A contractionary fiscal policy consists of: MCQ with Answer and Explanation

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A contractionary fiscal policy consists of:

A. increasing government spending and cutting taxes

B. lowering interest rates

C. reducing government spending or increasing taxes

D. increasing money supply

Answer: Option C

Solution (By JKSSB Mock Tests)

Contractionary fiscal policy reduces aggregate demand by cutting spending or raising taxes.

This question belongs to: Economy GK Economy Set 1

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Question #1

The 'Transparency International' publishes which index?

A. Ease of Doing Business Index

B. Human Development Index

C. Corruption Perceptions Index

D. Logistics Performance Index

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Correct Answer: Option C

Explanation:
Transparency International publishes Corruption Perceptions Index.

This question belongs to: Economy GK Economy Set 1

Question #2

The concept of 'Pareto Efficiency' implies that:

A. No reallocation can make one person better off without making someone else worse off

B. Income is equally distributed

C. All markets are perfectly competitive

D. Resources can be reallocated to make someone better off without making anyone worse off

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Correct Answer: Option A

Explanation:
A Pareto efficient allocation is one where it is impossible to make any individual better off without making at least one individual worse off.

This question belongs to: Economy GK Economy Set 1

Question #3

Which of the following is a feature of the 'Ratchet Effect' in consumption theory?

A. Consumption is independent of past income

B. Consumption rises with income but is resistant to falling when income declines

C. Consumption falls symmetrically with income

D. Only permanent income matters

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Correct Answer: Option B

Explanation:
The ratchet effect, associated with Duesenberry’s relative-income hypothesis, describes the asymmetry whereby consumption adjusts upward more readily than downward when income changes.

This question belongs to: Economy GK Economy Set 1

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