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 15 of 111
Question #281
Which of the following is a cause of frictional unemployment?
A. Decline of an industry
B. Seasonal nature of agriculture
C. Economic recession
D. Time taken to find a new job after leaving the previous one
Discuss
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Correct Answer: Option D

Explanation:
Frictional unemployment occurs due to the time lag involved in people searching for and moving between jobs. It is short-term and voluntary in nature.
This question belongs to: Economy GK Economy Set 1
Question #282
The term 'Current Account Deficit' indicates:
A. Excess of imports of goods and services over exports
B. Excess of capital inflows over outflows
C. Excess of government expenditure over revenue
D. Surplus in the overall balance of payments
Discuss
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Correct Answer: Option A

Explanation:
Current Account Deficit occurs when the value of imports of goods, services and transfers exceeds the value of exports of goods, services and transfers.
This question belongs to: Economy GK Economy Set 1
Question #283
Which of the following is NOT a role of the government in a mixed economy?
A. Provision of public goods
B. Redistribution of income
C. Complete control over all production decisions
D. Correction of externalities
Discuss
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Correct Answer: Option C

Explanation:
In a mixed economy, the government intervenes to provide public goods, correct externalities and redistribute income, but does not completely control all production decisions, which remain partly with the private sector.
This question belongs to: Economy GK Economy Set 1
Question #284
Which of the following is a characteristic of a developed financial market?
A. Low liquidity
B. High transaction costs
C. Wide range of financial instruments
D. Limited participation of institutions
Discuss
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Correct Answer: Option C

Explanation:
Developed financial markets offer a wide range of instruments, high liquidity, low transaction costs and broad institutional participation.
This question belongs to: Economy GK Economy Set 1
Question #285
The concept of 'Diminishing Marginal Utility' was developed by:
A. Adam Smith
B. Karl Marx
C. David Ricardo
D. H.H. Gossen and later popularised by others
Discuss
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Correct Answer: Option D

Explanation:
The law of diminishing marginal utility was first stated by H.H. Gossen and later developed and popularised by economists like Jevons, Menger and Marshall.
This question belongs to: Economy GK Economy Set 1
Question #286
Which of the following is NOT a type of deposit accepted by commercial banks?
A. Equity deposits
B. Saving deposits
C. Demand deposits
D. Time deposits
Discuss
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Correct Answer: Option A

Explanation:
Commercial banks accept demand deposits (current accounts), savings deposits and time (fixed) deposits. Equity deposits are not a standard category of bank deposits.
This question belongs to: Economy GK Economy Set 1
Question #287
In the context of economic growth, the Harrod-Domar model emphasises the role of:
A. Savings and capital-output ratio
B. Labour force growth only
C. Technological progress only
D. Natural resources only
Discuss
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Correct Answer: Option A

Explanation:
The Harrod-Domar model states that the growth rate of an economy depends on the savings rate and the capital-output ratio (or inverse of the productivity of capital).
This question belongs to: Economy GK Economy Set 1
Question #288
Which of the following is an example of a negative externality?
A. Education
B. Vaccination
C. Pollution from industrial activity
D. Research and development
Discuss
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Correct Answer: Option C

Explanation:
A negative externality imposes costs on third parties. Industrial pollution harms the environment and health of people who are not parties to the production decision.
This question belongs to: Economy GK Economy Set 1
Question #289
The term 'Monetary Base' or 'High-Powered Money' consists of:
A. Only time deposits
B. Only government securities
C. Currency with public and reserves of banks with RBI
D. Only demand deposits
Discuss
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Correct Answer: Option C

Explanation:
High-powered money (monetary base) consists of currency held by the public and the reserves (cash and deposits) of commercial banks with the central bank.
This question belongs to: Economy GK Economy Set 1
Question #290
Which of the following is NOT a objective of economic planning in India?
A. Economic growth
B. Self-reliance
C. Maximisation of inequality
D. Modernisation
Discuss
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Correct Answer: Option C

Explanation:
Economic planning in India aimed at growth, modernisation, self-reliance and social justice (reduction of inequality), not maximisation of inequality.
This question belongs to: Economy GK Economy Set 1
Question #291
In the context of market structures, 'Price Discrimination' is possible under:
A. Monopoly
B. Only in agricultural markets
C. Both perfect competition and monopoly equally
D. Perfect competition
Discuss
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Correct Answer: Option A

