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 30 of 111
Question #581
In the context of public goods, the free-rider problem arises because public goods are:
A. Private in nature
B. Non-excludable
C. Rivalrous
D. Excludable
Discuss
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Correct Answer: Option B

Explanation:
Since pure public goods are non-excludable, individuals can enjoy the benefits without contributing to the cost, creating an incentive to free-ride.
This question belongs to: Economy GK Economy Set 1
Question #582
Which of the following is a major structural challenge for the Indian economy?
A. Self-sufficiency in all commodities without trade
B. Regional disparities, unemployment and informalisation of the workforce
C. Absence of an informal sector
D. Complete equality of income across regions
Discuss
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Correct Answer: Option B

Explanation:
The Indian economy continues to face structural challenges such as regional imbalances, unemployment and underemployment, and a large informal sector.
This question belongs to: Economy GK Economy Set 1
Question #583
The concept of 'Purchasing Power Parity' helps in:
A. Comparing real income and living standards across countries
B. Determining only nominal exchange rates
C. Measuring only unemployment
D. Calculating domestic fiscal deficit
Discuss
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Correct Answer: Option A

Explanation:
PPP-based comparisons adjust for differences in price levels across countries, providing a better measure of real income and relative living standards.
This question belongs to: Economy GK Economy Set 1
Question #584
Which of the following is a function of the Securities and Exchange Board of India?
A. Collecting direct taxes
B. Formulating monetary policy
C. Regulating the securities market and protecting investor interests
D. Issuing currency notes
Discuss
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Correct Answer: Option C

Explanation:
SEBI is the regulator of the Indian securities market; its mandate includes protecting investors, promoting the development of the market and regulating market intermediaries.
This question belongs to: Economy GK Economy Set 1
Question #585
In the context of project appraisal, a project is considered economically viable if:
A. The present value of costs exceeds the present value of benefits
B. Social costs are ignored
C. Only financial costs are considered
D. The present value of benefits exceeds the present value of costs
Discuss
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Correct Answer: Option D

Explanation:
In cost-benefit analysis, a project is viable when the discounted present value of its benefits exceeds the discounted present value of its costs (positive net present value).
This question belongs to: Economy GK Economy Set 1
Question #586
Which of the following is a classification of taxes based on their impact on income distribution?
A. Only ad valorem and specific
B. Only central and state
C. Progressive, proportional and regressive
D. Only direct and indirect
Discuss
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Correct Answer: Option C

Explanation:
Taxes are classified as progressive (rate rises with income), proportional (constant rate) or regressive (rate falls with income) according to their effect on income distribution.
This question belongs to: Economy GK Economy Set 1
Question #587
In the context of the Indian economy, the 'Twin Deficit' problem refers to:
A. Budget surplus and trade surplus
B. Simultaneous existence of fiscal deficit and current account deficit
C. Capital account surplus and fiscal surplus
D. Only revenue and primary deficits
Discuss
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Correct Answer: Option B

Explanation:
The twin deficit hypothesis refers to the co-existence of a fiscal deficit and a current account deficit, which can be linked through the absorption approach or saving-investment identity.
This question belongs to: Economy GK Economy Set 1
Question #588
Which of the following is an advantage of a flexible exchange rate regime?
A. Complete insulation from all external shocks
B. Elimination of all exchange rate volatility
C. Automatic adjustment mechanism for balance of payments disequilibria
D. No need for any foreign exchange reserves
Discuss
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Correct Answer: Option C

Explanation:
Under flexible exchange rates, the currency appreciates or depreciates automatically in response to balance of payments pressures, helping to restore equilibrium.
This question belongs to: Economy GK Economy Set 1
Question #589
The concept of 'Sunk Cost' is important in decision making because:
A. It is a cost already incurred and should be ignored for future decisions
B. It varies with the level of future output
C. It should always be included in future cost calculations
D. It is the only relevant cost for pricing
Discuss
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Correct Answer: Option A

Explanation:
Sunk costs are irreversible costs that have already been incurred. Rational decision-making requires focusing on incremental future costs and benefits, ignoring sunk costs.
This question belongs to: Economy GK Economy Set 1
Question #590
Which of the following is a measure of economic inequality?
A. Only unemployment rate
B. Human Development Index as a pure inequality measure
C. Gini coefficient, Lorenz curve and Theil index
D. Only GDP growth rate
Discuss
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Correct Answer: Option C

