100 Most Important Multiple choice questions on Economics asked in various Competitive exams
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100 Most Important Multiple choice questions on Economics asked in various Competitive exams

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Economics

100 Most Important Economics Multiple Choice Questions

Here we are discussing important MCQ which are asked normally in various competitive exams. These questions cover different forms of economics like microeconomics, macroeconomics.  So let's see your preparation so far. 

Q1. The process of curing inflation by reducing the money supply is called

(a) Cost-push inflation

(b) Demand-pull inflation

(c) Disinflation 

 (d) Reflation

Answer (C )

Explanation: 

There are several main reasons that can cause an economy to experience disinflation. If a central bank decides to impose a tighter monetary policy and the government starts to sell off some of its securities, it could reduce the supply of money in the economy, causing a disinflationary effect. Similarly, a contraction in the business cycle or a recession can also cause disinflation

Q2. Indian agriculture is typically characterized as

(a) land surplus, labour scarce economy                                                              

(b) land surplus, labor surplus economy

(c) land-scarce, labor surplus economy                               

(d) land-scarce, labor scarce economy

Answer (C )

Explanation:

Indian agriculture is typically characterized as a land scare, labor surplus economy. India has a high man/land ratio. There are a large number of skilled laborers but there is the absence of land or capital.

Q3. Which of the following items is a major oil item of Indian export?  

(a) Computer chips 

(b) Potato chips       

(c) Textile garments

(d) Car engines

Answer (D) 

Explanation:

Car engines are a major oil item of Indian export.

Q4. Price theory is also known as

(a) Macroeconomics

(b) Development Economics 

(c) Public Economics   

(d) Micro Economics

Answer (D )

Explanation:

Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.
One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses. Microeconomics shows conditions under which free markets lead to desirable allocations. It also analyzes market failure, where markets fail to produce efficient results.

Q5. 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 the industry

(d) Percentage share of services is higher than agriculture and industry put together

Answer (D)

Explanation:

Sectors of Indian Economy
Three sectors – Primary, Secondary, and Tertiary.
Primary = Agriculture-related.
Secondary = Industry-related.
Tertiary = Service related.
Sector share towards GDP : Tertiary (60%)> Secondary (28%)> Primary(12%).
Sector share by working force : Primary (51%)> Tertiary (27%) > Secondary (22%)>

Q6. The gradation and standardization of agricultural products are conducted through

(a) Food Corporation of India                       

(b) Directorate of Marketing and Inspection

(c) Indian Standards Institution                                    

(d) Central Statistical Organization

Answer (B )

Explanation:

The Directorate of Marketing and Inspection (DMI), an Attached Office of the Department of Agriculture, Cooperation and Farmers Welfare under the Ministry of Agriculture & Farmers Welfare was set up in the year 1935 to implement the agricultural marketing policies and programs for the integrated development of marketing of agricultural and other allied products in the country with a view to safeguarding the interests of farmers as well as the consumers. It maintains a close liaison between the Central and the State Governments.

Q7. When too much money is chasing too few goods, the situation is

(a) Deflation   

(b) Inflation        

(c)  Recession                   

(d) Stagflation

Answer (B )

Explanation:

In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of accounts in an economy

Q8. One of the main factors that led to the rapid expansion of Indian exports is

(a) Imposition of import duties                 

(b) Liberalization of the economy

(c) Recession in other countries    

(d) Diversification of exports

Answer (D )

Explanation:

Diversification is an act of an existing entity branching out into a new business opportunity. In terms of exports, diversification means expanding exports into new segments outside the scope of existing exports.

Q9. Cheap money means

(a) Low rates of interest 

(b) Low level of saving  

(c) Low level of income

(d) Low level of standard of living

Answer (A )

Explanation:

Cheap money in the market means that the money for lending is available at low rates of interest

Q10. Compared to the rich the poor save

(a) A larger part of their income                       

(b) An equal part of their income

(c) A smaller part of their income     

(d) All of their incomes

Answer (C )

Explanation:

As the disposable incomes are less with the poor they tend to save less.

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Q11. Kisan Credit Card scheme was introduced in

(a) 1991                           

 (b) 1996                          

(c) 1998                        

(d) 2000

Answer (C )

Explanation:

The Kisan Credit Card (KCC) scheme is a credit scheme introduced in August 1998 by Indian banks. This model scheme was prepared by the National Bank for Agriculture and Rural Development (NABARD) on the recommendations of the R.V.GUPTA committee to provide term loans and agricultural needs.

Its objective is to meet the comprehensive credit requirements of the agriculture sector by giving financial support to farmers. Participating institutions include all commercial banks, Regional Rural Banks, and state co-operative banks. The scheme has short-term credit limits for crops and term loans. KCC credit holders are covered under personal accident insurance up to ₹50,000 for death and permanent disability, and up to ₹25,000 for other risks. The premium is borne by both the bank and borrower in a 2:1 ratio. The validity period is five years, with an option to extend for up to three more years. Kisan Credit Card (KCC) offering credit to the farmers in two types viz, 1. Cash Credit 2. Term Credit ( for allied activities such as pump sets, land development, plantation, drip irrigations)

Q12. The government takes ‘ways and means advances’ from

(a) RBI                              

(b) IDBI                            

(c) SBI                                

(d) ICICI

Answer (A )

Explanation:

The Reserve Bank of India gives temporary loan facilities to the center and state governments as a banker to the government.  This temporary loan facility is called Ways and Means Advances (WMA).

