1140+ Economics (GK) Solved MCQs


If a change in all inputs leads to a proportionate change in output, it is case of -

A. Constant returns to scale
B. Diminishing returns to scale
C. Increasing returns to scale
D. Variable returns to scale
Answer» A. Constant returns to scale
Explanation: If output increases by that same proportional change as all inputs change then there are constant returns to scale (CRS). If output increases by less than that proportional change in inputs, there are decreasing returns to scale (DRS). If output increases by more than that proportional change in inputs, there are increasing returns to scale (IRS).

Which of the following is a consequence of inflationary price rise?

A. Obstacle in development
B. Increase in economic inequalities
C. All of these
D. Adverse effect on the balance of payment
Answer» C. All of these
Explanation: Inflationary price rise is harmful to a country's economic performance and to the welfare of its citizens. It can create a random redistribution of income given that inflation does not have an equal impact on individuals and groups. The balance of payments may deteriorate because domestic inflation stimulates import spending, given that imports appear relatively cheaper, and dampens export sales. A continuous price rise can be an obstacle to development as it has an adverse effect on saving and investment and causes a fall in growth.

Price mechanism is a feature of -

A. Capitalist economy
B. Barter economy
C. Mixed economy
D. Socialist economy
Answer» A. Capitalist economy
Explanation: Price mechanism is an economic term that refers to the manner in which the prices of commodities affect the demand and supply of goods and services. It is essentially a feature of market-driven or capitalist economic systems. It is based on the principle that only by allowing prices to move freely will the supply of any given commodity match demand.

The main feature of a capitalist economy is -

A. Administered prices
B. Public ownership
C. Economic planning
D. Private ownership
Answer» D. Private ownership
Explanation: Capitalism is an economic system that is based on private ownership of the means of production and the production of goods or services for profit. Other elements central to capitalism include capital accumulation and often competitive markets.

Personal Income' equals -

A. The household sector's in-come
B. Private income minus savings of the corporate sector minus corporation tax
C. Personal disposable income plus miscellaneous receipts of the Goverment
D. All of the above
Answer» C. Personal disposable income plus miscellaneous receipts of the Goverment
Explanation: Disposable income is total personal income minus personal current taxes (or plus receipts of the government). 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

According to the classical system, saving is a function of -

A. Income
B. The interest rate
C. The real wage
D. The Price level
Answer» A. Income
Explanation: Saving function is a mathematical relation between saving and income by the household sector. This function captures the saving-income relation, the flip side of the consumption-income relation that forms one of the key building blocks for Keynesian economics.

Which of the following concepts are most closely associated with J.M. Keynes?

A. Control of money supply
B. Marginal utility theory
C. Indifference curve analysis
D. Marginal efficiency of captial
Answer» D. Marginal efficiency of captial
Explanation: The marginal efficiency of capital (MEC) is that rate of discount which would equate the price of a fixed capital asset with its present discounted value of expected income. The term "marginal efficiency of capital" was introduced by John Maynard Keynes in his General Theory, and defined as "the rate of discount which would make the present value of the series of annuities given by the returns expected from the capital asset during its life Just equal its supply price

When the total product rises at an increasing rate, the -

A. marginal product is zero
B. marginal product is rising
C. marginal product is falling
D. marginal product remains constant
Answer» B. marginal product is rising
Explanation: Marginal product of an input (factor of production) is the extra output that can be produced by using one more unit of the input (for instance, the difference in output when a firm's labor usage is increased from five to six units), assuming that the quantities of no other inputs to production change. Marginal product, which occasionally goes by the alias marginal physical product (MPP), is one of two measuresderived from total product. The other is average product. Marginal product is directly proportional to total product.

If an industry is characterized by economies of scale then -

A. barriers to entry are not very large
B. long run unit costs of production decreases as the quantity the firm produces increases
C. capital requirement are small due to the efficiency of the large scale operation
D. the costs of entry into the market are likely to be substantial
Answer» B. long run unit costs of production decreases as the quantity the firm produces increases
Explanation: In microeconomics, economies of scale are the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer's average cost per unit to fall as the scale of output is increased. "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.

Movement along the same demand curve is know as -

A. Extension and Contraction of Demand
B. Increase and Decrease of Demand
C. Contraction of supply
D. Increase of supply
Answer» B. Increase and Decrease of Demand
Explanation: A shift in the demand curve is caused by a factor affecting demand other than a change in price. If any of these factors change then the amount consumers wish to purchase changes whatever the price. The shift in the demand curve is referred to as an increase or decrease in demand. A movement along the demand curve occurs when there is a change in price, This may occur because of a change in supply conditions. The factors affecting demand are assumed to be held const ant.

What are gilt-edged securities?

A. Securities issued by the multinational companies.
B. Securities issued by the Government
C. Securities issued by the private sector
D. Securities issued by the joint venture companies
Answer» B. Securities issued by the Government
Explanation: Gilt-edged securities are bonds issued by governments. They are government securities, i.e., instruments issued by the government to borrow money from the market. Gilt-edged securities are a high-grade investment with very low risk.

Which curve shows the inverse relationship between unemployment and inflation rates?

A. Supply curve
B. Indifference curve
C. IS curve
D. Phillips curve
Answer» D. Phillips curve
Explanation: The Phillips curve shows the inverse relationship between inflation and unemployment: as unemployment decreases, inflation increases. The relationship, however, is not linear. Graphically, the short-run Phillips curve traces an L-shape when the unemployment rate is on the x-axis and the inflation rate is on the y-axis.