Explanation:
Price discrimination (charging different prices to different consumers for the same product) is typically possible under monopoly where the firm has market power and can segment markets.
This question belongs to: Economy GK Economy Set 1
Question #292
Which of the following is a measure of economic development rather than mere growth?
A. Increase in foreign exchange reserves only
B. Increase in GDP only
C. Improvement in HDI, reduction in poverty and inequality
D. Increase in money supply
Discuss
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Correct Answer: Option C

Explanation:
Economic development is a broader concept than growth and includes improvements in living standards, health, education, reduction in poverty and inequality, as reflected in indices like HDI.
This question belongs to: Economy GK Economy Set 1
Question #293
The concept of 'Accelerator' in economics relates to:
A. Relationship between change in income and change in investment
B. Relationship between money supply and prices
C. Relationship between tax rate and revenue
D. Relationship between interest rate and saving
Discuss
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Correct Answer: Option A

Explanation:
The accelerator principle states that investment depends on the rate of change of income or output. An increase in demand leads to a magnified increase in investment.
This question belongs to: Economy GK Economy Set 1
Question #294
Which of the following is NOT a function of the stock exchange?
A. Mobilising savings for investment
B. Price discovery of securities
C. Issuing new currency notes
D. Providing liquidity to securities
Discuss
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Correct Answer: Option C

Explanation:
Issuing currency notes is the function of the central bank. Stock exchanges provide liquidity, facilitate price discovery and help mobilise savings for productive investment.
This question belongs to: Economy GK Economy Set 1
Question #295
In the context of public expenditure, 'Revenue Expenditure' is characterised by:
A. Creation of assets
B. Long-term capital formation
C. No creation of assets or reduction of liability
D. Reduction of liabilities only
Discuss
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Correct Answer: Option C

Explanation:
Revenue expenditure is incurred for the normal running of government departments and does not result in the creation of assets or reduction of liabilities.
This question belongs to: Economy GK Economy Set 1
Question #296
Which of the following is a feature of the classical theory of employment?
A. Liquidity trap
B. Full employment as a normal condition
C. Importance of effective demand
D. Possibility of underemployment equilibrium
Discuss
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Correct Answer: Option B

Explanation:
Classical theory assumes that the economy always tends towards full employment through flexible wages and prices. Underemployment equilibrium and liquidity trap are Keynesian concepts.
This question belongs to: Economy GK Economy Set 1
Question #297
The term 'Non-Performing Asset' (NPA) in banking refers to:
A. Government securities held by banks
B. Cash reserves of the bank
C. A loan on which interest or principal is overdue for a specified period
D. An asset that generates income regularly
Discuss
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Correct Answer: Option C

Explanation:
An NPA is a loan or advance where interest or principal remains overdue for a period of more than 90 days (as per RBI norms for term loans).
This question belongs to: Economy GK Economy Set 1
Question #298
Which of the following is NOT a component of the money market in India?
A. Certificate of Deposit
B. Equity shares
C. Treasury Bills
D. Commercial Paper
Discuss
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Correct Answer: Option B

Explanation:
Equity shares are long-term instruments and form part of the capital market. Money market instruments include Treasury Bills, Commercial Paper, Certificates of Deposit and call money.
This question belongs to: Economy GK Economy Set 1
Question #299
In the context of elasticity, if income elasticity of demand for a good is negative, the good is:
A. Luxury good
B. Necessary good
C. Normal good
D. Inferior good
Discuss
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Correct Answer: Option D

Explanation:
A negative income elasticity of demand indicates that the good is inferior; demand for it falls as income rises.
This question belongs to: Economy GK Economy Set 1
Question #300
Which of the following is a major objective of the World Trade Organisation?
A. Promoting free and fair trade among nations
B. Maintaining exchange rate stability
C. Providing short-term BOP support
D. Providing development loans
Discuss
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Correct Answer: Option A

Explanation:
The WTO aims to promote free and fair international trade by reducing trade barriers, settling disputes and providing a framework for trade negotiations.
This question belongs to: Economy GK Economy Set 1
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