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 25 of 111
Question #481
The term 'Moral Suasion' as a monetary policy tool refers to:
A. Quantitative restriction on credit
B. Legal compulsion on banks
C. Change in the bank rate only
D. Persuasion by the central bank to influence bank behaviour
Discuss
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Correct Answer: Option D

Explanation:
Moral suasion involves the central bank using persuasion, advice and appeals to influence the lending behaviour of commercial banks without legal compulsion.
This question belongs to: Economy GK Economy Set 1
Question #482
In the context of production, the law of diminishing returns applies when:
A. Technology is changing continuously
B. All factors are variable
C. There are increasing returns to scale
D. At least one factor is fixed and others are variable
Discuss
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Correct Answer: Option D

Explanation:
The law of diminishing returns (or variable proportions) operates in the short run when one or more factors are fixed and additional units of a variable factor are added.
This question belongs to: Economy GK Economy Set 1
Question #483
Which of the following is a major objective of NITI Aayog?
A. Replacing the Finance Commission
B. Promoting cooperative federalism and providing strategic policy advice
C. Controlling monetary policy
D. Formulating Five Year Plans with mandatory targets
Discuss
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Correct Answer: Option B

Explanation:
NITI Aayog aims to foster cooperative federalism, serve as a think tank, and provide strategic and technical advice to the Centre and states.
This question belongs to: Economy GK Economy Set 1
Question #484
The concept of 'Effective Demand' in Keynesian economics determines:
A. The level of employment and output
B. Only the price level
C. Only the money supply
D. Only the interest rate
Discuss
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Correct Answer: Option A

Explanation:
According to Keynes, the level of effective demand (where aggregate demand equals aggregate supply) determines the equilibrium level of employment and output.
This question belongs to: Economy GK Economy Set 1
Question #485
In the context of elasticity, the demand for a necessary good with no close substitutes is likely to be:
A. Perfectly elastic
B. Highly elastic
C. Relatively inelastic
D. Unitary elastic
Discuss
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Correct Answer: Option C

Explanation:
Necessities with few or no close substitutes tend to have inelastic demand because consumers cannot easily reduce consumption when price rises.
This question belongs to: Economy GK Economy Set 1
Question #486
Which of the following is a feature of the capital account convertibility?
A. Freedom to convert local financial assets into foreign financial assets and vice versa
B. Freedom to convert local currency into foreign currency for current account transactions only
C. Complete ban on capital flows
D. Only export-related convertibility
Discuss
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Correct Answer: Option A

Explanation:
Capital account convertibility allows residents and non-residents to convert local currency into foreign currency and transfer capital freely for investment and other capital transactions.
This question belongs to: Economy GK Economy Set 1
Question #487
The term 'Green Field Investment' refers to:
A. Setting up of new production facilities from scratch
B. Mergers and acquisitions only
C. Portfolio investment in bonds
D. Investment in existing companies through stock markets
Discuss
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Correct Answer: Option A

Explanation:
Greenfield investment is a form of foreign direct investment where a parent company establishes new operations and facilities in a foreign country from the ground up.
This question belongs to: Economy GK Economy Set 1
Question #488
Which of the following is a characteristic of the short-run production function?
A. At least one factor is fixed
B. No diminishing returns possible
C. All factors are variable
D. Returns to scale are the only relevant concept
Discuss
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Correct Answer: Option A

Explanation:
In the short run, at least one factor of production is fixed, and the law of variable proportions operates.
This question belongs to: Economy GK Economy Set 1
Question #489
In the context of Indian economy, the term 'Demographic Dividend' can be realised if:
A. The dependent population increases rapidly
B. The working-age population is productively employed and skilled
C. The fertility rate rises continuously
D. The old-age population dominates
Discuss
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Correct Answer: Option B

Explanation:
Realising the demographic dividend requires that the large working-age population is educated, skilled and productively employed in the economy.
This question belongs to: Economy GK Economy Set 1
Question #490
Which of the following is a feature of the Classical Quantity Theory of Money?
A. Interest rates determine money demand primarily
B. Output is demand-determined
C. Velocity of money is unstable
D. Money is neutral and affects only prices in the long run
Discuss
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Correct Answer: Option D

