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

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

As we always say, practicing a lot of multiple-choice questions really boosts up your preparation and gives you a reality check. So it is very important to practice and most importantly, go with frequently asked questions related to your subject asked in tough competitive exams like UPSC, HCS, UPPSC, RAS.

But starting this test, check previous questions and see your preparation so far:

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

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

Q201. Open market operations of RBI refer to buying and. selling of

(a) Commercial bills                  

(b) Foreign exchange              

(c) Gold                              

(d) Government bonds

Answer (D )


An open market operation (OMO) is an activity by a central bank to give (or take) liquidity in its currency to (or from) a bank or a group of banks. The central bank can either buy or sell government bonds in the open market (this is where the name was historically derived from) or, in what is now mostly the preferred solution, enter into a repo or secured lending transaction with a commercial bank: the central bank gives the money as a deposit for a defined period and synchronously takes an eligible asset as collateral.

Q202. Production function expresses

(a) technological relationship between physical inputs and output

(b) the financial relationship between physical inputs and output

(c) relationship between finance and technology 

(d) relationship between factors of production

Answer (A )


Production function, in economics, an equation that expresses the relationship between the quantities of productive factors (such as labor and capital) used and the amount of product obtained.

Q203. "Interest is a reward for parting with liquidity is according to

(a) Keynes 

(b) Marshall

(c) Haberler 

(d) Ohlin

Answer (A )


Interest is the reward paid for parting with liquidity, i.e., giving up the cash balances held. Thus, the rate of interest according to Keynes is determined by the intersection of the supply schedule of money (the total quantity of money) and the demand schedule for money (the liquidity preference).

Q204. Extension or contraction of quantity demanded of a commodity is a result of a change in the

(a) the unit price of the commodity                                 

(b) income of the consumer 

(c) tastes of the consumer                                                         

(d) the climate of the region

Answer (A )


Frequently asked questions on Economics asked in UPPSC, HCS, UPSC
Q205. Cross elasticity of demand between petrol and car is

(a) infinite  

(b) positive 

(c) zero             

(d) negative

Answer (D )


The cross elasticity of demand is an economic concept that measures the responsiveness in the quantity demanded of one good when the price for other good changes. Also called cross-price elasticity of demand, this measurement is calculated by taking the percentage change in the quantity demanded of one good and dividing it by the percentage change in the price of the other good.

Q206. 'Supply creates its own demand’. This statement is related to

(a) Prof. J.B. Say     

(b) John Robinson  

(c) Adam Smith   

(d) J.S. Mill

Answer (A )


Say’s law, also known as Say’s law of markets in Classical economics, states that supply itself creates its own demand. According to Say’s law, aggregate production necessarily creates an equal amount of aggregate demand. It is an economic rule that production is the source of demand, so says Say’s law.

Q207. The Law of Demand expresses

(a) effect of change in the price of a commodity on its demand

(b) effect of change in demand of a commodity on its price

(c) effect of change in demand of a commodity over the supply of its substitute

(d) None of the above

Answer (A )


The law of demand states that the quantity purchased varies inversely with price. In other words, the higher the price, the lower the quantity demanded. This occurs because of diminishing marginal utility. That is, consumers use the first units of an economic good they purchase to serve their most urgent needs first and use each additional unit of the good to serve successively lower-valued ends.

Q208. A situation where we have people whose level of income is not sufficient to meet the minimum consumption expenditure is considered as 

(a) Absolute Poverty

(b) Relative Poverty

(c) Urban Poverty       

(d) Rural Poverty

Answer (A )


Absolute poverty is when household income is below a certain level, which makes it impossible for the person or family to meet the basic needs of life including food, shelter, safe drinking water, education, healthcare, etc.

Relative poverty is when households receive 50% less than average household incomes, so they do have some money but still not enough money to afford anything above the basics. This type of poverty is, on the other hand, changeable depending on the economic growth of the country.

To stay updated, check daily current affairs.

Q209. Full convertibility of a rupee means 

(a) purchase of foreign exchange for rupees freely 

(b) payment for imports in terms of rupees

(c) repayment of loans in terms of rupees

(d) determination of the rate of exchange between the rupee and foreign currencies freely by the market forces of demand and supply

Answer (D )


Full convertibility is also known as the Floating rupee means the removal of all controls on the cross-border movement of capital, out of India to anywhere else or vice versa.

