1140+ Economics (GK) Solved MCQs


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.

Which one of the following is not a feature of monopoly?

A. Single seller of the product
B. Heavy selling costs
C. Barriers to entry of new firms
D. Price discriminations
Answer» B. Heavy selling costs
Explanation: Heavy selling cost is one of the defining features of an oligopoly. Firms resort to heavy selling cost to attract customers. Under this market form, the firms have to compete to promote their sale by largely homogenous products, differentiated mainly by heavy advertising and promotional expenditure that ultimately adds to the total selling cost.

The supply of labour in the market depends on -

A. the proportion of the population in the labour force
B. the number of person hours put in by each person
C. the size of population
D. All the above
Answer» D. All the above
Explanation: Supply of labour in an economy depends upon both economic as well as non- economic factors. It depends upon the size of population, the number of workers available for work out of a given population, the number of hours worked, the intensity of work, the skills of workers, their willingness to work and the mobility of labour.

Engel's Law states the relationship between -

A. quantity demanded and price of a commodity
B. quantity demanded and price of substitutes
C. quantity demanded and tastes of the consumers
D. quantity demanded and income of the consumers
Answer» D. quantity demanded and income of the consumers
Explanation: Engel's law is an observation in economics stating that as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises. In other words, the income elasticity of demand of food is between 0 and 1. Engel's Law doesn't imply that food spending remains unchanged as income increases: It suggests that consumers increase their expenditures for food products (in % terms) less than their increases in income.

The demand curve for a Giffen good is

A. upward rising
B. downward falling
C. parallel to the quantity axis
D. parallel to the price axis
Answer» A. upward rising
Explanation: A Giffen good is a good whose consumption in-creases as its price increases. (For a normal good, as the price increases, consumption decreases.) Thus, the demand curve will be upward instead of down-ward sloping. A Giffen good has an upward sloping demand curve because it is exceptionally inferior. It has a strong negative income elasticity of demand such that when a price changes the income effect outweighs the substitution effect and this leads to perverse demand curve.

If the price of Pepsi decreases relative to the price of Coke and 7-Up, the demand for

A. Coke will decrease
B. 7-Up will decrease
C. Coke and 7-Up will increase
D. Coke and 7-Up will decrease
Answer» D. Coke and 7-Up will decrease
Explanation: Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. A decrease in the price of a good normally results in an increase in the quantity demanded by consumers because of the law of demand, and conversely, quantity demanded decreases when price rises. So, here the decrease in price of Pepsi will increase in demand for it, while the demand for Coke and 7-Up will decrease because of no change in their price level.

The demand curve shows that price and quantity demanded are -

A. directly related only
B. directly proportional and also directly related
C. inversely proportional and aslo inversely related
D. inversely related only
Answer» C. inversely proportional and aslo inversely related
Explanation: Law of demand states that consumers buy more of a good when its price is lower and less when its price is higher. It states that the quantity demanded and the prices of a commodity are inversely related, other things remaining constant. That is, if the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in quantity of good demanded by the consumer will be negatively correlated to the change in the price of the good.

If the main objective of the government is to raise revenue, it should tax commodities with

A. high elasticity of demand
B. low elasticity of supply
C. low elasticity of demand
D. high income elasticity of demand
Answer» C. low elasticity of demand
Explanation: The Ramsey rule states that commodities with low elasticities of demand should be taxed at higher rates than commodities with high elasticities of demand. However, low- income people might spend a higher proportion of their incomes on commodities with low elasticities of demand (food, clothing, and so on) than might high-income people. Consequently, following the Ramsey rule may result in a regressive taxation scheme society may view as inequitable.

Monopoly means -

A. single buyer
B. many sellers
C. single seller
D. many buyers
Answer» C. single seller
Explanation: A Monopoly exists when a specific person or enterprise is the only supplier of a particular commodity, This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few entities dominating an industry. Monopolies are thus characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods

Kinked demand curve is a feature of -

A. Monopoly
B. Oligopoly
C. Monopsony
D. Duopoly
Answer» B. Oligopoly
Explanation: The kinked demand curve theory is an economic theory regarding oligopoly and monopolistic competition. Kinked demand was an initial attempt to explain sticky prices.

