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 24 of 111
Question #461
Which of the following is NOT a function of the World Trade Organisation?
A. Providing a forum for trade negotiations
B. Providing long-term development finance
C. Administering trade agreements
D. Settling trade disputes
Discuss
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Correct Answer: Option B

Explanation:
Long-term development finance is the function of the World Bank. The WTO deals with trade rules, negotiations and dispute settlement.
This question belongs to: Economy GK Economy Set 1
Question #462
In the context of cost curves, when Marginal Cost is less than Average Cost:
A. Average Cost is at its maximum
B. Average Cost is falling
C. Average Cost is constant
D. Average Cost is rising
Discuss
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Correct Answer: Option B

Explanation:
When MC is below AC, it pulls the average down, so AC is falling. AC starts rising only when MC exceeds AC.
This question belongs to: Economy GK Economy Set 1
Question #463
The term 'Repo Rate' is the rate at which:
A. Banks lend to each other in the call market
B. Commercial banks borrow from the RBI against collateral of government securities
C. RBI borrows from commercial banks
D. Government borrows from the public
Discuss
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Correct Answer: Option B

Explanation:
Repo rate is the interest rate at which the RBI lends short-term funds to commercial banks against the collateral of government securities under the Liquidity Adjustment Facility.
This question belongs to: Economy GK Economy Set 1
Question #464
In the context of the Phillips Curve, the long-run Phillips Curve is:
A. Upward sloping
B. Downward sloping
C. Horizontal
D. Vertical at the natural rate of unemployment
Discuss
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Correct Answer: Option D

Explanation:
In the long run, the Phillips Curve is vertical at the natural rate of unemployment, indicating no permanent trade-off between inflation and unemployment.
This question belongs to: Economy GK Economy Set 1
Question #465
Which of the following is a non-tax revenue receipt of the government?
A. Corporation tax
B. Income tax
C. Customs duty
D. Dividends and profits from public sector enterprises
Discuss
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Correct Answer: Option D

Explanation:
Dividends and profits from PSUs form part of non-tax revenue. Corporation tax, customs duty and income tax are tax revenues.
This question belongs to: Economy GK Economy Set 1
Question #466
The concept of 'Consumer Surplus' is the area:
A. Below the demand curve and above the price line
B. Above the demand curve and below the price line
C. Below the supply curve and above the price line
D. Above the supply curve and below the price line
Discuss
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Correct Answer: Option A

Explanation:
Consumer surplus is the difference between the maximum amount consumers are willing to pay and the amount they actually pay, represented by the area under the demand curve and above the market price.
This question belongs to: Economy GK Economy Set 1
Question #467
Which of the following is a feature of the Indian agricultural sector?
A. Predominance of small and marginal farmers
B. High and uniform productivity across states
C. Complete independence from monsoon
D. High capital intensity comparable to industry
Discuss
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Correct Answer: Option A

Explanation:
Indian agriculture is dominated by small and marginal landholdings, leading to challenges of scale, productivity and access to credit and technology.
This question belongs to: Economy GK Economy Set 1
Question #468
In the context of money, 'Near Money' includes:
A. Only gold reserves
B. Currency notes and coins only
C. Only demand deposits
D. Time deposits, savings deposits and other highly liquid assets
Discuss
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Correct Answer: Option D

Explanation:
Near money refers to assets that are highly liquid and can be converted into cash quickly with minimal loss of value, such as time deposits and certain money market instruments.
This question belongs to: Economy GK Economy Set 1
Question #469
Which of the following is a cause of demand-pull inflation?
A. Increase in the cost of raw materials
B. Increase in money supply and aggregate demand
C. Rise in wages independent of productivity
D. Supply chain disruptions
Discuss
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Correct Answer: Option B

Explanation:
Demand-pull inflation arises when aggregate demand exceeds aggregate supply at full employment, often due to excess money supply or expansionary fiscal policy.
This question belongs to: Economy GK Economy Set 1
Question #470
The concept of 'Pareto Efficiency' implies that:
A. Resources can be reallocated to make someone better off without making anyone worse off
B. No reallocation can make one person better off without making someone else worse off
C. Income is equally distributed
D. All markets are perfectly competitive
Discuss
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Correct Answer: Option B

