1. General Knowledge (GK)
  2. Economics (GK)
  3. Set 1

Economics (GK) Solved MCQs

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Effective demand depends on -

A. capital-output ratio
B. output-capital ratio
C. total expenditure
D. supply price
Answer» D. supply price
Explanation: Effective Demand is "the demand in which the consumer are able and willing to purchase at conceivable price" simply saying if the product price is low more will buy; but if the rates go high then the quantity of the demand goes down. Keynes used Iwo terms: Aggregate Demand Function or Price and Aggregate Supply Function or Price to explain the determination of effective demand.

The basic problem studied in Macro - Economics is -

A. production of income
B. usage of income
C. flow of income
D. distribution of income
Answer» A. production of income
Explanation: Macroeconomics involves the sum total of economic activity, dealing with the issues such as production of national income, growth, inflation, and unemployment. It is all about is about maximizing national income and growth.

Prof Miltion Fridman was leader of -

A. Ohio school
B. Chicago school
C. Cambridge school
D. London school
Answer» B. Chicago school
Explanation: Milton Friedman was a leader of the Chicago school of economics. He profoundly influenced the research on consumption analysis, monetary history and theory, and the complexity of stabilization policy. He was a recipient of the 1976 Nobel Prize in Economic Sciences.

Who is called the 'Father of Economics'?

A. Max Muller
B. Karl Marx
C. Adam Smith
D. Alfred Marshall
Answer» C. Adam Smith
Explanation: Adam Smith who laid the foundations of classical free market economic theory is known as the Father of Modern Economics. His magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations (1776),' is considered the first modern work of economics.

The bank cheques are processed by using -

Answer» B. MICR
Explanation: Magnetic Ink Character Recognition, or MICR, is a character recognition technology used primarily by the banking industry to facilitate the processing of cheques and makes up the routing number and account number at the bottom of a cheque. The technology allows computers to read information (such as account numbers) off printed documents. Unlike barcodes or similar technologies, however, MICR codes can be easily read by humans. MICR characters are printed in special typefaces with a magnetic ink or toner, usually containing iron oxide.

When was the Minimum Wages Act enacted in India?

A. 1936
B. 1948
C. 1951
D. 1956
Answer» B. 1948
Explanation: The Minimum Wages Act, 1948 was enacted to safeguard the interests of workers, mostly in the unorganized sector by providing for the fixation of minimum wages in certain specified employments. It binds the employers to pay their workers the minimum wages fixed under the Act from time to time.

Identify the one which is not related to the Agricultural Price Policy.

A. Buffer stock
B. Imports
C. Support price
D. Licensing
Answer» D. Licensing
Explanation: Licensing is a marketing and brand extension tool that is widely used by everyone from major corporations to the smallest of small business. A license may be issued by authorities, to allow an activity that would otherwise be forbidden.

Steel sheets used in the production of furnitures is an example of

A. an intermediate good
B. a final good
C. an investment good
D. a consumption good
Answer» A. an intermediate good
Explanation: Intermediate goods are semi- finished products are goods that are used as inputs in the production of oilier goods including final goods. It comprises material or item that is a final-product of a process, but is also used as an input in the production process of some other good. In the production process, intermediate goods either become part of the final product, or are changed beyond recognition.

The main source of long-term credit for a business unit is -

A. sale of stocks and bonds to the public
B. borrowing from banks
C. loans from the Government
D. deposits from the public and financial institutions
Answer» A. sale of stocks and bonds to the public
Explanation: Companies issue securities called stocks and bonds to raise necessary capital which funds the company's daily operations and

Devaluation of money means :

A. decrease in the internal value of money
B. decrease in the external value of money
C. decrease in both internal and external value of money
D. the government takes back currency notes of any denominations
Answer» A. decrease in the internal value of money
Explanation: Devaluation refers to a decline in the value of a currency in relation to another, usually brought about by the actions of a central bank or monetary authority. Devaluation is sometimes used more generally to describe any significant drop in a currency's international exchange rate, although usually a decline caused by market forces with no government intervention is termed a depreciation. Devaluations are most often associated with developing countries that don't allow their currency prices to float freely on the open market.