Demand for complementary goods is known as -

A. Joint demand
B. Derived demand
C. Direct demand
D. Cross demand
Answer» A. Joint demand
Explanation: Demand for complementary goods is called Joint Demand. Joint Demand is the demand in which goods are related in such a way that an increase in the demand for one causes an increase in the demand for the other.

Quasi rent is a              phenomenon.

A. medium term
B. long term
C. short term
D. no time
Answer» C. short term
Explanation: Quasirent is a term in economics that describes certain types of returns to firms. It differs from pure economic rent in that it is a temporary phenomenon. It can arise from the barriers to entry that potential competitors face in the short run, such as the granting of patents or other legal protections for intellectual property by governments.

Which of the following economists is called the Father of Economics?

A. Malthus
B. Robinson
C. Ricardo
D. Adam Smith
Answer» D. Adam Smith
Explanation: Adam Smith, a Scottish moral philosopher and a pioneer of political economy, is cited as the "father of modern economics." He is best known for two classic works: The Theory of Moral Sentiments (1759), and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). The Wealth of Nations is considered as the first modern work of economics.

Perfectly inelastic demand is equal to :

A. One
B. Infinite
C. Zero
D. Greater than one
Answer» C. Zero
Explanation: Price Elasticity of Demand is a measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. It measures the responsiveness of demand to changes in price for a particular good. If the price elasticity ofdemand is equal to 0, demand is perfectly inelastic (i.e., demand does not change when price changes).

A demand curve, which is parallel to the horizontal axis, showing quantity, has the price elasticity equal to -

A. Zero
B. One
C. Less than one
D. Infinity
Answer» D. Infinity
Explanation: Price elasticity of demand measures consumer response to price changes. If consumers are relatively sensitive to price changes, demand is elastic: if they are relatively unresponsive to price changes, demand is inelastic. Perfectly inelastic demand is graphed as a line parallel to the vertical axis; perfectly elastic demand is shown by a line above and parallel to the horizontal axis. When the demand for a commodity is perfectly elastic, the quantity of demand keeps changing with the price. So the coefficient of price elasticity of demand is infinity.

'Capital gains' refers to goods which -

A. serve as a source of raising further capital
B. help in the further production of goods
C. directly go into the satisfaction of human wants
D. find multiple uses
Answer» B. help in the further production of goods
Explanation: Capital goods are goods that are used in producing other goods, rather than being bought by consumers. They are tangible assets such as buildings, machinery, equipment, vehicles and tools that an organization uses to produce goods or services in order to produce consumer goods and goods for other businesses.

From the national point of view, which of the following indicates micro approach?

A. Study of sales of mobile phones by BSNL
B. Unemployement among Women
C. Per capita income in India
D. Inflation in India
Answer» A. Study of sales of mobile phones by BSNL
Explanation: Macroeconomics is a branch of economics in which a variety of economy-wide phenomena is thoroughly examined such as, inflation, price levels, rate of growth, national income, gross domestic product and changes in unemployment. On the other hand, Microeconomics studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. So the study of sales of mobile phones by BSN I, comes under microeconomics.

Returns to scale is a -

A. timeless phenomenon
B. directionless phenomenon
C. short-run phenomenon
D. long-run phenomenon
Answer» D. long-run phenomenon
Explanation: Returns to Scale refers to changes in production that occur when all resources are proportionately changed in the long run. It comes in three forms--increasing, decreasing, or constant based on whether the changes in production are proportionally more than, less than, or equal to the proportional changes in inputs. It is the guiding principle for long-run production, playing a similar role that the law of diminishing marginal returns plays for short-run production.

Rent is a factor payment paid to -

A. land
B. restaurant
C. building
D. factory
Answer» A. land
Explanation: Factor Payments refer to payments made to scarce resources, or the factors of production (labour, capital, land, and entrepreneurship), in return for productive services. Wages are paid for the services of labor; interest is the payment for the services of capital rent is the services for land, and profit is the factor payment to entrepreneurship.

Plant arid machinery are -

A. Producers' goods
B. Consumers' goods
C. Distributors' goods
D. Free goods
Answer» A. Producers' goods
Explanation: Plant and machinery are Producers' goods. Together with stocks and work in progress, these goods are collectively termed 'Capital'.

