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 9 of 111
Question #161
In the context of demand theory, the law of demand states that, ceteris paribus:
A. Price and quantity demanded are inversely related
B. Price and supply are inversely related
C. Income and quantity demanded are inversely related
D. Price and quantity demanded are positively related
Discuss
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Correct Answer: Option A

Explanation:
The law of demand states that, other things remaining constant, the quantity demanded of a commodity falls when its price rises and rises when its price falls, indicating an inverse relationship between price and quantity demanded.
This question belongs to: Economy GK Economy Set 1
Question #162
Which of the following measures of money supply in India is known as 'narrow money'?
A. M4
B. M1
C. M2
D. M3
Discuss
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Correct Answer: Option B

Explanation:
M1 is referred to as narrow money and consists of currency with the public, demand deposits with banks, and other deposits with RBI. M3 is broad money.
This question belongs to: Economy GK Economy Set 1
Question #163
The Phillips Curve shows the relationship between:
A. Interest rate and investment
B. Unemployment and inflation
C. Inflation and economic growth
D. Money supply and price level
Discuss
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Correct Answer: Option B

Explanation:
The Phillips Curve illustrates an inverse relationship between the rate of unemployment and the rate of inflation in an economy in the short run.
This question belongs to: Economy GK Economy Set 1
Question #164
Which of the following is a capital receipt in the government budget?
A. Tax revenue
B. Borrowings
C. Dividends from public sector enterprises
D. Interest receipts
Discuss
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Correct Answer: Option B

Explanation:
Capital receipts create liability or reduce assets. Borrowings create a liability for the government and are therefore capital receipts. Tax revenue, interest receipts and dividends are revenue receipts.
This question belongs to: Economy GK Economy Set 1
Question #165
In monopolistic competition, the long-run equilibrium of a firm is characterised by:
A. Full capacity utilisation and normal profit
B. Full capacity utilisation and supernormal profit
C. Excess capacity and normal profit
D. Excess capacity and supernormal profit
Discuss
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Correct Answer: Option C

Explanation:
Under monopolistic competition, firms produce less than the optimum output (excess capacity) and earn only normal profits in the long run due to free entry and exit.
This question belongs to: Economy GK Economy Set 1
Question #166
Which of the following is NOT a function of the Reserve Bank of India?
A. Acting as banker to the government
B. Controlling credit
C. Issuing currency notes
D. Formulating fiscal policy
Discuss
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Correct Answer: Option D

Explanation:
Fiscal policy is formulated by the government (Ministry of Finance). RBI is responsible for monetary policy, currency issue, banker to government and credit control.
This question belongs to: Economy GK Economy Set 1
Question #167
The concept of 'Opportunity Cost' is best defined as:
A. The total cost incurred in production
B. The cost of producing one more unit of a commodity
C. The value of the next best alternative forgone
D. The difference between total revenue and total cost
Discuss
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Correct Answer: Option C

Explanation:
Opportunity cost refers to the value of the next best alternative that is sacrificed when a choice is made. It is a fundamental concept in economics.
This question belongs to: Economy GK Economy Set 1
Question #168
Which of the following indices is used to measure income inequality?
A. Gini Coefficient
B. Gender Development Index
C. Human Development Index
D. Physical Quality of Life Index
Discuss
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Correct Answer: Option A

Explanation:
The Gini Coefficient measures the extent of income or wealth inequality in a population. A value of 0 represents perfect equality and 1 represents perfect inequality.
This question belongs to: Economy GK Economy Set 1
Question #169
In the quantity theory of money, the equation MV = PT was given by:
A. Alfred Marshall
B. Milton Friedman
C. John Maynard Keynes
D. Irving Fisher
Discuss
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Correct Answer: Option D

Explanation:
Irving Fisher formulated the equation of exchange MV = PT, where M is money supply, V is velocity of money, P is price level and T is volume of transactions.
This question belongs to: Economy GK Economy Set 1
Question #170
Which of the following is an example of a public good?
A. National defence
B. Restaurant meal
C. Private car
D. Cinema ticket
Discuss
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Correct Answer: Option A