Collective consumption means -

A. household consumption
B. individual consumption
C. self-consumption
D. consumption by the citizens of the country
Answer» D. consumption by the citizens of the country
Explanation: Collective consumption is a concept that refers to the many goods and services that are produced and consumed on a collective level, such as in cities or countries. These include schools, libraries, roads, bridges, public transportation, health care, welfare, fire and police protection, etc.

The market equilibrium for a commodity is determined by :

A. The market supply of the commodity.
B. The balancing of the forces of demand and supply for the commodity
C. (3) The intervention of the Government.(4)
D. The market demand of the commodity.
Answer» B. The balancing of the forces of demand and supply for the commodity
Explanation: Market Equilibrium is determined when the quantity demanded of a commodity becomes equal to the quantity supplied. The price determined corresponding to market equilibrium is known as equilibrium price and the corresponding quantity is known as equilibrium quantity.

Which of the following would not constitute an economic activity in Economics?

A. A teacher teaching students in his college
B. A teacher teaching students in a coaching institute
C. A teacher teaching his own daughter at home
D. A teacher teaching students under Sarva Shiksha Abbiyan Scheme
Answer» C. A teacher teaching his own daughter at home
Explanation: Economic activity, is quite simply, the activity of the economy. It includes the growth and shrinkage of the economy and all factors that affect this (for example Aggregate Expenditure). It is commonly measured by the GDP (Gross Domestic Product) which is probably one of the most reliable economic indicators. A teacher teaching his daughter at home is the example of a non-economic activity.

Which one of the following is not included while estimating national income through income method?

A. Rent
B. Mixed incomes
C. Pension
D. Undistributed profits
Answer» C. Pension
Explanation: The income approach equates the total output of a nation to the total factor income received by residents or citizens of the nation. Transfer incomes are excluded from national income. Therefore, wages of labourers will be included, pensions of retired workers will be excluded from national income.

Who defined investment as "the construction of a new capital asset like machinery or factory building"?

A. Hansen
B. J.M. Keynes
C. Harrod
D. J.R. Hicks
Answer» B. J.M. Keynes
Explanation: Investment expenditure refers to the creation of new assets i.e. an addition to the stock of existing capital assets. According to Keynes investment demand depends upon two factors: (1) Expected rate of profit which he calls as Marginal Efficiency of Capital (MEC). Investment demand increases with the increase in the expected rate of profit; (2) the rate of interest (IR). Investment demand decreases with the increase in the rate of interest.

An individual's actual standard of living can be assessed by -

A. Gross National Income
B. Net National Income
C. Per Capita Income
D. Disposable Personal Income
Answer» C. Per Capita Income
Explanation: The standard of living is a measure of the material welfare of the inhabitants of a country. The baseline measure of the standard of living is real national output per head of population or real GDP per capita. This is the value of national output divided by the resident population. Other things being equal, a sustained increase in real GDP increases a nation's standard of living providing that output rises faster than the total population.

The standard of living in a country is represented by its:

A. poverty ratio
B. per capita income
C. national income
D. unemployment rate
Answer» B. per capita income
Explanation: Per capita income or average income or income per person is the mean income within an economic aggregate, such as a county or city. It is calculated by taking a measure of all sources of income in the aggregate (such as GDPor Gross National Income) and dividing it by the total population. It does not attempt to reflect the distribution of income or wealth. Per capita income is often used to measure a country's standard of living. However, it is not a good standard of measuring standard of living as it is income of one person of the country.

Capital output ratio of a commodity measures -

A. its per unit cost of production
B. the amount of capital invested per unit of output
C. the ratio of capital depreciation to quantity of output
D. the ratio of working capital employed to quantity of output
Answer» B. the amount of capital invested per unit of output
Explanation: Capital Output Ratio is the ratio of capital used to produce an output over a period of time. This ratio has a tendency to be high when capital is cheap as compared to other inputs. For instance, a country with abundant natural resources can use its resources in lieu of capital to boost its output: hence the resulting capital output ratio is low. The capital output ratio tends to increase if the capital available in a country is cheaper than the other inputs. Therefore, the countries that are rich in natural resources have a low capital output ratio. This is because they can easily substitute the capital with natural resources in order to increase the output. When countries use their natural resources instead of capital then COR reduces.

Taxes on professions can be levied by :

A. State government only
B. both by state and union government
C. by panchayats only
D. Union government only
Answer» A. State government only
Explanation: In India, the professional tax is imposed at the state level. However, not all the states impose this tax. Business owners, working individuals, merchants and people carrying out various occupations comes under the purview of this tax. Professional tax is levied by particular Municipal Corporations.

A part of National Debt known as External Debt is the amount -

A. borrowed by its citizens from abroad
B. lent by its citizens to foreign governments
C. borrowed by its government from abroad
D. lent by its government to foreign government
Answer» C. borrowed by its government from abroad
Explanation: External debt (or foreign debt) is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank.

Which of the following is not considered as National Debt?

A. National Savings Certificates
B. Long-term Government Bonds
C. Insurance Policies
D. Provident Fund
Answer» C. Insurance Policies
Explanation: Government debt is the debt owed by a central government. Governments usually borrow by issuing securities, government bonds and bills. Government Bonds are often issued via auctions at Stock. Exchanges. There are two main depository types: Book-Entry and Certificate. Insurance policies do not come under government debt. In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay.

Disinvestments is -

A. offloading of shares of privates companies to government
B. offloading of government shares to private companies
C. increase in investment
D. closing down of business concerns
Answer» B. offloading of government shares to private companies
Explanation: Disinvestment is a process where Government sells its equity holding to private sectors. In other ways it is a privatization process where private parties are given shareholding in Government undertakings either wholly or partially.

