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 22 of 111
Question #421
Which of the following is an example of a counter-cyclical fiscal policy?
A. Increasing taxes during a recession
B. Reducing taxes during a recession
C. Reducing government spending during a recession
D. Increasing government spending during a boom
Discuss
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Correct Answer: Option B

Explanation:
Counter-cyclical fiscal policy aims to stabilise the economy by increasing spending or cutting taxes during downturns and doing the opposite during booms.
This question belongs to: Economy GK Economy Set 1
Question #422
In the theory of international trade, the Heckscher-Ohlin theorem states that a country will export goods that:
A. Use its scarce factors intensively
B. Require the most labour regardless of endowment
C. Use its abundant factors intensively
D. Have the highest absolute advantage
Discuss
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Correct Answer: Option C

Explanation:
According to the Heckscher-Ohlin theorem, a country exports goods that intensively use its relatively abundant factors of production and imports goods that intensively use its scarce factors.
This question belongs to: Economy GK Economy Set 1
Question #423
Which of the following is NOT a component of the Index of Industrial Production (IIP) in India?
A. Agriculture
B. Manufacturing
C. Electricity
D. Mining
Discuss
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Correct Answer: Option A

Explanation:
The IIP covers mining, manufacturing and electricity sectors. Agriculture is measured separately through other indices and production estimates.
This question belongs to: Economy GK Economy Set 1
Question #424
The term 'Financial Inclusion' primarily aims at:
A. Increasing interest rates for small borrowers
B. Ensuring access to financial services for all sections of society at affordable cost
C. Restricting credit to priority sectors
D. Providing banking services only to high-income groups
Discuss
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Correct Answer: Option B

Explanation:
Financial inclusion seeks to ensure that individuals and businesses, especially the underserved, have access to useful and affordable financial products and services.
This question belongs to: Economy GK Economy Set 1
Question #425
Which of the following is a feature of the Quantity Theory of Money in its classical form?
A. Velocity of money is variable and unstable
B. Interest rates determine money demand only
C. Money supply determines the price level assuming full employment and constant velocity
D. Output is determined by aggregate demand
Discuss
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Correct Answer: Option C

Explanation:
In the classical Quantity Theory (MV = PT), with V and T assumed constant and full employment, changes in money supply (M) lead to proportional changes in the price level (P).
This question belongs to: Economy GK Economy Set 1
Question #426
In the context of public finance, the concept of 'Ricardian Equivalence' suggests that:
A. Public debt has no intergenerational implications
B. Government borrowing is always expansionary
C. Tax-financed and debt-financed government spending have the same effect on the economy
D. Deficit financing always increases private consumption
Discuss
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Correct Answer: Option C

Explanation:
Ricardian Equivalence, proposed by David Ricardo and revived by Robert Barro, argues that rational agents anticipate future taxes to repay debt, so government borrowing does not stimulate demand.
This question belongs to: Economy GK Economy Set 1
Question #427
Which of the following is used to measure the degree of openness of an economy?
A. Share of exports and imports in GDP
B. Fiscal deficit as a percentage of GDP
C. Money supply growth rate
D. Unemployment rate
Discuss
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Correct Answer: Option A

Explanation:
The degree of openness is commonly measured by the ratio of total trade (exports + imports) to GDP, reflecting integration with the global economy.
This question belongs to: Economy GK Economy Set 1
Question #428
The concept of 'Okun's Law' relates:
A. Unemployment and inflation
B. Unemployment and the gap between actual and potential output
C. Money supply and price level
D. Interest rates and investment
Discuss
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Correct Answer: Option B

Explanation:
Okun's Law describes the empirical relationship between unemployment and the output gap: a rise in unemployment is associated with a fall in actual output relative to potential output.
This question belongs to: Economy GK Economy Set 1
Question #429
Which of the following is an example of a non-tariff barrier to trade?
A. Ad valorem tariff
B. Export subsidy
C. Quota restriction on imports
D. Import duty of 10%
Discuss
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Correct Answer: Option C

Explanation:
Non-tariff barriers include quotas, technical standards, licensing requirements and voluntary export restraints. Tariffs are direct taxes on imports.
This question belongs to: Economy GK Economy Set 1
Question #430
In the context of Indian banking, the term 'Priority Sector Lending' includes advances to:
A. Only export-oriented units
B. Only large industrial houses
C. Only infrastructure projects by private companies
D. Agriculture, micro and small enterprises, education and housing
Discuss
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Correct Answer: Option D

