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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Page 17 of 111
Question #321
The term 'Crowding In' refers to:
A. Decrease in exports due to appreciation
B. Increase in private investment stimulated by government spending
C. Decrease in private investment due to government spending
D. Increase in imports due to higher income
Discuss
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Correct Answer: Option B

Explanation:
Crowding in occurs when government spending (especially on infrastructure) raises the productivity of private capital and stimulates additional private investment.
This question belongs to: Economy GK Economy Set 1
Question #322
Which of the following is NOT a type of unemployment in developing countries?
A. Natural rate of unemployment as a policy target only
B. Disguised unemployment
C. Open unemployment
D. Seasonal unemployment
Discuss
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Correct Answer: Option A

Explanation:
Disguised, seasonal and open unemployment are common in developing countries. The natural rate of unemployment is a concept more relevant to developed economies and macroeconomic policy.
This question belongs to: Economy GK Economy Set 1
Question #323
In the context of monetary policy, the Liquidity Adjustment Facility (LAF) is used by RBI to:
A. Manage short-term liquidity in the banking system
B. Fix the fiscal deficit target
C. Determine tax rates
D. Provide long-term loans to industry
Discuss
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Correct Answer: Option A

Explanation:
LAF allows banks to borrow money through repurchase agreements (repo) or park excess funds with RBI (reverse repo) to manage day-to-day liquidity mismatches.
This question belongs to: Economy GK Economy Set 1
Question #324
Which of the following is a characteristic of a closed economy?
A. High volume of exports and imports
B. Free capital flows
C. No foreign trade
D. Membership of WTO only
Discuss
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Correct Answer: Option C

Explanation:
A closed economy does not engage in international trade or capital flows. It is self-sufficient and isolated from the rest of the world.
This question belongs to: Economy GK Economy Set 1
Question #325
The concept of 'Marginal Efficiency of Capital' was introduced by:
A. Adam Smith
B. John Maynard Keynes
C. Classical economists
D. David Ricardo
Discuss
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Correct Answer: Option B

Explanation:
Keynes introduced the concept of Marginal Efficiency of Capital (MEC), which is the expected rate of return on an additional unit of capital asset.
This question belongs to: Economy GK Economy Set 1
Question #326
Which of the following is NOT a component of the Union Budget of India?
A. Capital Budget
B. Revenue Budget
C. Monetary Policy Statement
D. Finance Bill
Discuss
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Correct Answer: Option C

Explanation:
The Monetary Policy Statement is issued by the RBI. The Union Budget consists of the Revenue Budget, Capital Budget and related documents including the Finance Bill.
This question belongs to: Economy GK Economy Set 1
Question #327
In the context of demand analysis, the Engel Curve shows the relationship between:
A. Price and quantity demanded
B. Price and supply
C. Income and quantity demanded
D. Cost and output
Discuss
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Correct Answer: Option C

Explanation:
The Engel Curve illustrates how the quantity demanded of a good changes as consumer income changes, holding prices constant.
This question belongs to: Economy GK Economy Set 1
Question #328
Which of the following is a major problem of the agricultural sector in India?
A. Excessive capital intensity
B. High productivity across all regions
C. Fragmentation of land holdings
D. Overabundance of irrigation facilities
Discuss
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Correct Answer: Option C

Explanation:
Fragmentation and subdivision of land holdings is a major structural problem in Indian agriculture, leading to uneconomic farm sizes and low productivity.
This question belongs to: Economy GK Economy Set 1
Question #329
The term 'Special Economic Zone' (SEZ) is associated with:
A. Promoting exports and attracting investment
B. Reducing agricultural production
C. Restricting foreign investment
D. Increasing import tariffs
Discuss
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Correct Answer: Option A

Explanation:
SEZs are designated areas that offer incentives such as tax benefits and simplified procedures to promote exports, attract domestic and foreign investment, and generate employment.
This question belongs to: Economy GK Economy Set 1
Question #330
Which of the following is NOT a function of NABARD?
A. Refinancing rural credit institutions
B. Supervising cooperative banks and RRBs
C. Issuing currency notes
D. Promoting rural development
Discuss
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Correct Answer: Option C

