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

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A contractionary fiscal policy consists of:

A. lowering interest rates

B. reducing government spending or increasing taxes

C. increasing government spending and cutting taxes

D. increasing money supply

Answer: Option B

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 'substitution effect' of a price change always leads consumers to buy:

A. the same amount

B. only inferior goods

C. more of the good whose relative price has fallen

D. less of the good whose relative price has fallen

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Correct Answer: Option C

Explanation:
The substitution effect always causes consumers to buy more of the relatively cheaper good.

This question belongs to: Economy GK Economy Set 1

Question #2

In the context of growth theory, 'Semi-Endogenous Growth' models feature:

A. Only exogenous technological progress

B. Long-run growth that depends on population growth but not on policy parameters that affect the R&D share

C. No role for research and development

D. Long-run growth that is fully endogenous to policy

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Correct Answer: Option B

Explanation:
Semi-endogenous growth models retain diminishing returns to knowledge in the R&D sector, so that long-run growth is proportional to population growth and is not affected by the share of resources devoted to R&D.

This question belongs to: Economy GK Economy Set 1

Question #3

The 'Foreign Direct Investment' limit in defence sector was increased to what percentage through the automatic route?

A. 100%

B. 26%

C. 74%

D. 49%

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Correct Answer: Option C

Explanation:
FDI in defence under automatic route is allowed up to 74%, with higher under government route.

This question belongs to: Economy GK Economy Set 1

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