Economy Set 1 MCQs

Economy GK

Economy Set 1 MCQs

Practice Economy GK MCQs on basic economic concepts including economy, economics, microeconomics, macroeconomics, goods and services, demand and supply, factors of production, opportunity cost, economic activities, sectors of economy and other fundamental concepts frequently asked in SSC, Railway, Banking, UPSC, JKSSB, JKPSC, Police, Defence and other competitive examinations.

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Practice Questions

Page 12 of 111
Question #221
Which of the following is a component of revenue expenditure of the government?
A. Interest payments
B. Expenditure on acquisition of land
C. Expenditure on construction of roads
D. Loans to state governments
Discuss
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Correct Answer: Option A

Explanation:
Revenue expenditure does not create assets or reduce liabilities. Interest payments are a major component of revenue expenditure. Acquisition of land, loans and construction create assets and are capital expenditure.
This question belongs to: Economy GK Economy Set 1
Question #222
The concept of 'Invisible Hand' was introduced by:
A. John Maynard Keynes
B. Alfred Marshall
C. Adam Smith
D. Karl Marx
Discuss
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Correct Answer: Option C

Explanation:
Adam Smith in 'The Wealth of Nations' introduced the concept of the invisible hand, suggesting that individuals pursuing their self-interest unintentionally promote the social good.
This question belongs to: Economy GK Economy Set 1
Question #223
Which of the following is NOT a measure to control inflation?
A. Open market sale of securities
B. Increase in government expenditure
C. Increase in CRR
D. Increase in bank rate
Discuss
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Correct Answer: Option B

Explanation:
Increase in government expenditure would increase aggregate demand and potentially worsen inflation. The other measures reduce money supply or credit and help control inflation.
This question belongs to: Economy GK Economy Set 1
Question #224
In the context of international trade, 'Terms of Trade' refer to:
A. Value of exports to value of imports
B. Ratio of import prices to export prices
C. Volume of exports to volume of imports
D. Ratio of export prices to import prices
Discuss
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Correct Answer: Option D

Explanation:
Terms of Trade (TOT) is the ratio of a country's export prices to its import prices, usually expressed as an index.
This question belongs to: Economy GK Economy Set 1
Question #225
Which of the following is a characteristic of a monopoly?
A. Single seller and no close substitutes
B. Homogeneous product with many sellers
C. Free entry and exit
D. Large number of sellers
Discuss
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Correct Answer: Option A

Explanation:
Monopoly is characterised by a single seller of a product that has no close substitutes, with barriers to entry.
This question belongs to: Economy GK Economy Set 1
Question #226
The term 'Primary Deficit' is defined as:
A. Budget deficit minus interest payments
B. Revenue deficit minus interest payments
C. Fiscal deficit plus interest payments
D. Fiscal deficit minus interest payments
Discuss
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Correct Answer: Option D

Explanation:
Primary deficit = Fiscal deficit − Interest payments. It indicates the borrowing requirement of the government excluding interest payments on previous borrowings.
This question belongs to: Economy GK Economy Set 1
Question #227
Which of the following is an example of a transfer payment?
A. Salary paid to government employees
B. Payment for purchase of goods
C. Interest paid on government borrowings
D. Pension paid to retired employees
Discuss
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Correct Answer: Option D

Explanation:
Transfer payments are unilateral payments for which no goods or services are received in return, such as pensions, scholarships and unemployment allowances. Interest on borrowings is also a transfer, but pension is a classic example.
This question belongs to: Economy GK Economy Set 1
Question #228
In the context of elasticity of demand, which of the following goods is likely to have inelastic demand?
A. Jewellery
B. Air conditioners
C. Salt
D. Luxury cars
Discuss
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Correct Answer: Option C

Explanation:
Necessities like salt have inelastic demand because quantity demanded does not change significantly with price changes. Luxuries tend to have elastic demand.
This question belongs to: Economy GK Economy Set 1
Question #229
Which of the following is NOT a function of commercial banks?
A. Issuing currency notes
B. Providing loans and advances
C. Credit creation
D. Accepting deposits
Discuss
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Correct Answer: Option A

Explanation:
Issuing currency notes is the sole prerogative of the Reserve Bank of India. Commercial banks accept deposits, provide loans and create credit.
This question belongs to: Economy GK Economy Set 1
Question #230
The concept of 'Circular Flow of Income' is associated with:
A. International economics
B. Development economics only
C. Macroeconomics
D. Microeconomics
Discuss
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Correct Answer: Option C

