Important MCQs on Economics for HCS/ UPSC
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Important MCQs on Economics for HCS/ UPSC

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Economics

Important MCQs on Economics for HCS/ UPSC

We always believe that "Practice makes a man perfect". Theoretical knowledge is very important because it helps you to attempt MCQs but it is an actually practical application of that knowledge that can help you in passing exams like HCS/ UPSC.

So before starting this test, attempt the previous test series.

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

Q301. Why is rent earned by land even in the long run?

(a) Land has original and indestructible power                           

(b) Land is a man-made factor

(c) Its supply is inelastic in the short run                                     

(d) Its supply is inelastic in the long run

Answer (D )

Explanation:

The market situation in which any increase or decrease in the price of a good or service does not result in a corresponding increase or decrease in its supply.

Q302. In a highly developed country, the relative contribution of agriculture to GDP is

(a) Relatively high       

(b) Relatively low               

(c) The same as that of other sectors                 

(d) Zero

Answer (B )

Explanation:

In a highly developed country, the relative contribution of agriculture to GDP is relatively low.

Q303. Who is called the Father of Economics?

(a) J.M. Keynes

(b) Malthus

(c) Ricardo                   

(d) Adam Smith

Answer (D )

Explanation:

Adam Smith was an 18th-century Scottish economist, philosopher, and author who is considered the father of modern economics. Smith argued against mercantilism and was a major proponent of laissez-faire economic policies.

Q304. The term “market” in Economics means

(a) A central place     

(b) Presence of competition 

(c) Place where goods are stored  

(d) Shops and super bazaars

Answer (A )

Explanation:

In Economics, however, the term “Market” does not refer to a particular place as such but refers to a market for a commodity or commodities. It refers to an arrangement whereby buyers and sellers come in close contact with each other directly or indirectly to sell and buy goods. In other words, it is known as a central place.

Q305. Division of labor is limited by

(a) The number of workers

(b) Hours of work

(c) The extent of the market      

(d) Working space

Answer (C )

Explanation:

Division of labor is limited by the extent of the market.

Q306. The four factors of production are

(a) Land, labor, capital, organization                             

(b) Land, electricity, water, labor

(c) Labor, capital, land, rainfall                                           

(d) Labor, climate, land, tools

Answer (A )

Q307. ISI mark is not given to which of the following products?

(a) Electrical goods             

(b) Hosiery goods           

(c) Biscuits                  

(d) Cloth

Answer (C )

Explanation:

The ISI is an initialism of the Indian Standards Institution, the name of the national standards body until 1 January 1987, when it was renamed to the Bureau of Indian Standards. The ISI mark is mandatory for certain products to be sold in India, such as many of the electrical appliances like switches, electric motors, wiring cables, heaters, kitchen appliances, etc., and other products like Portland cement, LPG valves, LPG cylinders, automotive tires, etc. In the case of most other products, ISI marks are optional.

Important MCQs on Economics for HCS, UPSC

Packaged food and toothpaste products sold in India are required to be labeled with a mandatory mark to be distinguished between Lacto-vegetarian and non-Lacto-vegetarian. The symbol is in effect following the Food Safety and Standards (Packaging and Labelling) Act of 2006 and got a mandatory status after the framing of the respective regulations (Food Safety and Standards [Packaging and Labelling] Regulation) in 2011. According to the law, vegetarian food should be identified by a green symbol and non-vegetarian food with a brown symbol.

Q308. The term utility means

(a) The usefulness of a commodity                           

(b) The satisfaction which a commodity yields 

(c) The service which a commodity is capable of rendering                     

(d) None of these

Answer (B )

Explanation:

The “Utility” in Economics means the satisfaction derived or expected to be derived from the consumption of goods and services. 

Q309. Under a flexible exchange rate system, the exchange rate is determined by

(a) The Central Bank of the country

(b) The forces of demand and supply in the foreign exchange market

(c) The price of gold                         

(d) The purchasing power of currencies

Answer (B )

Explanation:

FIXED EXCHANGE RATE

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.

FLOATING EXCHANGE RATE

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.

Q310. The size of the market for a product refers to

(a) The number of people in the given area 

(b) The geographical area served by the producers

(c) The volume of potential sales of the product         

(d) The number of potential buyers of the product

Answer (D )

Explanation:

Market size refers to the number of potential buyers for a product or service in a given area. Determining your market size is a vital part of the research stage of product development. Taking time to understand your target market segment will put you in a better position to market and sell your new product. It will also allow you to implement pricing strategies better.

Q311. The economic problem arises mainly due to 

(a) Overpopulation     

(b) Unemployment    

(c) Scarcity of resources                    

(d) Lack of industries

Answer (C )

Explanation:

Economic problems arise mainly due to two reasons- (i) human wants are unlimited (ii) means to satisfy human wants are scarce. The problem of scarcity is faced by an individual and society. With wants unlimited and resources scarce, our wants cannot be fulfilled. This gives rise to the problem of how to use scarce means to attain maximum satisfaction.