Which activity is not included in production?

A. Production of wheat by a farmer
B. Production of medicines by a company
C. Services given by a nurse in hospital
D. Services done by a house-wife in her own house
Answer» D. Services done by a house-wife in her own house
Explanation: Services done by a house-wife in her own house are not included in production.

Marginal cost is the -

A. cost of producing a unit of output
B. cost of producing an extra unit of output
C. cost of producing the total output
D. cost of producing a given level of output
Answer» B. cost of producing an extra unit of output
Explanation: Marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good. In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit.

Under hill cost pricing, price is determined -

A. by adding a margin to the average cost
B. by comparing marginal cost and marginal revem
C. by adding normal profit to the marginal cost
D. by the total al cost of production
Answer» A. by adding a margin to the average cost
Explanation: Full cost pricing is a practice where the price of a product is calculated by a firm on the basis of its direct costs per unit of output plus a markup to cover overhead costs and profits. Having worked out what averagetotal cost would be if the level of output expected for the next period of time were actually achieved, firms add to this a 'satisfactory' profit margin. This is known as 'full-cost' pricing. The price is equal to 'full' cost, including an acceptable profit.

As output increases, average fixed cost

A. increases
B. falls
C. remains consl ant
D. first increases, then falls
Answer» B. falls
Explanation: Average fixed cost refers to fixed costs of production (FC) divided by the quantity (Q) of output produced. It is a per-unit-of-output measure of fixed costs. As the total number of goods produced increases, the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.

Fixed cost is known as -

A. Special cost
B. Direct cost
C. Prime cost
D. Overhead cost
Answer» D. Overhead cost
Explanation: Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month, and are often referred to as overhead costs. This is in contrast to variable costs, which are volume-related (and are paid per quantity produced).

All of the goods which are scarce and limited in supply are called -

A. Luxury goods
B. Expensive goods
C. Capital goods
D. Economic goods
Answer» D. Economic goods
Explanation: In economics, a good is something that is intended to satisfy some wantsor needs of a consumer and thus has economic utility. An economic good is a consumable item that is useful to people but scarce in relation to its demand, so that human effort is required to obtain it. In contrast, free goods (such as air) are naturally in abundant supply and need no conscious effort to obtain them.

The terms "Micro Economics" and "Macro Economics" were coined by -

A. Alfred Marshall
B. Ragner Nurkse
C. Ragner Frisch
D. J.M. Keynes
Answer» C. Ragner Frisch
Explanation: The terms microeconomics and macroeconomics were coined by Professor Ragnar Frisch of Oslo University for the first time in 1933 and since then they gained popularity and were widely used by other economists. Now they have become an integral part of economic terminology. Ragnar Anton Kittil Frisch was a Norwegian economist and the co-winner with Jan Tinbergen of the first Nobel Memorial Prize in Economic Sciences in 1969. Frisch was one of the founders of economics as a modern science. He made a number of significant advances in the field of economics and coined a number of new words.

'Hire and Fire' is the policy of -

A. Capitalism
B. Socialism
C. Mixed Economy
D. Traditional Economy
Answer» C. Mixed Economy
Explanation: In capitalism, people may sell or lend their properly, and other people may buy or borrow them. In many countries with mixed economies (part capitalism and part socialism) there are laws about what we can buy or sell, or what prices we can charge, or whom we can hire or fire.

Consumption function expresses the relationship between consumption and -

A. savings
B. income
C. investment
D. price
Answer» B. income
Explanation: The consumption function is a mathematical formula laid out by famed economist John Maynard Keynes. The formula was designed to show the relationship between real disposable income and consumer spending, the latter variable being what Keynes considered the most important determinant of short-term demand in an economy.