Acording to Keynesian theory of income determination, at full employment, a fall in aggregate demand causes -

A. a fall in prices of output and resources
B. a fall in real gross National product and employment
C. a rise in real gross National product and investment
D. a rise in prices of output and resources
Answer» A. a fall in prices of output and resources
Explanation: In 1936, John Maynard Keynes published the book "The General Theory of Employment, Interest and Money to explain the prolonged and massive unemployment in the Great Depression. The book criticises the classical model. Keynes turns Say's Law on its head, arguing that aggregate demand determines national output and employment in the economy. In this sense, demand creates its own supply. Unlike the Classical economists, Keynes believes that prices and wages are rigid, especially in the downward direction and hence the economy is not a self-correcting mechanism. In other words, Keynes believes that as prices and wages are rigid, the economy can stay at a below-full-employment equilibrium. Suppose that the economy is at the full-employment equilibrium.

The theory of "Maximum Social Advantage" in Public Finance Was given by

A. Robbins
B. Musgrave
C. Findley
D. Dalten
Answer» D. Dalten
Explanation: The 'Principle of Maximum Social Advantage' was introduced by British economist Hugh Dalton. According to Dalton, "The best system of public finance is that which secures the maximum social advantage from the operations which it conducts."

Taxes are as certain as the death, because -

A. They constitute the major source of government revenue.
B. Government have no other source of revenue.
C. Most PSUs are run inefficiently.
D. Government has its own budget constraints.
Answer» A. They constitute the major source of government revenue.
Explanation: Benjamin Franklin's utterance, "In this world nothing can be said to be certain, except death and taxes," when applied in economics means that the largest amount of revenue raised by governments comes from taxation. The proverb draws on the actual inevitability of death to highlight the difficulty in avoiding the burden of taxes.

In the context of the stock market, IPO stands for -

A. Immediate Payment Order
B. Internal Policy Obligation
C. Initial Public Offer
D. International Payment Obligation
Answer» C. Initial Public Offer
Explanation: An initial public offering (IPO) or stock market launch is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange, for the first time. Through this process, a private company transforms into a public company. Initial public offerings are used by - companies to raise expansion capital, to possibly monetize the investments of early private investors, and to become publicly traded enterprises. A company selling shares is never required to repay the capital to its public investors.

Disinvestment in Public Sector is called

A. Liberalisation
B. Globalisation
C. Industrialisation
D. Privatisation
Answer» D. Privatisation
Explanation: Privatization is the process of transferring ownership of a business, enterprise, agency, public service or public property from the public sector (a government) to the privatesector, either to a business that operates for a profit or to a non-profit organization. The term can also mean government outsourcing of services or functions to private firms, e.g. revenue collection, law enforcement, and prison management.

Which one of the following is NOT an example of indirect tax?

A. Sales tax
B. Excise duty
C. Customs duty
D. Expenditure tax
Answer» D. Expenditure tax
Explanation: Expenditure tax is a taxation plan that replaces the income tax (a direct tax). Instead of applying a tax based on the income earned, tax is allocated based on the rate of spending. This is different from a sales tax, which is applied at the time the goods or services are provided and is considered a consumption tax. The major benefit for this type of tax scheme is the removal of double taxation.

Interest on public debt is a part of :

A. transfer payments by the enterprises
B. transfer payments by the Govt.
C. national income
D. interest payments by households
Answer» B. transfer payments by the Govt.
Explanation: In economics, a transfer payment (or government transfer or simply transfer) is a redistribution of income in the market system. These payments are considered to be exhaustive because they do not directly absorb resources or create output. In other words, the transfer is made without any exchange of goods or services. Examples of certain transfer payments include welfare (financial aid), interest on public debt, social security, and government making subsidies for certain businesses (firms).

A speculator who sells stocks, in order to buy back when price falls, for gain is a -

A. Bull
B. Bear
C. Boar
D. Bison
Answer» B. Bear
Explanation: A bear is a speculator who is wary of fall in prices and hence sells securities so that he may buy them at cheap price in future. He does not have securities at present but sells them at higher prices in anticipation that he will supply them business purchasing at lower prices in the future. If the prices move down as per the expectations of the bear he will earn profits out of these transactions.

Inflation can be checked by -

A. increasing exports
B. increasing money supply
C. increasing Government expenditure
D. decreasing money supply
Answer» D. decreasing money supply
Explanation: The technical and most often used way to control inflation is by tightening the money supply. The logic goes that when people do not have excess money, they will buy lesser quantity of goods and services and postpone luxurious expenses. This will reduce the demand for the products and thus lead to reduction in prices. Most central banks use high interest rates as the traditional way to fight or prevent inflation.

"Legal Tender Money" refers to :

A. Cheques
B. Drafts
C. Bill of exchange
D. Currency notes
Answer» D. Currency notes
Explanation: Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency and coins are common forms of legal tender in many countries. Legal tender money is a type of payment that is protected by law.

Gresham's Law means -

A. Good money replaces bad money in circulation
B. Bad money replaces good money in circulation
C. Good money promotes bad money in the system
D. Bad money promotes good money in the system
Answer» B. Bad money replaces good money in circulation
Explanation: Gresham's law is an economic principle that states: "When a government compulsorily overvalues one type of money and undervalues another, the under-valued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."

Free Trade refers to -

A. free movement of goods from one country to another
B. movement of goods free of cost
C. unrestricted exchange of goods and service
D. trade free of duty
Answer» A. free movement of goods from one country to another
Explanation: Free trade is a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports) or quotas. According to the law of comparative advantage, the policy permits trading partners mutual gains from trade of goods and services. Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ-from those that would emerge under deregulation.