Q210. An exceptional demand curve is one that moves

(a) upward to the right       

(b) downward to the right

(c) horizontally             

(d) vertically

Answer (A )


A demand (dd) curve slopes downward from left to right. According to the law of demand when the price increases demand falls that leads to a downward-sloping demand curve.

An exceptional demand curve slopes upward from left to right which means the demand increases with the rise of price. This is the case of exceptions mentioned in the law of the demand which are :

1) Inferior goods/ Giffen goods

2) Goods having prestige value

3) Price expectation

4) Fear of shortage

Q211. Production function explains the relationship between

(a) initial inputs and ultimate output               

(b) inputs and ultimate consumption

(c) output and consumption                                     

(d) output and exports

Answer (A )


Production function, in economics, an equation that expresses the relationship between the quantities of productive factors (such as labor and capital) used and the amount of product obtained. It states the amount of product that can be obtained from every combination of factors, assuming that the most efficient available methods of production are used.

Q212. The term stagflation refers to a situation where 

(a) growth has no relation with the change in prices

(b) rate of growth and prices both are decreasing

(c) rate of growth is faster than the rate of price increase

(d) rate of growth is slower than the rate of price increase

Answer (D )


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.

Q213. In Economics the ‘Utility' and ‘Usefulness’ have

(a) same meaning         

(b) different meaning            

(c) opposite meaning                

(d) None of the above

Answer (B )


The utility is the power of a good or the service by which it can satisfy a human want. In terms of economics, consumers demand only those products which have utility to satisfy their wants. 

Usefulness is the importance of any product in the life of a customer.

Q214. The nature of unemployment in agriculture in India is 

(a) only seasonal   

(b) only disguised                   

(c) Both (a) and (b)    

(d) None of the above

Answer (C )


The agriculture sector experiences massive unemployment in two major forms, primarily:

  1. Seasonal Unemployment
  2. Disguised unemployment

Disguised unemployment occurs when surplus labor is employed, out of which some employees have zero or almost zero marginal productivity. As such, this type of unemployment does not affect the aggregate output. Disguised unemployment is also called ‘hidden unemployment.’

Seasonal unemployment occurs when individuals are unemployed at certain times of the year because they are employed in industries that do not produce goods or services all year round. A number of industries such as agriculture, leisure, and tourism, retailing are affected by seasonal employment. 

Q215. If two commodities are complements, then their cross-price elasticity is

(a) zero                     

(b) positive                

(c) negative                    

(d) imaginary number

Answer (C )


The cross elasticity of demand for complementary goods is negative. As the price for one item increases, an item closely associated with that item and necessary for its consumption decreases because the demand for the main good has also dropped.

Q216. The opportunity cost of production of a commodity is

(a) the cost that the firm could have incurred when a different technique was adopted

(b) the cost that the firm could have incurred under a different method of production

(c) the actual cost incurred

(d) the next best alternative output

Answer (D)


Opportunity costs represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. The idea of opportunity costs is a major concept in economics.

Q217. Surplus earned by a factor other than land in the short period of referred to as

(a) economic rent    

(b) net rent              

(c) quasi-rent     

(d) super-normal rent

Answer (C )


Quasi-rent differs from pure economic rent in that it is a temporary phenomenon. It can arise from the barriers to entry that potential competitors face in the short run, such as the granting of patents or other legal protections for intellectual property by governments.

Q218. Which from the following is not true when the interest rate in the economy goes up? 

(a) Saving increases   

(b) Lending decreases 

(c) Cost of production increases                           

(d) Return on capital increases

Answer (D )


When the interest rate in the economy goes up people start saving more, lending falls and the cost of production also rises. Whereas return on capital decreases 

Q219. Which one of the following is not a method of measurement of National Income?

(a) Value Added Method       

(b) Income Method

(c) Investment Method             

(d) Expenditure Method

Answer (C )


There are three ways of measuring the National Income of a country. They are from the income side, the output side and the expenditure side. Thus, we can classify these perspectives into the following methods of measurement of National Income.

