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 7 of 111
Question #121
The first Narasimham Committee of 1991 was appointed to recommend reforms in:
A. the financial system and banking sector
B. indirect taxes
C. capital markets only
D. agricultural pricing
Discuss
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Correct Answer: Option A

Explanation:
The Narasimham Committee was appointed to recommend financial system and banking sector reforms.
This question belongs to: Economy GK Economy Set 1
Question #122
Disinvestment refers to:
A. foreign investment in defence
B. sale of government equity in public sector enterprises
C. borrowing from the IMF
D. purchase of private sector equity by the government
Discuss
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Correct Answer: Option B

Explanation:
Disinvestment is the sale of government equity in public sector enterprises.
This question belongs to: Economy GK Economy Set 1
Question #123
Globalization in the Indian economic context means:
A. closing the economy to foreign trade
B. self-reliant village economy
C. nationalization of foreign companies
D. increasing integration with the world economy
Discuss
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Correct Answer: Option D

Explanation:
Globalization means increasing integration of the Indian economy with the world economy.
This question belongs to: Economy GK Economy Set 1
Question #124
The Balance of Payments is a systematic record of:
A. only visible trade
B. all economic transactions between residents of a country and the rest of the world
C. only government borrowing
D. only foreign direct investment
Discuss
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Correct Answer: Option B

Explanation:
The Balance of Payments records all economic transactions between residents and the rest of the world.
This question belongs to: Economy GK Economy Set 1
Question #125
Which of the following is included in the current account of the Balance of Payments?
A. NRI deposits
B. Foreign direct investment
C. External commercial borrowing
D. Trade in goods and services
Discuss
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Correct Answer: Option D

Explanation:
The current account includes trade in goods and services, income and current transfers.
This question belongs to: Economy GK Economy Set 1
Question #126
Which of the following is NOT recorded in the capital account of the Balance of Payments?
A. FDI
B. External commercial borrowing
C. FPI
D. Export of goods
Discuss
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Correct Answer: Option D

Explanation:
Export of goods is recorded in the current account, not the capital account.
This question belongs to: Economy GK Economy Set 1
Question #127
A current account deficit means that:
A. imports of goods, services and income exceed exports
B. exports of goods and services exceed imports
C. capital inflows exceed outflows
D. foreign exchange reserves increase
Discuss
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Correct Answer: Option A

Explanation:
A current account deficit occurs when imports of goods, services and income exceed exports.
This question belongs to: Economy GK Economy Set 1
Question #128
In accounting terms, the overall Balance of Payments always balances because:
A. exchange rates are fixed
B. exports always equal imports
C. it follows double-entry bookkeeping and official reserves adjust
D. current account equals capital account
Discuss
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Correct Answer: Option C

Explanation:
The Balance of Payments always balances in accounting terms due to double-entry bookkeeping and reserve movements.
This question belongs to: Economy GK Economy Set 1
Question #129
Devaluation of a currency refers to:
A. official lowering of the value of a currency under a fixed exchange rate system
B. buying of foreign currency by the central bank
C. market-determined fall in the value of a currency
D. a rise in domestic interest rates
Discuss
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Correct Answer: Option A

Explanation:
Devaluation is the official lowering of a currency's value under a fixed exchange rate system.
This question belongs to: Economy GK Economy Set 1
Question #130
Under a floating exchange rate system, a fall in the external value of a currency due to market forces is called:
A. devaluation
B. revaluation
C. appreciation
D. depreciation
Discuss
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Correct Answer: Option D

Explanation:
A market-driven fall in the external value of a currency is called depreciation.
This question belongs to: Economy GK Economy Set 1
Question #131
The Marshall-Lerner condition states that devaluation improves the trade balance if:
A. the sum is less than one
B. exports exceed imports
C. the sum of price elasticities of demand for exports and imports is greater than one
D. import tariffs are raised
Discuss
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Correct Answer: Option C

Explanation:
The Marshall-Lerner condition requires the sum of export and import demand elasticities to exceed one.
This question belongs to: Economy GK Economy Set 1
Question #132
The Nominal Effective Exchange Rate is:
A. the rupee-dollar rate only
B. the inflation-adjusted exchange rate
C. the difference between exports and imports
D. a trade-weighted average of the rupee against a basket of currencies
Discuss
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Correct Answer: Option D

Explanation:
NEER is a trade-weighted average of the domestic currency against a basket of foreign currencies.
This question belongs to: Economy GK Economy Set 1
Question #133
The Real Effective Exchange Rate differs from NEER because REER:
A. ignores inflation
B. adjusts for relative price or inflation differences
C. includes only the US dollar
D. is always higher
Discuss
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Correct Answer: Option B

Explanation:
REER is NEER adjusted for relative inflation differences.
This question belongs to: Economy GK Economy Set 1
Question #134
Foreign Direct Investment is distinguished from Foreign Portfolio Investment mainly by:
A. the amount of investment
B. short-term currency trading
C. lasting interest and managerial control
D. investment only in government securities
Discuss
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Correct Answer: Option C

Explanation:
FDI involves lasting interest and managerial control, while FPI does not.
This question belongs to: Economy GK Economy Set 1
Question #135
Which of the following is an example of Foreign Portfolio Investment?
A. Establishing a joint venture
B. Setting up a wholly owned subsidiary
C. Acquiring a 51% stake in an Indian company
D. Buying equity shares in Indian companies without acquiring control
Discuss
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Correct Answer: Option D

Explanation:
Buying shares without acquiring control is portfolio investment.
This question belongs to: Economy GK Economy Set 1
Question #136
India achieved full convertibility on the current account in which year?
A. 2000
B. 1993
C. 1994
D. 1991
Discuss
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Correct Answer: Option C

Explanation:
India achieved full current account convertibility in August 1994.
This question belongs to: Economy GK Economy Set 1
Question #137
Capital account convertibility means:
A. fixed exchange rate
B. free conversion of the rupee for current account transactions only
C. abolition of all capital controls
D. free conversion of the rupee into foreign currency for capital account transactions
Discuss
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Correct Answer: Option D

Explanation:
Capital account convertibility allows free conversion of the rupee for capital account transactions.
This question belongs to: Economy GK Economy Set 1
Question #138
Which of the following is NOT a component of India's foreign exchange reserves?
A. Foreign currency assets
B. Gold
C. Foreign direct investment
D. SDRs
Discuss
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Correct Answer: Option C

Explanation:
FDI is a capital flow, not a component of foreign exchange reserves.
This question belongs to: Economy GK Economy Set 1
Question #139
A tariff is a:
A. subsidy given to exporters
B. tax imposed on imported goods
C. ban on exports
D. quantitative limit on imports
Discuss
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Correct Answer: Option B

Explanation:
A tariff is a tax imposed on imported goods.
This question belongs to: Economy GK Economy Set 1
Question #140
A quota is a:
A. type of exchange rate
B. quantitative restriction on imports or exports
C. price support for imports
D. tax on exports
Discuss
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Correct Answer: Option B

Explanation:
A quota is a quantitative restriction on imports or exports.
This question belongs to: Economy GK Economy Set 1
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