The WMA scheme for the Central Government was introduced on April 1, 1997, after putting an end to the four-decade-old system of ad hoc (temporary) Treasury Bills to finance the Central Government deficit. The WMA scheme was designed to meet temporary mismatches in the receipts and payments of the government. This facility can be availed by the government if it needs immediate cash from the RBI. The WMA is to be vacated after 90 days. The interest rate for WMA is currently charged at the repo rate. The limits for WMA are mutually decided by the RBI and the Government of India.

Q13. ‘NABARD’ is associated with the development of

(a) the agricultural sector and rural areas

(b) heavy industries

(c) banking sector

(d) real estates

Answer (A )

Explanation:

NABARD came into existence on 12 July 1982 by transferring the agricultural credit functions of RBI and refinance functions of the then Agricultural Refinance and Development Corporation (ARDC). It was dedicated to the service of the nation by the late Prime Minister Smt. Indira Gandhi on 05 November 1982. Set up with an initial capital of Rs.100 crore, its paid-up capital stood at Rs.10,580 crore as of 31 March 2018. Consequent to the revision in the composition of share capital between the Government of India and RBI, NABARD today is fully owned by the Government of India. 

VISION: Development Bank of the Nation for Fostering Rural Prosperity.                 

MISSION: Promote sustainable and equitable agriculture and rural development through participative financial and non-financial interventions, innovations, technology, and institutional development for securing prosperity.

Q14. 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 )

Explanation:

An overdraft 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 or not enough to cover the withdrawal. Basically, overdraft means that the bank allows customers to borrow a set amount of money.

Q15. 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 )

Explanation:

Professional Tax is a tax levied on the income earned by salaried employees and professionals, including chartered accountants, doctors, and lawyers, etc. to the state government.

 

Q16. The supply of agricultural products is generally

(a) elastic

(b) inelastic       

(c) perfectly elastic                

(d) perfectly inelastic

Answer (B )

Q17. With which form of economy is the term ‘Laissez-faire’ associated?

(a) Capitalist economy   

(b) Socialist economy

(c) Mixed economy

(d) Command economy

Answer (A)

Explanation:

Laissez-faire is an economic theory from the 18th century that opposed any government intervention in business affairs. The driving principle behind laissez-faire, a French term that translates as "leave alone" (literally, "let you do"), is that the less the government is involved in the economy, the better of business will be – and by extension, society as a whole. Laissez-faire economics is a key part of free-market capitalism.

Q18. 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) the marginal product remains constant

Answer (B )

Explanation:

Marginal Product

The additional output produced as a result of employing an additional unit of the variable factor input is called the Marginal Product. Thus, we can say that marginal product is the addition to Total Product when an extra factor input is used. Marginal Product = Change in Output/ Change in Input.Thus, it can also be said that Total Product is the summation of Marginal products at different input levels.

Total Product = Ʃ Marginal Product

Relationship between Marginal Product and Total Product

The law of variable proportions is used to explain the relationship between Total Product and Marginal Product. It states that when only one variable factor input is allowed to increase and all other inputs are kept constant, the following can be observed:

When the Marginal Product (MP) increases, the Total Product is also increasing at an increasing rate. This gives the Total product curve a convex shape in the beginning as variable factor inputs increase. This continues to the point where the MP curve reaches its maximum.

When the MP declines but remains positive, the Total Product is increasing but at a decreasing rate. This Gives the Total product curve a concave shape after the point of inflection. This continues until the Total product curve reaches its maximum.

When the MP is declining and negative, the Total Product declines.

When the MP becomes zero, the Total Product reaches its maximum.

Q19. The definition of ‘small-scale industry’ in India is based on 

(a) sales by the unit             

(b) Investment in machines and equipment

(c) market coverage 

(d) export capacity

Answer (B)           

Explanation:                  

Small scale industries are the industrial undertakings having fixed investment in plant and machinery, whether held on ownership basis or lease basis or hire purchase basis not exceeding Rs. 1 crore.

Q20. Economies of Scale means a reduction in                   

(a) the unit cost of production

(b) the unit cost of distribution

(c) the total cost of production

(d) the total cost of distribution

Answer (A)         

Explanation:                    

What are Economies of Scale? Economies of scale refer to reduced costs per unit that arise from the increased total output of a product. For example, a larger factory will produce power hand tools at a lower unit price, and a larger medical system will reduce cost per medical procedure  

Q21. 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 )                      

Explanation:

Free trade is the total absence of government policies restricting the import and export of goods and services.

Q22. Imputed gross rent of owner-occupied buildings is a part of 

(a) capital formation

(b) final consumption

(c) intermediate consumption       

(d) consumer durable

Answer (B )

Explanation:

Imputed rent is an estimate in the economic theory of the rent a house owner would be willing to pay to live in his own house. Imputed rent can thus serve as an important measure between homeowners and tenants. Imputed rent is the economic theory of imputation applied to real estate: that the value is more a matter of what the buyer is willing to pay than the cost the seller incurs to create it.  In this case, market rents are used to estimate the value to the property owner. That’s why it is included in the final consumption.

Q23. Purchasing Power Parity theory is related with

(a) Interest rate                    

(b) Bank rate          

(c) Wage rate 

(d) Exchange rate

Answer (D )

Explanation:

Purchasing power parity (PPP) is a way of measuring economic variables in different countries so that irrelevant exchange rate variations do not distort comparisons. Purchasing power exchange rates are such that it would cost exactly the same number of, for example, US dollars to buy euros and then buy a basket of goods in the market as it would cost to purchase the same goods directly with dollars. The purchasing power exchange rate used in this conversion equals the ratio of the currencies' respective purchasing powers (reciprocals of their price levels).

