HPSC Question Series Topic Wise: Economics-IV

Economics Multiple Choice Questions For HCS Exam

Haryana Civil Services Exam 2020

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

Q1. 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.

Q2. 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. 

Q3. 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.[1] Kaldor worked alongside Gunnar Myrdal to develop the key concept 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.

Q4. 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.

Q5. Dalal Street is located in

(a)  New York

(b) Delhi

(c) Pune

(d)Mumbai

Answer (D )

Explanation: Dalal Street Signage

Dalal Street (Hindi, Gujarati) 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 Bombay Stock Exchange was moved to this new location at the intersection of Bombay Sam?ch?r Marg and Hammam Street, the street next to the building was renamed as Dalal Street[citation needed]. The Marathi word dal?l 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

Q6. 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. 

Q7. 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.

monopolistically competitive markets have the following characteristics:

There are many producers and many consumers in the market, and no business has total control over the market price.

Consumers perceive that there are non-price differences among the competitors' products.

There are few barriers to entry and exit.

Producers have a degree of control over price.

Q8. 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 National Stock Exchange of India's benchmark broad based stock market index for the Indian equity market. Full form of NIFTY is National Stock Exchange Fifty.

Q9. 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.

Q10. 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. 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 abnormal profit, desires to have a break-even point. Graphically, it is the point where the total cost and the total revenue curves meet

Q11. 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 which 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 which businesses shift to society in their attempts to increase their profits.

Q12. 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.

Q13. 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.

Q14. 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.

Q15. While determining income the expenditure on which of the following items is not considered as investment?

(a) Construction of factory      

(b) Computer

(c) Increase in the stock of unsold articles     

(d) Stock and share in 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. Increase in the stock of unsold items cannot be considered as investment.

Q16. 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.

Q17. Which of the following results by dividing national income by the 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.

Q18. Which of the following taxes is such which does not cause a rise in price?

(a) Import duty       

(b) Income tax       

(c) Octorol                 

(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).

Q19. The sum total of incomes received for the services of labour, 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 the economic activity of countries, and the GDI is quite uncommon.

Q20. “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

Q21. 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.

Q22. “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.

Q23. 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.

Q24. 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.

Q25. 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 bank

Answer (A )

Explanation: A central bank is the primary source of money supply in an economy through 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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