Under flexible exchange rate system, the exchange rate is determined by -

A. the Central Bank of the country
B. the forces of demand and supply in the foreign exchange market
C. the price of gold
D. the purchasing power of currencies
Answer» B. the forces of demand and supply in the foreign exchange market
Explanation: A floating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. It refers to a country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that particular currency relative to other currencies.

Bank rate is the rate of interest -

A. at which public borrows money from Commercial Bank
B. at which public borrows money from RBI
C. at which Commercial Banks borrow money from RBI
D. at which Commercial Banks borrow money from public
Answer» C. at which Commercial Banks borrow money from RBI
Explanation: Bank Rate is the interest rate at which a nation’s central bank lends money to domestic banks. Managing the bank rate is a preferred method by which central banks can regulate the level of economic activity.

Open Market Operations refer to

A. Borrowings by Scheduled banks from RBI
B. Lending by Commercial banks to industry
C. Purchase and sale of Government securities by RBI
D. Deposit mobilization
Answer» C. Purchase and sale of Government securities by RBI
Explanation: Open Market Operation (OMO) refers to the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. A central bank uses OMO as the primary means of implementing monetary policy.

Which of the following is the classification of Industries on the basis of raw-materials?

A. Small Scale — Large scale
B. Primary and Secondary
C. Basic and Consumer
D. Agro-based and Mineral based
Answer» D. Agro-based and Mineral based
Explanation: Industries are classified on the bases of source of raw material. There are two types of industries agro based and mineral based industries. Agro based industries are the one that produce jute, cotton, silk, tea. coffee, rubber etc. Mineral based industries are iron and steel, cement, aluminum, machine tools, and petrochemicals producing industries

Which one of the following items is not included in the current account of India's Balance of Payments?

A. Short-term commercial borrowings
B. Non-monetary gold movements
C. Investment income
D. Transfer payments
Answer» B. Non-monetary gold movements
Explanation: Balance of payments (BoP) accounts are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The two principal parts of the BOP accounts are the current account and the capital account. The current account shows the net amount a country is earning if it is in surplus or spending if it is in deficit. It is the sum of the balance of trade (net earnings on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers.

The New Economic Policy was introduced by:

A. Lenin
B. Stalin
C. Kerensky
D. Khrushchev
Answer» A. Lenin
Explanation: The New Economics Policy was introduced by Vladimir Ilyich Lenin (1870- 1924). He was founder of modern communist Russia. He was the leader of Soviet Revolution of October 1917. He liberated the country from the Czars and became Head of its first Communist Government (1917-1924). He dedicated himself to the cause of workers' revolution.

"Functional Finance" is associated with :

A. Adolph Wogner
B. Adam Smith
C. Adams
D. Abba 'V Lerner
Answer» D. Abba 'V Lerner
Explanation: Functional finance is an economic theory proposed by Abba P. Lerner, based on effective demand principle and cartelism. It states that government should finance itself to meet explicit goals, such as taming the business cycle, achieving full employment, ensuring growth, and low inflation.

Multiplier process in economic theory is conventionally taken to mean:

A. the manner in which prices increase
B. the manner in which banks create credit
C. income of an economy grows on account of an initial investment
D. the manner in which government expenditure increases
Answer» C. income of an economy grows on account of an initial investment
Explanation: In economics, a multiplier is a factor of proportionality that measures how much an endogenous variable changes in response to a change in some exogenous variable. For example, suppose a one-unit change in some variable x causes another variable y to change by M units. Then the multiplier is M. In monetary macroeconomics and banking, the money multiplier measures how much the money supply increases in response to a change in the monetary base. The multiplier may vary across countries, and will also vary depending on what measures of money are considered. For example, consider M2 as a measure of the U.S. money supply, and MO as a measure of the U.S. monetary base.

