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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Page 46 of 111
Question #901
The marginal propensity to consume is the ratio of:
A. change in saving to change in income
B. total consumption to total income
C. consumption to saving
D. change in consumption to change in income
Discuss
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Correct Answer: Option D

Explanation:
MPC is the ratio of change in consumption to change in income.
This question belongs to: Economy GK Economy Set 1
Question #902
If the marginal propensity to save is 0.25, then the marginal propensity to consume is:
A. 0.75
B. 0.50
C. 0.25
D. 1.25
Discuss
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Correct Answer: Option A

Explanation:
MPC + MPS = 1, so MPC = 1 - 0.25 = 0.75.
This question belongs to: Economy GK Economy Set 1
Question #903
The value of the investment multiplier is equal to:
A. 1 divided by MPC
B. MPC divided by MPS
C. 1 divided by MPS
D. MPS divided by MPC
Discuss
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Correct Answer: Option C

Explanation:
The investment multiplier is 1/MPS, or 1/(1 - MPC).
This question belongs to: Economy GK Economy Set 1
Question #904
If MPC is 0.8, the investment multiplier is:
A. 5
B. 0.8
C. 8
D. 1.25
Discuss
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Correct Answer: Option A

Explanation:
Multiplier = 1/(1 - 0.8) = 1/0.2 = 5.
This question belongs to: Economy GK Economy Set 1
Question #905
The acceleration principle relates investment to changes in:
A. consumption or output
B. government expenditure
C. interest rates
D. money supply
Discuss
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Correct Answer: Option A

Explanation:
The accelerator principle states that investment depends on changes in output or consumption.
This question belongs to: Economy GK Economy Set 1
Question #906
The paradox of thrift suggests that:
A. increased saving by all households may reduce aggregate demand and output
B. saving is always beneficial for the economy
C. saving is impossible in a recession
D. thrift always increases investment
Discuss
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Correct Answer: Option A

Explanation:
The paradox of thrift states that if everyone saves more during a recession, total demand and output may fall.
This question belongs to: Economy GK Economy Set 1
Question #907
Say's law of markets states that:
A. demand creates its own supply
B. saving is always equal to investment
C. supply creates its own demand
D. government must manage demand
Discuss
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Correct Answer: Option C

Explanation:
Say's law states that supply creates its own demand.
This question belongs to: Economy GK Economy Set 1
Question #908
Keynes' liquidity preference theory relates the demand for money to:
A. prices only
B. exchange rate
C. interest rate and income
D. income only
Discuss
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Correct Answer: Option C

Explanation:
Liquidity preference theory says money demand depends on income and the interest rate.
This question belongs to: Economy GK Economy Set 1
Question #909
The liquidity trap is a situation where:
A. money supply is zero
B. interest rates are very low and speculative money demand becomes perfectly elastic
C. investment is very high
D. interest rates are very high
Discuss
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Correct Answer: Option B

Explanation:
In a liquidity trap, interest rates are so low that people hold any amount of money, making speculative money demand perfectly elastic.
This question belongs to: Economy GK Economy Set 1
Question #910
The IS curve shows combinations of income and interest rate where:
A. labour market is in equilibrium
B. money market is in equilibrium
C. goods market is in equilibrium
D. foreign exchange market is in equilibrium
Discuss
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Correct Answer: Option C

Explanation:
The IS curve shows equilibrium in the goods market.
This question belongs to: Economy GK Economy Set 1
Question #911
The LM curve shows combinations of income and interest rate where:
A. labour market is in equilibrium
B. balance of payments is in equilibrium
C. goods market is in equilibrium
D. money market is in equilibrium
Discuss
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Correct Answer: Option D

Explanation:
The LM curve represents equilibrium in the money market.
This question belongs to: Economy GK Economy Set 1
Question #912
An inflationary gap exists when:
A. actual output is below potential output
B. aggregate demand exceeds full employment output
C. unemployment is high
D. aggregate demand is less than full employment output
Discuss
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Correct Answer: Option B

Explanation:
An inflationary gap occurs when aggregate demand exceeds what the economy can produce at full employment.
This question belongs to: Economy GK Economy Set 1
Question #913
A deflationary gap exists when:
A. prices rise rapidly
B. aggregate demand is less than full employment output
C. aggregate demand exceeds full employment output
D. the economy is above full employment
Discuss
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Correct Answer: Option B

Explanation:
A deflationary gap occurs when aggregate demand is below the level needed for full employment output.
This question belongs to: Economy GK Economy Set 1
Question #914
Automatic stabilizers in fiscal policy include:
A. open market operations
B. changes in repo rate
C. discretionary changes in government spending
D. progressive income taxes and unemployment benefits
Discuss
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Correct Answer: Option D

Explanation:
Automatic stabilizers such as progressive taxes and unemployment benefits automatically reduce economic fluctuations.
This question belongs to: Economy GK Economy Set 1
Question #915
A progressive income tax is one where:
A. the tax rate is constant at all incomes
B. only the poor pay tax
C. the tax rate decreases as income rises
D. the tax rate increases as income rises
Discuss
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Correct Answer: Option D

Explanation:
Under a progressive tax, the average tax rate rises as income increases.
This question belongs to: Economy GK Economy Set 1
Question #916
A regressive tax is one where:
A. there is no tax on income
B. the tax burden falls more heavily on lower income groups
C. the tax rate is constant
D. the tax rate rises as income rises
Discuss
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Correct Answer: Option B

Explanation:
A regressive tax takes a larger percentage of income from low-income earners.
This question belongs to: Economy GK Economy Set 1
Question #917
A proportional tax is one where:
A. the average tax rate is constant across income levels
B. the tax rate falls with income
C. only high incomes are taxed
D. the tax rate rises with income
Discuss
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Correct Answer: Option A

Explanation:
A proportional tax applies the same tax rate to all income levels.
This question belongs to: Economy GK Economy Set 1
Question #918
Tax buoyancy measures the responsiveness of:
A. tax revenue to changes in GDP including discretionary changes
B. expenditure to revenue
C. imports to exports
D. tax revenue to changes in GDP without discretionary changes
Discuss
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Correct Answer: Option A

Explanation:
Tax buoyancy includes both automatic and discretionary changes in tax revenue relative to GDP growth.
This question belongs to: Economy GK Economy Set 1
Question #919
Tax elasticity measures the automatic response of tax revenue to changes in GDP:
A. without considering discretionary tax changes
B. after discretionary tax changes
C. considering only indirect taxes
D. considering only direct taxes
Discuss
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Correct Answer: Option A

Explanation:
Tax elasticity measures the built-in response of tax revenue to GDP changes without discretionary changes.
This question belongs to: Economy GK Economy Set 1
Question #920
Crowding out occurs when:
A. government expenditure increases private investment
B. government borrowing reduces private investment
C. private investment reduces government spending
D. taxes are reduced
Discuss
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Correct Answer: Option B

Explanation:
Crowding out occurs when increased government borrowing raises interest rates and reduces private investment.
This question belongs to: Economy GK Economy Set 1
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