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Q24. Excise duty on a commodity is payable with reference to its

(a) production

(b) production and sale  

(c) production and transportation

(d) production, transportation, and sale

Answer (A )

Explanation:

An excise or excise tax (sometimes called an excise duty) is a type of tax charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of a good.

Q25. 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 )

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.

Q26. Which is the most essential function of an entrepreneur?

(a) Supervision 

(b) Management

(c) Marketing           

(d) Risk bearing

Answer (D )

Explanation: 

Risk-taking is perhaps the most important function of an entrepreneur. Modern production is very risky as an entrepreneur is required to produce goods or services in antici­pation of their future demand.

Q27. Bank Rate refers to the Interest rate at which

(a) Commercial banks receive deposits from the public

(b) Central bank gives loans to Commercial banks

(c) Government loans are floated                             

(d) Commercial banks grant loans to their customers

Answer (B )

Explanation:

Bank Rate refers to the official interest rate at which RBI will provide loans to the banking system which includes commercial/cooperative banks, development banks, etc. Such loans are given out either by direct lending or by rediscounting (buying back) the bills of commercial banks and treasury bills. Thus, the bank rate is also known as the discount rate. Bank rate is used as a signal by the RBI to the commercial banks on RBI’s thinking of what the inter

Q28. 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 )

Explanation:

Economic goodwill has some degree of scarcity in relation to demand. It is the scarcity that creates a value people become willing to pay for. It is the scarcity that creates opportunity cost. – For example, if we pick apples from a tree, it means that other people will not be able to enjoy them. If we devote resources to mining gold, the opportunity cost is that we can’t devote this time and effort to growing corn.

Q29. Which of the following is a better measurement of Economic Development?

(a) GDP 

(b) Disposable income         

(c) NNP

(d) Per capita income

Answer (D )

Explanation: 

The income per capita is a measure of the amount of money earned per person in a certain area. It can apply to the average per-person income for a city, region or country, and is used as a means of evaluating the living conditions and quality of life in different areas. It can be calculated for a country by dividing the country's national income by its population.

Q30. Foreign currency which has a tendency of quick migration is called

(a) Scarce currency             

(b) Soft currency       

(c) Gold currency       

(d) Hot currency

Answer (D )

Explanation:

"Hot money" refers to funds that are controlled by investors who actively seek short-term returns. These investors scan the market for short-term, high-interest rate investment opportunities. A typical short-term investment opportunity that often attracts "hot money" is the certificate of deposit (CD).

100 Most Important Multiple choice question asked in Economics

Q31. In India, disguised unemployment is generally observed in

(a) the Agricultural sector  

(b) the Factory sector

(c) the service sector

(d) All these sectors

Answer (A )

Explanation: 

Disguised unemployment or hidden unemployment is a kind of unemployment where some people seem to be employed but are actually not. (clear from the word disguise which means attire to hide one's identity) This type usually occurs when it is over employment in a particular work

Q32. 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 )

Explanation: 

A Giffen good is a good for which demand increases as the price increases and falls when the price decreases. A Giffen good has an upward-sloping demand curve, which is contrary to the fundamental law of demand which states that the quantity demanded of a product falls as the price increases, resulting in a downward slope for the demand curve. A Giffen good is typically an inferior product that does not have easily available substitutes, as a result of which the income effect dominates the substitution effect. Giffen goods are quite rare, to the extent that there is some debate about their actual existence. The term is named after the economist Robert Giffen.

Q33. "Supply creates its own demand" - Who said this? 

(a) J. B. Say      

(b) J.S. Mill                    

(c) J. M. Keynes                                 

(d) Senior

Answer (A ) 

Explanation:

"Supply creates its own demand" is the formulation of Say's law. He meant: build it, take it to market, and you’ll see, someone will pay money for it, whatever it is. He also meant; the wise business person does this process as rapidly as possible. The sooner they make it, the sooner it is sold, and the sooner their investment of time and money is recouped, to do it all again.

Q34. 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 )

Explanation:

Engel's law is an observation in economics stating that as income rises, the proportion of income spent on food falls, even if absolute expenditure on food rises. In other words, the income elasticity of demand for food is between 0 and 1.

The law was named after the statistician Ernst Engel (1821–1896). Engel's law does not imply that food spending remains unchanged as income increases: It suggests that consumers increase their expenditures for food products in percentage terms less than their increases in income

Q35. 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 )

Explanation:

The balance of payments is a statement of all transactions made between entities in one country and the rest of the world over a defined period of time, such as a quarter or a year. The balance of payments divides transactions into two accounts: the current account and the capital account (sometimes the capital account is called the financial account, with a separate, usually very small, capital account listed separately). The current account includes transactions in goods, services, investment income, and current transfers. The capital account, broadly defined, includes transactions in financial instruments and central bank reserves. Narrowly defined, it includes only transactions in financial instruments. The current account is included in calculations of national output, while the capital account is not. 

Q36. Capital: Output Ratio  measures

(a) it's the per-unit cost of production   

(b) the amount of capital invested per unit of output

(c) the ratio of capital depreciation to the quantity of output 

(d) the ratio of working capital employed to the quantity of output

Answer (B )

Explanation:

A capital-output ratio which is abbreviated as COR is related to the availability of natural resources in a country. It is used to measure the capital ratio that would be used for the production of some output over a certain period of time.

Q37. ‘The national income consists of a collection of goods and services reduced to common basis by being measured in terms of money.”— Who says this?

