FAQ on Economics with explanation- UPSC/ HCS
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Economics

FAQ on Economics with explanation- UPSC/ HCS

Since by this time, we are done with 300+ multiple-choice questions, so why stop at this. Let's see a few more frequently asked questions on Economics which are asked in UPSC/ HCS with explanations.

100 Most important multiple choice questions on economics asked in various competitive exams.

Most relevant MCQ for Economics asked in UPSC, HCS exam. 

Frequently asked questions on Economics asked in UPPSC, HCS, UPSC

FAQ on Economics- UPSC/ HCS/ RAS

Important MCQs on Economics- HCS/ UPSC

Q351. The self-employed in a developing country who are engaged in small scale labor-intensive work belong mainly to the

(a) Informal sector           

(b) Primary sector       

(c) Secondary sector               

(d) Tertiary sector 

Answer (B )

Explanation:

The self-employed in a developing country who are engaged in small-scale labor-intensive work belong mainly to the primary sector mainly, agriculture.

Q352. The Rajya Sabha should return the Money Bills to the Lok Sabha within

(a) One month       

(b) Three months           

(c) 14 days

(d) Six months 

Answer (C )

Explanation:

When the Lok Sabha passes a money bill then the Lok Sabha sends a money bill to the Rajya Sabha for 14 days during which it can make recommendations. Even if Rajya Sabha fails to return the money bill in 14 days to the Lok Sabha, that bill is deemed to have passed by both the Houses. 

Money Bill is defined in Article 110 of the Indian Constitution. Money bills are concerned with financial matters like taxation, public expenditure, etc. The bill is significant for Indian Polity and governance as many important issues like Aadhar Bill, Insolvency, and Bankruptcy Bill are also related to it.

Q353. A speculator who sells stocks, in order to buy back when the price falls, for gain is a

(a) Bull                          

(b) Bear                     

(c) Boar

(d) Bison

Answer (B )

FAQ on Economics with explanation, UPSC, HCS,

Q354. Parallel economy emerges due to 

(a) Tax Avoidance 

(b) Tax Evasion  

(c) Tax Compliance   

(d) Tax Estimation 

Answer (B )

Explanation:

Tax evasion is an illegal activity in which a person or entity deliberately avoids paying a true tax liability. Those caught evading taxes are generally subject to criminal charges and substantial penalties. To willfully fail to pay taxes is a federal offense under the Internal Revenue Service (IRS) tax code.

Q355. 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 maidservant

Answer (C )

Explanation:

While estimating national income, services of a housewife are not taken into account 

Q356. Under-writing refers to

(a) Underestimation  

(b) Underselling        

(c) Winding up the business 

(d) An act of insuring risk 

Answer (D )

Explanation:

Underwriting is the process that a lender or other financial service uses to assess the creditworthiness or risk of a potential customer.  Underwriting also refers to an investment banker's process of packaging and selling a security on behalf of a client.

Underwriting refers to the structured process used by financial service companies, such as banks, investors, or insurers, to determine and price the risk from a potential client.  The underwriting process is a detailed and systematic analysis of a potential borrower's creditworthiness, including employment history, salary, financial statements and performance, publicly available information, and independent credit reports. 

Q357. Under Perfect Competition 

(a) Marginal Revenue is less than the Average Revenue                 

(b) Average Revenue is less than the Marginal Revenue 

(c) Average Revenue is equal to the Marginal Revenue

(d) Average Revenue is more than the Marginal Revenue

Answer (C )

Read more: Indian Economy- Infrastructure- UPSC/HCS/RAS/ UPPSC

Q358. It is prudent (carefulness) to determine the size of the output when the industry is operating in the stage of 

(a) Increasing returns       

(b) Constant returns 

(c) Diminishing returns       

(d) Negative returns

Answer (C )

Explanation:

The law of diminishing marginal returns states that, at some point, adding an additional factor of production results in smaller increases in output. For example, a factory employs workers to manufacture its products, and, at some point, the company operates at an optimal level. With other production factors constant, adding additional workers beyond this optimal level will result in less efficient operations. 

Q359. Freeing the economy from all unnecessary controls and regulations is referred to as

(a) Freedom

(b) Privatization                                   

(c) Liberalization

(d) Globalization 

Answer (C )

Explanation:

Liberalization (or liberalization) is a process whereby a state lifts restrictions on some private individual activities. Liberalization occurs when something which used to be banned is no longer banned, or when government regulations are relaxed. Economic liberalization is the reduction of state involvement in the economy.