The relationship between the rate of interest and level of consumption was first visualized by -

A. Amartya K. Sen
B. Milton Friedman
C. Irving Fisher
D. James Duesenberry
Answer» C. Irving Fisher
Explanation: Irving Fisher, in His Theory of Interest (1930), found the relationship between interest rates (nominal interest rate and real interest rate) and the consumption level. Though his theory is about interest rate and inflation, it discusses the effect of real interest rate on savings and gives an inverse relationship between nominal interest rates and consumer expenditures

The Liquidity Preference Theory of Interest was propounded by :

A. J.M. Keynes
B. David Ricardo
C. Alfred Marshall
D. Adam Smith
Answer» A. J.M. Keynes
Explanation: In macroeconomic theory, liquidity preference refers to the demand for money, considered as liquidity. The concept was first developed by John May-nard Keynes in his book The General Theory of Employment, Interest and Money (1936) to explain determination of the interest rate by the supply and demand for money.

Which of the following is not an economic activity?

A. A labourer working in a factory.
B. A CRPF jawan guarding country’s borders.
C. A teacher teaching his own son.
D. A farmer tilling his own land.
Answer» C. A teacher teaching his own son.
Explanation: An activity which is done with the aim of monetary return is called an economic activity, while an activity which is not done with the aim of monetary return is called a non- economic activity. The most quoted example to understand this is that of a teacher. When a teacher teaches students in a school, he is doing economic activity. When the same teacher teaches his son, he is doing non-economic activity.

Cosequent upon the recommendations of the Working Group on Rural Banks, 5 Rural Regional Banks were initially set up in the year -

A. 1973
B. 1974
C. 1975
D. 1976
Answer» C. 1975
Explanation: The Government of India set up Regional Rural Banks (RRBs) on October 2, 1975. Initially, five RRBs were set up on October 2, 1975 which were sponsored by Syndicate Bank, State Bank of India, PunjabNational Bank, United Commercial Bank and United Bank of India: Capital share being 50% by the central government. 15% by the state government and 35% by the scheduled bank.

Poverty in less developed countries is largely due to -

A. voluntary idleness
B. income inequality
C. lack of cultural activities
D. lack of intelligence of the people
Answer» B. income inequality
Explanation: Despite the developing countries' impressive aggregate growth of the past 25 years, its benefits have only reached the poor to a very limited degree. Not only have the poorest countries grown relatively slowly, but growth processes are such that within most developing countries, the incomes of the poor increase much less than the average. Much of the poverty is due to severe inequality which in turn is due to lop- sided development. Income inequality is the major determinant of poverty both in developed and non-developed countries. Rising unemployment is a major source of spreading poverty.

Which unit of valuation is known as "Paper gold"?

A. Eurodollar
B. Petrodollar
Answer» C. SDR
Explanation: Paper Gold is a measure of a country's reserve assets in I he international monetary system. It is also called Special Drawing Rights (SDR) which is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. SDRs may actually represent a potential claim on IMF member countries' non-gold foreign exchange reserve assets, which are usually held in those currencies.

A closed economy is one which -

A. Does not trade with other countries
B. Does not possess any means of international transport
C. Does not have a coatastal line
D. (4) Is not a member of the U.N.O.
Answer» A. Does not trade with other countries
Explanation: A closed economy is one that has no exports or imports. An open economy is one that has exports and imports. In a closed economy, domestic quantity and domestic price entirely determine producer surplus and consumer surplus. In a closed economy, equilibrium price and equilibrium quantity determine consumer surplus and producer surplus.

Who are the creditors of a Corporation?

A. Bond holders
B. Stock holders
C. Both Bond and Stock holders
D. Holders of preferred stock
Answer» C. Both Bond and Stock holders
Explanation: A creditor is a party (e.g. person, organization, company, or government) that has a claim to the services of a second party. It is a person or institution to whom money is owed. The second party is frequently called a debtor or borrower. An incorporated entity is a separate legal entity that has been incorporated through a legislative or registration process established through legislation. Both bond holders and stock holders are creditors of a corporation.

The ratio of a bank's cash holdings to its total deposit liabilities is called the -

A. Variable Reserve Ratio
B. Cash Reserve Ratio
C. Statutory Liquidity Ratio
D. Minimum Reserve Ratio
Answer» B. Cash Reserve Ratio
Explanation: Cash Reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the avail-able amount with the bankscomes down. The RBI uses the CRR to drain out excessive money from the system.