Insider trading is related to -

A. Trade sector
B. Share market
C. Credit market
D. Horse racing
Answer» B. Share market
Explanation: Insider trading is the trading of a public company's stock or other securities by individuals with access to non-public information about the company. It is related to share markets. Insider trading is an unfair practice, wherein the other stock holders are at a great disadvantage due to lack of important insider non-public information.

Situation Analysis is useful for:

A. Analysis of Capital Market
B. SWOT Analysis
C. Capital Market.
D. Analysis of Capital Market and Capital Market.
Answer» B. SWOT Analysis
Explanation: Three of the four options in the question are identical. Situation analysis refers to a collection of methods that managers use to analyze an organization's internal and external environment to understand the organization's capabilities, customers, and business environment. It is useful for Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis in which internal strengths and weaknesses of an organization, and external opportunities and threats faced by it are closely examined to chart a strategy.

Which terns is used in economics for the market value of all goods and services in one year by labour and properly supplied by the residents of the country?

Answer» D. GNP
Explanation: Gross National Product (GNP) is defined as "the market value of all goods andservices produced in one year by labour and property supplied by the residents of a country. It is contrasted to Gross domestic product (GDP), defined as "the value of all final goods and services produced in a country in I year."

Which one of the following is not a method for computing GNP?

A. Income Approach
B. Expenditure Approach
C. Savings Approach
D. Value Added Approach
Answer» A. Income Approach
Explanation: Gross National Product (GNP) can be defined as an economic statistic which includes Gross Domestic Product, plus any income earned by the residents from investments made overseas. Net factor income from abroad = income earned in foreign countries by the residents of a country - income earned by nonresidents in that country.

An economy which does not have any relation with the rest of the world is known as

A. Socialist economy
B. Closed economy
C. Open economy
D. Mixed economy
Answer» B. Closed economy
Explanation: A Closed economy is an economy in which no activity is conducted with outside economies. A closed economy is self-sufficient, meaning that no imports are brought in and no exports are sent out. The goal is to provide consumers with everything that they need from within the economy's borders.

While estimating national income which of the following is not taken into account?

A. Services of a teacher
B. Services of a doctor
C. Services of a housewife
D. Services of a maid servant
Answer» C. Services of a housewife
Explanation: Services provided by housewives can be categorized as non-economic services and thus cannot be accounted in national income which is the sum total of all the goods andservices produced in a country, in a particular period of time.

Consumptions function refers to -

A. relationship between income and employment
B. relationship between savings and investment
C. relationship between input and output
D. relationship between income and consumption
Answer» D. relationship between income and consumption
Explanation: The Consumption function is a single mathematical function used to express consumer spending. It was developed by John Maynard Keynes and detailed most famously in his book The General Theory of Employment, Interest, and Money. It is made up of autonomous consumption that is not influenced by current income and induced consumption that is influenced by the economy's income level.

Capital : Output Ratio of a measures -

A. its per unit cost of production
B. the amount of capital invested per unit of output
C. the ratio of capital depreciation to quantity of output
D. the ratio of working capital employed to quantity of output
Answer» B. the amount of capital invested per unit of output
Explanation: Capital output ratio is the ratio of capital used to produce an output over a period of time. This ratio has a tendency to be high when capital is cheap as compared to other inputs. For instance, a country with abundant natural resources can use its resources in lieu of capital to boost its output; hence the resulting capital output ratio is low.

"Supply creates its own demand" - Who said this?

A. J. B. Say
B. J. S. Mill
C. J. M. Keynes
D. Senior
Answer» A. J. B. Say
Explanation: "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. Say's Law (or Say's Law of Markets), is often summarized as: "Aggregate supply creates its own aggregate demand", "Supply creates its own demand", "If you build it, they will come", and Inherent in supply is the wherewithal for its own consumption".

'Take-off stage' in an economy means -

A. Steady growth begins.
B. Economy is stagnant.
C. Economy is about to collapse.
D. All controls are removed.
Answer» A. Steady growth begins.
Explanation: Rostow's 'Stages of Economic Growth' (1960) presented five stages through which all countries must pass to become developed: 1) traditional society, 2) preconditions to take-off, 3) take-off, 4) drive to maturity, and 5) age of high mass consumption. Take-off is the short period of intensive growth, in which industrialization begins to occur, and workers and institutions become concentrated around a new industry.

Gross National Product - Depreciation Allowance =?

A. Per Capita Income
B. Gross Domestic Product
C. Personal Income
D. Net National Product
Answer» D. Net National Product
Explanation: Net National product (NNP) is Gross National Product minus a depreciation allowance for the wearing out of machines and buildings during the period. In other words, NNP= Gross National Product - Depreciation Allowance. Since NNP counts only the net additions to the nation's stock, it is less than GNP.

Interest paid by the government on the loans raised is called -

A. Debt Servicing
B. Deficit Financing
C. Discounted Budgeting
D. Bridge-loan
Answer» A. Debt Servicing
Explanation: Debt service is the amount of money required to make payments on the principal and interest on outstanding loans, the interest on bonds. or the principal of maturing bonds. An individual or company unable to make such payments is said to be "unable to service one's debt."

In an economy, the sectors are classified into public and private on the basis of -

A. employment conditions
B. nature of economic activities
C. ownership of enterprises
D. use of raw materials
Answer» C. ownership of enterprises
Explanation: The classical breakdown of all economic sectors is: primary, secondary and tertiary. However, on the basis of ownership, the sectors are: business sector, private sector (privately run businesses), public sector (state sector) and voluntary sector.

Which of the following taxes is such which does not cause rise in price?

A. Import duty
B. Income tax
C. Octoroi
D. Sales tax
Answer» B. Income tax
Explanation: The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (H UFs), companies, firms, co-operative societies and trusts (identified as body of individuals and association of persons) and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. It does not lead to increase in price as it is dependent of income of individuals.

