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 26 of 111
Question #501
In the context of international economics, 'Dumping' is considered:
A. An unfair trade practice of selling below cost or domestic price in foreign markets
B. A fair trade practice
C. A form of export promotion subsidy only
D. A tariff barrier
Discuss
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Correct Answer: Option A

Explanation:
Dumping involves selling a product in a foreign market at a price lower than the domestic price or below the cost of production, often subject to anti-dumping duties.
This question belongs to: Economy GK Economy Set 1
Question #502
Which of the following is a feature of the long-run average cost curve under constant returns to scale?
A. Horizontal
B. Continuously rising
C. U-shaped due to fixed factors
D. Continuously falling
Discuss
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Correct Answer: Option A

Explanation:
Under constant returns to scale, long-run average cost remains constant as output expands, resulting in a horizontal LAC curve.
This question belongs to: Economy GK Economy Set 1
Question #503
The term 'Financial Stability' as an objective of central banks refers to:
A. Only growth maximisation
B. Only price stability
C. Only exchange rate stability
D. Stability of the financial system and prevention of systemic risks
Discuss
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Correct Answer: Option D

Explanation:
Financial stability involves the resilience of the financial system to shocks and the smooth functioning of financial intermediation without systemic disruptions.
This question belongs to: Economy GK Economy Set 1
Question #504
Which of the following is a major component of India's external debt?
A. Commercial borrowings, NRI deposits, multilateral and bilateral loans
B. Only short-term trade credit
C. Only domestic government securities held by residents
D. Only equity portfolio investment
Discuss
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Correct Answer: Option A

Explanation:
India's external debt comprises multilateral and bilateral loans, commercial borrowings, NRI deposits, trade credit and other liabilities.
This question belongs to: Economy GK Economy Set 1
Question #505
In the context of consumer theory, the budget line represents:
A. Combinations of inputs that give the same output
B. Combinations of goods that can be purchased with a given income and prices
C. Combinations of prices that maximise profit
D. Combinations of goods that give the same utility
Discuss
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Correct Answer: Option B

Explanation:
The budget line shows all possible combinations of two goods that a consumer can afford given his money income and the prices of the goods.
This question belongs to: Economy GK Economy Set 1
Question #506
Which of the following is a feature of the Indian industrial policy after 1991?
A. Liberalisation, delicensing and greater role for private sector
B. Expansion of the licence-permit raj
C. Restriction on foreign investment
D. Complete nationalisation of industries
Discuss
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Correct Answer: Option A

Explanation:
The 1991 Industrial Policy emphasised liberalisation, abolition of industrial licensing for most industries, and encouragement of private and foreign investment.
This question belongs to: Economy GK Economy Set 1
Question #507
The concept of 'Social Marginal Cost' is relevant for:
A. Correcting externalities and optimal provision of public goods
B. Private decision making only
C. Only calculating private profits
D. Only determining market prices
Discuss
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Correct Answer: Option A

Explanation:
Social marginal cost includes both private costs and external costs. It is used in the analysis of externalities and in determining the socially optimal level of output.
This question belongs to: Economy GK Economy Set 1
Question #508
Which of the following is a characteristic of the informal sector?
A. High degree of formal contracts and social security
B. High capital intensity and advanced technology
C. Easy entry, small scale and lack of formal regulation
D. Complete absence of employment generation
Discuss
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Correct Answer: Option C

Explanation:
The informal sector is marked by ease of entry, small-scale operations, labour intensity, lack of formal contracts and limited access to social security.
This question belongs to: Economy GK Economy Set 1
Question #509
In the context of monetary policy, the 'Corridor' system refers to:
A. The range of fiscal deficit targets
B. The range of exchange rate fluctuations
C. The range between repo and reverse repo rates
D. The range of CRR variations
Discuss
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Correct Answer: Option C

Explanation:
The policy rate corridor is defined by the repo rate (ceiling) and reverse repo rate (floor), within which the overnight inter-bank rate fluctuates.
This question belongs to: Economy GK Economy Set 1
Question #510
The term 'High-Powered Money' is also known as:
A. Broad money
B. Narrow money only
C. Reserve money or monetary base
D. Time deposits
Discuss
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Correct Answer: Option C

Explanation:
High-powered money (reserve money or monetary base) consists of currency in circulation and the reserves of the banking system with the central bank.
This question belongs to: Economy GK Economy Set 1
Question #511
Which of the following is a feature of the Classical model of the economy?
A. Possibility of liquidity trap
B. Sticky wages and prices
C. Flexible wages and prices ensuring continuous full employment
D. Importance of aggregate demand in determining output
Discuss
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Correct Answer: Option C