The smaller the Cash Reserve Ratio, the scope for lending by banks is :

A. greater
B. smaller
C. weaker
D. lesser
Answer» A. greater
Explanation: Cash Reserve Ratio is a regulation set by Central bank (RBI in India) which dictates the minimum amount (reserves) (hata commercial bank must be held to customer notes and deposits. A decrease in CRR will make it mandatory for the banks to hold a lesser proportion of (heir deposits in the form of deposits with the RBI.

For hannelizing the unaccounted money for productive purposes the Government Introduced the scheme of :

A. Special Bearer Bonds
B. Resurgent. India Bonds
C. Provident Funds
D. Market Loans
Answer» A. Special Bearer Bonds
Explanation: The Special Bearer Bonds (Immunities And Exemptions) Act, 1981 laid down the purpose of such bonds as necessary to canalize for productive purposes black money which has become a serious threat to the national economy. With a view to such canalization, the Central Government decided to issue at par certain bearer bonds to be known as the Special Bearer Bonds, 1991.

Saving is that portion of money income that is -

A. spent for development of Industries
B. not spent on consumption
C. spent on health and education
D. spent for consumer durables
Answer» B. not spent on consumption
Explanation: Saving is income not spent, or deferred consumption. In economics, it refers to any income not used for immediate consumption- consuming less out of a givenamount of resources in the present in order to consume more in the future. Saving, therefore, is the decision to defer consumption and to store this deferred consumption in some form of asset.

What is the role of "Ombudsman" in a bank?

A. To provide quality and speedy redressal of grievances of customers.
B. To provide suggestions for innovative schemes in the banks.
C. To inspect the internal working of the branches.
D. To monitor the poverty alleviation programmes under-taken by or implemented by the bank.
Answer» A. To provide quality and speedy redressal of grievances of customers.
Explanation: The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman Scheme was introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995.

Which of the following taxes is not collected by the Central Government?

A. Income tax
B. Customs duty
C. Professional tax
D. Excise duty
Answer» C. Professional tax
Explanation: A professional tax, also known as an occupation tax or a professional privilege lax, is a tax that a professional must pay to receive the right to practice a professional service. Many state and local governments collect professional tax, and a professional who has clients in more than one state may owe professional taxes in several states.

The permission given to a bank customer to draw cheques in excess of his current account balance is called -

A. a personal loan
B. an ordinary loan
C. discounting a bill of exchange
D. an overdraft
Answer» D. an overdraft
Explanation: Overdrafts is an extension of credit from a lending institution when an account reaches zero. An overdraft allows the individual to continue withdrawing money even if the account has no funds in it. Basically the bank allows people to borrow a set amount of money. An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn."

Forced Savings refer to -

A. Reduction of consumption consequent to a rise in prices
B. Taxes on individual income and wealth
C. Compulsory deposits imposed on income tax payers
D. Provident fund contribution of private sector employees
Answer» A. Reduction of consumption consequent to a rise in prices
Explanation: Forced saving is an economic situation in which consumers spend less than their disposable income, not because they want to save but because the goods they seek are not available or because goods are too expensive. In a free economy, this situation would normally result in increase in prices and inflow of more goods.

Which of the following is an indirect tax?

A. Capital Gains Tax
B. Excise Duty
C. Wealth Tax
D. Estate Duty
Answer» B. Excise Duty
Explanation: Some examples of indirect taxes include value added tax, excise duty, sales tax, stamp duty and custom duty levied on imports. These are taxes levied by the slate on expenditure and consumption, but not on property or income.

Say's Law of Market holds that -

A. supply is not equal to demand
B. supply creates its own demand
C. demand creates its own supply
D. supply is greater than demand
Answer» B. supply creates its own demand
Explanation: Say's law, or the law of market, is an economic principle of classical economics named after the French businessman and economist Jean-Baptiste Say (1767-1832), who stated that "supply creates its own demand". "Supply creates its own demand" is the formulation of Say's law by John Maynard Keynes. The rejection of this doctrine is a central component of The General Theory of Employment, Interest and Money (1936) and a central tenet of Keynesian economics.

