a monopolist selling in two markets. At a price of 60, the
elasticity of demand in market A is 5 and in market B is 6. Calculate the
marginal revenue in both markets and determine which market should
receive more output.
(A) Market A, MR 48; Market B, MR 50, output to market B should

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increase

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(B) Market A, MR 50; Market B, MR 48, output to market A should

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increase
(C) Both markets have equal MR
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(D) Neither market should change output
64. Which characteristic is shared by monopoly and monopolistic
competition, but NOT by perfect competition?
(A) Price equal to marginal cost
(B) Supernormal profits in long run

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(C) Price higher than marginal cost

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c. o 65. First degree price discrimination in a monopolist market is sbased
(D) No selling costs

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on:

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(A) Attributes such as location

ag (B) Different quantities sold
(C) Each individual customer
(D) Different markets

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66. In the kinked demand curve scenario for oligopoly, what happens when a
firm raises its price above the prevailing level?
(A) Competitors follow and raise prices
(B) The demand becomes perfectly inelastic
(C) The firm loses market share as competitors do not follow
(D) The demand curve becomes horizontal
67. The slope of MR curve for a monopoly firm is AR curve. Choose the
correct answer. that of the
(A) Equal to
(B) Twice
(C) Three times
(D) Half
68. In which phase of business cycle, actual demand stagnates?
(A) Expansion
(B) Peak
(C) Contraction
(D) Trough
69. According to Pigou, modern business activities are based on:
(A) Innovations
(B) Purely monetary phenomena
(C) Anticipations /expectations of business community
(D) Fluctuations in output and employment
70. What will be the impact on equilibrium price and equilibrium quantity
when demand decreases and supply increases?
(A) Both equilibrium price and equilibrium quantity falls
(B) Both equilibrium price and equilibrium quantity will rise

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FOUNDATION EXAMINATION: JANUARY 2026

(C) Equilibrium price falls but impact on equilibrium quantity is not
certain

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(D) Equilibrium quantity decreases but impact on equilibrium price is not
certain
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c
. of business cycle is also called downswing? s e
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71. Which phase
(A)seExpansion la
l(B)a Contraction a g
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(C) Trough
(D) Depression
72. National income of the economy which is either consumed or saved is
equal to the:
(A) Aggregate supply

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(B) Marginal propensity to consume

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(C) Average supply

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(D) Marginal propensity to save
73. Given the saving functiongS-20-0.5Y and autonomous investment I = 100
a
crores, what is the consumption?
(A) ` 240 crores
(B) ` 140 crores
(C) ` 340 crores
(D) ` 440 crores

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74. Which of the following factor of production is not included in calculating
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c. o m
the National Income?

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(A) Pensions of retired workers
la se
las (B) Wages of labourers
a g
ag (C) Employers' contribution to provident fund
(D) Interest on loans availed for productive services

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75. If marginal propensity to consume is 0.6 and marginal propensity to
import is 0.04, what is the value of the foreign trade multiplier?
(A) 3.33
(B) 2.27
(C) 3.66
(D) 2.54
76. If Net Factor Income from Abroad is negative:
(A) GNPMP Would be smaller than GDPMP
(B) Gross Income earned by country's citizen and companies abroad is
negative
(C) NNPMP would be greater than GNPMP
(D) Huge depreciation component in NNPMP
77. All of the following are included in government final consumption
expenditure except:
(A) Government expenditure on defence
(B) Government expenditure on education
(C) Government expenditure on healthcare
(D) Government expenditure on pensions
78. An autonomous increase in imports has __________ effect on equilibrium
income.
(A) Expansionary
(B) Contractionary
(C) Balanced
(D) No
79. Which of the following is not listed as a common objective of fiscal
policy?
(A) Equitable distribution of income and wealth
(B) Maintenance of price stability
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FOUNDATION EXAMINATION: JANUARY 2026

(C) Promotion of exports and imports
(D) Achievement and maintenance of full employment
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80. Which of the following is not an example of leakages from income
o c. o
stream?
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(A) Progressive rates of taxation
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l a s High liquidity preference a g
ag (C) Distributed profits of corporations
(B)

(D) Demand for imported goods
81. In National Accounts, which of the following is considered an 'economic
bad' excluded from GDP?
(A) Traffic Congestion
(B) Volunteer services

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(C) Rent from self-owned houses
(D) Consumption of fixed capital m
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82. What is Net Divisible Pool (NDP)?
a loans can be taken by various states
(A) Total funds from which
(B) Total loans recovered from IMF to be divided among center and
states
(C) Distribution of total revenue of a nation among various sectors of the
economy
(D) Portion of gross tax revenue which is distributed between the center

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and the states

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Using below mentioned data, answer Question No. 83 and 84:

