HCS Exam: Multiple Choice Questions Economy Part-V Frontier IAS
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HCS Exam: Multiple Choice Questions Economy Part-V

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Economy Multiple Choice Questions For HCS Exam

Haryana Civil Services Exam 2020

Important 20000 MCQ Series For HCS Exam: Economics-V

Q101. Interest on public debt is part of

(a) Transfer payments by the enterprises                     

(b) Transfer payments by the government

(c) National income                                                                  

(d) Interest payments by households

Answer (B )

Explanation: In economics, a transfer payment (or government transfer or simply transfer) is a redistribution of income and wealth (payment) made without goods or services being received in return. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output. Examples of transfer payments include welfare, financial aid, social security, and government making subsidies for certain businesses (firms). For the purposes of calculating gross domestic product (GDP), government spending does not include transfer payments – the reallocation of money from one party to another – which includes Social Security, Medicare, unemployment insurance, welfare programs, and subsidies. Because these are not payments for goods or services, they do not represent a form of final demand or GDP

Q102. Which of the following can be used for checking inflation temporarily?

(a) Increase in wages

(b) Decrease in money supply             

(c) Decrease in taxes

(d) None of these

Answer (B )

Explanation:

Causes of Inflation:

1)Consumer Confidence: When unemployment is low and wages are stable, consumers are more confident and more likely to spend money. This confidence drives up prices as manufacturers and providers charge more for goods and services that are in high demand. One example is the market for new housing. In a booming economy, people purchase more new houses. Contractors experience greater demand for their services, and they raise their prices to capitalize on that demand. Similarly, the building materials included in the houses also cost more as supplies dwindle and consumers increase what they are willing to pay to complete the project. (For related reading, see: How Inflation and Unemployment Are Related.)

2)Decreases in Supply: One of the basic causes of inflation is the economic principle of supply and demand. As demand for a particular good or service increases, the available supply decreases. When fewer items are available, consumers are willing to pay more to obtain the item. Supply decreases for several reasons. Oftentimes a natural disaster or environmental effect is at fault for a supply-chain interruption, such as when a tornado destroys a factory or a severe drought kills crops. Supplies also decrease when an item is immensely popular, a phenomenon that frequently is seen when new cell phones or video games are released

Q103. Operating Surplus arises in the

(a) Government Sector

(b) Production for self-consumption    

(c) Subsistence farming

(d) Enterprise Sector

Answer (A )

Explanation: Operating surplus is an accounting concept used in national accounts statistics (such as the United Nations System of National Accounts (UNSNA)) and in corporate and government accounts. It is the balancing item of the Generation of Income Account in the UNSNA. It may be used in macro-economics as a proxy for total pre-tax profit income, although entrepreneurial income may provide a better measure of business profits. According to the 2008 SNA, it is the measure of the surplus accruing from production before deducting property income, e.g., land rent and interest. The operating surplus of an enterprise measures the difference between revenue and expenditure - i.e. the surplus or deficit - accruing from production. It is calculated before taking account of any interest, rent or similar charges payable on financial or tangible non-produced assets borrowed or rented by the enterprise, or any interest, rent or similar receipts receivable on financial or tangible non-produced assets owned by the enterprise.

Q104. Repo Rate is the rate of interest:

(a) At which public borrows money from Commercial Banks 

(b) At which public borrows money from R.B.I.

(c) At which Commercial Banks borrow money from R.B.I.against government securities

(d) At which Commercial Banks borrow money from the public

Answer (C )

Explanation: Repo rate is the rate at which RBI lends to its clients generally against government securities. Reduction in repo rate helps the commercial banks to get money at a cheaper rate and increase in repo rate discourages the commercial banks to get money as the rate increases and becomes expensive. Reverse repo rate is the rate at which RBI borrows money from the commercial banks. The increase in the repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit. As the rates are high the availability of credit and demand decreases resulting in a decrease in inflation. This increase in repo rate and reverse repo rate is a symbol of tightening of the policy.

Q105. A closed economy is one which

(a) Does not trade with other countries                           

(b) Does not possess any means of international transport 

(c) Does not have a coastline                 

(d) Is not a member of the U.N.O.

Answer (A )

Explanation: A closed economy is self-sufficient, which means no imports come into the country and no exports leave the country. A closed economy's intent is to provide domestic consumers with everything they need from within the country's borders

Q106. Deficit financing is an instrument of

(a) monetary policy

(b) credit policy   

(c) fiscal policy    

(d) tax policy

Answer (C )

Explanation: Deficit financing is the budgetary situation where expenditure is higher than the revenue. It is a practice adopted for financing the excess expenditure with outside resources. The expenditure revenue gap is financed by either printing of currency or through borrowing.