Explanation:
The Gini coefficient, Lorenz curve and Theil index are standard measures used to quantify the degree of inequality in the distribution of income or wealth.
This question belongs to: Economy GK Economy Set 1
Question #591
In the context of banking regulation, the Capital Adequacy Ratio is prescribed to ensure that:
A. CRR is fixed at a particular level
B. Dividend distribution is unrestricted
C. Banks maintain adequate capital relative to their risk-weighted assets
D. Interest rates on deposits are maximised
Discuss
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Correct Answer: Option C

Explanation:
The Capital Adequacy Ratio requires banks to hold a minimum amount of capital in proportion to their risk-weighted assets so that they can absorb losses and protect depositors.
This question belongs to: Economy GK Economy Set 1
Question #592
The term 'Invisible Trade' in the balance of payments includes:
A. Only foreign direct investment
B. Only capital transfers
C. Trade in merchandise goods only
D. Trade in services, income and unilateral transfers
Discuss
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Correct Answer: Option D

Explanation:
Invisible trade (invisibles) comprises services (travel, transportation, software, etc.), primary income and secondary income (transfers).
This question belongs to: Economy GK Economy Set 1
Question #593
Which of the following factors does NOT affect the price elasticity of demand?
A. Availability of close substitutes
B. Time period allowed for adjustment
C. Nature of the commodity (necessity or luxury)
D. Cost of production of the commodity
Discuss
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Correct Answer: Option D

Explanation:
The cost of production influences the supply side. Price elasticity of demand depends on substitutes, nature of the good, proportion of income spent, time and habits.
This question belongs to: Economy GK Economy Set 1
Question #594
In the context of the Indian economy, GST is best described as:
A. A wealth tax
B. A direct tax on income
C. A corporate tax levied only on companies
D. A comprehensive indirect tax on the supply of goods and services with a dual structure
Discuss
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Correct Answer: Option D

Explanation:
GST is a destination-based, multi-stage indirect tax levied on the supply of goods and services, administered jointly by the Centre and the States.
This question belongs to: Economy GK Economy Set 1
Question #595
Which of the following is a major objective of monetary policy in India?
A. Maximising the fiscal deficit
B. Promoting only imports
C. Maintaining price stability while keeping in mind the objective of growth
D. Maximising inflation
Discuss
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Correct Answer: Option C

Explanation:
Under the Monetary Policy Framework Agreement, the primary objective of the RBI is to maintain price stability while keeping in mind the objective of growth.
This question belongs to: Economy GK Economy Set 1
Question #596
In the context of production theory, an isoquant represents:
A. Combinations of prices that maximise profit
B. Combinations of two inputs that produce the same level of output
C. Combinations of two goods that give the same utility
D. Combinations of income and consumption
Discuss
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Correct Answer: Option B

Explanation:
An isoquant is a locus of points showing different combinations of two inputs that yield the same quantity of output.
This question belongs to: Economy GK Economy Set 1
Question #597
Which of the following is a market structure based on the number of sellers?
A. Only monopsony
B. Only monopolistic competition as buyer-based
C. Monopoly, duopoly, oligopoly and perfect competition
D. Only bilateral monopoly
Discuss
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Correct Answer: Option C

Explanation:
Market structures classified by the number of sellers include monopoly (one), duopoly (two), oligopoly (few) and perfect competition (many).
This question belongs to: Economy GK Economy Set 1
Question #598
The term 'Fiscal Consolidation' refers to policies aimed at:
A. Only printing money to finance deficits
B. Increasing the fiscal deficit continuously
C. Reducing the fiscal deficit and improving the sustainability of public finances
D. Only increasing tax rates without expenditure reform
Discuss
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Correct Answer: Option C

Explanation:
Fiscal consolidation involves measures to reduce the fiscal deficit and put government debt on a sustainable path through a combination of revenue and expenditure reforms.
This question belongs to: Economy GK Economy Set 1
Question #599
In the context of demand theory, the law of demand may not hold for:
A. All inferior goods without exception
B. Normal goods
C. Necessary goods with elastic demand
D. Giffen goods and Veblen goods
Discuss
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Correct Answer: Option D

Explanation:
Giffen goods (strong negative income effect) and Veblen goods (prestige value rising with price) are exceptions to the law of demand.
This question belongs to: Economy GK Economy Set 1
Question #600
Which of the following is a component of the Human Development Report of UNDP?
A. Wholesale Price Index of India only
B. Only domestic fiscal deficit data
C. Human Development Index, Gender Inequality Index and Multidimensional Poverty Index
D. Only exchange rate data of one country
Discuss
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Correct Answer: Option C

Explanation:
The Human Development Report publishes a range of indices including HDI, GII, MPI and other measures of human progress and deprivation.
This question belongs to: Economy GK Economy Set 1
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