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 31 of 111
Question #601
The concept of 'Opportunity Cost of Holding Money' refers to:
A. The interest income forgone by holding cash instead of interest-bearing assets
B. The cost of banking services only
C. The cost of producing goods and services
D. The cost of printing currency notes
Discuss
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Correct Answer: Option A

Explanation:
The opportunity cost of holding money is the interest that could have been earned by holding bonds or other interest-bearing assets instead of cash.
This question belongs to: Economy GK Economy Set 1
Question #602
Which of the following has been a major driver of service sector growth in India?
A. Only growth in agricultural productivity
B. Complete restriction on foreign investment in services
C. IT and IT-enabled services, liberalisation and rising incomes
D. Decline in domestic and global demand
Discuss
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Correct Answer: Option C

Explanation:
The expansion of IT and ITES, financial services, trade and tourism, supported by liberalisation and rising incomes, has driven the rapid growth of India's service sector.
This question belongs to: Economy GK Economy Set 1
Question #603
Which of the following is a standard classification of unemployment based on cause?
A. Only natural rate as the sole category
B. Only disguised unemployment as the sole category
C. Only voluntary unemployment
D. Frictional, structural, cyclical and seasonal
Discuss
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Correct Answer: Option D

Explanation:
Unemployment is commonly classified by cause into frictional, structural, cyclical and seasonal categories.
This question belongs to: Economy GK Economy Set 1
Question #604
The term 'Managed Floating' exchange rate system means that:
A. The exchange rate is rigidly fixed by the government
B. The exchange rate is fixed in terms of gold only
C. The exchange rate is largely market-determined with occasional central bank intervention
D. There is no role whatsoever for the central bank
Discuss
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Correct Answer: Option C

Explanation:
Under a managed float, the exchange rate is primarily determined by market forces, but the central bank intervenes from time to time to prevent excessive volatility or disorderly movements.
This question belongs to: Economy GK Economy Set 1
Question #605
Which of the following is a feature of the Indian tax system after the introduction of GST?
A. Only origin-based taxation
B. Complete elimination of all state-level taxes without dual structure
C. A unified destination-based tax on goods and services with input tax credit mechanism
D. Persistence of multiple cascading taxes
Discuss
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Correct Answer: Option C

Explanation:
GST replaced a large number of cascading central and state taxes with a unified destination-based tax that permits seamless input tax credit.
This question belongs to: Economy GK Economy Set 1
Question #606
In the context of the production possibility frontier, an outward shift indicates:
A. Inefficient allocation of resources
B. A decline in the productive capacity of the economy
C. Underutilisation of resources
D. Economic growth arising from an increase in resources or improvement in technology
Discuss
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Correct Answer: Option D

Explanation:
An outward shift of the PPF reflects an increase in the economy's productive capacity due to growth in resources or technological progress.
This question belongs to: Economy GK Economy Set 1
Question #607
Which of the following is a function of the International Monetary Fund?
A. Regulating international trade rules
B. Providing short-term financial assistance for balance of payments problems and conducting surveillance
C. Providing only bilateral aid
D. Providing long-term project finance for infrastructure development
Discuss
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Correct Answer: Option B

Explanation:
The IMF provides temporary financial support to countries facing balance of payments difficulties, conducts economic surveillance and offers technical assistance. Long-term project finance is the domain of the World Bank.
This question belongs to: Economy GK Economy Set 1
Question #608
Which of the following is a major difficulty in measuring national income in developing countries?
A. Uniform and comprehensive accounting practices
B. Presence of a large non-monetised and informal sector
C. Absence of any informal economic activity
D. Complete availability of reliable data for all activities
Discuss
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Correct Answer: Option B

Explanation:
Developing countries face significant measurement challenges due to a large non-monetised sector, widespread informal activities, under-reporting and inadequate statistical systems.
This question belongs to: Economy GK Economy Set 1
Question #609
In the context of monetary economics, the 'Velocity of Circulation of Money' refers to:
A. The growth rate of the money supply
B. The rate of inflation only
C. The rate of interest
D. The average number of times a unit of money is used to purchase final goods and services in a given period
Discuss
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Correct Answer: Option D

Explanation:
Velocity of money measures how frequently the average unit of currency is spent on final goods and services during a given time period; it appears in the equation of exchange.
This question belongs to: Economy GK Economy Set 1
Question #610
Which of the following is a form of public enterprise based on ownership and organisation?
A. Departmental undertaking, public corporation and government company
B. Only foreign multinational corporations
C. Only cooperative societies without government ownership
D. Only private limited companies with no government share
Discuss
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Correct Answer: Option A

Explanation:
Public enterprises may be organised as departmental undertakings, statutory public corporations or government companies in which the government holds a majority stake.
This question belongs to: Economy GK Economy Set 1
Question #611
The term 'Soft Currency' refers to a currency that:
A. Is widely accepted internationally and remains relatively stable
B. Is backed only by gold
C. Is not widely accepted in international transactions and may be subject to instability or limited convertibility
D. Is only the US dollar
Discuss
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Correct Answer: Option C

