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. indirect taxes
B. the financial system and banking sector
C. capital markets only
D. agricultural pricing
Discuss
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Correct Answer: Option B

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. purchase of private sector equity by the government
B. foreign investment in defence
C. borrowing from the IMF
D. sale of government equity in public sector enterprises
Discuss
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Correct Answer: Option D

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. nationalization of foreign companies
B. increasing integration with the world economy
C. self-reliant village economy
D. closing the economy to foreign trade
Discuss
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Correct Answer: Option B

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. all economic transactions between residents of a country and the rest of the world
B. only foreign direct investment
C. only government borrowing
D. only visible trade
Discuss
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Correct Answer: Option A

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. Trade in goods and services
D. External commercial borrowing
Discuss
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Correct Answer: Option C

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. FPI
B. FDI
C. External commercial borrowing
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. capital inflows exceed outflows
B. exports of goods and services exceed imports
C. foreign exchange reserves increase
D. imports of goods, services and income exceed exports
Discuss
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Correct Answer: Option D

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. current account equals capital account
B. exports always equal imports
C. exchange rates are fixed
D. it follows double-entry bookkeeping and official reserves adjust
Discuss
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Correct Answer: Option D

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. market-determined fall in the value of a currency
C. buying of foreign currency by the central bank
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. depreciation
D. appreciation
Discuss
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Correct Answer: Option C

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. exports exceed imports
B. import tariffs are raised
C. the sum of price elasticities of demand for exports and imports is greater than one
D. the sum is less than one
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 inflation-adjusted exchange rate
B. a trade-weighted average of the rupee against a basket of currencies
C. the difference between exports and imports
D. the rupee-dollar rate only
Discuss
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Correct Answer: Option B

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. is always higher
B. ignores inflation
C. includes only the US dollar
D. adjusts for relative price or inflation differences
Discuss
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Correct Answer: Option D

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. lasting interest and managerial control
C. investment only in government securities
D. short-term currency trading
Discuss
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Correct Answer: Option B

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. Acquiring a 51% stake in an Indian company
C. Setting up a wholly owned subsidiary
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. 1991
B. 1993
C. 1994
D. 2000
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. abolition of all capital controls
B. fixed exchange rate
C. free conversion of the rupee into foreign currency for capital account transactions
D. free conversion of the rupee for current account transactions only
Discuss
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Correct Answer: Option C

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. Foreign direct investment
C. SDRs
D. Gold
Discuss
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Correct Answer: Option B

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. ban on exports
B. quantitative limit on imports
C. tax imposed on imported goods
D. subsidy given to exporters
Discuss
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Correct Answer: Option C

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. quantitative restriction on imports or exports
B. type of exchange rate
C. price support for imports
D. tax on exports
Discuss
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Correct Answer: Option A

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