Methods of Measuring National Income

  • Product Method
  • Income Method
  • Expenditure Method

Q220. Labour Intensive Technique would get chosen in a

(a) Labour Surplus Economy  

(b) Capital Surplus Economy

(c) Developed Economy       

(d) Developing Economy

Answer (A )


In simple words, a labor-intensive technique is that which uses comparatively larger amounts of labor and small doses of capital. It is that technique by which more labor and less capital are required for the process of production.

Q221. Which one of the following would not constitute an economic activity?

(a) A teacher teaching students in his class

(b) A teacher teaching students Under Sarva Shiksha Abhiyan

(c) A teacher teaching his own daughter at home          

(d) A teacher providing consultancy services from his residence

Answer (C )


Economic activity is the activity of making, providing, purchasing or selling goods or services. Any action that involves producing, distributing, or consuming products or services is an economic activity.

Economic activities exist at all levels within a society. Additionally, any activities involving money or the exchange of products or services are economic activities. For instance, running a small business is a great example of economic activity

Q222. Net National Product of a country is

(a) GDP minus depreciation allowances       

(b) GDP plus net income from abroad

(c) GNP minus net income from abroad            

(d) GNP minus depreciation allowances

Answer (D )


GDP- Depreciation= NDP

GDP + Net Income from Abroad= GNP

GNP- Net Income from Abroad= GDP

Q223. Which one of the following is not a method of estimating National Income?

(a) Expenditure method                   

(b) Product method  

(c) Matrix method                       

(d) Income method

Answer (C )


There are three ways of measuring the National Income of a country. They are from the income side, the output side, and the expenditure side. Thus, we can classify these perspectives into the following methods of measurement of National Income.

Methods of Measuring National Income

  • Product Method
  • Income Method
  • Expenditure Method

Q224. The monetary policy in India is formulated by

(a) Central Government                                                                       

(b) Industrial Financial Corporation of India

(c) Reserve Bank of India                                   

(d) Industrial Development Bank of India

Answer (C )


The Monetary Policy of India is formulated and executed by the Reserve Bank of India to achieve specific objectives. It refers to that policy by which the central bank of the country controls(i) the supply of money, and (ii) the cost of money or the rate of interest, with a view to achieving particular objectives.

Q225. A short-term government security paper is called

(a) Share            


(c) Mutual fund                   

(d) Treasury bill

Answer (D )


Treasury Bills, also known as T-bills are the short-term money market instrument, issued by the central bank on behalf of the government to curb temporary liquidity shortfalls. These do not yield any interest, but issued at a discount, at its redemption price, and repaid at par when it gets matured.

The Treasury bill is a monetary policy instrument through which the government raises funds for short period requirements and commercial banks invest their short period surpluses by buying these bills from the government.

Q226. Under which, market condition do firms have excess capacity?

(a) Perfect competition              

(b) Monopolistic competition              

(c) Duopoly                     

(d) Oligopoly

Answer (B )


When the firm produces below its minimum efficient scale, it is underutilizing its available resources. In this situation, the firm is said to have excess capacity because it can easily accommodate an increase in production. This excess capacity is the major social cost of a monopolistically competitive market structure.

Q227. Price theory is also known as 

(a) Macroeconomics   

(b) Development Economics

(c) Public Economics          

(d) Micro Economics

Answer (D)


The theory of price—also referred to as "price theory"—is a microeconomic principle that uses the concept of supply and demand to determine the appropriate price point for a given good or service.

Q228. At present, India is following 

(a) Fixed exchange rate 

(b) Floating exchange rate

(c) Pegged up exchange rate

(d) Pegged down exchange rate

Answer (B )



Under this system, there is complete government intervention in the foreign exchange markets. The government or central bank determines the official exchange rate by linking the exchange rate to the price of gold or major currencies like the US dollar.

The only merit of a fixed exchange rate system is that it assures the stability of the exchange rate. It prevents both currency appreciation and depreciation.


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 exchange rate fluctuates, the government never intervenes and allows the market to function and determine the true value of the exchange rate.


Pegging is controlling a country's currency rate by tying it to another country's currency or steering an asset's price prior to option expiration. A country's central bank, at times, will engage in open market operations to stabilize its currency by pegging or fixing, it to another country's, presumably stable, currency. It can also refer to the practice of manipulating the price of an underlying asset, like a commodity, prior to option expiry. 