Explanation:
The Classical model assumes flexible wages and prices that adjust continuously to maintain full employment equilibrium.
This question belongs to: Economy GK Economy Set 1
Question #512
In the context of trade policy, 'Import Substitution' strategy aims at:
A. Only reducing tariffs
B. Complete free trade
C. Replacing imports with domestic production through protection
D. Promoting exports through subsidies
Discuss
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Correct Answer: Option C

Explanation:
Import substitution industrialisation seeks to reduce dependence on imports by protecting and promoting domestic industries through tariffs, quotas and other measures.
This question belongs to: Economy GK Economy Set 1
Question #513
Which of the following is a component of the Human Development Index?
A. Gender equality only
B. Only income inequality
C. Only environmental sustainability
D. Life expectancy, education and per capita income
Discuss
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Correct Answer: Option D

Explanation:
HDI is a composite index based on three dimensions: a long and healthy life (life expectancy), knowledge (education) and a decent standard of living (GNI per capita).
This question belongs to: Economy GK Economy Set 1
Question #514
The concept of 'Opportunity Cost' is best illustrated by:
A. The cost of producing one more unit
B. The difference between total revenue and total cost
C. The total cost of production
D. The value of the next best alternative forgone when a choice is made
Discuss
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Correct Answer: Option D

Explanation:
Opportunity cost is the value of the best alternative that is sacrificed when a decision is made; it is fundamental to the study of choice under scarcity.
This question belongs to: Economy GK Economy Set 1
Question #515
Which of the following is a feature of the Indian money market?
A. No role for the Reserve Bank of India
B. Dominance of long-term instruments only
C. Absence of short-term instruments
D. Presence of call money, treasury bills, commercial paper and certificates of deposit
Discuss
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Correct Answer: Option D

Explanation:
The Indian money market comprises various short-term instruments including the call/notice money market, treasury bills, commercial paper, certificates of deposit and collateralised instruments.
This question belongs to: Economy GK Economy Set 1
Question #516
In the context of economic growth, the Solow residual measures:
A. Contribution of technological progress (total factor productivity)
B. Contribution of natural resources only
C. Contribution of labour force growth only
D. Contribution of capital accumulation only
Discuss
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Correct Answer: Option A

Explanation:
The Solow residual is the portion of output growth that cannot be explained by the growth of capital and labour inputs; it is attributed to technological progress or total factor productivity.
This question belongs to: Economy GK Economy Set 1
Question #517
The term 'Reverse Repo Rate' is used by the RBI to:
A. Absorb excess liquidity from the banking system
B. Determine the fiscal deficit
C. Fix the long-term interest rates only
D. Inject liquidity into the system
Discuss
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Correct Answer: Option A

Explanation:
Under the reverse repo window, the RBI absorbs excess liquidity from banks by borrowing funds from them at the reverse repo rate.
This question belongs to: Economy GK Economy Set 1
Question #518
Which of the following is a feature of the Keynesian consumption function?
A. Consumption depends only on the rate of interest
B. Average propensity to consume rises with income
C. Consumption is independent of income
D. Consumption is a function of current disposable income
Discuss
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Correct Answer: Option D

Explanation:
The simple Keynesian consumption function states that current consumption depends primarily on current disposable income, with a positive marginal propensity to consume less than one.
This question belongs to: Economy GK Economy Set 1
Question #519
In the context of public goods, the free-rider problem leads to:
A. No role for government
B. Efficient provision by private firms
C. Under-provision of public goods by the market
D. Over-provision of public goods by the market
Discuss
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Correct Answer: Option C

Explanation:
Because individuals can enjoy the benefits of a pure public good without paying, they have an incentive to free-ride, resulting in under-provision if left to the private market.
This question belongs to: Economy GK Economy Set 1
Question #520
Which of the following is a major challenge for monetary policy in an open economy?
A. Complete control over all three objectives simultaneously
B. Impossible trinity or trilemma of fixed exchange rate, free capital flows and independent monetary policy
C. Absence of any trade-off
D. No impact of capital flows
Discuss
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Correct Answer: Option B

Explanation:
The impossible trinity states that it is impossible to have a fixed exchange rate, free capital mobility and an independent monetary policy simultaneously; only two of the three can be achieved.
This question belongs to: Economy GK Economy Set 1
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