'Marginal efficiency of capital' is -

A. expected rate of return on new investment
B. expected rate of return of existing investment
C. difference between rate of profit and rate of interest
D. value of output per unit of capital invested
Answer» A. expected rate of return on new investment
Explanation: The volume of investment depend upon the following two factors: (1) rate of interest: and (2) marginal efficiency of capital. Before investing the money a businessman compares interest with the rale of marginal efficiency capital. If they expect that rate of profit will be greater than the rate of interest, then they invest the money otherwise not. The expected rate of return on capital is called the marginal efficiency of capital. In other words, marginal efficiency of capital is a return on investment which is based partly on expectations of future yields and partly on the actual price of the capital good concerned.

National Income is the -

A. Net National Product at market price
B. Net National Product at factor cost
C. Net Domestic Product at market price
D. Net domestic Product at factor cost
Answer» B. Net National Product at factor cost
Explanation: Net National Product. at factor cost is also called as national income. Net National Product at factor cost is equal to sum total of value added at factor cost or net domestic product at factor cost and net factor income fromabroad. NNP al factor cost = NNP at Market Price -Net. Indirect Tax. National income measures the money value of the flow of output of goods and services produced within an economy over a period of Lime.

What is meant by 'Capital Gain'?

A. Part of profits added to the capital
B. Appreciation in the money value of assets
C. Additions to the capital invested in a business
D. None of these
Answer» B. Appreciation in the money value of assets
Explanation: A capital gain is a profit that results from a disposition of a capital asset, such as stock, bond or real estate, where the amount realized on the disposition exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price. Capital gains may refer to "investment income" that arises in relation to real assets. In other words, a capital gain represents an appreciation in value accruing over a prescribed period of time on the asset.

Backward bending supply curve belongs to which market?

A. Capital
B. Labour
C. Money
D. Inventories
Answer» B. Labour
Explanation: In economics, backward bending supply curve is related to labour. Also known as backward-bending supply curve of labour, This curve models a situation where workers choose to substitute leisure time for work time, i.e. wages, thus reducing the pool of labour available. It shows how the change in real wage rates affects the number of hours worked by employees.

Interms of economics, if it is possible to make someone better off without making someone worse off, then the situation is -

A. Inefficient
B. Efficient
C. Optimal
D. Paretosuperior
Answer» A. Inefficient
Explanation: Pareto efficiency is said to occur when it is impossible to make one party better off without making some-one worse off. An inefficient situation is one where it possible to make some people better off without making anyone else worse off.

The theory of distribution relates to which of the following?

A. The distribution of assets
B. The distribution of income
C. The distribution of factor payments
D. Equality in the distribution of the income and wealth
Answer» D. Equality in the distribution of the income and wealth
Explanation: In economics, distribution theory is the systematic attempt to account for the sharing of the national income among the owners of the factors of production—land, labour, and capital. Traditionally, economists have studied how the costs of these factors and the size of their return—rent, wages, and profits—are fixed. The theory of distribution involves three distinguishable sets of questions. First, how is the national income distributed among persons? Second, what determines the prices of the factors of production? Third, how is the national income distributed proportionally among the factors of production?

Knowledge, technical skill, education etc. in economics, are regarded as -

A. social-overhead capital
B. human capital
C. tangible physical capital
D. working capital
Answer» B. human capital
Explanation: Human capital is the stock of competencies, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value. It is an aggregate economic view of the human being acting within economies, which is an attempt to capture the social, biological, cultural and psychological complexity as they interact in explicit and/or economic transactions.

Purchasing Power Parity theory is related with -

A. Interest rate
B. Bank rate
C. Wage rate
D. Exchange rate
Answer» D. Exchange rate
Explanation: Purchasing power parity (PPP) is an economic theory and a technique used to determine the relative value of currencies, estimating the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to (or on par with) each currency's purchasing power. It asks how much money would be needed to purchase the same goods and services in two countries, and uses that to calculate an implicit foreign exchange rate. Using that PPP rate, an amount of money thus has the same purchasing power in different countries.

The demand for which of the following commodity will not rise in spite of a fall in its price?

A. Television
B. Refrigerator
C. Salt
D. Meat
Answer» C. Salt
Explanation: For certain goods called necessities, demand is not related to income. Demand for salt does not increase with the increase in income & does not decrease with the decrease in income. It means that it is irrespective of income. The demand curve slopes downward for goods like salt, but it is inelastic.