Q229. National Income is the

(a) Net National Product at market price                           

(b) Net National Product at factor cost

(c) Net Domestic Product al market price                    

(d) Net Domestic Product at factor cost

Answer (B )


Factor Price= Market Price- Indirect tax + subsidies

GDP= Total of all final goods and services produced in the domestic territory within a country

GNP= GDP + net income from abroad

NNP= GNP- Depreciation

NDP= NNP- net income from abroad

Q230. A want becomes a demand only when it is backed by the

(a) Ability to purchase  

(b) Necessity to buy

(c) Desire to buy         

(d) Utility of the product

Answer (A )


Want becomes a demand when backed up by an individual’s ability to pay for it. A hungry person can want a burger, but does he have money to demand a burger. Or is there a burger available to him?

Q231. The terms “Microeconomics” and “MacroEconomics" were coined by

(a) Alfred Marshall                     

(b) Ragnar Nurkse       

(c) Ragnar Frisch       

(d) J.M. Keynes

Answer (C )


These two terms microeconomics and macroeconomics were first coined and used by Ranger Frisch in 1933. In recent years, the division of economic theory into two separate parts has gained much importance.

Q232. During periods of inflation, tax rates should

(a) increase                 

(b) decrease       

(c) remain constant               

(d) fluctuate

Answer (A )


Higher tax rates can be used to control inflation given everything else is constant. It can be explained by taking income taxes into account. Higher the income tax rates, greater the reduction in the income of people, lower the money in the hands of people, lower the demand of goods and services, thus lower the price level.

Q233. “Economics is what it ought to be” - This statement refers to 

(a) Normative economics 

(b) Positive economics          

(c) Monetary economics

(d) Fiscal economics

Answer (A )


Normative economics aims to determine people's desirability or the lack thereof to various economic programs, situations, and conditions by asking what should happen or what ought to be. Therefore, normative statements typically present an opinion-based analysis in terms of what is thought to be desirable—for example, stating that we should strive for economic growth of x% or inflation of y% could be seen as normative.

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Q234. The excess of a price a person is to pay rather than forego the consumption of the commodity is called

(a) Price                         

(b) Profit                  

(c) Producers' surplus              

(d) Consumer's surplus

Answer (C )


Producer surplus is the difference between how much a person would be willing to accept for a given quantity of a good versus how much they can receive by selling the goods at the market price. The difference or surplus amount is the benefit the producer receives for selling the good in the market.

Q235. The existence of a parallel economy or Black Money

(a) makes the economy more competitive'                     

(b) makes the monetary policies less effective

(c) ensures a better distribution of income and wealth

(d) ensures increasing productive investment

Answer (B )


A parallel economy, based on black money or unaccounted money, is a big menace to the Indian economy. It is also a cause of big loss in the tax revenues for the government. As such, it needs to be curbed. Its elimination will benefit the economy in more than one way.

Q236. Which of the following taxes are levied and collected by the center but their net proceeds are wholly transferred to states?

(a) Expenditure Tax and Gift Tax                                     

(b) Additional Duties of Excise in lieu of Sales Tax

(c) Stamps and Registration                   

(d) Taxes on Advertisement

Answer (D)


Taxes on Advertisement are levied and collected by the center but their net proceeds are wholly transferred to states.

Q237. When the price of a commodity falls, we can expect

(a) the supply of it to increase                                     

(b) the demand for it to fall

(c) the demand for it to stay constant                                       

(d) the demand for it to increase

Answer (D )


When the price of a commodity falls, we can expect the demand for it to increase. The Law of demand states that when price increases, the demand for the commodity falls and vice-versa.

Q238. The bank cheques are processed by using

(a) OCR                             

(b) MICR                          

(c) OMR                            

(d) PMR

Answer (B )


OCR- Optical character recognition 

MICR-Magnetic Ink Character Recognition

OMR-Optical Mark Recognition

PMR-Product Market Regulation

Q239. When were the Minimum Wages Act enacted in India?