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Revenue receipts ` 25,000 Cr.
la s
las Expenses on revenue account ` 30,000 Cr.
a g
ag Expenses on capital account ` 30,000 Cr.
Estimated total expenditure ` 60,000 Cr.
Estimated total revenue ` 54,000 Cr.
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83. Calculate the revenue deficit:
(A) ` 5,000 crores
(B) ` 12,000 crores
(C) ` 2,000 crores
(D) ` 8,000 crores
84. Calculate the budgetary deficit.
(A) ` 25,000 Crores
(B) ` 5,000 Crores
(C) ` 6,000 Crores
(D) ` 12,000 Crores
85. Laissez faire approach advocated:
(A) Minimum government interference in or regulation of economic
activity
(B) Increase in government spending to combat the recessionary forces
(C) Having a more active fiscal policy
(D) Increasing taxes to curtail aggregate demand
86. When the RBI uses persuasion to convince banks to hold government
securities instead of lending to certain sectors, it is called:
(A) Margin requirements
(B) Statutory Liquidity Ratio
(C) Market Stabilization Ratio
(D) Moral Suasion
87. The optimal average money holding is a negative function of which of the
following?
(A) Income
(B) Nominal interest rate
(C) Transaction cost

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FOUNDATION EXAMINATION: JANUARY 2026

(D) Price level
88. Who is responsible for determining the inflation target for the RBI under
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the Monetary Policy Framework?

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(A) RBI independently

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(B) The
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89. Which action does the central bank perform during Open Market
Operations (OMO) to introduce high-powered money into the economy?
(A) Purchase of government securities
(B) Sale of corporate bonds
(C) Printing additional currency

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(D) Raising interest rates
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90. The money multiplier would be larger

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(B) Higher currency-deposit
(C) Smaller currency-expenditure ratio
(D) Smaller currency-deposit ratio
91. Which of following taxes has not been replaced by the Goods and Service
Tax? 91.
(A) VAT
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(B) Income Tax
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92. How many crops are mandated to receive price
"Minimum Support Price" (MSP)?
(A) 22

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BUSINESS ECONOMICS

(B) 21
(C) 23
(D) 24
93. In India, public sector is limited to which of the following sectors?
(A) Railway transport and arms and ammunition
(B) Railway transport and atomic energy
(C) Atomic energy and arms and ammunition
(D) Hazardous chemicals and narcotic drugs
94. Introduction of prudential norms of accounting in respect of classification
of assets, disclosure of income and provisions for bad debts in case of
commercial banks is related to which of the following reform measures?
(A) Fiscal reforms
(B) Monetary and financial sector reforms
(C) Capital market reforms
(D) Trade policy reforms
95. Which of the following is a unique feature in the growth trajectory of the
Indian economy?
(A) Shift from services to the agricultural sector
(B) Shift from manufacturing to the services sector
(C) Shift from agricultural to the manufacturing sector
(D) Shift from agriculture to the services sector
96. Which of the following currency is often referred to as the vehicle
currency, in the foreign exchange market?
(A) US Dollar
(B) Euro
(C) Russian Ruble
(D) INR

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97. What is the primary purpose of countervailing duties charged in an
importing country?

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(A) To counteract low quality of goods in importing countries
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(B) To neutralize artificially low prices charged by exporter resulting from

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(C) To prevent tariff evasion by importers
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98. When a foreign investor having no previous experience initiates a FDI in a
business which is not related to its existing business in its home country
and is usually in the form of a joint venture with a foreign firm operating
in the industry, it is known as a ____________.
(A) Two way FDI

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(C) Horizontal FDI
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(D) Conglomerate FDI
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99. Which of the following is not an objective of WTO?
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(A) To set and enforce rules for international trade.
(B) To maintain secrecy of decision making.
(C) To resolve trade disputes.
(D) To provide a forum for negotiating and monitoring further trade
liberalization

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(D) Blanket cover

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Answer Key

1. (B) 2. (A) 3. (D) 4. (D) 5. (C)
6. (B) 7. (A) 8. (B) 9. (A) 10. (B)
11. (B) 12. (B) 13. (C) 14. (D) 15. (D)
16. (D) 17. (D) 18. (B) 19. (C) 20. (A)
21. (D) 22. (D) 23. (D) 24. (C) 25. (C)
26. (A) 27. (D) 28. (B) 29. (C) 30. (A)
31. (A) 32. (B) 33. (D) 34. (C) 35. (D)
36. (D) 37. (C) 38. (A) 39. (C) 40. (A)
41. (C) 42. (B) 43. (B) 44. (A) 45. (C)
46. (B) 47. (A) 48. (C) 49. (D) 50. (C) & (D)
51. (C) 52. (C) 53. (D) 54. (C) 55. (A)
56. (C) 57. (A) 58. (D) 59. (A) 60. (D)
61. (B) 62. (A) 63. (A) 64. (C) 65. (C)
66. (C) 67. (B) 68. (B) 69. (C) 70. (C)
71. (B) 72. (A) 73. (B) 74. (A) 75. (B)
76. (A) 77. (D) 78. (B) 79. (C) 80. (C)
81. (A) 82. (D) 83. (A) 84. (C) 85. (A)
86. (D) 87. (B) 88. (B) 89. (A) 90. (D)
91. (B) 92. (C) 93. (B) 94. (B) 95. (D)
96. (A) 97. (B) 98. (D) 99. (B) 100. (A)

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