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. change in consumption to change in income
D. consumption to saving
Discuss
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Correct Answer: Option C

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. 0.25
B. 0.75
C. 1.25
D. 0.50
Discuss
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Correct Answer: Option B

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. MPC divided by MPS
B. MPS divided by MPC
C. 1 divided by MPC
D. 1 divided by MPS
Discuss
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Correct Answer: Option D

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. 0.8
B. 5
C. 1.25
D. 8
Discuss
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Correct Answer: Option B

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. interest rates
B. consumption or output
C. money supply
D. government expenditure
Discuss
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Correct Answer: Option B

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 impossible in a recession
C. thrift always increases investment
D. saving is always beneficial for the economy
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. supply creates its own demand
B. demand creates its own supply
C. government must manage demand
D. saving is always equal to investment
Discuss
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Correct Answer: Option A

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. interest rate and income
C. income only
D. exchange rate
Discuss
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Correct Answer: Option B

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. interest rates are very high
B. interest rates are very low and speculative money demand becomes perfectly elastic
C. investment is very high
D. money supply is zero
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. foreign exchange market is in equilibrium
B. labour market is in equilibrium
C. money market is in equilibrium
D. goods market is in equilibrium
Discuss
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Correct Answer: Option D

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. balance of payments is in equilibrium
B. goods market is in equilibrium
C. money market is in equilibrium
D. labour market is in equilibrium
Discuss
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Correct Answer: Option C

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. unemployment is high
B. aggregate demand is less than full employment output
C. aggregate demand exceeds full employment output
D. actual output is below potential output
Discuss
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Correct Answer: Option C

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. aggregate demand is less than full employment output
B. prices rise rapidly
C. the economy is above full employment
D. aggregate demand exceeds full employment output
Discuss
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Correct Answer: Option A

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. discretionary changes in government spending
B. open market operations
C. progressive income taxes and unemployment benefits
D. changes in repo rate
Discuss
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Correct Answer: Option C

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. the tax rate increases as income rises
C. only the poor pay tax
D. the tax rate decreases as income rises
Discuss
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Correct Answer: Option B

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. the tax burden falls more heavily on lower income groups
B. the tax rate rises as income rises
C. the tax rate is constant
D. there is no tax on income
Discuss
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Correct Answer: Option A

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 tax rate falls with income
B. the tax rate rises with income
C. the average tax rate is constant across income levels
D. only high incomes are taxed
Discuss
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Correct Answer: Option C

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. imports to exports
B. tax revenue to changes in GDP without discretionary changes
C. expenditure to revenue
D. tax revenue to changes in GDP including discretionary changes
Discuss
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Correct Answer: Option D

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. considering only direct taxes
B. after discretionary tax changes
C. without considering discretionary tax changes
D. considering only indirect taxes
Discuss
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Correct Answer: Option C

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. taxes are reduced
B. government borrowing reduces private investment
C. private investment reduces government spending
D. government expenditure increases private investment
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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