Q312. Bank rate is the rate of interest

(a) At which public borrows money from Commercial Bank       

(b) At which the public borrows money from RBI

(c) At which Commercial Banks borrow money from RBI

(d) At which Commercial Banks borrow money from public

Answer (C )

Explanation:

A bank rate is the interest rate at which a nation's central bank lends money to domestic banks, often in the form of very short-term loans. Managing the bank rate is a method by which central banks affect economic activity. Lower bank rates can help to expand the economy by lowering the cost of funds for borrowers, and higher bank rates help to reign in the economy when inflation is higher than desired.

Q313. If the change in demand for a commodity is at a faster rate than a change in the price of the commodity, the demand is

(a) Perfectly inelastic     

(b) Elastic      

(c) Perfectly elastic              

(d) Inelastic

Answer (C )

Explanation:

In a market that has perfectly elastic demand for a product, even a small change in price causes an infinite change in the quantity demanded. Therefore, in perfectly elastic demand, an infinite number of quantities demanded are associated with a given level of price.

When the price changes, the quantities change to infinity. 

Important MCQs on Economics for HCS, UPSC

Q314. Which of the following are not fixed costs?

(a) Rent on land                             

(b) Municipal taxes     

(c) Wages paid to workers

(d) Insurance charges

Answer (C )

Explanation:

In economics, fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as interest or rents being paid per month.

Q315. The demand for money, according to Keynes, is for

(a) Speculative motive               

(b) Transaction motive             

(c) Precautionary motive 

(d) All the above motives

Answer (D )

Explanation:

Keynes in his General Theory used a new term “liquidity preference” for the demand for money. Keynes suggested three motives that led to the demand for money in an economy: (1) the transactions motive, (2) the precautionary motive, and (3) the speculative motive.

Types of demand for money

1) Transaction demand – money needed to buy goods – this is related to income.

2) Precautionary demand – money needed for financial emergencies.

3) Asset motive/speculative demand – when people wish to hold money rather than buy assets/bonds/risky investment.

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

Q316. The sale proceeds of Government Bonds come under the budget head of

(a) Revenue Receipts             

(b) Current Expenditure                         

(c) Capital Outlay           

(d) Capital Receipts

Answer (D )

Explanation:

In general, two types of receipts occur during the course of business. Capital Receipts are described as the money brought to the business from non-operating sources like proceeds from the sale of long-term assets, capital brought by the proprietor, the sum received as a loan or from debenture holders, etc. In contrast revenue receipts are the result of the firm's routine activities during the financial year, which include sales, commission, interest on investment.

Q317. The tax levied on gross sales revenue from business transactions is called

(a) Turnover Tax   

(b) Sales Tax                

(c) Capital Gains Tax         

(d) Corporation Tax

Answer (A)

Explanation:

A turnover tax is similar to a sales tax or a VAT, with the difference that it taxes intermediate and possibly capital goods. It is charged on gross sales revenue from business transactions.

Q318. Liquidity Preference means

(a) Holding assets in the form of bonds and shares               

(b) Holding assets in the form of cash

(c) Creation of immovable property                                         

(d) Assets in the form of jewelry

Answer (B )

Explanation:

Liquidity preference means the degree of individual preference for cash over less liquid assets.

Q319. A currency having a falling exchange rate due to continuing balance of payments deficit is called a

(a) Soft currency      

(b) Hard currency     

(c) Scarce currency       

(d) Surplus currency

Answer (A )

Explanation:

Soft currency is a currency that is hyper-sensitive and fluctuates frequently. Such currencies react very sharply to the political or the economic situation of a country.

It is also known as a weak currency due to its unstable nature. Such currencies mostly exist in developing countries with relatively unstable governments. Soft currencies cause high volatility in exchange rates as well, making them undesirable by foreign exchange dealers. These currencies are the least preferred for international trade or holding reserves.

Q320. The aggregate net value of the output in one year is the

(a) National income at factor cost                               

(b) Gross Domestic Product at market prices

(c) Net National Product at market prices                    

(d) Gross National Product at market prices

Answer (C )

Explanation:

The aggregate net value of the output in one year is the Net National Product at market prices.

Q321. Product differentiation is the most important feature of

(a) Pure competition                 

(b) Monopolistic competition              

(c) Monopoly               

(d) Oligopoly

Answer (B )

Explanation:

Product differentiation is the most important feature of monopolistic competition.

Q322. A speculator who enters into a purchase transaction with a view to selling In the near future when the price would have risen is called a

(a) Bear                       

(b) Bull                            

(c) Bison                         

(d) Boar

Answer (B )

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.

Important MCQs on Economics for HCS, UPSC

Q323. The smaller the Cash Reserve Ratio, the scope for lending by banks is :

(a) Greater             

(b) Smaller                 

(c) Weaker                 

(d) Lesser

Answer (A )

Explanation:

The Reserve Bank of India or RBI mandates that banks store a proportion of their deposits in the form of cash so that the same can be given to the bank’s customers if the need arises. The percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio. The cash reserve is either stored in the bank’s vault or is sent to the RBI. Banks do not get any interest on the money that is with the RBI under the CRR requirements.