Q107. The difference between the GNP and the NNP is equal to the

(a) consumer expenditure on durable goods                               

(b) direct tax revenue

(c) indirect tax revenue                                                                    

(d) capital depreciation

Answer (D )

Explanation: Net national product (NNP) refers to gross national product (GNP), i.e. the total market value of all final goods and services produced by the factors of production of a country or other polity during a given time period, minus depreciation. Similarly, net domestic product (NDP) corresponds to gross domestic product (GDP) minus depreciation. Depreciation describes the devaluation of fixed capital through wear and tear associated with its use in productive activities. In national accounting, net national product (NNP) and net domestic product (NDP) are given by the two following formulas:

NNP=GNP-Depreciation

NDP=GDP-Depreciation

Q108. In a business, raw materials, components, work in progress and finished goods are jointly regarded as

(a) capital stock            

(b) inventory    

(c) investment         

(d) net worth

Answer (B )

Explanation: Inventory is a current asset account found on the balance sheet, consisting of all raw materials, work-in-progress, and finished goods that a company has accumulated. It is often deemed the most illiquid of all current assets and, thus, it is excluded from the numerator in the quick ratio calculation.

Q109. Investment is equal to

(a) gross total of all types of physical capital assets

(b) gross total of all capital assets minus wear and tear

(c) stock of plants, machines, and equipment            

(d) None of these

Answer (B )

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. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit.

Q110. The ratio of a bank's cash holdings to its total deposit liabilities is called the

(a) Variable Reserve Ratio       

(b) Cash Reserve Ratio

(c) Statutory Liquidity Ratio

(d) Minimum Reserve Ratio

Answer (B )

Explanation: The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with the Reserve bank of India as a portion of their Net Demand And Time Liabilities (NDTL). The objective of CRR is to ensure the liquidity and solvency of the Banks. 

Q111. Which amidst the following is not a credit rating agency?

(a) CRISIL                        

(b) CARE                         

(c) ICRA                           

(d) IFCI

Answer (D )

Explanation: IFCI, previously Industrial Finance Corporation of India, is a Non-Banking Finance Company in the public sector. Established in 1948 as a statutory corporation, IFCI is currently a company listed on BSE and NSE. IFCI manages seven subsidiaries and one associate under its fold.

It provides financial support for the diversified growth of Industries across the spectrum. The financing activities cover various kinds of projects such as airports, roads, telecom, power, real estate, manufacturing, services sector, and other allied industries. During its 70 years of existence, megaprojects like Adani Mundra Ports, GMR Goa International Airport, Salasar Highways, NRSS Transmission

CRISIL- Credit Rating Information Services of India Limited

CARE- Credit Analysis and Research

ICRA- Investment Information and Credit Rating Agency

Q112. Which unit of valuation is known as “Paper gold”?

(a) Eurodollar              

(b) Petrodollar      

(c) SDR                             

(d) GDR

Answer (C )

Explanation: Paper Gold, otherwise known as Special Drawing Rights (SDR), refers to the asset transferred by the International Monetary Fund (IMF) to its member countries as lending. All member countries are obliged to accept it. It provides a bigger base of earnings for the IMF and greater liquidity amongst the member countries. It is the currency of the IMF and due to its acceptability, it is referred to as Paper Gold.

GDR- Global Depository Receipt

Q113. Which one of the following taxes is collected and utilized by the State Governments?

(a), Personal income tax                         

(b) Corporation tax

(c) Land revenue 

(d) Custom duties

Answer (C )

Explanation:

Except for land revenue all 

other taxes are collected by the central government

Q114. When marginal utility is zero, the total utility is

(a) Minimum             

(b) Increasing           

(c) Maximum                

(d) Decreasing

Answer (C )

Explanation:

Total utility - It is total psychological satisfaction which a consumer derives from the consumption of a commodity is known as total utility

Marginal utility - It is an addition made in total utility by consuming an additional unit of a commodity is known as marginal utility

When marginal utility is positive, total utility increases

When marginal utility is zero, total utility is at maximum

When marginal utility is negative, total utility decreases

Q115. Equilibrium price means

(a) Price determined by demand and supply            

(b) Price determined by Cost and Profit

(c) Price determined by Cost of production             

(d) Price determined to maximize profit

 Answer (A )

Explanation: The equilibrium price is the price where the demand for a product or a service is equal to the supply of the product or service. At equilibrium, both consumers and producers are satisfied, thereby keeping the price of the product or the service stable.