(a) Samuelson              

(b) Kuznets                    

(c)  Hicks                           

(d) Pigou

Answer (C )

Explanation:

‘The national income consists of a collection of goods and services reduced to common basis by being measured in terms of money” is said, Hicks.

Q38. What does ECS in banking transactions stand for?

(a) Excess Credit Supervisor                                             

(b) Extra Cash Status

(c) Exchange Clearing Standard                                                         

(d) Electronic Clearing Service

Answer (D )

Explanation:

ECS is an electronic mode of funds transfer from one bank account to another. It can be used by institutions for making payments such as distribution of dividend interest, salary, pension, among others. It can also be used to pay bills and other charges such as telephone, electricity, water, or for making equated monthly installments payments on loans as well as SIP investments. ECS can be used for both credit and debit purposes

Q39. 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 )

Explanation:

Agro-Based Industries

(1) Agro-based industries use agricultural products as their basic raw material.

(2) Example - Cotton and jute textiles, Sugar, Food processing, etc.

Mineral Based Industries

(1) Mineral-based industries use both metallic and non-metallic minerals as

raw materials. 

(2) Example- Iron and Steel, Aluminium, Cement, Petrochemicals, etc.

Q40. Who propounded the 'market law?

(a) Adam Smith    

(b) J.B. Say        

(c) T.R. Malthus

(d) David Ricardo

Answer (B ) 

Explanation:

Say's Law of Markets is a theory from classical economics arguing that the ability to purchase something depends on the ability to produce and thereby generate income. Say reasoned that to have the means to buy, a buyer must first have produced something to sell. Thus, the source of demand is production, not money itself.

Q41. The practice of selling goods in a foreign country at a price below their domestic selling price is called

(a) 'diplomacy'  

(b) 'discrimination'        

(c) ‘dumping’

(d) ‘double pricing

Answer (C )

Explanation:

Dumping is a term used in the context of international trade. It's when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market. Because dumping typically involves substantial export volumes of a product, it often endangers the financial viability of the product's manufacturers or producers in the importing nation.

Q42. An expenditure that has been made and cannot be recovered is called/ 

(a) Variable cost

(b) Opportunity cost 

(c) Sunk cost  

(d) Operational cost

Answer (C )

Explanation:

In economics and business decision-making, a sunk cost (also known as retrospective cost) is a cost that has already been incurred and cannot be recovered. In other words, a sunk cost is a sum paid in the past that is no longer relevant to decisions about the future.

Q43. Bank deposits that can be withdrawn without notice are called

(a) account payee deposits

(b) fixed deposits

(c) variable deposits

(d) demand deposits

Answer (D )

Explanation:

What is a Demand Deposit

A demand deposit consists of funds held in an account from which deposited funds can be withdrawn at any time from the depository institution, such as a checking or savings account, accessible by a teller, ATM or online banking. In contrast, a term deposit is a type of account that cannot be accessed for a predetermined period of time. M1 is a category of the money supply that includes demand deposits as well as physical money and negotiable order of withdrawal (NOW) accounts that have no maturity period but limited withdrawals or transfers.

Q44. The new capital issue is placed in

(a) Secondary market  

(b) Grey market          

(c) Primary market

(d) Black market

Answer (C )

Explanation:

The Primary Market, also known as a New Issue Market, is where new securities are issued – it is part of the capital market. Corporations, national and local governments, and other public sector institutions can get financing through the sale of new stock or bond issues through the primary market

Q45. Prime cost is equal to

(a) Variable cost plus administrative cost                               

(b) Variable cost plus fixed costs

(c) Variable cost only                                                                   

(d) Fixed cost only

Answer (C )

Explanation:

Prime costs are a firm's expenses for the direct materials and labor used in production.  It refers to a manufactured product's costs, which are calculated to ensure the best profit margin for a company. The prime cost calculates the use of raw materials and direct labor, but does not factor in indirect expenses, such as advertising and administrative cost

Q46. If the tax rate increases with the higher level of income, it shall be called

(a) Proportional tax

(b) Progressive tax

(c) Lump sum tax

(d) Regressive tax

Answer (B )

Explanation: 

A progressive tax is a tax in which the average tax rate (taxes paid ÷ personal income) increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate.

Q47. Capital formation in an economy depends on

(a) Total Income

(b) Total demand

(c) Total savings                 

(d) Total production

Answer (C )

Explanation: 

More will be the savings of an economy more will be the capital formation.

Q48. Industrial exit policy means

(a) forcing foreign companies to leave India       

(b) forcing business units to move out of congested localities

(c) allowing manufacturers to shift their line of products                            

(d) allowing business units to close down

Answer (D )

Explanation:

It refers to the right or ability of an industrial unit to withdraw from or leave an industry or in other words to close down. The proposal to introduce an exit policy was first mooted in 1991 when it was felt that efficient industrialization would be difficult to achieve.

Q49. Which of the following does not determine the supply of labor?

(a) Size and age structure of the population 

(b) Nature of work

(c) Marginal productivity of labor                                             

(d) Work-leisure ratio

Answer (C )

Explanation:

The supply of labor is related to the quantity and rate at which the laborers are ready to work. According to Rees following are four factors that affect the supply of labor: 1. Participation Rate as Labour Force 2. Number of Hours the Labourers is Willing to Work 3. Speed or Intensity of Work 4. Efficiency or Skill of Work.

Q50. If the price of tea falls, demand for coffee will

(a) increase              

(b) decrease      

(c) remain same             

(d) None of these

Answer (B )

Explanation:

As these are perfect substitutes the falling of price of one will lead to a decrease in demand of other and vice versa.