Explanation:
Issuing currency is the function of RBI. NABARD provides refinancing, promotes rural development and supervises cooperative banks and Regional Rural Banks.
This question belongs to: Economy GK Economy Set 1
Question #331
In the context of cost, the relationship between Average Cost (AC) and Marginal Cost (MC) is:
A. MC is always greater than AC
B. When MC < AC, AC is rising
C. When MC > AC, AC is falling
D. When MC = AC, AC is minimum
Discuss
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Correct Answer: Option D

Explanation:
When Marginal Cost equals Average Cost, Average Cost is at its minimum. If MC is below AC, AC falls; if MC is above AC, AC rises.
This question belongs to: Economy GK Economy Set 1
Question #332
Which of the following is a characteristic of a traditional economy?
A. Rapid industrialisation
B. Extensive use of money and banking
C. Customs and traditions determine economic decisions
D. High use of advanced technology
Discuss
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Correct Answer: Option C

Explanation:
In a traditional economy, economic decisions regarding production and distribution are based on customs, traditions and hereditary practices.
This question belongs to: Economy GK Economy Set 1
Question #333
The concept of 'Automatic Stabilisers' in fiscal policy includes:
A. Open market operations
B. Changes in bank rate
C. Progressive taxation and unemployment benefits
D. Discretionary changes in tax rates
Discuss
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Correct Answer: Option C

Explanation:
Automatic stabilisers such as progressive income taxes and unemployment benefits automatically moderate economic fluctuations without requiring new policy decisions.
This question belongs to: Economy GK Economy Set 1
Question #334
Which of the following is NOT a type of public debt?
A. Internal debt
B. External debt
C. Market borrowings
D. Tax revenue
Discuss
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Correct Answer: Option D

Explanation:
Tax revenue is a receipt, not debt. Public debt includes internal debt (market borrowings, treasury bills) and external debt.
This question belongs to: Economy GK Economy Set 1
Question #335
In the context of international finance, 'Bretton Woods Institutions' refer to:
A. ADB and AIIB
B. IMF and World Bank
C. OECD and G20 only
D. WTO and UNCTAD
Discuss
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Correct Answer: Option B

Explanation:
The Bretton Woods Conference (1944) led to the creation of the International Monetary Fund and the World Bank (IBRD).
This question belongs to: Economy GK Economy Set 1
Question #336
Which of the following is a feature of monopolistic competition?
A. Product differentiation
B. Single seller
C. Homogeneous product
D. Perfect knowledge and free entry without costs
Discuss
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Correct Answer: Option A

Explanation:
Monopolistic competition is characterised by product differentiation, a large number of firms, free entry and exit, and some degree of price control by firms.
This question belongs to: Economy GK Economy Set 1
Question #337
Which of the following is NOT a measure to promote exports?
A. Duty drawback schemes
B. High import tariffs on export inputs
C. Special Economic Zones
D. Export subsidies
Discuss
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Correct Answer: Option B

Explanation:
High import tariffs on inputs used in export production raise costs and discourage exports. Export promotion measures include subsidies, duty drawbacks and SEZs.
This question belongs to: Economy GK Economy Set 1
Question #338
In the context of national income, which of the following is included in both GDP and GNP?
A. Value of final goods and services produced within the domestic territory
B. Net factor income from abroad
C. Depreciation only
D. Transfer payments
Discuss
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Correct Answer: Option A

Explanation:
The value of final goods and services produced within the domestic territory is the common base for both GDP and GNP. GNP adjusts GDP by adding net factor income from abroad.
This question belongs to: Economy GK Economy Set 1
Question #339
Which of the following is a characteristic of a progressive tax system?
A. Tax rate decreases as income rises
B. Tax rate remains constant as income rises
C. Tax is levied at a flat rate on all incomes
D. Tax rate increases as income rises
Discuss
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Correct Answer: Option D

Explanation:
In a progressive tax system, the tax rate increases with an increase in the taxable income, placing a higher burden on higher-income groups.
This question belongs to: Economy GK Economy Set 1
Question #340
The concept of 'Liquidity Trap' implies that:
A. Interest rates are very high
B. Monetary policy is highly effective
C. Fiscal policy is ineffective
D. Further increase in money supply does not reduce interest rates
Discuss
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Correct Answer: Option D

Explanation:
In a liquidity trap, interest rates are already so low that people prefer to hold cash, and further increases in money supply do not lead to a fall in interest rates or increase in investment.
This question belongs to: Economy GK Economy Set 1
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