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 28 of 111
Question #541
The term 'Non-Performing Asset' in Indian banking is defined as a loan where:
A. Interest is paid regularly
B. The borrower has excess collateral
C. The asset generates continuous income
D. Interest or principal is overdue for more than 90 days
Discuss
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Correct Answer: Option D

Explanation:
As per RBI guidelines, a term loan is classified as NPA if interest or instalment of principal remains overdue for a period of more than 90 days.
This question belongs to: Economy GK Economy Set 1
Question #542
Which of the following is a major objective of economic planning in a developing country?
A. Only maximising exports without domestic development
B. Maximising inequality
C. Achieving higher growth with social justice and poverty reduction
D. Complete reliance on market forces without intervention
Discuss
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Correct Answer: Option C

Explanation:
Economic planning in developing countries typically aims at accelerating growth, reducing poverty, promoting equity and modernising the economic structure.
This question belongs to: Economy GK Economy Set 1
Question #543
In the context of elasticity, if the cross elasticity of demand between two goods is positive, the goods are:
A. Complements
B. Inferior goods
C. Substitutes
D. Giffen goods
Discuss
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Correct Answer: Option C

Explanation:
A positive cross elasticity of demand indicates that the goods are substitutes; a rise in the price of one increases the demand for the other.
This question belongs to: Economy GK Economy Set 1
Question #544
Which of the following is a feature of the Indian capital account?
A. Partial convertibility with controls on certain capital flows
B. Complete convertibility for all capital transactions
C. Complete ban on capital inflows
D. Only current account convertibility without any capital flows
Discuss
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Correct Answer: Option A

Explanation:
India has achieved current account convertibility but maintains a managed and partial capital account convertibility with prudential controls on certain flows.
This question belongs to: Economy GK Economy Set 1
Question #545
The concept of 'Consumer Equilibrium' under indifference curve analysis is achieved when:
A. The budget line is tangent to the highest attainable indifference curve
B. Marginal utility is zero
C. Total utility is maximum without budget constraint
D. Price equals average cost
Discuss
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Correct Answer: Option A

Explanation:
Consumer equilibrium occurs at the point where the budget line is tangent to an indifference curve, equating the marginal rate of substitution with the price ratio.
This question belongs to: Economy GK Economy Set 1
Question #546
Which of the following is a characteristic of the Indian tax structure post-GST?
A. Destination-based consumption tax with input tax credit
B. Origin-based taxation without input credit
C. Multiple cascading taxes on the same value addition
D. Only central taxes without state participation
Discuss
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Correct Answer: Option A

Explanation:
GST is a destination-based consumption tax that allows seamless input tax credit, thereby eliminating cascading and creating a unified market.
This question belongs to: Economy GK Economy Set 1
Question #547
In the context of economic development, the 'Big Push' theory is associated with:
A. Gradualism in investment
B. The need for a minimum quantum of investment to overcome indivisibilities
C. Complete reliance on market forces
D. Only agricultural development
Discuss
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Correct Answer: Option B

Explanation:
The Big Push theory, associated with Rosenstein-Rodan, argues that a large, coordinated investment is required to overcome complementarities and indivisibilities in developing economies.
This question belongs to: Economy GK Economy Set 1
Question #548
The term 'Soft Loan' typically refers to:
A. Loans with concessional interest rates and longer repayment periods
B. Only short-term trade credit
C. Loans with commercial interest rates
D. Only domestic commercial bank loans
Discuss
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Correct Answer: Option A

Explanation:
Soft loans are provided by multilateral agencies or governments at below-market interest rates with longer maturities and grace periods, often for development purposes.
This question belongs to: Economy GK Economy Set 1
Question #549
Which of the following is a major factor contributing to the growth of India's service sector?
A. Decline in global demand for services
B. Complete isolation from global markets
C. Only agricultural productivity growth
D. IT revolution, liberalisation and rising domestic demand
Discuss
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Correct Answer: Option D

Explanation:
The rapid growth of India's services sector has been driven by the information technology boom, economic liberalisation, and expanding domestic and global demand for services.
This question belongs to: Economy GK Economy Set 1
Question #550
In the context of public debt, 'Internal Debt' refers to:
A. Only IMF loans
B. Debt owed to domestic creditors
C. Debt owed to foreign creditors
D. Only short-term external borrowings
Discuss
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Correct Answer: Option B