Q116. When aggregate supply exceeds aggregate demand

(a) unemployment falls         

(b) prices rise      

(c) inventories accumulate  

(d) unemployment develops

Answer (C )

Explanation: An inventory accumulation is an excess of inventory that a business owner has difficulty moving after an unplanned event adversely affects sales.

Q117. Who are the creditors of a Corporation?

(a) Bondholders    

(b) Stockholders   

(c) Both / Bond and Stockholders         

(d) Holders of preferred stock

Answer (C )

Explanation: A creditor is an individual or institution that lends money or services to another entity under a repayment agreement.

How it works (Example):

There are generally two types of creditors: personal and real. Personal creditors are people who loan money to friends or family. Real creditors are financial entities who require borrowers to sign legal contracts that grant the creditor some sort of collateral -- e.g. car, house, jewelry --  if the borrower fails to repay the loan.  Let's look at a scenario with a real creditor, XYZ Bank, to whom you go to for a loan. If you are approved and they lend you money, XYZ Bank becomes your creditor. Individuals and companies can have several creditors at any given time, for many different types of debt. Additional examples of creditors who extend credit lines of money or services include utility companies, health clubs, phone companies, and credit card issuers. Not all creditors are considered equal. Some creditors are considered superior to others (senior), while others are subordinate. 

Q118. According to the Keynesian theory of income determination, at full employment, a fall in aggregate demand causes

(a) a fall in prices of output and resources               

(b) a fall in real gross National product and employment

(c) a rise in real gross National product and investment           

(d) a rise in prices of output and resources

Answer (A )

Explanation: According to Keynes theory, in the short run, the level of income, output, or employment is determined by the level of aggregate effective demand. In short, a higher level of aggregate demand will result in greater output, income, and employment. And vice versa

Q119. Devaluation usually causes the internal prices to

(a) fall                    

(b) rise               

(c) remain unchanged      

(d) None of the above

Answer (C )

Explanation: Devaluation is a deliberate downward adjustment of the value of a country's currency relative to another currency, group of currencies, or 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. It does not have any effect on internal prices

Q120. A seller or buyer protects his business or holdings from changing prices and takes action against it. It is known as-

(a) defence    

(b) betting          

(c) inter-trading                                      

(d) mortgage

Answer (A )

Explanation: A seller or buyer protects his business or holdings from changing prices and takes action against it. It is known as defence. 

Q121. Evaluating all the options to find out the most suitable solution to business problems is interdisciplinary activities. It is called

(a) Professional research    

(b) Management research

(c) Operational research

(d) Commercial research

Answer (C )

Explanation: Operations research (OR) is an analytical method of problem-solving and decision-making that is useful in the management of organizations. In operations research, problems are broken down into basic components and then solved in defined steps by mathematical analysis.

Q122. Basic infrastructure facilities in Economics are known as :

(a) Human capital   

(b) Physical capital  

(c) Social overheads capital                    

(d) Working capital

 Answer (C )

Explanation: Social Overhead Capital (SOC) is defined as basic services without which primary, secondary, and tertiary productive activities cannot function. In a narrow sense, Social Overhead Capital is defined to include transportation and electricity, while in a wider sense, it includes all public services, including law and order and education.

Q123. What are the main components of the basic social infrastructure of an economy?

(a) Education, Industry, and Agriculture                               

(b) Education, Health and Civil amenities

(c) Transport, Health, and Banks                                           

(d) Industry, Trade, and Transport

Answer (B )

Explanation: Social infrastructure can be broadly defined as the construction and maintenance of facilities that support social services. Types of social infrastructure include healthcare (hospitals), education (schools and universities), public facilities (community housing and prisons), and transportation (railways and roads)

Q124. Which of the following concepts are most closely associated with J.M. Keynes?

(a) Control of money supply                                              

(b) Marginal utility theory

(c) Indifference curve analysis                                           

(d) Marginal efficiency of capital

Answer (D )

Explanation: Keynesian economics are the various macroeconomic theories about how in the short run – and especially during recessions – economic output is strongly influenced by aggregate demand (total demand in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation except d all are microeconomics concepts

Q125. The best measure to assess a country’s economic growth is

(a) per capita income at constant prices                          

(b) per capita income at current prices

(c) gross domestic product at current prices          

(d) gross national product at current prices.

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, state, or District. 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 of the country, state.

National income at a constant price: It is the money value of final goods and services produced by normal residents of a country in a year, measured at base year price. Base Year is a normal year that is free from price fluctuations. Presently 2004-2005 is taken as the base year in India. If we measure India’s National Income of 2013-2014 at the prices of 2004-2005, then it is termed as ‘National Income at a constant price’.

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