Q360. Inflation can be checked by 

(a) Increasing exports 

(b) Increasing money supply   

(c) Increasing Government expenditure        

(d) Decreasing money supply 

Answer (D )

Explanation:

Inflation occurs due to the emergence of excess demand for goods and services relative to their supply of output at the prevailing prices. Inflation of this type is called demand-pull inflation. Various fiscal and monetary measures can be adopted to check this inflation.

Inflation can be checked by decreasing the money supply. 

Q361. Floating Exchange Rate is also referred to as

(a) Flexible Exchange Rate       

(b) Fixed Exchange Rate 

(c) Real Exchange Rate

(d) Controlled Exchange Rate 

Answer (A )

Explanation:

Under this system, the market is allowed to determine the value of the exchange rate freely. The exchange rate is determined by the forces of demand and supply. If due to any reason the exchange rate fluctuates, the government never intervenes and allows the market to function and determine the true value of the exchange rate.

Q362. 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)

Explanation:

In economics, the consumption function describes a relationship between consumption and disposable income. The concept is believed to have been introduced into macroeconomics by John Maynard Keynes in 1936, who used it to develop the notion of a government spending multiplier.

Q363. The incidence of Tax refers to

(a) Who Pays the Tax?                                                                         

(b) Who bears the burden of Tax? 

(c) How Taxes can be shifted?

(d) Who transfers the Tax burden?

Answer (B )

Explanation:

The tax incidence depicts the distribution of the tax obligations, which must be covered by the buyer and seller. The level at which each party participates in covering the obligation shifts based on the associated price elasticity of the product or service in question as well as how the product or service is currently affected by the principles of supply and demand.

Read more: Indian Economy- Infrastructure- Energy sector- UPSC/ HCS/ RAS/ UPPSC

Q364. An increase in per capita income is not an indication of an increase in the economic welfare of the people

(a) When such increase is the result of increased production of comforts 

(b) When such increase is the result of an increase in agricultural production

(c) When it is the result of an increase in the production of industrial goods

(d) When such increase is the result of increased production of intoxicants 

Answer (D )

Q365. The total fixed cost curve is 

(a) Vertical                   

(b) Horizontal            

(c) Positively Sloping 

(d) Negatively sloping

Answer (B )

Explanation:

FAQ on Economics with explanation, UPSC, HCS,

Q366. Economic rent does not arise when the supply of a factor unit is

(a) Perfectly inelastic 

(b) Perfectly elastic   

(c) Relatively elastic

(d) Relatively inelastic

Answer (B )

Explanation:

Economic rent is any payment to an owner or factor of production in excess of the costs needed to bring that factor into production. In classical economics, economic rent is any payment made (including imputed value) or benefit received for non-produced inputs such as location (land) and for assets formed by creating official privilege over natural opportunities (e.g., patents). In the moral economy of neoclassical economics, economic rent includes income gained by labor or state beneficiaries of other "contrived" (assuming the market is natural and does not come about by state and social contrivance) exclusivity, such as labor guilds and unofficial corruption.

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Q367. Perfect competition means 

(a) A large number of buyers and fewer sellers               

(b) A large number of buyers and sellers 

(c) A large number of sellers and fewer buyers                     

(d) None of these 

Answer (B )

Q368. The Imperial Bank of India, after its nationalization came to be known as :

(a) Reserve Bank of India 

(b) State Bank of India

 (c) United Bank of India     

(d) Indian Overseas Bank 

Answer (B )

Explanation:

The Imperial Bank of India came into existence on 27 January 1921 through the reorganization and amalgamation of the three Presidency Banks of colonial India into a single banking entity, spearheaded by John Maynard Keynes. The Presidency Banks were the Bank of Bengal, established on 2 June 1806, the Bank of Bombay (incorporated on 15 April 1840), and the Bank of Madras (incorporated on 1 July 1843). The Imperial Bank was 80% privately owned while the rest were owned by the state.

The Imperial Bank of India (IBI) was the oldest and the largest commercial bank of the Indian subcontinent and was subsequently transformed into the State Bank of India in 1955. Initially, as per its royal charter, it acted as the central bank for British India prior to the formation of the Reserve Bank of India in 1935.

