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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Total Questions

Practice Questions

Page 21 of 111
Question #401
In the context of economic theory, the 'Production Possibility Frontier' shifts outward when there is:
A. Decrease in the labour force
B. Inefficient allocation of resources
C. Unemployment of resources
D. Economic growth due to increase in resources or technology
Discuss
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Correct Answer: Option D

Explanation:
An outward shift of the PPF indicates economic growth, which can result from an increase in the quantity or quality of resources or from technological progress.
This question belongs to: Economy GK Economy Set 1
Question #402
Which of the following is NOT a function of the International Monetary Fund?
A. Technical assistance and capacity building
B. Surveillance of member countries' economic policies
C. Providing short-term financial assistance for balance of payments problems
D. Providing long-term project finance for infrastructure
Discuss
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Correct Answer: Option D

Explanation:
Long-term project finance for infrastructure is primarily the role of the World Bank. The IMF focuses on short-term BOP support, surveillance and technical assistance.
This question belongs to: Economy GK Economy Set 1
Question #403
The concept of 'Average Propensity to Consume' is defined as:
A. Total consumption divided by total income
B. Change in consumption divided by change in income
C. Total saving divided by total income
D. Change in saving divided by change in income
Discuss
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Correct Answer: Option A

Explanation:
Average Propensity to Consume (APC) = Total Consumption / Total Income. Marginal Propensity to Consume is the change in consumption divided by the change in income.
This question belongs to: Economy GK Economy Set 1
Question #404
Which of the following is a major challenge in the measurement of national income in developing countries?
A. Complete availability of data for all sectors
B. Absence of the informal sector
C. Presence of a large non-monetised sector
D. Uniform accounting practices across all countries
Discuss
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Correct Answer: Option C

Explanation:
Developing countries face difficulties in measuring national income due to a large non-monetised (barter) sector, informal activities, lack of reliable data and underreporting.
This question belongs to: Economy GK Economy Set 1
Question #405
In the context of monetary economics, the 'Velocity of Money' refers to:
A. The rate of interest
B. The rate at which money changes hands in the economy
C. The growth rate of money supply
D. The rate of inflation only
Discuss
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Correct Answer: Option B

Explanation:
Velocity of money is the average number of times a unit of money is used to purchase goods and services within a given period. It appears in the equation of exchange MV = PT.
This question belongs to: Economy GK Economy Set 1
Question #406
Which of the following is NOT a type of public enterprise based on ownership?
A. Private limited company with no government share
B. Public corporation
C. Departmental undertaking
D. Government company
Discuss
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Correct Answer: Option A

Explanation:
Public enterprises are owned wholly or substantially by the government and include departmental undertakings, public corporations and government companies. A purely private limited company is not a public enterprise.
This question belongs to: Economy GK Economy Set 1
Question #407
The term 'Soft Currency' refers to:
A. A currency that is widely accepted and stable
B. Only the US dollar
C. A currency that is not widely accepted internationally and may be unstable
D. Only gold-backed currency
Discuss
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Correct Answer: Option C

Explanation:
A soft currency is one that is not widely used in international transactions and may experience frequent fluctuations or limited convertibility, in contrast to hard currencies like the US dollar or euro.
This question belongs to: Economy GK Economy Set 1
Question #408
Which of the following is a feature of the Indian planning process after 2015?
A. Continuation of Five Year Plans by Planning Commission
B. Only centralised planning without state participation
C. Complete abandonment of any form of planning
D. Replacement of Planning Commission by NITI Aayog with a focus on cooperative federalism
Discuss
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Correct Answer: Option D

Explanation:
In 2015, the Planning Commission was replaced by NITI Aayog, which promotes cooperative federalism, provides strategic and technical advice, and does not impose centralised Five Year Plans in the earlier form.
This question belongs to: Economy GK Economy Set 1
Question #409
Which of the following best describes the concept of 'Cross Elasticity of Demand'?
A. Responsiveness of quantity demanded of a good to a change in its own price
B. Responsiveness of supply to a change in price
C. Responsiveness of quantity demanded to a change in income
D. Responsiveness of quantity demanded of a good to a change in the price of another good
Discuss
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Correct Answer: Option D

Explanation:
Cross elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another related good. It is positive for substitutes and negative for complements.
This question belongs to: Economy GK Economy Set 1
Question #410
In the Keynesian framework, the paradox of thrift states that:
A. Saving always equals investment automatically
B. An increase in saving by all individuals may lead to a fall in aggregate income and saving
C. An increase in saving by all individuals leads to higher aggregate saving and income
D. Thrift is always beneficial for economic growth
Discuss
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Correct Answer: Option B