In the long-run equilibrium, a competitive firm earns -

A. Super-normal profit
B. Profits equal to other firms
C. Normal profit
D. No profit
Answer» C. Normal profit
Explanation: Making the assumption that the market demand curve remains unchanged, higher market supply will reduce the equilibrium market price until the price = long run average cost. At this point each firm is making normal profits only. There is no further incentive for movement of firms in and out of the industry and a long-run equilibrium has been established.

What is selling cost?

A. Cost incurred on transportation of commodities to market
B. Cost incurred on promoting the sale of the product
C. Cost incurred on commission and salaries personnel
D. Cost incurred on advertisement
Answer» B. Cost incurred on promoting the sale of the product
Explanation: Selling cost is total cost of marketing, advertising, and selling a product. It differs from the production cost which is incurred to produce goods.

Who said, "Economics is the Science of Wealth"?

A. Robbins
B. J.S. Mill
C. Adam Smith
D. Keynes
Answer» C. Adam Smith
Explanation: It was Adam Smith who conceptualized Economics as a science of wealth. Elaborating upon the scope and fundamental conceptualizations of the new science, he then called political economy as "an inquiry into the nature and causes of the wealth of nations."

The addition to total cost by producing an additional unit of out-put by a firm is called -

A. Variable cost
B. Average cost
C. Marginal cost
D. Opportunity cost
Answer» C. Marginal cost
Explanation: The addition to total cost by producing an additional unit of output by a firm is called Marginal cost. Average cost is the total cost of producing a given output divided by that output.

In a perfectly competitive market, a firm's -

A. Average Revenue is always equal to Marginal Revenue
B. Marginal Revenue is more than Average Revenue
C. Average Revenue is more than Marginal Revenue
D. Marginal Revenue and Average Revenue are never equal
Answer» A. Average Revenue is always equal to Marginal Revenue
Explanation: Average revenue is the amount money received by a firm per unit of output sold. Marginal revenue is the change in total revenue resulting from a small change in the quantity sold. In a perfectly competitive market, a firm's Average Revenue is always equal to Marginal Revenue.

An increase in the quantity supplied suggests -

A. a leftward shift of the supply curve
B. a movement up along the supply curve
C. a movement down along the supply curve
D. a rightward shift of the supply curve
Answer» B. a movement up along the supply curve
Explanation: Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at an higher price increases revenue.

Price and output are determinates in market structure other than -

A. monopoly
B. perfect competition
C. oligopoly
D. monopsony
Answer» B. perfect competition
Explanation: Perfect competition is a form of market in which there are a large number of buyers and sellers competing with each other in the purchase and sale of goods, respectively and no individual buyer or seller has any influence over the price and output. Each firm's output is a perfect substitute for the output of the other firms. so the demand for each firm's output isperfectly elastic. Product differentiation holds the key in this type of market structure.

Bilateral monopoly situation is

A. when there are only two sellers of a product
B. when there are only two buyers of a product
C. when there is only one buyer and one seller of a product
D. when there are two buyers and two sellers of a product
Answer» C. when there is only one buyer and one seller of a product
Explanation: Bilateral monopoly is a market consisting of a single seller (monopolist) and a single buyer (monopsonist).For example, if a single firm produced all the copper in a country and if only one firm used this metal, the copper market would be a bilateral monopoly market. The equilibrium in such a market cannot be determined by the traditional tools of demand and supply.

A 'Market Economy' is one which -

A. is controlled by the Government
B. is free from the Government control
C. in influenced by international market forces
D. All of these
Answer» B. is free from the Government control
Explanation: A market economy is an economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's individual citizens and businesses. There is little government intervention or central planning. The United States is the world's premier market economy

The law of demand states that -

A. if the price of a good increases, the demand for that good decreases.
B. if the price of a good increases, the demand for that good increases.
C. if the price of a good increases, the quantity demanded of that good decreases
D. if the price of a good increases, the quantity demanded of that good increases.
Answer» C. if the price of a good increases, the quantity demanded of that good decreases
Explanation: The law of demand states that, other things remaining the same, the quantity demanded of a commodity is inversely related to its price. Thus, according to the law of demand, there is an inverse relationship between price and quantity demanded, other things remaining the same.