Explanation:
A soft currency is one that is less widely used in international trade and finance and may experience greater volatility or convertibility restrictions compared with hard currencies.
This question belongs to: Economy GK Economy Set 1
Question #612
Which of the following best describes the evolution of planning in India after 2015?
A. Return to highly centralised planning without state participation
B. Continuation of mandatory Five Year Plans by the Planning Commission
C. Complete abandonment of any form of planning or policy coordination
D. Replacement of the Planning Commission by NITI Aayog with emphasis on cooperative federalism and strategic advice
Discuss
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Correct Answer: Option D

Explanation:
In 2015 the Planning Commission was replaced by NITI Aayog, which focuses on cooperative federalism, policy advice and knowledge sharing rather than imposing centralised plan targets.
This question belongs to: Economy GK Economy Set 1
Question #613
Which of the following best describes the concept of 'Income Effect' in consumer theory?
A. Change in quantity demanded due to a change in real income resulting from a price change
B. Change in demand due to a change in tastes
C. Change in supply due to a change in input prices
D. Change in quantity demanded due to a change in relative prices holding real income constant
Discuss
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Correct Answer: Option A

Explanation:
The income effect refers to the change in quantity demanded of a good that results solely from the change in real income caused by a change in the price of the good.
This question belongs to: Economy GK Economy Set 1
Question #614
In the Mundell-Fleming model under perfect capital mobility and floating exchange rates, monetary policy is:
A. Completely neutral
B. Ineffective in influencing output
C. Highly effective in influencing output
D. Effective only in the long run
Discuss
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Correct Answer: Option C

Explanation:
Under perfect capital mobility and floating exchange rates, an expansionary monetary policy lowers interest rates, causes capital outflow and currency depreciation, which boosts net exports and output, making monetary policy highly effective.
This question belongs to: Economy GK Economy Set 1
Question #615
Which of the following is an example of a flow variable in economics?
A. Money supply at a point in time
B. Capital stock
C. National income
D. National wealth
Discuss
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Correct Answer: Option C

Explanation:
National income is a flow variable as it is measured over a period of time. Wealth, capital stock and money supply at a point in time are stock variables.
This question belongs to: Economy GK Economy Set 1
Question #616
The concept of 'Hysteresis' in unemployment refers to:
A. Only frictional unemployment
B. Only seasonal unemployment
C. The tendency of unemployment to persist even after the original cause has disappeared
D. Temporary unemployment that disappears quickly
Discuss
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Correct Answer: Option C

Explanation:
Hysteresis in unemployment means that high unemployment can become self-perpetuating through loss of skills, reduced employability or changes in wage-setting behaviour, so that the natural rate itself rises.
This question belongs to: Economy GK Economy Set 1
Question #617
Which of the following is a characteristic of the 'Lucas Critique'?
A. Econometric models based on past data may fail when policy regimes change because agents alter their behaviour
B. Policy evaluation based on historical correlations remains valid under policy changes
C. Rational expectations are irrelevant for policy
D. Only adaptive expectations matter
Discuss
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Correct Answer: Option A

Explanation:
The Lucas Critique argues that the parameters of traditional econometric models are not policy-invariant because economic agents change their behaviour when policy rules change.
This question belongs to: Economy GK Economy Set 1
Question #618
In the context of public finance, 'Vertical Fiscal Imbalance' refers to:
A. Mismatch between revenue-raising powers and expenditure responsibilities across different levels of government
B. Imbalance between revenue and expenditure of the same level of government
C. Only the primary deficit
D. Imbalance between capital and revenue budgets only
Discuss
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Correct Answer: Option A

Explanation:
Vertical fiscal imbalance arises when the revenue powers and expenditure responsibilities of different tiers of government (Centre and States) are mismatched.
This question belongs to: Economy GK Economy Set 1
Question #619
Which of the following is a feature of the 'New Classical' school of macroeconomics?
A. Emphasis on sticky wages and prices
B. Rational expectations and continuous market clearing
C. Liquidity trap as a central concept
D. Importance of fiscal policy for stabilisation
Discuss
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Correct Answer: Option B

Explanation:
New Classical economics assumes rational expectations and continuous market clearing, implying that systematic monetary policy cannot systematically affect real output.
This question belongs to: Economy GK Economy Set 1
Question #620
The concept of 'Dutch Disease' refers to:
A. The negative impact of a natural resource boom on the manufacturing sector through currency appreciation
B. Only the impact of oil prices on inflation
C. A disease affecting agricultural productivity
D. The positive impact of resource discovery on all sectors
Discuss
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Correct Answer: Option A

Explanation:
Dutch Disease describes the phenomenon whereby a boom in the natural resource sector leads to real exchange rate appreciation, making the manufacturing and other tradable sectors less competitive.
This question belongs to: Economy GK Economy Set 1
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