Explanation:
Internal debt is the portion of public debt that is owed to lenders within the country, such as market borrowings, treasury bills and other domestic liabilities.
This question belongs to: Economy GK Economy Set 1
Question #551
Which of the following is a feature of the production function in the long run?
A. Returns to scale are irrelevant
B. At least one factor is fixed
C. All factors are variable
D. Only labour is variable
Discuss
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Correct Answer: Option C

Explanation:
In the long run, all factors of production are variable, and the firm can choose the optimal scale of production; returns to scale become relevant.
This question belongs to: Economy GK Economy Set 1
Question #552
The concept of 'Asymmetric Information' can lead to:
A. Zero transaction costs
B. Efficient market outcomes always
C. Perfect competition
D. Adverse selection and moral hazard problems
Discuss
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Correct Answer: Option D

Explanation:
Asymmetric information, where one party has superior information, can result in adverse selection before contracting and moral hazard after contracting.
This question belongs to: Economy GK Economy Set 1
Question #553
Which of the following is a characteristic of the Indian planning experience?
A. Only focus on industrialisation without social objectives
B. Exclusive reliance on market forces without any state role
C. Evolution from centralised planning to indicative planning and cooperative federalism
D. Complete abandonment of growth objectives
Discuss
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Correct Answer: Option C

Explanation:
Indian planning evolved from the centralised Five Year Plans of the Planning Commission era to a more indicative and cooperative federal approach under NITI Aayog.
This question belongs to: Economy GK Economy Set 1
Question #554
In the context of inflation measurement, the GDP deflator is:
A. The ratio of nominal GDP to real GDP
B. A measure of wholesale prices only
C. A fixed-basket consumer price index
D. A measure of consumer price changes only
Discuss
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Correct Answer: Option A

Explanation:
The GDP deflator is calculated as (Nominal GDP / Real GDP) × 100 and reflects price changes of all goods and services produced domestically.
This question belongs to: Economy GK Economy Set 1
Question #555
Which of the following is a feature of a flexible exchange rate system?
A. Exchange rate is fixed by government decree
B. Complete absence of central bank intervention in all cases
C. Exchange rate is determined by market forces of demand and supply of foreign exchange
D. No role for speculation
Discuss
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Correct Answer: Option C

Explanation:
Under a pure flexible (floating) exchange rate system, the value of the currency is determined by the interaction of demand and supply in the foreign exchange market.
This question belongs to: Economy GK Economy Set 1
Question #556
The term 'Capital Formation' is essential for economic growth because it:
A. Has no relation to productivity
B. Increases the stock of productive assets
C. Reduces the productive capacity of the economy
D. Only increases consumption
Discuss
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Correct Answer: Option B

Explanation:
Capital formation involves net addition to the stock of capital goods, which enhances the productive capacity of the economy and supports long-term growth.
This question belongs to: Economy GK Economy Set 1
Question #557
Which of the following is a major challenge in the Indian agricultural sector?
A. Uniform high productivity in all regions
B. Complete absence of market risk
C. Excessive mechanisation across all farms
D. Small and fragmented land holdings and dependence on monsoon
Discuss
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Correct Answer: Option D

Explanation:
Indian agriculture faces structural challenges including predominance of small and fragmented holdings, monsoon dependence, and low productivity in many regions.
This question belongs to: Economy GK Economy Set 1
Question #558
In the context of monetary economics, the 'Money Multiplier' is:
A. The ratio of broad money to reserve money
B. The ratio of exports to imports
C. The ratio of fiscal deficit to GDP
D. The ratio of investment to saving
Discuss
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Correct Answer: Option A

Explanation:
The money multiplier is the ratio of the stock of broad money (such as M3) to the stock of reserve money, reflecting the extent of credit creation by the banking system.
This question belongs to: Economy GK Economy Set 1
Question #559
Which of the following is a feature of the Indian public sector enterprises?
A. Only profit maximisation without any public purpose
B. Presence of both commercial and social objectives
C. Complete absence of social objectives
D. No role in strategic sectors
Discuss
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Correct Answer: Option B

Explanation:
Public sector enterprises in India have historically pursued a combination of commercial viability and broader social and strategic objectives.
This question belongs to: Economy GK Economy Set 1
Question #560
The concept of 'Terms of Trade' is defined as:
A. The ratio of export prices to import prices
B. The volume of exports only
C. The ratio of import prices to export prices
D. The value of capital inflows
Discuss
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Correct Answer: Option A

Explanation:
Terms of trade measure the relative prices of a country's exports to its imports, usually expressed as an index. An improvement means more imports can be obtained per unit of exports.
This question belongs to: Economy GK Economy Set 1
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