Q369. Bread and butter, car and petrol are examples of goods which have 

(a) Composite demand 

(b) Joint demand 

(c) Derived demand

(d) Autonomous demand

Answer (B )

Explanation:

Characteristics of certain products (such as cars and tires, bread and butter, toothpaste, and toothbrushes) which are used together and where a change in the demand for one causes a similar change in the demand for the other is called joint demand. While the quantity demanded of both will increase or decrease together, their prices may change at a different rate depending on the availability of substitutes

Q370. “Bad money will drive out good money from circulation."This is known as : 

(a) Engel's Law         

(b) Gresham's Law

(c) Say’ Law                 

(d) Wagner’s Law

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.

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Q371. If the main objective of the government is to raise revenue, it should tax commodities with 

(a) The high elasticity of demand                                           

(b) Low elasticity Of supply

(c) Low elasticity of demand                            

(d) High-income elasticity of demand 

Answer (C )

Explanation:

The price elasticity of demand measures the sensitivity of the quantity demanded to changes in the price. Demand is inelastic if it does not respond much to price changes, and elastic if demand changes a lot when the price changes.

  • Necessities tend to have inelastic demand. 
  • Luxuries tend to have elastic demand.

Q372. Core Industries are 

(a) Basic industries 

(b) Consumer goods industries   

(c) Capital goods industries 

(d) Government industries 

Answer (A )

Explanation:

Core Industries are those industries whose products are essential for the economy and for other industries as well.

1) Cement

2) Coal

3) Electricity

4) Crude oil

5) Refinery products

6) Fertilizers

7) Steel

8) Natural gas

Q373. The functional relationship between income and consumption expenditure is explained by

(a) Consumer Surplus                                                             

(b) Law of Demand 

(c) Law of Supply                                                                 

(d) Keynes’s psychological law of consumption 

Answer (D )

Explanation:

In economics, the consumption function describes a relationship between consumption and disposable income. The concept is believed to have been introduced into macroeconomics by John Maynard Keynes in 1936, who used it to develop the notion of a government spending multiplier.

Q374. 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 (A )

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. Alternatively, it is a situation when there is no involuntary unemployment.

That is why full employment is also defined as a situation where there is no involuntary unemployment.

Q375. If the Central Bank wants to encourage an increase in the supply of money and decrease in the cost of borrowing money, it should

(a) Lower cash reserve ratio  

(b) Raise discount rates           

(c) Sell government securities 

(d) All of the above 

Answer (A )

Explanation:

The Cash Reserve Ratio refers to a certain percentage of total deposits the commercial banks are required to maintain in the form of cash reserves with the central bank. The objective of maintaining the cash reserve is to prevent the shortage of funds in meeting the demand by the depositor.

If the Central Bank wants to encourage an increase in the supply of money and decrease the cost of borrowing money, it should  Lower the cash reserve ratio.

Q376. Monopoly means 

(a) Single buyer             

(b) Many sellers 

(c) Single seller                         

(d) Many buyers 

Answer (C )

Explanation:

Monopoly= single seller

Duopoly=2 sellers

Oligopoly= more than 2 sellers

Q377. Regulated markets aim at the development of the marketing structure to 

(a) Widen the price spread between the producer and the consumer 

(b) Narrow down the price spread between the producer and the consumer 

(c) Increase the non-functional margins of the traders 

(d) Maximize the non-functional margins of the commission agents 

Answer (B )

Explanation:

A regulated market is a market over which government bodies or, less commonly, industry or labor groups, exert a level of oversight and control. Market regulation is often controlled by the government and involves determining who can enter the market and the prices they may charge. The government body's primary function in a market economy is to regulate and monitor the financial and economic system.

Q378. Marginal cost is the 

(a) Cost of producing a unit of output             

(b) Cost of producing an extra unit of output 

(c) Cost of producing the total output             

(d) Cost of producing a given level of output 

Answer (B )

Explanation:

In economics, marginal cost is the change in the total cost that arises when the quantity produced is incremented by one unit; that is, it is the cost of producing one more unit of a good.

Q379. Under full cost pricing, price is determined 

(a) By adding a margin to the average cost

(b) By comparing marginal cost and marginal revenue 

(c) By adding normal profit to the marginal cost

(d) By the total cost of production

Answer (A )

Explanation:

Full cost pricing is a pricing method that sets the price of a product by adding a percentage profit mark-up to average cost or unit total cost, where the unit total cost is composed of average or unit variable cost and average or unit fixed cost. A key element in full-cost pricing is the estimate of sales volume that is necessary to calculate the average fixed cost and required unit contribution, although inevitably the price charged will itself affect sales volume. The full-cost pricing method is also called the Average cost method.