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Q51. Seawater, fresh air, etc., are regarded in Economics as

(a) Giffen goods

(b) inferior goods 

(c) free goods  

(d) normal goods

Answer (C )

Explanation:

A free good is a good that is not scarce and therefore is available without limit. A free good is available in as great a quantity as desired with zero opportunity cost to society.

Q52. The concept that under a system of free enterprise, it is consumers who decide what goods and services shall be produced and in what quantities is known as

(a) Consumer Protection

(b) Consumer's Decision

(c) Consumer Preference

(d) Consumer Sovereignty

Answer (D )

Explanation:

Consumer sovereignty is an economic concept where the consumer has some controlling power over goods that are produced and the idea that the consumer is the best judge of their own welfare.

Q53. According to modem thinking, the law of diminishing returns applies to 

(a) agriculture

(b) industry

(c) mining

(d) all fields of production

Answer (D )

Explanation:

In modern economics, diminishing returns is the decrease in the marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant.
The law of diminishing returns states that in all productive processes, adding more of one factor of production, while holding all others constant ("ceteris paribus"), will at some point yield lower incremental per-unit returns. The law of diminishing returns does not imply that adding more of a factor will decrease the total production, a condition known as negative returns, though in fact, this is common.
A common example is adding more people to a job, such as the assembly of a car on a factory floor. At some point, adding more workers causes problems such as workers getting in each other's way or frequently finding themselves waiting for access to a part. In all of these processes, producing one more unit of output per unit of time will eventually require increasingly more usage of the input, due to the input being used less effectively. Another well-studied example is throwing more headcount at software development, yielding Brooks's law.

Q54. In Economics, production means

(a) manufacturing   

(b) making 

(c) creating utility 

(d) farming

Answer (C )

Explanation:

Production is a process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (the output). It is the act of creating output, a good or service that has value and contributes to the utility of individuals.

Q55. Inflation occurs when aggregate supply is 

(a) more than aggregate demand                           

(b) less than aggregate demand

(c) equal to aggregate demand              

(d) None of these

Answer (B )

Explanation:

In economics, inflation or price inflation is a general rise in price level relative to available goods resulting in a substantial and continuing drop in purchasing power in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money.

Q56. ‘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 )

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 accelerated vesting of stock options

Q57. When a large number of investors in a country transfer investments elsewhere because of disturbed economic conditions, it is called

(a) Transfer of Capital   

(b) Escape of Capital 

(c) Outflow of Capital           

(d) Flight of Capital

Answer (D )

Explanation:

Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence or as the result of economic globalization. Such events could be an increase in taxes on capital or capital holders or the government of the country defaulting on its debt that disturbs investors and causes them to lower their valuation of the assets in that country, or otherwise to lose confidence in its economic strength.

Q58. How will a reduction in ‘Bank Rate’ affect the availability of credit?       

(a) Credit will increase       

(b) Credit will not increase

(c) Credit will decrease  

(d) None of these

Answer (A )

Explanation:

If the bank rate increases the availability of credit or the money supply will decrease.

Q59. A mixed economy works primarily through the

(a) market mechanism                                              

(b) central allocative machinery

(c) market mechanism regulated by Government policy

(d) market mechanism guided by Government participation and planning

Answer (D )

Explanation:

A mixed economy is variously defined as an economic system blending elements of market economies with elements of planned economics, free markets with state interventionism, or private enterprise with public enterprise. 

Q60. ‘Gresham’s Law’ in Economics relates to

(a) supply and demand                                                

(b) circulation of currency

(c) consumption of supply                             

(d) distribution of goods and services

Answer (B )

Explanation:

Gresham's law is a monetary principle stating that "bad money drives out good." In currency valuation, Gresham's law was originally based on the observation that if a new coin ("bad money") is assigned the same face value as an older coin containing a higher amount of precious metal ("good money"), then the new coin will be used in circulation while the old coin will be hoarded and disappear from circulation.

Q61. The ‘Interest Rate Policy’ is a component of

(a) Fiscal Policy

(b) Monetary Policy

(c) Trade Policy

(d) Direct Control

Answer (B )

Explanation: 

Monetary policy is the process by which the monetary authority of a country, typically the central bank or currency board, controls either the cost of very short-term borrowing or the monetary base, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Further goals of a monetary policy are usually to contribute to the stability of the gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies

Q62. 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 safekeeping of securities

(d) An advisory service to investors

Answer (C )

Explanation:

The main function of Depository Services is the holding securities either in certificated or uncertificated(dematerialized) form. In the depository system, securities are held in depository accounts, which are similar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account transfers.

Types of Depository Services: -

1-      NSDL (National Securities Depository Limited)        

2-      CDSL (Central Depository Services Limited)

Q63. The term ‘Green GNP’ emphasizes 

(a) the rapid growth of GNP

(b) increase in per capita income

(c) economic development

(d) sustainable development

Answer (D )

Explanation:

Green GNP- This is an economic and environmental accounting framework that measures the national wealth by accounting for the exhaustion of natural resources and degradation of the environment and investment in environmental support.it focuses on sustainable development

Q64. The outcome of 'devaluation of currency’ is

(a) increased export and improvement in the balance of payment

(b) increased export and foreign reserve deficiency

(c) increased import and improvement in the balance of payment

(d) increased export and import

Answer (A )

Explanation:

Devaluation is the decision to reduce the value of a currency at a fixed exchange rate. A devaluation means that the value of the currency falls. Domestic residents will find imports and foreign travel more expensive. However domestic exports will benefit from their exports becoming cheaper

Q65. What is Value Added Tax(VAT)?