Who among the following has suggested tax on expenditure?

A. Dalton
B. Kaldor
C. Musgrave
D. Gautam Mathur
Answer» B. Kaldor
Explanation: Nicholas Kaldor's seminal' work, titled 'An Expenditure Tax,' was brought out in 1955. Kaldor asked to levy a tax on a person's expenditure (consumption), instead of on his income. When expenditure is made the basis of taxation, the problems created by the non- comparability of various types of accruals of wealth resolve themselves. This was his major argument in favour of an expenditure tax.

Which of the following is not helpful in controlling money supply?

A. Free market policy
C. Bank Rate
D. Change in margin requirement
Answer» A. Free market policy
Explanation: The Central Bank of a country regulates money supply with the help of open market operations, changing the reserve requirements (CRR) and changing discount rate (bank rate). Besides, banks are required to maintain liquid assets in the form of gold, cash and approved securities (margin requirements); also known as Statutory Liquidity ratio. In India, the Reserve Bank of India has recently been resorting more to open market operations.

Which term is not related to banking?

A. C.R.R.
B. N .E.E .R.
C. S.L.R.
D. Fixed Deposits
Answer» B. N .E.E .R.
Explanation: NEER stands for Nominal Effective Exchange Rate which represents the relative value of a home country's currency compared to the other major currencies being traded (U.S. dollar, Japanese yen, euro, etc.). It also represents the approximate relative price a consumer will pay for an imported good.

The process of curing inflation by reducing money supply is called -

A. Cost-push inflation
B. Demand-pull inflation
C. Disinflation
D. Reflation
Answer» C. Disinflation
Explanation: Disinflation is a decrease in the rate of inflation -a slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over Lime. It is the opposite of reflation. Disinflation occurs when the increase in the "consumer price level" slows down from the previous period when the prices were rising. Disinflation is the reduction in the general price level in the economy but for a very short period of time. Disinflation takes place only when an economy is suffering from recession.

Longterm funds in the capital, market can be raised either by borrowing from certain institutions or through -

A. issue of note
B. taking loan from Government
C. issue of securities
D. taking loan from foreign institutions
Answer» C. issue of securities
Explanation: Capital markets provide for the buying and selling of long term debt or equity backed securities. When they work well, the capital markets channel the wealth of savers to those who can put it to long term productive use, such as companies or governments making long term investments. Capital Markets allow businesses to raise long-term funds by providing a market for securities, both through debt and equity.

"Closed Economy" means :

A. no provision for public sector
B. no provision for private sector
C. economy policy not well defined
D. a country having no imports and exports
Answer» D. a country having no imports and exports
Explanation: Closed economy is an economy in which no activity is conducted with outside economies. A closed economy is self-sufficient, meaning that no imports are brought in and no exports are sent out. The goal is to provide consumers with everything that they need from within the economy's borders.

Dumping is a form of price discrimination at -

A. within industry
B. national level
C. international level
D. local level
Answer» C. international level
Explanation: Dumping is, in general, is a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country. It is regarded as an "unfair" trade practice as it may cause or threat en to cause material injury to the importing markets.

Money supply is governed by the -

A. Planning Commission
B. Finance Commission
C. Reserve Bank of India
D. Commercial Banks
Answer» C. Reserve Bank of India
Explanation: In economics, the money supply or money stock, is the total amount of monetary assets available in an economy at a specific time. It is governed and regulated by the central bank of a country. The Reserve Bank of India regulates money supply in India through its several policy rates and reserve ratios.

The food stocks that are built up during the years of bumper harvest are called :

A. Capital stock
B. Buffer stock
C. Production stock
D. Grain stock
Answer» B. Buffer stock
Explanation: Commercial grain stock is the current amount of harvested grain crops stored domestically, including both on-farni and off- farm storage sites. Buffer stocks are created during periods of normal or bumper harvest to ensure food security during the periods when production is short of normal demand during bad agricultural years.

'NABARD' is associated with the development of -

A. agricultural sector and rural areas
B. heavy Industries
C. banking sector
D. real estates
Answer» A. agricultural sector and rural areas
Explanation: National Bank for Agriculture and Rural Development (NABARD) has been accredited with "matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas in India". It serves as an apex financing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas.

Government takes 'ways and means advances' from -

Answer» A. RBI
Explanation: Ways and means advances (WMA) is a mechanism used by Reserve Bank of India (RBI) under its credit policy by which provides to the States banking with it to help them to tide over temporary mismatches in the cash flow of their receipts and payments. These are temporary advances (overdrafts) extended by RBI to the government. Section 17(5) of RBI Act allows RBI to make WMA both to the Central and State governments. It aims to bridge the interval between expenditure and receipts.

Kisan Credit Card scheme was introduced in -

A. 1991
B. 1996
C. 1998
D. 2000
Answer» C. 1998
Explanation: Kisan Credit Card Scheme (KCC) aims at providing adequate and timely support from the banking system to t he farmers for their short-term credit needs for cultivation of crops. This mainly helps farmer for purchase of inputs etc., during the cropping season. Credit card scheme proposed to introduce flexibility to thesystem and improve cost efficiency. It was introduced in August 1998.

According to Malthusian theory of population -

A. Population increases in geometric ratio, food supply increases in arithmetic ratio
B. Population increases in arithmetic ratio, food supply increases in geometric ratio
C. Population increases in a harmonic mean, food supply increases in geometric ratio
D. Population increases in a harmonic ratio, food supply increases in a arithmetic ratio
Answer» A. Population increases in geometric ratio, food supply increases in arithmetic ratio
Explanation: In his 1798 work, An Essay on the Principle of Population, Malthus ermined the relationship between population growth and resources and developed the Malthusian theory of population growth. He proposed that human populations grow exponentially (i.e., doubling with each cycle) while food production grows at an arithmetic rate (i.e. by the repeated addition of a uniform increment in each uniform interval of time).