Q380. Economic growth is dependent mainly on

(a) Level of consumption 

(b) Price stability 

(c) Level of investment 

(d) Population growth

Answer (C )

Explanation:

Economic growth is an increase in the production of goods and services over a specific period. To be most accurate, the measurement must remove the effects of inflation.

Economic growth creates more profit for businesses. As a result, stock prices rise. That gives companies capital to invest and hire more employees. As more jobs are created, incomes rise. Consumers have more money to buy additional products and services. Purchases drive higher economic growth. For this reason, all countries want positive economic growth. This makes economic growth the most-watched economic indicator.

Q381. 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 )

Explanation:

Debt service is the cash that is required to cover the repayment of interest and principal on a debt for a particular period. If an individual is taking out a mortgage or a student loan, the borrower needs to calculate the annual or monthly debt service required on each loan. In the same way, companies must meet debt service requirements for loans and bonds issued to the public. The ability to service debt is a factor when a company needs to raise additional capital to operate the business.

Q382. The 'sunrise industries' Imply  

(a) Petrochemicals and electronics industry  

(b) Sunflower oil industry

(c) Computer industry                                                                         

(d) Chemical industry 

Answer (A )

Explanation:

A sunrise industry is one that is new or relatively new, is growing fast, and is expected to become important in the future. Examples of sunrise industries include hydrogen fuel production, petrochemical industry, food processing industry, space tourism, and online encyclopedias.

FAQ on Economics with explanation- UPSC/ HCS

Q383. Regional Rural Banks are sponsored by

(a) Nationalized Commercial Bank                                                 

(b) Reserve Bank of India 

(c) State Bank of India                                                                   

(d) Government of India 

Answer (A )

Explanation:

1) Prathama bank sponsored by Syndicate bank at Moradabad (U.P.)

2) Gaur Gramin Bank at Malda in West Bengal sponsored by UCO Bank

3) Gorakhpur Kshetriya Gramin Bank, Gorakhpur, U.P. sponsored by SBI

4) Haryana Kshetriya Gramin Bank Bhiwani, Haryana sponsored by  PNB

5) Jaipur-Nagaur Aanchalik Gramin Bank Jaipur, Rajasthan sponsored by UCO Bank.

Q384. What is the selling cost? 

(a) Cost incurred on transportation of commodities to market 

(b) Cost incurred on promoting the sale of the product 

(c) Cost incurred on commission and salaries personnel 

(d) Cost incurred on advertisement 

(e) All of the above

Answer (E )

Explanation:

According to the dictionary of marketing, selling cost refers to the expenditure, which is done by a company. This includes the promotion as well as the distribution of the product. The primary motive is to convince buyers to buy your product instead of opting for something else. To put it across in simple terms, the selling cost of a company means the salaries paid out, commissions needed to be handed out, the rent to put up at a showroom, advertisement costs as well as the expenses involved for other promotional means.

Q385. Countries that depend mainly on the export of primary products for their income are prone to 

(a) Inflation     

(b) Economic instability                   

(c) Increasing unemployment

(d) Stable economic growth 

Answer (C )

Explanation:

Countries that depend mainly on the export of primary products for their income are prone to increasing unemployment. 

Q386. A Trade Policy consists of

(a) Export-Import Policy           

(b) Licensing Policy

(c) Foreign Exchange Policy 

(d) Balance of Payment Policy

Answer (A )

Explanation:

Trade policy defines standards, goals, rules, and regulations that pertain to trade relations between countries. These policies are specific to each country and are formulated by its public officials. Their aim is to boost the nation’s international trade. In simple words, a trade policy consists of export-import.

Q387. What is needed for creating demand?

(a) Production             

(b) Price                      

(c) Income                      

(d) Import 

Answer (A )

Explanation:

To start with, production is first of all needed for the creation of demand.

Q388. Who said, "Economics is the Science of Wealth"?

(a) Robbins             

(b) J.S. Mill                 

(c) Adam Smith           

(d) Keynes 

Answer (C )

Explanation:

Pioneers of the science of economics defined it as a science of wealth. Adam Smith, who is known as the father of economics, named his famous book on economics as “An Enquiry into the na­ture and Causes of the Wealth of Nations.”

Thus, according to Adam Smith, economics enquires into the factors that determine the wealth of the country and its growth. 

Q389. A fall in demand or rise in the supply of a commodity-

(a) Increases the price of that commodity

(b) Decreases the price of that commodity

(c) Neutralizes the changes in the price 

(d) Determines the price elasticity 

Answer (B )

Explanation:

A fall in demand or a rise in the supply of a commodity decreases the price of that commodity.