(a) A simple, transparent, easy pay tax imposed on consumers

(b) A new initiative was 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 )

Explanation: 

A value-added tax ( VAT ) is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that has already been taxed.

Q66. The difference between visible exports and visible imports is defined as

(a) Balance of trade  

(b) Balance of payment

(c) Balanced terms of trade

(d) Gains from trade

Answer (A )

Explanation:

The balance of trade, commercial balance, or net exports, is the difference between the monetary value of a nation's exports and imports over a certain period

Q67. Given the money wages, if the price level in an economy increases, then the real wages will

(a) increase            

(b) decrease               

(c) remain constant                

(d) become flexible

Answer (B )

Explanation:

As the prices increase the purchasing power of money decreases, therefore, leading to a decrease in the real wages

Q68. A firm is in equilibrium when its

(a) marginal cost equals the marginal revenue            

(b) total cost is minimum

(c) total revenue is maximum                         

(d) average revenue and marginal revenue are equal

Answer (A )

Explanation: 

A firm is said to be in equilibrium when it satisfies the following conditions:

  1. The first condition for the equilibrium of the firm is that its profit should be maximum.

  2. Marginal cost should be equal to marginal revenue.

  3. MC must cut MR from below.

Q69. In the law of demand, the statement “Other things remain constant" means

(a) income of consumer should not change

(b) price of other goods should not change

(c) taste of consumer should not change              

(d) All of the above

Answer (D )

Explanation: 

Assumptions under which law of demand is valid:

This law will be applicable only if the below-mentioned points are fulfilled.

  1. No change in the price of related commodities.

  2. No change in income of the consumer.

  3. No change in taste and preferences, customs, habit, and fashion of the consumer.

  4. No change in the size of the population.

  5. No expectation regarding the future change in price.

Q70. Which organization collects data for the unorganized sector?

(a) NSSO                         

(b) CSO                                             

(c) ASI                              

(d) RBI

Answer (A )

Explanation: 

NSSO- National Sample Survey Organization

CSO- Central Statistics Office

ASI- Annual Survey of Industries 

RBI- Reserve Bank of India

Q71. Scheduled Banks have to be registered with

(a) SEBI                        

(b) RBI          

(c) Finance Ministry                

(d) SBI

Answer (B )

Explanation:

A scheduled bank, in India, refers to a bank that is listed in the 2nd Schedule of the Reserve Bank of India Act, 1934. Banks not under this Schedule are called non-scheduled banks. Scheduled banks are usually private, foreign, and nationalized banks operating in India.

Q72. 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 are not viewed as the national debt.

Q73. Excise duty on a commodity is payable with reference to its

(a) production

(b) production and sale

(c) production and transportations

(d) production, transportation, and sale

Answer (A )

Explanation: 

Excise duty is a form of tax imposed on goods for their production. An indirect tax paid to the Government of India by producers of goods, excise duty is the opposite of Customs duty in that it applies to goods manufactured domestically in the country, while Customs is levied on those coming from outside of the country. At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc. However, the Goods and Services Tax (GST), introduced in July 2017, subsumed many types of excise duty. 

Q74. The data collection for national income estimation is conducted in India by

(a) The Finance Ministry of the Government of India                     

(b) The RBI

(c) The NSSO (National Sample Survey Organization)

(d) None of these

Answer (C )

Explanation:

The National Sample Survey Office (NSSO) headed by a Director-General is responsible for the conduct of large-scale sample surveys in diverse fields on An Indian basis. Primarily data are collected through national household surveys on various socio-economic subjects, Annual Survey of Industries (ASI), etc. Besides these surveys, NSSO collects data on rural and urban prices and plays a significant role in the improvement of crop statistics through supervision of the area enumeration and crop estimation surveys of the State agencies.  It also maintains a frame of urban area units for use in sample surveys in urban areas.

Q75. A country’s balance of trade is unfavorable when

(a) exports exceed imports

(b) imports exceed exports

(c) terms of trade become unfavorable

(d) None of these

Answer (B )

Explanation: 

The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. The balance of trade measures a flow of exports and imports over a given period of time. 

Q76. The annual record for all the monetary transactions of a country with other countries of the world is known as

(a) Balance of trade

(b) Balance of monetary-receipts 

(c) Balance of payments          

(d) Balance Sheet

Answer (C )

Explanation:

The balance of payments is a statement of all transactions made between entities in one country and the rest of the world over a defined period of time, such as a quarter or a year.

Q77. Bank-rate is the rate at which 

(a) a commercial bank borrows loans from some other commercial bank

(b) the central bank borrows loans from the Government

(c) the commercial bank gives loans to the public

(d) the central bank re-discounts the commercial bills brought to it by the commercial banks 

Answer (D )

Explanation:

When banks want to borrow long-term funds from RBI, it is the interest rate that RBI charges to them. 

Q78. Who among the following has suggested a tax on expenditure?