Whch of the following curve describes the variation of household expenditure on a particular good with respect to household income?

A. Demand curve
B. Engel curve
C. Great Cats by curve
D. Cost curve
Answer» B. Engel curve
Explanation: In microeconomics, an Engel curve describes how household expenditure on a particular good or service varies with household income. The curve is named after the German statistician Ernst Engel (1821-1896). who was the first to investigate this relationship between goods expenditure and income systematically in 1857.

Malthusian theory is associated with which of the following?

A. Poverty
B. Employment
C. Diseases
D. Population
Answer» D. Population
Explanation: The most well-known theory of population is the Malthusian theory. lt explains the relationship between the growth in food supply and in population. It states that population increases faster than food supply and if unchecked leads to vice or misery. Thomas Robert Malthus enunciated his views about population in his famous book, Essay on the Principle of Population as it affects the Future Improvement of Society, published in 1798.

Which of the following relations always holds true?

A. Income = Consumption + Investment
B. Income = Consumption + Saving
C. Saving = Investment
D. Income = Consumption + Saving + Investment
Answer» B. Income = Consumption + Saving
Explanation: Consumers do one of two things with their disposable income: They save it or they spend it. So Income = Consumption + Saving.

The Keynesian consumption function shows a relation between -

A. aggregate consumption and total population.
B. aggregate consumption and general price level.
C. aggregate consumption and aggregate income
D. aggregate consumption and interest rate
Answer» C. aggregate consumption and aggregate income
Explanation: According to Keynesian Theory of consumption, the current real disposable income is the most important determinant of consumption in the short run. It bases consumption on current income.

Full employment is a situation where -

A. there is no involuntary unemployment
B. there is involuntary unemployment
C. there is no voluntary unemployment
D. there is voluntary unemployment
Answer» B. there is involuntary unemployment
Explanation: Full employment refers to a situation in which every able bodied person who is willing to work at the prevailing rate of wages is, in fact, employed. It implies absence of involuntary unemployment which occurs when those who are willing to work at the going wage rate do not get work.

What is needed for creating demand?

A. Production
B. Price
C. Income
D. Import
Answer» A. Production
Explanation: Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. So for demand to originate, a product is required first.

Which of the statements is correct about India's national income?

A. Percentage share of agriculture is higher than services
B. Percentage share of industry is higher than agriculture
C. Percentage share of services is higher than industry
D. Percentage share of services is higher than agriculture and industry put together
Answer» D. Percentage share of services is higher than agriculture and industry put together
Explanation: The services sector has the largest share in the GDP, accounting for 55% in 2007, up from 15% in 1950. Industry accounts for 28% of the GDP and employ 14% of the total workforce. Agriculture and allied sectors like forestry, logging and fishing ac-counted for 15.7% of the GDP in 2009-10.

Who among the following is not a classical economist?

A. David Ricardo
B. John Stuart Mill
C. Thomas Malthus
D. John Maynard Keynes
Answer» D. John Maynard Keynes
Explanation: Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill. John Maynard Keynes was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics and formed the economic policies of governments.

The difference in the value of visible exports and visible imports is called :

A. Balance Sheet of items
B. Balance of Payments
C. Balance of Trade
D. Balance of Account
Answer» C. Balance of Trade
Explanation: Balance of Trade refers to the difference between the value of a country's visible imports and visible exports. Also known as the visible balance, it forms part of the balance of payments current account. When the value of visible imports totals more than the value of visible exports, it is known as an adverse balance of trade.

Which of the following best indicates economic growth of a Nation?

A. Agriculture income
B. Per capita income
C. Gross industrial production
D. Inflation
Answer» B. Per capita income
Explanation: Some economists believe that economic growth is meaningless if it is not distributed across different segments of population. So per capita income is considered by some as a better indicator of economic growth since it measures the average income earned per person in country in a specified year. It serves as an indicator of a country's living standards and how wealth or income isdistributed across the population. However, to a vast majority Gross Domestic Product (GDP) is the most comprehensive measure of over-all economic performance.

Indirect taxes by nature are -

A. degressive
B. regressive
C. progressive
D. proportional
Answer» B. regressive
Explanation: An indirect tax is one in which the burden can be shifted to others. The tax payer is not the tax bearer. The impact and incidence of indirect taxes are on different persons. Since, most of the indirect taxes are not progressive in nature, individuals may not mind to pay them, In other words, indirect taxes are generally regressive in nature. Therefore, individuals would not be de-motivated to work and to save, which may increase investment.

Taxation is a tool of -

A. Monetary-policy
B. Fiscal policy
C. Price policy
D. Wage policy
Answer» B. Fiscal policy
Explanation: In economics, fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. The two main instruments of fiscal policy are government taxation and expenditure.

Which of the following is not viewed as national debt?

A. Life Insurance Policies
B. Long-term Government Bonds
C. National Savings Certificates
D. Provident Fund
Answer» A. Life Insurance Policies
Explanation: Government debt (also known as public debt, national debt) is the debt owed by a central government. Government debt is one method of financing government operations, but it is not the only method. Governments can also create money to monetize their debts, thereby removing the need to pay interest. But this practice simply reduces government interestcosts rather than truly canceling government debt. Governments usually borrow by issuing securities, government bonds and bills. Less creditworthy countries sometimes borrow directly from a supranational organization (e.g. the World Bank) or international financial institutions.