Explanation:
In the classical framework, money is neutral in the long run; changes in money supply affect only the price level, not real variables.
This question belongs to: Economy GK Economy Set 1
Question #491
The concept of 'Deadweight Loss' arises due to:
A. Efficient resource allocation
B. Free trade
C. Market distortions such as taxes, subsidies or monopolies
D. Perfect competition
Discuss
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Correct Answer: Option C

Explanation:
Deadweight loss is the loss of economic efficiency that occurs when the equilibrium quantity is not achieved due to market imperfections or government interventions.
This question belongs to: Economy GK Economy Set 1
Question #492
Which of the following is a major source of agricultural credit in India?
A. Commercial banks, cooperative banks and Regional Rural Banks
B. Foreign institutional investors only
C. Mutual funds
D. Stock exchanges
Discuss
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Correct Answer: Option A

Explanation:
Institutional agricultural credit in India is primarily provided by commercial banks, cooperative banks and Regional Rural Banks, with refinancing support from NABARD.
This question belongs to: Economy GK Economy Set 1
Question #493
In the context of inflation, 'Built-in Inflation' refers to:
A. Inflation resulting from the wage-price spiral
B. Inflation caused by excess demand
C. One-time increase in prices
D. Inflation due to supply shocks only
Discuss
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Correct Answer: Option A

Explanation:
Built-in inflation arises from adaptive expectations and the wage-price spiral, where past inflation influences current wage and price setting.
This question belongs to: Economy GK Economy Set 1
Question #494
Which of the following is a feature of the Indian banking system?
A. Absence of priority sector lending norms
B. Complete absence of NBFCs
C. No role for foreign banks
D. Dual regulation of cooperative banks by RBI and state governments
Discuss
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Correct Answer: Option D

Explanation:
Urban and rural cooperative banks in India are subject to dual regulation by the Reserve Bank of India and the respective state governments.
This question belongs to: Economy GK Economy Set 1
Question #495
The term 'Special Drawing Rights' can be used by member countries of the IMF for:
A. Only domestic transactions
B. Settling international payments and as a reserve asset
C. Only financing fiscal deficit
D. Only purchasing gold
Discuss
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Correct Answer: Option B

Explanation:
SDRs are international reserve assets that can be exchanged for freely usable currencies and used in transactions among IMF members and prescribed holders.
This question belongs to: Economy GK Economy Set 1
Question #496
Which of the following is a characteristic of a Giffen good?
A. It is a luxury good
B. Demand decreases as price increases
C. Income elasticity is positive
D. Demand increases as price increases due to strong negative income effect
Discuss
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Correct Answer: Option D

Explanation:
A Giffen good is an inferior good for which the negative income effect outweighs the substitution effect, resulting in an upward-sloping demand curve.
This question belongs to: Economy GK Economy Set 1
Question #497
In the context of public finance, 'Revenue Deficit' indicates:
A. Excess of revenue expenditure over revenue receipts
B. Excess of capital expenditure over capital receipts
C. Fiscal deficit minus interest payments
D. Total borrowing requirement of the government
Discuss
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Correct Answer: Option A

Explanation:
Revenue deficit = Revenue expenditure − Revenue receipts. It shows the shortfall in revenue receipts to meet revenue expenditure.
This question belongs to: Economy GK Economy Set 1
Question #498
Which of the following is a feature of the monopolistic competition market structure?
A. Single seller
B. Product differentiation and selling costs
C. Homogeneous product
D. Perfect knowledge and no advertising
Discuss
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Correct Answer: Option B

Explanation:
Monopolistic competition is characterised by product differentiation, a large number of firms, free entry and exit, and significant selling costs.
This question belongs to: Economy GK Economy Set 1
Question #499
The concept of 'Multiplier' in Keynesian economics is larger when:
A. Marginal propensity to consume is higher
B. Marginal propensity to consume is lower
C. Marginal propensity to save is higher
D. Tax rate is higher
Discuss
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Correct Answer: Option A

Explanation:
The investment multiplier = 1/(1−MPC). A higher marginal propensity to consume leads to a larger multiplier effect on income.
This question belongs to: Economy GK Economy Set 1
Question #500
Which of the following is a non-debt capital receipt?
A. Borrowings from the market
B. External loans
C. Disinvestment proceeds
D. Treasury bills issued
Discuss
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Correct Answer: Option C

Explanation:
Disinvestment proceeds are non-debt capital receipts as they involve sale of assets and do not create a future repayment liability.
This question belongs to: Economy GK Economy Set 1
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