The demand curve facing a perfectly competitive firm is -

A. downward sloping
B. perfectly inelastic
C. a concave curve
D. perfectly elastic
Answer» D. perfectly elastic
Explanation: A perfectly competitive industry is comprised of a. large number of relatively small firms that sell identical products. Each perfectly competitive firm is so small relative to the size of the market that it has no market control, it has no ability to control the price. In other words, it can sell any quantity of output it wants at the going market price. This translates into a horizontal or perfectly elastic demand curve.

If average cost falls, marginal cost -

A. increases at a higher rate
B. falls at the same rate
C. increases at a lower rate
D. falls at a higher rate
Answer» B. falls at the same rate
Explanation: Average cost is the per unit cost incurred in the production of a good or service. It is specified as the total cost divided by the quantity of output. The marginal cost (the additional, cost of producing one more unit of output) and average cost are related. So when average total cost rises, marginal cost also rises; when average cost curve falls with the increase in output, the marginal cost also rises.

Consumer gets maximum satisfaction at the point where -

A. Marginal Utility = Price
B. Marginal Utility > Price
C. Marginal Utility < Price
D. Marginal Cost = Price
Answer» A. Marginal Utility = Price
Explanation: As per the law of diminishing marginal utility, the utility of each successive unit goes on diminishing as more and more units of a commodity are consumed. A rational consumer will consume the commodity up to a point where the marginal utility of the final unit of the commodity is equal to the marginal utility of money (in terms of price) paid for it. In this way, the consumer will get the maximum satisfaction and will be in equilibrium.

Micro-economics is also called :

A. Income theory
B. Investment theory
C. Price theory
D. Expenditure theory
Answer» C. Price theory
Explanation: Microeconomics is the branch of economics concerned with isolated parts of the economy, for example, individual people, firms or industries. It involves such topics as the theory of prices and of the firm.

Demand in Economics means :

A. Aggregate demand
B. Market demand
C. Individual demand
D. Demand backed by purchasing power
Answer» D. Demand backed by purchasing power
Explanation: Demand ' in Economics refers to the quantity of a good or service consumers ate able and willing to buy at a given price in a given market during a specified time period , other things beings equal.

A fall in demand or rise in supply of a commodity—

A. Increases the price of that commodity
B. decreases the price of that commodity
C. neutralizes the changes in the price
D. determines" the price elasticity
Answer» B. decreases the price of that commodity
Explanation: The four basic laws of supply and demand are: (1) If demand increases and supplyremains unchanged, a shortage occurs, leading to a higher price: (2) If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower price; (3) If demand remains unchanged and supply increases, a surplus occurs, leading to a lower price; and (4) If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher price.

The relationship between the value of money and the price level in an economy is -

A. Direct
B. Inverse
C. Proportional
D. Stable
Answer» B. Inverse
Explanation: The basic causal relationship between the price level and the value of money is that as the price level goes up, the value of money goes down. The "value of money" refers to what a unit of money can buy whereas the "price level" refers to the average of all of the prices of goods and services in a given economy.

Production function relates -

A. Cost to output
B. Cost to input
C. Wages to profit
D. Inputs to output
Answer» D. Inputs to output
Explanation: Production function specifies the output of a firm, an industry, or an entire economy for all combinations of inputs. The relationship of output to inputs is non-monetary; that is, a production function relates physical inputs to physical outputs, and prices and costs are not reflected in the function.

If total utility is maximum at a point, then marginal utility is -

A. positive
B. zero
C. negative
D. positive but decreasing
Answer» B. zero
Explanation: Marginal utility of a good or service is the gain (or loss) from an increase (or decrease) in the consumption of that good orservice. As the rate of commodity acquisition increases, marginal utility decreases. If commodity consumption continues to rise, marginal utility at some point falls to zero, reaching maximum total utility. Further increase in consumption of units of commodities causes marginal utility to become negative; this signifies dissatisfaction.

Economies of Scale means reduction in

A. unit cost of production
B. unit cost of distribution
C. total cost of production
D. total cost of distribution
Answer» A. unit cost of production
Explanation: In microeconomics, economies of scale are the cost advantages that an enterprise obtains due to expansion. "Economies of scale" is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase.
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