Personal disposable income is :

A. always equal to personal income.
B. always more than personal income.
C. equal to personal income minus direct taxes paid by household.
D. equal to personal income minus indirect taxes.
Answer» C. equal to personal income minus direct taxes paid by household.
Explanation: Disposable income is total personal income minus personal current taxes. In national accounts definitions, personal income, minus personal current taxes equals disposable personal income. Subtracting personal outlays (which includes the major category of personal(or, private) consumption expenditure) yields personal (or, private) savings

Which one of the following is not a method of measurement of National Income?

A. Value Added Method
B. Income Method
C. Investment Method
D. Expenditure Method
Answer» C. Investment Method
Explanation: Primarily there are three methods of measuring national income. The methods are product method, income method and expenditure method. Product method is given by Dr. Alfred Marshall, income method by A.C. Pigou and expenditure method by Dr. Irving Fisher. The 'Investment Method' is used for trading properties where evidence of rates is slight, such as hotels, cinema, car park and etc.

Which one of the following would not constitute an economic activity?

A. A teacher teaching students in his class
B. A teacher teaching students under Sarva Shiksha Abhiyan
C. A teacher teaching his own daughter at home
D. A teacher providing consultancy services from his residence
Answer» C. A teacher teaching his own daughter at home
Explanation: Economic activities are related to production, distribution, exchange and consumption of goods and services. The primary aim of the economic activity is the production of goods and services with a view to make them available to consumer "Human activities which are performed in exchange for money or money's worth are called economic activities." In other words, economic activities are those efforts which are undertaken by man to earn Income. Money, and Wealth for his life and to secure maximum satisfaction of wants with limited and scarce means. A teacher teaching his own daughter at home is a non-economic activity. "Human activities which are not performed for money or money's worth arc called non- economic activities." Here, there is no monetary consideration in exchange for such activities.

Transfer payments include :

A. Gifts received from a friend
B. rent free accommodation by the employer
C. net factor income from abroad
D. Employee's contribution to social security
Answer» D. Employee's contribution to social security
Explanation: A transfer payment is a oneway payment of money for which no money, good, or service is received in exchange. Governments use such payments as means of income redistribution by giving out money under social welfare programs such as social security, old age or disability pensions, student grants, unemployment compensation, etc. Examples of certain transfer payments include welfare (financial aid), social security, and government making subsidies for certain businesses

Capacity utilization -

A. is usually near 100 percent.
B. represents the percent of the labour force that is employed.
C. is a measure of the proportional of the existing capital stock used for current production.
D. rises as the economy moves into a recession, since firms must replace unemployed workers with some other resources to maintain production.
Answer» C. is a measure of the proportional of the existing capital stock used for current production.
Explanation: Capacity utilisation refers to the extent or level to which the productive capacity of a plant, firm, or country is used in generation of goods and services. Expressed usually as a percentage, it is computed by dividing the total capacity with the portion being utilized.

Apart from the availability of raw material location of an industry is also dependent on the availability of:

A. enviornmental protection and vegetation
B. man power and energy source
C. transport and bio energy
D. water and inputs
Answer» B. man power and energy source
Explanation: Some of the factors which affect the industrial location are as follows: availability of raw materials, avail-ability of labour, availability of capital, availability of power, availability of market and infrastructure. good supply of labor is one of the traditional factors that is indispensable for industry. Besides, availability of power/electricity is also a deciding factor.

What happens when there is a demand deficiency in an economy?

A. Poverty
B. Stagnation
C. Recession
D. Inflation
Answer» B. Stagnation
Explanation: Deficient demand refers to the situation when aggregate demand for goods and services falls short of aggregate supply of output which is produced by fully employing the given resources of the economy. This deficient demand leads to the decrease in output, employment and prices in the economy. According to Malthus, deficiency of demand could lead to stagnation in which both capital and labor are redundant relative to the opportunities for employing them profitably.
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