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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Total Questions

Practice Questions

Page 58 of 111
Question #1141
The 'resource curse' hypothesis suggests that countries rich in natural resources:
A. always grow faster
B. may experience slower growth due to governance and economic distortions
C. are free from inflation
D. have no poverty
Discuss
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Correct Answer: Option B

Explanation:
The resource curse suggests natural resource wealth may lead to slower growth due to various distortions.
This question belongs to: Economy GK Economy Set 1
Question #1142
The 'Tobin tax' is a proposed tax on:
A. property
B. short-term foreign exchange transactions
C. imports
D. income
Discuss
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Correct Answer: Option B

Explanation:
A Tobin tax is a tax on short-term foreign exchange transactions to reduce speculative flows.
This question belongs to: Economy GK Economy Set 1
Question #1143
The 'financial trilemma' states that a country cannot simultaneously have:
A. free trade, high tariffs and high exports
B. free capital mobility, fixed exchange rates and independent monetary policy
C. low taxes, high spending and low deficit
D. high growth, low inflation and low unemployment
Discuss
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Correct Answer: Option B

Explanation:
The trilemma says a country can achieve only two of three: free capital mobility, fixed exchange rate and independent monetary policy.
This question belongs to: Economy GK Economy Set 1
Question #1144
The 'Impossible Trinity' in international economics is also called:
A. the monetary policy trilemma
B. the trade trilemma
C. the development trilemma
D. the fiscal trilemma
Discuss
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Correct Answer: Option A

Explanation:
The Impossible Trinity is also known as the monetary policy trilemma.
This question belongs to: Economy GK Economy Set 1
Question #1145
The 'Fisher effect' states that nominal interest rates:
A. equal real interest rate minus inflation
B. equal real interest rate divided by inflation
C. are always zero
D. adjust one-for-one with expected inflation
Discuss
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Correct Answer: Option D

Explanation:
The Fisher effect states that nominal interest rates rise with expected inflation.
This question belongs to: Economy GK Economy Set 1
Question #1146
The 'real interest rate' is approximately equal to:
A. inflation minus nominal interest rate
B. nominal interest rate divided by inflation
C. nominal interest rate plus inflation
D. nominal interest rate minus inflation
Discuss
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Correct Answer: Option D

Explanation:
Real interest rate ≈ nominal interest rate - inflation rate.
This question belongs to: Economy GK Economy Set 1
Question #1147
The 'Fisher equation' is expressed as:
A. S = I
B. Y = C + I + G
C. MV = PT
D. i = r + π
Discuss
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Correct Answer: Option D

Explanation:
The Fisher equation is i = r + π, where i is nominal interest rate, r is real interest rate and π is inflation.
This question belongs to: Economy GK Economy Set 1
Question #1148
The 'Okun's law' describes a relationship between:
A. interest rates and investment
B. inflation and unemployment
C. output growth and changes in unemployment
D. tax rates and revenue
Discuss
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Correct Answer: Option C

Explanation:
Okun's law relates changes in unemployment to output growth.
This question belongs to: Economy GK Economy Set 1
Question #1149
The 'money illusion' in economics occurs when people:
A. fully adjust for inflation
B. focus on nominal values rather than real values
C. only hold cash
D. avoid using money
Discuss
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Correct Answer: Option B

Explanation:
Money illusion is the tendency to think of money in nominal rather than real terms.
This question belongs to: Economy GK Economy Set 1
Question #1150
The 'shoe-leather cost' of inflation refers to:
A. cost of unemployment
B. cost of holding less cash and making more frequent trips to banks
C. cost of imports
D. cost of buying shoes
Discuss
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Correct Answer: Option B

Explanation:
Shoe-leather cost is the cost associated with reducing money holdings to avoid inflation.
This question belongs to: Economy GK Economy Set 1
Question #1151
The 'menu cost' of inflation refers to:
A. cost of food
B. cost of borrowing
C. cost of printing new currency
D. cost to firms of changing prices frequently
Discuss
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Correct Answer: Option D

Explanation:
Menu cost is the cost firms incur in updating prices during inflation.
This question belongs to: Economy GK Economy Set 1
Question #1152
The 'seigniorage' revenue for a government arises from:
A. tax collection
B. issuing currency
C. selling public assets
D. borrowing from abroad
Discuss
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Correct Answer: Option B

Explanation:
Seigniorage is the profit from issuing currency, the difference between face value and production cost.
This question belongs to: Economy GK Economy Set 1
Question #1153
The 'Laffer curve' suggests that beyond a certain tax rate, an increase in the tax rate may:
A. reduce total tax revenue
B. leave revenue unchanged
C. eliminate all tax revenue immediately
D. increase total tax revenue
Discuss
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Correct Answer: Option A

Explanation:
The Laffer curve suggests very high tax rates can reduce work and investment, lowering tax revenue.
This question belongs to: Economy GK Economy Set 1
Question #1154
The 'tax incidence' of a tax refers to:
A. the tax rate
B. who ultimately bears the economic burden of the tax
C. the amount of tax collected
D. who legally pays the tax
Discuss
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Correct Answer: Option B

Explanation:
Tax incidence is the distribution of the economic burden of a tax between buyers and sellers.
This question belongs to: Economy GK Economy Set 1
Question #1155
If demand for a good is perfectly inelastic, a tax on the good will be borne:
A. entirely by sellers
B. equally by buyers and sellers
C. entirely by buyers
D. by the government
Discuss
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Correct Answer: Option C

Explanation:
With perfectly inelastic demand, buyers bear the entire tax burden because quantity demanded does not change.
This question belongs to: Economy GK Economy Set 1
Question #1156
The 'substitution effect' of a price change always leads consumers to buy:
A. less of the good whose relative price has fallen
B. more of the good whose relative price has fallen
C. only inferior goods
D. the same amount
Discuss
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Correct Answer: Option B

Explanation:
The substitution effect always causes consumers to buy more of the relatively cheaper good.
This question belongs to: Economy GK Economy Set 1
Question #1157
The 'income effect' of a price rise in a normal good leads to:
A. purchase of inferior goods only
B. increased purchase of the good
C. no change in purchase
D. decreased purchase of the good
Discuss
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Correct Answer: Option D

Explanation:
A price rise reduces real income, so the income effect causes less purchase of a normal good.
This question belongs to: Economy GK Economy Set 1
Question #1158
The 'Giffen paradox' occurs when:
A. the income effect of a price rise dominates the substitution effect for an inferior good
B. the substitution effect dominates the income effect
C. the good is a luxury
D. the good has many substitutes
Discuss
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Correct Answer: Option A

Explanation:
Giffen goods have a strong negative income effect that outweighs the substitution effect, causing demand to rise with price.
This question belongs to: Economy GK Economy Set 1
Question #1159
The 'veblen effect' is associated with:
A. conspicuous consumption where higher prices increase demand
B. perfect competition
C. inferior goods
D. homogeneous goods
Discuss
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Correct Answer: Option A

Explanation:
Veblen effect occurs when higher prices increase the prestige of a good and therefore its demand.
This question belongs to: Economy GK Economy Set 1
Question #1160
The 'snob effect' in consumer behaviour refers to:
A. buying only necessities
B. following popular trends
C. buying more when price falls
D. buying goods to appear exclusive and different
Discuss
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Correct Answer: Option D

Explanation:
The snob effect is consumer preference for exclusive goods that set them apart.
This question belongs to: Economy GK Economy Set 1
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