HPSC Exam Question Series: Economics-III
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HPSC Exam Question Series: Economics-III

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Economics Multiple Choice Questions For HCS Exam

Haryana Civil Services Exam 2020

Important 20000 MCQ Series For HCS Exam: ECONOMICS PART-III

Q1. 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.

Q2. 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.

Q3. 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: 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.[1] 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.[2] Another well-studied example is throwing more headcount at software development, yielding Brooks's law.

Q4. 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 an output, a good or service that has value and contributes to the utility of individuals.

Q5. 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.

Q6. ‘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

Q7. 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.

Q8. 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

Q9. 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. 

Q10. ‘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.

Q11. 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

Q12. 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: - 2 Types of Depository Services.       1-      NSDL (National Securities Depository Limited)         2-      CDSL (Central Depository Services Limited)

Q13. The term ‘Green GNP’ emphasizes 

(a) rapid growth of GNP            

(b) increase in per capita income     

(c) economic development     

(d) sustainable development

Answer (D )

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

Q14. The outcome of 'devaluation of currency’ is

(a) increased export and improvement in balance of payment

(b) increased export and foreign reserve deficiency

(c) increased import and improvement in balance of payment

(d) increased export and import

Answer (A )

Explanation: Devaluation is the decision to reduce the value of a currency in 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

Q15. What is Value Added Tax(VAT)? 

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

(b) A new initiative taken by the Government to increase the tax-burden of high income groups

(c) A single tax that replaces State taxes like, surcharge, turnover tax, etc.

(d) A new tax to be imposed on the producers of capital goods

Answer (C )

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 have already been taxed.

Q16. 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

Q17. 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 decrease in the real wages

Q18. 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.

Q19. 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 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 size of population.
  5. No expectation regarding future change in price.

Q20. Which organization collects data for the unorganized sector?

(a) NSSO                         

(b) CSO                                             

(c) ASI                              

(d) RBI

Answer (A )


NSSO- National Sample Survey Organization

CSO- Central Statistics Office

ASI- Annual Survey of Industries 

RBI- Reserve Bank of India

Q21. 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.

Q22. 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 )

Explanation: Life insurance policies are not viewed as the national debt.

Q23. 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. 

Q24. 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 All India basis. Primarily data are collected through nation-wide 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.

Q25. 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.

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