An inflationary gap exists when: MCQ with Answer and Explanation

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An inflationary gap exists when:

A. actual output is below potential output

B. aggregate demand exceeds full employment output

C. aggregate demand is less than full employment output

D. unemployment is high

Answer: Option B

Solution (By JKSSB Mock Tests)

An inflationary gap occurs when aggregate demand exceeds what the economy can produce at full employment.

This question belongs to: Economy GK Economy Set 1

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Question #1

The 'repo rate' in India is the rate at which RBI lends to banks for:

A. unsecured overnight loans

B. short-term funds against government securities

C. long-term capital

D. foreign exchange

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Correct Answer: Option B

Explanation:
Repo rate is the rate at which RBI lends short-term funds to banks against government securities.

This question belongs to: Economy GK Economy Set 1

Question #2

Which of the following is a feature of a flexible exchange rate system?

A. Exchange rate is fixed by government decree

B. No role for speculation

C. Complete absence of central bank intervention in all cases

D. Exchange rate is determined by market forces of demand and supply of foreign exchange

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Correct Answer: Option D

Explanation:
Under a pure flexible (floating) exchange rate system, the value of the currency is determined by the interaction of demand and supply in the foreign exchange market.

This question belongs to: Economy GK Economy Set 1

Question #3

Tax elasticity measures the automatic response of tax revenue to changes in GDP:

A. considering only indirect taxes

B. without considering discretionary tax changes

C. considering only direct taxes

D. after discretionary tax changes

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Correct Answer: Option B

Explanation:
Tax elasticity measures the built-in response of tax revenue to GDP changes without discretionary changes.

This question belongs to: Economy GK Economy Set 1

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