Explanation:
Public goods are non-excludable and non-rivalrous. National defence is a classic example as one person's consumption does not reduce availability for others and people cannot be easily excluded from its benefits.
This question belongs to: Economy GK Economy Set 1
Question #171
The term 'Crowding Out' in economics refers to:
A. Decrease in private investment due to government borrowing
B. Increase in private investment due to government spending
C. Increase in exports due to currency depreciation
D. Decrease in imports due to tariffs
Discuss
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Correct Answer: Option A

Explanation:
Crowding out occurs when increased government borrowing leads to higher interest rates, which reduces private sector investment.
This question belongs to: Economy GK Economy Set 1
Question #172
Which of the following is NOT a feature of perfect competition?
A. Homogeneous product
B. Free entry and exit
C. Large number of buyers and sellers
D. Product differentiation
Discuss
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Correct Answer: Option D

Explanation:
Product differentiation is a feature of monopolistic competition, not perfect competition. In perfect competition, products are homogeneous.
This question belongs to: Economy GK Economy Set 1
Question #173
The Laffer Curve illustrates the relationship between:
A. Interest rates and investment
B. Inflation and unemployment
C. Tax rates and tax revenue
D. Money supply and inflation
Discuss
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Correct Answer: Option C

Explanation:
The Laffer Curve shows that beyond a certain point, increasing tax rates may lead to a decrease in total tax revenue due to reduced economic activity and tax evasion.
This question belongs to: Economy GK Economy Set 1
Question #174
Which of the following is a qualitative method of credit control used by RBI?
A. Bank Rate
B. Moral Suasion
C. Cash Reserve Ratio
D. Open Market Operations
Discuss
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Correct Answer: Option B

Explanation:
Moral suasion is a qualitative (selective) method of credit control where RBI persuades banks to follow certain credit policies. Bank Rate, OMO and CRR are quantitative methods.
This question belongs to: Economy GK Economy Set 1
Question #175
In the context of national income, which of the following is included in GDP but not in NNP?
A. Net indirect taxes
B. Subsidies
C. Net factor income from abroad
D. Depreciation
Discuss
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Correct Answer: Option D

Explanation:
GDP includes depreciation (capital consumption). NNP is obtained by subtracting depreciation from GNP. Thus depreciation is part of GDP but not of NNP.
This question belongs to: Economy GK Economy Set 1
Question #176
The concept of 'Multiplier' in Keynesian economics is related to:
A. Change in interest rate and change in investment
B. Change in investment and change in income
C. Change in money supply and change in prices
D. Change in tax rate and change in revenue
Discuss
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Correct Answer: Option B

Explanation:
The investment multiplier shows how much income increases as a result of an initial increase in investment. Multiplier = 1/(1-MPC).
This question belongs to: Economy GK Economy Set 1
Question #177
Which of the following is NOT a component of Current Account in the Balance of Payments?
A. Trade in goods
B. Unilateral transfers
C. Foreign direct investment
D. Trade in services
Discuss
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Correct Answer: Option C

Explanation:
Foreign direct investment is a component of the Capital Account. Current Account includes merchandise trade, invisibles (services), and unilateral transfers.
This question belongs to: Economy GK Economy Set 1
Question #178
The term 'Stagflation' refers to a situation of:
A. High inflation and high growth
B. High inflation and high unemployment
C. Low inflation and high growth
D. Low inflation and low unemployment
Discuss
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Correct Answer: Option B

Explanation:
Stagflation is a combination of stagnant economic growth (or high unemployment) along with high inflation, which challenges conventional policy responses.
This question belongs to: Economy GK Economy Set 1
Question #179
Which of the following taxes is progressive in nature?
A. Excise duty
B. Sales tax
C. Income tax
D. Customs duty
Discuss
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Correct Answer: Option C

Explanation:
A progressive tax is one where the tax rate increases with the increase in the taxable amount. Personal income tax in India is progressive with different slabs.
This question belongs to: Economy GK Economy Set 1
Question #180
In the production possibility frontier, a point inside the curve indicates:
A. Technological progress
B. Unattainable combination
C. Efficient utilisation of resources
D. Underutilisation of resources
Discuss
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Correct Answer: Option D

Explanation:
Any point inside the PPF represents underutilisation or inefficient use of resources. Points on the curve are efficient and points outside are unattainable with current resources.
This question belongs to: Economy GK Economy Set 1
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