(a) Dalton     

(b) Kaldor

(c) Musgrave                             

(d) Gautam Mathur

Answer (B )

Explanation: 

Baron Kaldor (12 May 1908 – 30 September 1986), born Káldor Miklós, was a Cambridge economist in the post-war period. He developed the "compensation" criteria called Kaldor–Hicks efficiency for welfare comparisons (1939), derived the cobweb model, and argued for certain regularities observable in economic growth, which are called Kaldor's growth laws. Kaldor worked alongside Gunnar Myrdal to develop the key concept of Circular Cumulative Causation, a multicausal approach where the core variables and their linkages are delineated. Both Myrdal and Kaldor examine circular relationships, where the interdependencies between factors are relatively strong, and where variables interlink in the determination of major processes. Gunnar Myrdal got the concept from Knut Wicksell and developed it alongside Nicholas Kaldor when they worked together at the United Nations Economic Commission for Europe. Myrdal concentrated on the social provisioning aspect of development, while Kaldor concentrated on demand-supply relationships to the manufacturing sector. Kaldor also coined the term "convenience yield" related to commodity markets and the so-called theory of storage, which was initially developed by Holbrook Working.

Q79. In calculating National Income which of the following is included?

(a) Services of housewives

(b) Pensions

(c) Income of smugglers          

(d) Income of watchmen

Answer (D )

Explanation:

The sum of income taken from all sectors, including personal, business, and government. Also called NNI. The formula for calculating net national income is: NNI = C + I + G + NX + NFF - IT - D.

Q80. Dalal Street is located in

(a)  New York

(b) Delhi

(c) Pune

(d)Mumbai

Answer (D )

Explanation:

Dalal Street in downtown Mumbai, India, is the address of the Bombay Stock Exchange (in the Phiroze Jeejeebhoy Towers) and several related financial firms and institutions. When the Bombay Stock Exchange was moved to this new location at the intersection of Bombay Samāchār Marg and Hammam Street, the street next to the building was renamed Dalal Street[citation needed]. The Marathi word dalāl means "a broker", "a go-between". Similar to Wall Street in New York City, it is often used as a metonym for the entire Indian financial industry

Q81. Gresham's law is related to

(a) Consumption and demand

(b) Supply and demand

(c) Circulation of money

(d) Deficit financing

Answer (C )

Explanation:

In monetary economics, the currency in circulation in a country is the value of currency or cash (banknotes and coins) that has ever been issued by the country’s monetary authority less the amount that has been removed. 

Q82. One of the essential conditions of Monopolistic competition is

(a) Many buyers but one seller

(b) Price discrimination

(c) Product differentiation  

(d) Homogeneous product

Answer (C )

Explanation:

Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another (e.g. by branding or quality) and hence are not perfect substitutes. In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms. In the presence of coercive government, monopolistic competition will fall into government-granted monopoly. Unlike perfect competition, the firm maintains spare capacity. Models of monopolistic competition are often used to model industries. Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities. The "founding father" of the theory of monopolistic competition is Edward Hastings Chamberlin, who wrote a pioneering book on the subject, Theory of Monopolistic Competition (1933). Joan Robinson published a book The Economics of Imperfect Competition with a comparable theme of distinguishing perfect from imperfect competition.

Q83. NIFTY is associated with

(a) Cloth Market Price Index

(b) Consumer Price Index         

(c) BSE Index    

(d) NSE Index

Answer (D )

Explanation:

The NIFTY 50 index is the National Stock Exchange of India's benchmark broad-based stock market index for the Indian equity market. The full form of NIFTY is National Stock Exchange Fifty.

Q84. The rate of interest is determined by

(a) SBI                

(b) Central Government

(c) RBI                                                                                        

(d) Commercial Banks

Answer (C )

Explanation:

In India, interest rate decisions are taken by the Reserve Bank of India's Central Board of Directors. The official interest rate is the benchmark repurchase rate.

Q85. The ‘break-even point is where 

(a) marginal revenue equals marginal cost 

(b) average revenue equals total

(c) total revenue equals total cost          

(d) None of these

Answer (C )

Explanation:

In simple words, the break-even point can be defined as a point where total costs (expenses) and total sales (revenue) are equal. The Break-even point can be described as a point where there is no net profit or loss. The firm just “breaks even.” Any company which wants to make an abnormal profit desires to have a break-even point. Graphically, it is the point where the total cost and the total revenue curves meet

Q86. The fixed cost on such factors of production which are neither hired nor bought by the firm is called

(a) social cost

(b) opportunity cost            

(c) economic cost

(d) surcharged cost

Answer (A )

Explanation:

Social cost in neoclassical economics is the sum of the private costs resulting from a transaction and the costs imposed on the consumers as a consequence of being exposed to the transaction for which they are not compensated or charged. Private costs refer to direct costs to the producer for producing the good or service. Social cost includes these private costs and the additional costs (or external costs) associated with the production of goods that are not accounted for by the free market. Mathematically, social marginal cost is the sum of private marginal cost and the external costs. For example, when selling a glass of lemonade at a lemonade stand, the private costs involved in this transaction are the costs of the lemons and the sugar and the water that are ingredients to the lemonade, the opportunity cost of the labor to combine them into lemonade, as well as any transaction costs, such as walking to the stand. An example of marginal damages associated with social costs of driving includes wear and tear, congestion, and the decreased quality of life due to drunks driving or impatience.a large number of people displaced from their homes and localities due to construction work

The alternative to the above neoclassical definition is provided by the heterodox economics theory of social costs by K. William Kapp. Social costs are here defined as the socialized portion of the total costs of production, i.e. the costs that businesses shift to society to increase their profits.

Q87. Devaluation makes import

(a) Competitive   

(b) Inelastic   

(c) Cheaper            

(d) Dearer

Answer (D )

Explanation:

Devaluation is the deliberate downward adjustment of the value of a country's money relative to another currency, group of currencies, or currency standard. Countries that have a fixed exchange rate or semi-fixed exchange rate use this monetary policy tool. It is often confused with depreciation and is the opposite of revaluation, which refers to the readjustment of a currency's exchange rate.