Explanation:
Priority Sector Lending targets sectors such as agriculture, micro, small and medium enterprises, education, housing, social infrastructure and renewable energy.
This question belongs to: Economy GK Economy Set 1
Question #431
Which of the following best describes 'Stagflation'?
A. Low inflation with high unemployment
B. Deflation with full employment
C. High inflation accompanied by high unemployment and stagnant growth
D. High growth with low inflation
Discuss
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Correct Answer: Option C

Explanation:
Stagflation is a situation of simultaneous high inflation, high unemployment and stagnant or negative economic growth, posing a policy dilemma.
This question belongs to: Economy GK Economy Set 1
Question #432
The concept of 'Marginal Rate of Substitution' is derived from:
A. Cost curves
B. Production possibility frontier
C. Indifference curve analysis
D. Supply curve
Discuss
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Correct Answer: Option C

Explanation:
The Marginal Rate of Substitution (MRS) is the rate at which a consumer is willing to give up one good for another while remaining on the same indifference curve.
This question belongs to: Economy GK Economy Set 1
Question #433
Which of the following is a capital account transaction in the balance of payments?
A. Interest payments on external debt
B. Foreign direct investment inflows
C. Export of software services
D. Remittances from non-resident Indians
Discuss
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Correct Answer: Option B

Explanation:
Foreign direct investment is a capital account transaction. Software exports, remittances and interest payments are current account items.
This question belongs to: Economy GK Economy Set 1
Question #434
In the theory of the firm, the shutdown point in the short run occurs when:
A. Price equals marginal cost
B. Price equals average fixed cost
C. Price equals average variable cost
D. Price equals average total cost
Discuss
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Correct Answer: Option C

Explanation:
A firm continues to operate in the short run as long as price covers average variable cost. If price falls below AVC, the firm shuts down to minimise losses.
This question belongs to: Economy GK Economy Set 1
Question #435
Which of the following is the primary objective of the Fiscal Responsibility and Budget Management (FRBM) Act in India?
A. To ensure inter-generational equity and fiscal sustainability
B. To eliminate all forms of taxation
C. To promote deficit financing through money creation
D. To increase fiscal deficit indefinitely
Discuss
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Correct Answer: Option A

Explanation:
The FRBM Act aims to ensure fiscal discipline, inter-generational equity in fiscal management and long-term macroeconomic stability by setting targets for deficit reduction.
This question belongs to: Economy GK Economy Set 1
Question #436
The term 'J-Curve Effect' in international economics refers to:
A. No effect of exchange rate on trade balance
B. Initial worsening of trade balance after depreciation followed by improvement
C. Continuous deterioration of trade balance
D. Immediate improvement in trade balance after depreciation
Discuss
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Correct Answer: Option B

Explanation:
The J-curve effect describes the pattern where a currency depreciation first worsens the trade balance (due to existing contracts) before improving it as quantities adjust.
This question belongs to: Economy GK Economy Set 1
Question #437
Which of the following is an example of a progressive tax system feature?
A. Higher tax rate on higher income slabs
B. Tax rate independent of income
C. Same tax rate for all income levels
D. Higher tax burden on lower income groups
Discuss
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Correct Answer: Option A

Explanation:
A progressive tax system imposes higher marginal tax rates on higher income levels, increasing the average tax rate as income rises.
This question belongs to: Economy GK Economy Set 1
Question #438
In the context of money supply, M3 is also known as:
A. Reserve money
B. Broad money
C. High-powered money
D. Narrow money
Discuss
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Correct Answer: Option B

Explanation:
M3 is referred to as broad money and includes M1 plus time deposits with banks. Reserve money or high-powered money is the monetary base.
This question belongs to: Economy GK Economy Set 1
Question #439
Which of the following is a feature of the Mahalanobis model used in Indian planning?
A. Complete reliance on private sector investment
B. Emphasis on agriculture and consumer goods
C. Emphasis on heavy industries and capital goods sector
D. Focus on export-led growth only
Discuss
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Correct Answer: Option C

Explanation:
The Mahalanobis model, used in the Second Five Year Plan, stressed the development of heavy and capital goods industries to build a strong industrial base.
This question belongs to: Economy GK Economy Set 1
Question #440
The concept of 'Crowding Out' is more likely to occur when:
A. Monetary policy is highly accommodative
B. The economy is near full employment and interest rates rise due to government borrowing
C. The economy is in a deep recession with excess capacity
D. There is a liquidity trap
Discuss
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Correct Answer: Option B

Explanation:
Crowding out is more pronounced when the economy is close to full employment, as higher government borrowing raises interest rates and reduces private investment.
This question belongs to: Economy GK Economy Set 1
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