The liquidity trap is a situation where: MCQ with Answer and Explanation

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The liquidity trap is a situation where:

A. money supply is zero

B. interest rates are very high

C. investment is very high

D. interest rates are very low and speculative money demand becomes perfectly elastic

Answer: Option D

Solution (By JKSSB Mock Tests)

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

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Question #1

The term 'Seigniorage' refers to:

A. Profit earned by the government from printing currency

B. Revenue from income tax

C. Deficit financing through external loans

D. Interest paid on government bonds

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Correct Answer: Option A

Explanation:
Seigniorage is the difference between the face value of money and the cost of producing it; it represents the real resource gain to the government from issuing currency.

This question belongs to: Economy GK Economy Set 1

Question #2

The 'Goods and Services Tax' is a consumption-based tax because it is levied at:

A. import stage only

B. the point of supply for final consumption

C. production stage only

D. export stage

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Correct Answer: Option B

Explanation:
GST is a destination-based consumption tax levied at the point of supply.

This question belongs to: Economy GK Economy Set 1

Question #3

The 'Index of Eight Core Industries' comprises which proportion of the weight in the Index of Industrial Production?

A. 60%

B. 80%

C. 40%

D. 20%

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Correct Answer: Option C

Explanation:
The eight core industries have a combined weight of about 40.27% in the Index of Industrial Production.

This question belongs to: Economy GK Economy Set 1

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