(a) 1936                           

(b) 1948                        

(c) 1951                           

(d) 1956

Answer (B )


The Minimum Wages Act 1948 is an Act of Parliament concerning Indian labor law that sets the minimum wages that must be paid to skilled and unskilled laborers. The Indian Constitution has defined a ' living wage ' that is the level of income for a worker which will ensure a basic standard of living including good health, dignity, comfort, education, and provide for any contingency.

Q240. Which one of the following does not deal with export promotion?

(a) Trade Development Authority                   

(b) Minerals and Metals Trading Corporation

(c) Cooperative Marketing Societies             

(d) State Trading Corporation of India

Answer (C )


“Co-operative marketing is the marketing  for the producers and by the producers that aims at eliminating the chain of middlemen operating between producers and the ultimate consumer and thus securing the maximum price for their produce.”

Co-operative marketing organizations are associations of producers for the collective marketing of their produce and of securing for the members the advantages that result from a large-scale business that an individual cultivator cannot secure because of his small marketable surplus.

In other words, cooperative marketing societies are established for the purpose of collectively marketing the products of the member producers.

Q241. Which of the following sets belongs to Central tax? 

(a) Excise duty, Sales tax, and Customs duty  

(b) Excise duty, Customs duty, and Income tax

(c) Income, tax, Custom duty, and House tax

(d) Customs duty, Entertainment tax, and Income tax

Answer (B )


List of central tax-

1) Income tax

2) Custom duty

3) Excise duty

4) Corporation tax

List of state tax-

1) Electricity duty

2) VAT

3) Sales tax

4) Entertainment tax

5) Toll road tax

Q242. The most distinguishing feature of oligopoly is

(a) number of firms 

(b) interdependence               

(c) negligible influence on the price           

(d) price leadership

Answer (B )


The most important characteristic of an oligopoly is an industry dominated by a small number of large firms, each of which is relatively large compared to the overall size of the market. This characteristic gives each of the relatively large firms substantial market control.

Q243. 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 defined investment as “the construction of a new capital asset like machinery or factory building".

Q244. ‘Law of demand’ implies that when there is excess demand, for a commodity, then

(a) price of the commodity falls                                       

(b) price of the commodity remains the same 

(c) price of the commodity rises                                                   

(d) quantity demanded of the commodity falls

Answer (C )


The law of demand states that other factors being constant (ceteris paribus), price, and quantity demand of any good and service are inversely related to each other. When the price of a product increases, the demand for the same product will fall.

‘Law of demand’ implies that when there is excess demand, for a commodity, then the price of the commodity rises.

Q245. 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 )


An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. 

Q246. Consequent to the recommendations of the Working Group on Rural Banks, 5 Rural Regional Banks were initially set up in the year

(a) 1973                           

(b) 1974                           

(c) 1975                        

(d) 1976

Answer (C )


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.

Q247. Poverty in less developed countries is largely due to

(a) voluntary idleness

(b) income inequality

(c) lack of cultural activities      

(d) lack of intelligence of the people

Answer (B )


Poverty in less developed countries is largely due to income inequality.

Q248. Which one of the following categories of workers are termed, cultivators?

(a) Those who own land and cultivate            

(b) Those who lease inland and cultivate

(c) Those who cultivate the land of others 

(d) Those who own land and lease in from others or institutions and cultivate

Answer (C )


Agricultural laborers are those who cultivate the land of others but own no (or very little) land of their own. Owner cultivators are those who own and cultivate their own land. Landowners are those who own land but do not cultivate it themselves. So basically, a cultivator is an agricultural laborer who tills the land of others.

Q249. Cheap Money means

(a) Low Rate of Interest                   

(b) Low level of Savings     

(c) Low-level Income

(d) Excess of Black Money

Answer (A )


Cheap money is a loan or credit with a low interest rate or the setting of low-interest rates by a central bank like the Federal Reserve. Cheap money is money that can be borrowed with a very low-interest rate or price for borrowing.

Q250. Disinvestment in Public Sector is called

(a) Liberalization           

(b) Globalization           

(c) Industrialization                 

(d) Privatization

Answer (D )


Privatization occurs when a government-owned business, operation, or property becomes owned by a private, non-government party. Privatization also describes the transition of a company from being publicly traded to becoming privately held. This is referred to as corporate privatization.

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