Explanation:
The paradox of thrift argues that if everyone tries to save more during a recession, aggregate demand falls, leading to lower income and ultimately lower total saving.
This question belongs to: Economy GK Economy Set 1
Question #411
Which of the following is a non-debt creating capital receipt of the government?
A. External commercial borrowings
B. Market borrowings
C. Treasury bills
D. Recovery of loans
Discuss
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Correct Answer: Option D

Explanation:
Recovery of loans is a non-debt capital receipt because it does not create a future liability. Borrowings of all kinds create debt.
This question belongs to: Economy GK Economy Set 1
Question #412
The concept of 'Natural Rate of Unemployment' is associated with which school of thought?
A. Marxian economics
B. Monetarist economics
C. Keynesian economics
D. Classical economics only
Discuss
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Correct Answer: Option B

Explanation:
Milton Friedman and Edmund Phelps developed the concept of the natural rate of unemployment, which is the unemployment rate consistent with stable inflation in the long run.
This question belongs to: Economy GK Economy Set 1
Question #413
Which of the following is an example of a quasi-public good?
A. Clean air
B. Education
C. National defence
D. Street lighting
Discuss
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Correct Answer: Option B

Explanation:
Education is often classified as a quasi-public (or merit) good because it is partially excludable and rivalrous but generates significant positive externalities, justifying public provision.
This question belongs to: Economy GK Economy Set 1
Question #414
In the IS-LM framework, an increase in government expenditure shifts the:
A. LM curve to the left
B. IS curve to the left
C. IS curve to the right
D. LM curve to the right
Discuss
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Correct Answer: Option C

Explanation:
An increase in government spending raises aggregate demand, shifting the IS curve to the right, leading to higher income and interest rates in the short run.
This question belongs to: Economy GK Economy Set 1
Question #415
Which of the following indices is used by the RBI as the nominal anchor for monetary policy in India?
A. Consumer Price Index (Combined)
B. GDP Deflator
C. Producer Price Index
D. Wholesale Price Index
Discuss
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Correct Answer: Option A

Explanation:
Under the Flexible Inflation Targeting framework, the RBI targets CPI-Combined inflation as the nominal anchor for monetary policy.
This question belongs to: Economy GK Economy Set 1
Question #416
The term 'Seigniorage' refers to:
A. Interest paid on government bonds
B. Profit earned by the government from printing currency
C. Revenue from income tax
D. Deficit financing through external loans
Discuss
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Correct Answer: Option B

Explanation:
Seigniorage is the difference between the face value of money and the cost of producing it; it represents the real resource gain to the government from issuing currency.
This question belongs to: Economy GK Economy Set 1
Question #417
Which of the following is a feature of the Classical dichotomy?
A. Real and nominal variables are interdependent
B. Money is neutral in the long run and affects only nominal variables
C. Wages and prices are sticky
D. Fiscal policy is the only effective tool
Discuss
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Correct Answer: Option B

Explanation:
Classical dichotomy refers to the separation of real and nominal variables, with money being neutral in the long run and affecting only the price level, not real output or employment.
This question belongs to: Economy GK Economy Set 1
Question #418
In the context of Indian agriculture, the term 'Minimum Support Price' is recommended by:
A. Commission for Agricultural Costs and Prices
B. NITI Aayog
C. Food Corporation of India
D. Reserve Bank of India
Discuss
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Correct Answer: Option A

Explanation:
The Commission for Agricultural Costs and Prices (CACP) recommends Minimum Support Prices for various crops, which are then approved by the government.
This question belongs to: Economy GK Economy Set 1
Question #419
Which of the following best explains the concept of 'Adverse Selection'?
A. Situation where one party has more information before entering a contract
B. Equal risk sharing between parties
C. Change in behaviour after a contract is signed
D. Perfect information leading to efficient outcomes
Discuss
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Correct Answer: Option A

Explanation:
Adverse selection occurs when asymmetric information exists before a contract is signed, leading to the selection of undesirable parties (e.g., high-risk individuals buying more insurance).
This question belongs to: Economy GK Economy Set 1
Question #420
The concept of 'Potential Output' or 'Potential GDP' refers to:
A. Nominal GDP adjusted for population
B. GDP at current market prices
C. The maximum output an economy can produce with current resources and technology without inflationary pressure
D. Actual GDP in a given year
Discuss
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Correct Answer: Option C

Explanation:
Potential output is the level of real GDP that can be sustained over the long term without generating inflationary or deflationary pressures, given existing resources and technology.
This question belongs to: Economy GK Economy Set 1
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