The term 'Capital Formation' refers to: MCQ with Answer and Explanation

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The term 'Capital Formation' refers to:

A. Increase in the stock of capital goods

B. Increase in money supply

C. Increase in consumption

D. Increase in population

Answer: Option A

Solution (By JKSSB Mock Tests)

Capital formation refers to the net addition to the existing stock of capital goods such as machinery, buildings and equipment in an economy.

This question belongs to: Economy GK Economy Set 1

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Question #1

The concept of 'Liquidity Trap' implies that:

A. Monetary policy is highly effective

B. Interest rates are very high

C. Further increase in money supply does not reduce interest rates

D. Fiscal policy is ineffective

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Correct Answer: Option C

Explanation:
In a liquidity trap, interest rates are already so low that people prefer to hold cash, and further increases in money supply do not lead to a fall in interest rates or increase in investment.

This question belongs to: Economy GK Economy Set 1

Question #2

The 'Reserve Bank of India' has how many regional offices?

A. 25

B. 19

C. 10

D. 31

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Correct Answer: Option B

Explanation:
The RBI has 19 regional offices.

This question belongs to: Economy GK Economy Set 1

Question #3

Which of the following is a characteristic of the 'New Keynesian' models used for monetary policy analysis?

A. They ignore expectations completely

B. They combine intertemporal optimisation, rational expectations and nominal rigidities

C. They assume continuous market clearing and flexible prices

D. They rely only on adaptive expectations

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Correct Answer: Option B

Explanation:
Modern New Keynesian DSGE models used for policy analysis feature optimising households and firms, rational expectations, and some form of nominal rigidity (sticky prices or wages).

This question belongs to: Economy GK Economy Set 1

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