Explanation:
The circular flow of income is a macroeconomic concept that shows the continuous movement of goods, services and money between households, firms, government and the external sector.
This question belongs to: Economy GK Economy Set 1
Question #231
Which of the following is a cause of cost-push inflation?
A. Increase in government spending
B. Increase in wages and raw material costs
C. Increase in aggregate demand
D. Increase in money supply
Discuss
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Correct Answer: Option B

Explanation:
Cost-push inflation arises when the cost of production increases due to higher wages, raw material prices or other input costs, leading to higher prices.
This question belongs to: Economy GK Economy Set 1
Question #232
In the context of Indian planning, the first Five Year Plan was based on which model?
A. Solow model
B. Mahalanobis model
C. Harrod-Domar model
D. Lewis model
Discuss
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Correct Answer: Option C

Explanation:
The First Five Year Plan (1951-56) was based on the Harrod-Domar model which emphasised the role of savings and investment in economic growth.
This question belongs to: Economy GK Economy Set 1
Question #233
Which of the following is NOT a component of the Human Development Index?
A. Life expectancy at birth
B. Per capita income
C. Education
D. Gender equality
Discuss
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Correct Answer: Option D

Explanation:
HDI has three dimensions: health (life expectancy), education (mean and expected years of schooling) and standard of living (GNI per capita). Gender equality is measured by separate indices like GII.
This question belongs to: Economy GK Economy Set 1
Question #234
The term 'Moral Hazard' in economics refers to:
A. Change in behaviour after obtaining insurance
B. Equal risk sharing
C. Perfect information in markets
D. Asymmetric information before a contract
Discuss
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Correct Answer: Option A

Explanation:
Moral hazard occurs when one party takes more risks because another party bears the cost, typically after a contract (e.g., insurance) is in place. Adverse selection occurs before the contract.
This question belongs to: Economy GK Economy Set 1
Question #235
Which of the following is a feature of a socialist economy?
A. Collective ownership of means of production
B. Market determination of prices
C. Private ownership of means of production
D. Profit maximisation as the sole motive
Discuss
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Correct Answer: Option A

Explanation:
In a socialist economy, the means of production are owned collectively or by the state, and economic decisions are largely centralised.
This question belongs to: Economy GK Economy Set 1
Question #236
In the context of money, 'Near Money' refers to:
A. Currency notes and coins
B. Highly liquid assets that can be quickly converted into money
C. Gold and silver only
D. Demand deposits only
Discuss
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Correct Answer: Option B

Explanation:
Near money refers to highly liquid assets such as time deposits, treasury bills and savings bonds that can be easily converted into cash with little loss of value.
This question belongs to: Economy GK Economy Set 1
Question #237
Which of the following is NOT a type of market failure?
A. Public goods
B. Externalities
C. Perfect competition
D. Asymmetric information
Discuss
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Correct Answer: Option C

Explanation:
Market failure occurs when free markets fail to allocate resources efficiently. Causes include externalities, public goods, asymmetric information and monopoly power. Perfect competition is an ideal, not a failure.
This question belongs to: Economy GK Economy Set 1
Question #238
The concept of 'Liquidity Preference' theory of interest was given by:
A. Irving Fisher
B. Classical economists
C. John Maynard Keynes
D. Knut Wicksell
Discuss
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Correct Answer: Option C

Explanation:
Keynes proposed the liquidity preference theory, which states that the rate of interest is determined by the demand for and supply of money, where demand arises from transactions, precautionary and speculative motives.
This question belongs to: Economy GK Economy Set 1
Question #239
Which of the following is a measure of absolute poverty?
A. Poverty line based on calorie intake or income
B. Gini coefficient
C. Relative income share of bottom 40%
D. Lorenz curve
Discuss
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Correct Answer: Option A

Explanation:
Absolute poverty is measured with reference to a fixed poverty line based on minimum calorie requirements or income needed to meet basic needs. Gini and Lorenz measure inequality (relative poverty aspects).
This question belongs to: Economy GK Economy Set 1
Question #240
In the context of banking, SLR stands for:
A. Statutory Liquidity Ratio
B. Standard Liquidity Ratio
C. Statutory Lending Ratio
D. Scheduled Liquidity Ratio
Discuss
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Correct Answer: Option A

Explanation:
Statutory Liquidity Ratio is the percentage of deposits that commercial banks are required to maintain in the form of liquid assets such as cash, gold or approved securities.
This question belongs to: Economy GK Economy Set 1
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