Q390. The relationship between the value of money and the price level in an economy is

(a) Direct

(b) Inverse         

(c) Proportional 

(d) Stable 

Answer (B )

Explanation:

The basic causal relationship between the price level and the value of money is that as the price level goes up, the value of money goes down. The value of money refers to what a unit of money can buy, whereas the price level refers to the average of all of the prices of goods and services in a given economy.

Q391. Depreciation is equal to

(a) Gross national product +Net national product                 

(b) Net national product —Gross national product 

(c) Gross national product —Personal income                      

(d) Personal income— Personal taxes

Answer (A )

Explanation:

Depreciation is an accounting convention that allows a company to write off an asset's value over a period of time, commonly the asset's useful life. Assets such as machinery and equipment are expensive. Instead of realizing the entire cost of the asset in year one, depreciating the asset allows companies to spread out that cost and generate revenue from it.

NNP= GNP- Depreciation

Depreciation= GNP+ NNP

Q392 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 )

Explanation:

Private sector banks can be defined as banking institutions where the majority of the shares are held by the private equity holders whereas public sector banks (also termed as government banks) can be defined as banking institutions where the majority of the stake is owned by the government.

Q393. Stagflation is a situation of 

(a) Stagnation and deflation  

(b) Stagnation and recession

(c) Stagnation and inflation 

(d) Stagnation and recovery 

Answer (C )

Explanation:

Stagflation is a combination of stagnant (showing little or no activity) economic growth, high unemployment, and high inflation. It's an unnatural situation because inflation is not supposed to occur in a weak economy. In a normal market economy, slow growth prevents inflation. As a result, consumer demand drops enough to keep prices from rising. Stagflation can only occur if government policies disrupt normal market functioning.

Q394. National Income Estimates in India are prepared by:

(a) National Development Council      

(b) National Productivity Council 

(c) National Income Committee                        

(d) Central  Statistical Organization 

Answer (D )

Explanation:

The National Income Unit of the Central Statistical Organisation (C.S.O.) is nowadays entrusted with the measurement of national income. Here this unit of C.S.O. estimated the major part of national income from the various sectors like agriculture, forestry, animal husbandry, fishing, mining, and factory establishments with the help of production methods.

Q395. The best Index of Economic Development is provided by:

(a) Growth in Per capita Real Income from year to year. 

(b) Growth in National Income at Current Prices.

(c) Growth in the savings ratio.                         

(d) Improvement in the Balance of Payments Position.

Answer (A )

Explanation:

Real GDP per capita is a measurement of the total economic output of a country divided by the number of people and adjusted for inflation. It's used to compare the standard of living between countries and over time.

“Real GDP,” which is GDP without the effect of price changes. Inflation makes regular, “nominal” GDP higher, so real GDP is a more accurate measurement when you want to compare an economy over time.

Q396. Consumer's sovereignty means:

(a) Consumers are free to spend their income as they like.

(b) Consumers have the power to manage the economy. 

(c) Consumer expenditures influence the allocation of resources.

(d) Consumer goods are free from government control.

Answer (A )

Explanation:

Consumer sovereignty is the theory that consumer preferences determine the production of goods and services. This means consumers can use their spending power as ‘votes’ for goods. In return, producers will respond to those preferences and produce those goods.

Q397. National Income includes:

(a) Financial help to earthquake victims                                      

(b) Pocket money of a child 

(c) Winning of a lottery prize                                                                   

(d) Construction of a new house

Answer (D )

Explanation:

National income includes the construction of a new house as it will generate income for all the workers and people related to its work.

Q398. The situation in which total Revenues equals total cost is known as :

(a) Monopolistic competition

(b) Equilibrium level of output

(c) Break-even point    

(d) Perfect competition

Answer (C )

Explanation:

Q399. The demand curve of a firm under perfect competition is

(a) Horizontal to x-axis                

(b) Negatively sloped

(c) Positively sloped

(d) U - shaped

Answer (A )

Explanation:

FAQ on Economics with explanation, UPSC, HCS,

Q400 Value of output and value-added can be distinguished if we know:

(a) The value of intermediate consumption

(b) The value of net indirect taxes

(c) The value of the sales                                                         

(d) The value of consumption of fixed capital

Answer (A )

Explanation:

Value-added = Value of output – Intermediate consumption

Value-added: It refers to the addition of value to the raw material (intermediate goods) by a firm by virtue of its productive activities.

Value of Output: The goods and services produced by an enterprise during an accounting year constitute its output.

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