The effect of a devaluation is to make imports (in the local currency) more expensive, thereby reducing import demand, and exports cheaper (in the local currency), thereby acting as a stimulus to export demand.

Q88. The share broker who sells shares in the apprehension of falling prices of shares is called

(a) Bull                   

(b) Dog                  

(c) Bear                      

(d) Stag

Answer (C )

Explanation:

A bull market is the condition of a financial market of a group of securities in which prices are rising or are expected to rise. 

A bear market is the condition of a financial market of a group of securities in which prices are falling or are expected to fall.

Q89. Bull and bear are related to which commercial activity?

(a) Banking 

(b) E-commerce     

(c) International trade  

(d) Stock market

Answer (D )

Explanation:

Bull and Bear markets are related to the stock market. Where in bull markets, prices are expected to rise, in bear markets, prices are expected to fall in the near future.

Q90. While determining income the expenditure on which of the following items is not considered as an investment?

(a) Construction of the factory

(b) Computer

(c) Increase in the stock of unsold articles

(d) Stock and share in a joint-stock company

Answer (C )

Explanation:

An investment is an asset or item acquired with the goal of generating income or appreciation. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth.

An increase in the stock of unsold items cannot be considered an investment.

Q91.The money market is a market for

(a)Short term fund

(b)Long term fund

(c)Negotiable instruments

(d)Sale of shares

Answer (A )

Explanation:

The money market is where financial instruments with high liquidity and very short maturities are traded. It is used by participants as a means for borrowing and lending in the short term, with maturities that usually range from overnight to just under a year.

Q92. Which of the following results by dividing national income by size of the population?

(a) Per capita income

(b) Subsistence level

(c) Subsistence expenditure  

(d) Per capita production

Answer (A )

Explanation:

Per capita income, also known as income per person, is the mean income of the people in an economic unit such as a country or city. It is calculated by taking a measure of all sources of income in the aggregate (such as GDP or Gross national income) and dividing it by the total population.

Q93. Which of the following taxes is such which does not cause a rise in price?

(a) Import duty

(b) Income tax     

(c) Octoroi      

(d) Sales tax

Answer (B )

Explanation:

An income tax is a tax imposed on individuals or entities (taxpayers) that varies with respective income or profits (taxable income).

The tax rate may increase as taxable income increases (referred to as graduated or progressive rates).

Q94. The sum total of incomes received for the services of labor, land, or capital in a country is called :

(a) Gross domestic product

(b) National income

(c) Gross domestic income

(d) Gross national income

Answer (C )

Explanation:

The Gross Domestic Income (GDI) is the total income received by all sectors of an economy within a state. It includes the sum of all wages, profits, and taxes, minus subsidies. Since all income is derived from production (including the production of services), the gross domestic income of a country should exactly equal its gross domestic product (GDP). The GDP is a very commonly cited statistic measuring countries' economic activity, and the GDI is quite uncommon.

Q95. “Legal Tender Money” refers to:

(a) Cheques                

(b) Drafts     

(c) Bill of exchange    

(d) Currency notes

Answer (D )

Explanation:

Legal tender is any official medium of payment recognized by law that can be used to extinguish a public or private debt or meet a financial obligation. The national currency is legal tender in practically every country. A creditor is obligated to accept legal tender toward repayment of a debt

Q96. Seller's market denotes a situation where :

(a) commodities are available at competitive rates

(b) demand exceeds supply

(c) supply exceeds demand                      

(d) supply and demand are evenly balanced

Answer (B )

Explanation:

A seller's market is a market condition characterized by a shortage of goods available for sale, resulting in pricing power for the seller. A seller's market is a term commonly applied to the property market when low supply meets high demand.

Q97. “Dear Money” means

(a) low rate of interest

(b) high rate of interest                

(c) depression

(d) inflation

Answer (B )

Explanation:

Dear money refers to money that is hard to obtain because of abnormally high-interest rates. Dear money is often referred to as tight money because it occurs in periods when central banks are tightening monetary policy.

Q98. Which of the following is not required while computing Gross National Product (GNP)?

(a) Net foreign investment            

(b) Private investment

(c) Per capita income of citizens                             

(d) Purchase of goods by government

Answer (C )

Explanation:

Gross national product (GNP) is an estimate of the total value of all the final products and services turned out in a given period by the means of production owned by a country's residents. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports, and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services.

Q99. Who is the ‘lender of the last resort’ in the banking structure of India?

(a)State Bank of India 

(b)Reserve Bank of India 

(c)EXIM Bank of India

(d)Union Bank of India 

Answer (B )

Explanation:

The Reserve Bank of India (RBI) is India's central bank, which controls the issue and supply of the Indian rupee. RBI is the regulator of the entire Banking in India. RBI plays an important part in the Development Strategy of the Government of India.

Q100. A commercial bank  creates credit only if it has

(a) Cash in the vault                                         

(b) Excess reserves

(c) Permission of Reserve Bank of India     

(d) Cooperation of other banks                                

Answer (A )

Explanation:

A central bank is the primary source of money supply in an economy through the circulation of currency.

It ensures the availability of currency for meeting the transaction needs of an economy and facilitating various economic activities, such as production, distribution, and consumption.

However, for this purpose, the central bank needs to depend upon the reserves of commercial banks. These reserves of commercial banks are the secondary source of money supply in an economy. The most important function of a commercial bank is the creation of credit.

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