What is Value Added Tax (VAT)?

A. A simple, transparent, easy to pay tax imposed on consumers
B. A new initiative taken by the Government to increase the tax-burden of high income groups
C. A single tax that replaces State taxes like, surcharge, turnover tax, etc.
D. A new tax to be imposed on the producers of capital goods
Answer» C. A single tax that replaces State taxes like, surcharge, turnover tax, etc.
Explanation: A value added tax (VAT) is a form of consumption tax. A VAT is like a sales tax in that ultimately only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer. VAT comes under the single tax system based primarily or exclusively on one tax, typically chosen for its special properties.

What is referred to as 'Depository Services'?

A. A new scheme of fixed deposits
B. A method for regulating stock exchanges
C. An agency for safe-keeping of securities
D. An advisory service to investors
Answer» C. An agency for safe-keeping of securities
Explanation: It is a service offered by a securities depository under which the depository maintains book accounts recording the ownership of securities held on behalf of the depository's participants, for eligible securities.

The terms 'Bull' and 'Bear' are associated with -

A. Banking
B. Foreign Trade
C. Stock Market
D. Internet Trade
Answer» C. Stock Market
Explanation: The terms 'bull' and 'bear' describe upward and downward trends respectively of the stock market. A bear market refers to a decline in prices, usually for .a period of a few months, in a single security or asset, group of securities or the securities market as a whole. A bull market is when prices are rising.

A currency whose exchange rate is influenced by the government is a/an -

A. Unmanaged Currency
B. Managed Currency
C. Scarce Currency
D. Surplus Currency
Answer» B. Managed Currency
Explanation: Managed currency refers to currency whose ex-change rate is not determined by the free-market forces of demand and supply but instead by the government's intervention through the country's central bank.

Which one of the following statements is correct?

A. Good money drives bad money out of circulation
B. Bad money drives good money out of circulation
C. Good and bad money cannot circulate together
D. Cannot say
Answer» B. Bad money drives good money out of circulation
Explanation: One of the most famous axioms in economics is "bad money drives out good." This rule has generally been attributed to Sir Thomas Gresham (1519-1579), an English financier who advised King Edward VI and Queen Elizabeth I with regard to financial matters, and it is popularly known as Gresham's Law. The key prerequisite is that there must be two forms of money or currency (with the same face value) in circulation simultaneously.

Devaluation of currency leads to -

A. expansion of export trade
B. contraction of import trade
C. expansion of import substitution
D. All of the above
Answer» D. All of the above
Explanation: Devaluation in modern monetary policy is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged. There are two implications for currency devaluation. First, de-valuation makes a country's exports relatively less expensive for foreigners and second, it makes foreign products relatively more expensive for domestic consumers, discouraging imports. As a result, this may help to reduce a country's trade deficit. Import substitution means promotion of export to replace imports. It is also fallout of devaluation.

As a result of higher rate of inflation in India, the U.S. dollar will -

A. Depreciate
B. Constant
C. Negligible
D. Appreciate
Answer» D. Appreciate
Explanation: A relatively higher rate of inflation causing rise in prices of the goods in India as compared to those in the USA will make US goods relatively cheaper and the Indian goods expensive. This will lead to rise in imports of US goods into India and the reduction in Indian exports to the USA that will, in turn, cause the foreign exchange rate of dollar in terms of rupees to rise and the price of Indian rupee in terms of dollar will fall. Thus, as a result of higher rate of inflation in India, the US dollar -will appreciate and the Indian rupee will depreciate.

Which type of foreign investment is considered as unsafe?

A. Foreign Direct Investment (FDI)
B. Portfolio Investment
C. NRI deposits
D. External commercial borrowing
Answer» B. Portfolio Investment
Explanation: Portfolio Investments are considered unsafe. These are investments in the form of a group (portfolio) of assets, including transactions in equity securities, such as common stock, and debt securities, such asbanknotes, bonds, and debentures. Portfolio investments are passive investments, as they do not entail active management or control of the issuing company. Rather, the purpose of the investment is solely financial gain, in contrast to foreign direct investment (FDI), which allows an investor to exercise a certain degree of managerial control over a company.

'Mixed economy' refers to -

A. the co-existence of heavy, small scale and cottage industries
B. the promotion of agriculture as well as cottage industries
C. the co-existence of rich as well as poor
D. the co-existence of public as well as private sector
Answer» D. the co-existence of public as well as private sector
Explanation: Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies.

Golden Handshake Scheme is associated with -

A. Inviting foreign companies
B. Private investment in public enterprises
C. Establishing joint enterprises
D. Voluntary retirement
Answer» D. Voluntary retirement
Explanation: A golden handshake is a clause in an executive employment contract that provides the executive with a significant severance package in the case that the executive loses his or her job through firing, restructuring, or even scheduled retirement. This can be in the form of cash, equity, and other benefits, and is often accompanied by an accelerated vesting of stock options.

Stagflation is a situation of -

A. stagnation and deflation
B. stagnation and recession
C. stagnation and inflation
D. stagnation and recovery
Answer» C. stagnation and inflation
Explanation: Stagflation is a situation of stagnation in which the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high. Stagflation occurs when the economy isn't growing but prices are, which is not a good situation for a country to be in

Devaluation makes import -

A. Competitive
B. Inelastic
C. Cheaper
D. Dearer
Answer» D. Dearer
Explanation: Devaluation makes import expensive and discourages it, while the export of a country that devalues becomes cheaper and thereby induces trade partners to import more goods from her. Nations that produce industrial goods on a large scale stand to benefit from devaluation.