Explanation:
A Pareto efficient allocation is one where it is impossible to make any individual better off without making at least one individual worse off.
This question belongs to: Economy GK Economy Set 1
Question #471
Which of the following is a component of the current account of the balance of payments?
A. Foreign direct investment
B. Portfolio investment
C. Trade in goods and services
D. External commercial borrowings
Discuss
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Correct Answer: Option C

Explanation:
The current account includes merchandise trade, trade in services, primary income and secondary income (transfers). FDI, portfolio investment and ECBs are capital account items.
This question belongs to: Economy GK Economy Set 1
Question #472
In the context of public expenditure, 'Capital Expenditure' is characterised by:
A. No creation of assets
B. Creation of assets or reduction of liabilities
C. Only payment of interest
D. Only payment of salaries
Discuss
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Correct Answer: Option B

Explanation:
Capital expenditure leads to the creation of assets (such as infrastructure) or reduction of liabilities (such as repayment of loans).
This question belongs to: Economy GK Economy Set 1
Question #473
Which of the following is a feature of the mixed economy model adopted by India?
A. Absence of market mechanism
B. Coexistence of public and private sectors with government regulation
C. Complete private ownership of all means of production
D. Complete central planning without private enterprise
Discuss
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Correct Answer: Option B

Explanation:
India adopted a mixed economy framework where both public and private sectors coexist, with the government playing a regulatory and developmental role.
This question belongs to: Economy GK Economy Set 1
Question #474
The term 'Core Inflation' is useful for policy makers because it:
A. Includes all volatile items
B. Measures only food inflation
C. Excludes food and fuel prices to reveal underlying inflation trends
D. Is always higher than headline inflation
Discuss
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Correct Answer: Option C

Explanation:
Core inflation excludes volatile components such as food and energy, providing a clearer picture of persistent inflationary pressures for monetary policy decisions.
This question belongs to: Economy GK Economy Set 1
Question #475
Which of the following is an assumption of the Ricardian theory of comparative advantage?
A. Labour is the only factor of production and is mobile internationally
B. There are increasing returns to scale
C. Labour is the only factor of production and is immobile internationally
D. Capital is the only factor of production
Discuss
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Correct Answer: Option C

Explanation:
Ricardo assumed a single factor (labour), constant returns, and international immobility of labour, while labour is mobile within a country.
This question belongs to: Economy GK Economy Set 1
Question #476
In the context of Indian planning, the First Five Year Plan focused primarily on:
A. Information technology
B. Heavy industries
C. Agriculture and irrigation
D. Export promotion
Discuss
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Correct Answer: Option C

Explanation:
The First Five Year Plan (1951-56) gave priority to agriculture, irrigation and power to address food shortages and build a foundation for future growth.
This question belongs to: Economy GK Economy Set 1
Question #477
The concept of 'Time Preference' is central to the theory of:
A. Wages
B. Interest
C. Profit
D. Rent
Discuss
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Correct Answer: Option B

Explanation:
The time preference theory of interest explains the rate of interest as arising from the preference of individuals for present consumption over future consumption.
This question belongs to: Economy GK Economy Set 1
Question #478
Which of the following is a measure to control inflation?
A. Increase in government expenditure
B. Increase in CRR and SLR
C. Reduction in taxes during high inflation
D. Reduction in bank rate
Discuss
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Correct Answer: Option B

Explanation:
Raising CRR and SLR reduces the lending capacity of banks, thereby contracting money supply and helping to control inflation.
This question belongs to: Economy GK Economy Set 1
Question #479
In the context of market structures, price rigidity is a feature of:
A. Oligopoly
B. Monopolistic competition with free entry only
C. Monopoly with no barriers
D. Perfect competition
Discuss
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Correct Answer: Option A

Explanation:
Oligopolistic markets often exhibit price rigidity, explained by the kinked demand curve model, due to inter-firm interdependence.
This question belongs to: Economy GK Economy Set 1
Question #480
Which of the following is a component of Gross National Product?
A. GDP minus depreciation
B. GDP plus net factor income from abroad
C. GDP minus net factor income from abroad
D. NDP plus depreciation
Discuss
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Correct Answer: Option B

Explanation:
GNP = GDP + Net factor income from abroad. Net factor income from abroad is the difference between factor income received from abroad and factor income paid to abroad.
This question belongs to: Economy GK Economy Set 1
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