Gresham's law is related to -

A. Consumption and demand
B. Supply and demand
C. Circulation of money
D. Deficit financing
Answer» C. Circulation of money
Explanation: Gresham's law is an observation in economics that "bad money drives out good." More exactly, if coins containing metal of different value have the same value as legal tender, the coins composed of the cheaper metal will be used for payment, while those made of more expensive metal will be hoarded or exported and thus tend to disappear from circulation. Sir Thomas Gresham, financial agent of Queen Elizabeth I, was not the first to recognize this monetary principle, but his elucidation of it in 1558 prompted the economist H.D. Macleod to suggest the term Gresham's law in the 19th century.

'PROTECTION' means -

A. Restrictions imposed on import trade
B. Protection to home industries
C. No free exchange of goods and services between two countries
D. All of the above
Answer» D. All of the above
Explanation: Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow (according to proponents) "fair competition" between imports and goods and services produced domestically. It refers to policies or doctrines which protect businesses and workers within a country by restricting or regulating trade with foreign nations.

Which one of the following does not deal with export promotion?

A. Trade Development Authority
B. Mineral and Metal Trading Corporation
C. Cooperative Marketing Societies
D. State Trading Corporation of India
Answer» C. Cooperative Marketing Societies
Explanation: Cooperative marketing is just an extension and application of the philosophy of cooperation in the area of agricultural marketing. It is a process of marketing through a cooperative society, formed for the producers, by the producers. It seeks to eliminate the middlemen between the producer and the consumer, thus getting the maximum price for their produce.

Commercialization of agriculture implies -

A. cultivation of Limbers
B. plantation
C. production of crops for sale
D. production of crops like wheat or rice
Answer» C. production of crops for sale
Explanation: Commercial agriculture is large- scale production of crops for sale, intended for widespread distribution to wholesalers or retail outlets. In commercial farming crops such as wheat, maize, tea, coffee, sugarcane, cashew, rubber, banana, and cotton are harvested and sold into world markets.

Agricultural income tax is a source of revenue to -

A. Central Government
B. State Government
C. Local Administration
D. Centre and State Governments
Answer» B. State Government
Explanation: The Constitution of India allocates the taxation of agricultural income to states. Land revenue is a major source of revenue for states in India

Agricultural Technology is hard to spread because :

A. it has to be adopted to local conditions.
B. rural people are not receptive
C. farmers are afraid to experiment on land for fear of failure.
D. all of the above
Answer» D. all of the above
Explanation: There are many benefits of using technology in agriculture system, but there are also negative aspects. Technology transfer ismost difficult in agriculture because of the differences in natural conditions, such as weather, geographical features, plant ecology, and irrigation, which overlap social and institutional restrictions. When an agricultural technology is stable as a result of the limitations imposed by the existing national conditions and social system, the limits of production are empirically foreseeable.

Structural unemployment arises due to :

A. deflationary conditions
B. heavy industry bias
C. shortage of raw materials
D. inadequate productive capacity
Answer» D. inadequate productive capacity
Explanation: Structural unemployment is a form of unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers seeking employment. Structural unemployment is a result of the dynamics of the labor market, such as agricultural workers being displaced by mechanized agriculture. unskilled laborers displaced by both mechanization and automation, or industries with declining employment. Many of these displaced workers are "left behind" due to costs of training and moving (e.g., the cost of selling one's house in a depressed local economy), inefficiencies in the labor markets, such as discrimination or monopoly power, or because they are unsuited for work in growing sectors such as health care or high technology.

The demand of a commodity is a direct demand but the demand of a factor of production is called a -

A. Crossed demand
B. Joint demand
C. Derived demand
D. Independent demand
Answer» C. Derived demand
Explanation: In the words of McConnell, the demand for factors of production is a derived demand that is derived from the finished goods and services which resources help to produce. While the demand for good is direct demand, demand for factors is derived demand. It is based on the productivity of the factors.

Depreciation is loss in value of               .

A. Final goods
B. Machinery
C. Capital stock
D. Stock of inventory
Answer» B. Machinery
Explanation: The term depreciation represents loss or diminution in the value of an asset consequent upon wear and tear, obsolescence, effluxion of time or permanent fall in market value. Physical deterioration of an asset is caused from movement, strain, friction, erosion etc. For instance, building, machineries, furniture, vehicles, plant etc. The wear and tear is general but primary cause of depreciation.

When income increase, consumption also increases :

A. in a lower proportion
B. in a higher proportion
C. in the same proportion
D. None of the options
Answer» A. in a lower proportion
Explanation: According to the Keynesian Consumption theory, "men are disposed, as a rule and on average, to increase their consumption as their income increases, but not by as much as the increase in their income." Another feature of consumer behavior is that when income increases, people do not spend their entire incremental income on consumption. They save a part of it for their financial security during the period of =employment, illness, etc. In simple words, the marginal propensity to consume decreases, i.e., house-holds spend a decreasing proportion of marginal income on consumption.

The total utility from 9 units of commodity x is 20 and from 10 units is 15. Calculate the marginal utility from 10th unit.

A. 0.5
B. 5
C. -0.5
D. -5
Answer» D. -5
Explanation: Marginal Utility = Change in Total Utility / Change in number of Units consumed. The first component of the formula is to calculate the change in total utility. The second component of the marginal utility formula is the change in the number of units that have been consumed.

A camera in the hands of a professional photographer is a            good.

A. Free
B. Intermediary
C. Consumer
D. Capital
Answer» B. Intermediary
Explanation: Good is any tangible item, whether produced or found naturally and which is available for exchange. Free good is a good that is so abundant is supply that it has no opportunity cost, for example, air. Intermediary good is a firm's product that is used as an input into the production process of either the same firm or another,
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