Q324. The result of the Division of labor is

(a) Complicated work           

(b) Excessive pressure             

(c) Excess supply of labor

(d) Specialization

Answer (D )

Explanation:

Division of labor is an economic concept which states that dividing the production process into different stages enables workers to focus on specific tasks. If workers can concentrate on one small aspect of production, this increases overall efficiency so long as there is sufficient volume and quantity produced.

Q325 Malthusian theory of population explored the relationship between

(a) Food supply and technology             

(b) Food supply and population growth

(c) Population growth and development                 

(d) Optimum growth and resources

Answer (B )

Explanation:

The Malthusian Theory of Population is the theory of exponential population growth and arithmetic food supply growth. The theory was proposed by Thomas Robert Malthus. He believed that a balance between population growth and food supply can be established through preventive and positive checks.

Q326. Speculative demand for cash is determined by

(a) The rate of interest             

(b) The level of income 

(c) The general price level

(d) The market conditions

Answer (A )

Explanation:

Speculative demand for money is inversely related to the rate of interest, i.e., the higher the rate of Interest, the smaller will be speculative demand for money and vice versa.

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

Q327. Different firms constituting the Industry, produce homogeneous goods under

(a) Monopoly             

(b) Monopolistic competition

(c) Oligopoly                          

(d) Perfect competition

Answer (D )

Explanation:

Different firms constituting the Industry, produce homogeneous goods under perfect competition.

Q328. Which one of the following does not deal with export promotion

(a) Trade Development Authority                       

(b) Mineral and Metal Trading Corporation

(c) Cooperative Marketing Societies           

(d) State Trading Corporation of India

Answer (C )

Explanation:

“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 products and securing 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.

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Q329. Gross Domestic Product is the money measure of

(a) All tangible goods produced in a country      

(b) Final goods and services produced in the economy

(c) Services generated annually In the economy                       

(d) All tangible goods available in the economy

Answer (B )

Explanation:

Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.

Q330. Theoretically, trade between two countries takes place on account of

(a) Differences in costs          

(b) Scarcity of goods

(c) Comparative differences in costs

(d) Need for exports

Answer (C )

Explanation:

Theoretically, trade between two countries takes place on account of comparative differences in costs. Ricardian theory of comparative advantages explains this very well.

Q331. Gross Profit means 

(a) Total investment over total saving                             

(b) Changes in methods of production

(c) Changes in the form of business organization                        

(d) Total receipts over total expenditure

Answer (D )

Explanation:

Sales - Cost of Goods Sold = Gross Profit

Gross Profit – Expenses= Net Profit

Important MCQs on Economics for HCS, UPSC

Q332. Net National Product in National Income Accounting refers to

(a) Gross Domestic Product - Depreciation 

(b) Gross Domestic Product + Subsidies

(c) Gross National Product- Depreciation      

(d) Gross National Product + Subsidies

Answer (C )

Explanation:

Net national product (NNP) is the monetary value of finished goods and services produced by a country's citizens, overseas and domestically, in a given period. It is the equivalent of the gross national product (GNP), the total value of a nation's annual output, minus the amount of GNP required to purchase new goods to maintain existing stock, otherwise known as depreciation.

Q333. The same price prevails throughout the market under 

(a) Perfect competition                          

(b) Monopoly               

(c) Monopolistic competition

(d) Oligopoly

Answer (A )

Explanation:

The main points of difference between perfect competition and imperfect competition in economics are depicted below:

1) The competitive market, in which there are a large number of buyers and sellers, and the sellers supply identical products to the buyers; is known as perfect competition. Imperfect competition occurs when one or more conditions of the perfect competition are not met.

2) Perfect competition is a hypothetical situation, which does not apply in the real world. Conversely, Imperfect Competition is a situation that is found in the present-day world.

3) When it comes to perfect competition, there are many players in the market, but in imperfect competition, there can be few to many players, depending upon the type of market structure.

4) In perfect competition, the sellers produce or supply identical products. As against, imperfect competition, the products offered by the sellers can either be homogeneous or differentiated.

5) If we talk about perfect competition, there are no barriers to the entry and exit of the firms which is just the opposite in the case of imperfect competition.

6) In perfect competition, it is assumed that the firms do not influence the price of a product. Hence they are price takers but in imperfect competition, the firms are price makers.

Q334. The duties levied on alcoholic liquors, narcotic drugs, and opium come under—

(a) Central Excise Duty 

(b) Land Revenue       

(c) State Excise Duty            

(d) General Sales Tax

Answer (C )

Explanation:

Central excise duties are levied by the Union Government on commodities manufactured or produced within the country and consumed within the country, as against the State excise duties which are levied on alcoholic drinks, opium, etc.

Q335. Short term loans to correct Balance of Payments problems is given by

(a) I.M.F.                        

(b) I.B.R.D                      

(c) I.D.A                            

(d) A.D.B

Answer (A )

Explanation:

The IMF has several financing programs, or facilities, for providing these loans, including a standby arrangement, which makes short-term assistance available to countries experiencing temporary or cyclical balance-of-payments deficits; an extended-fund facility, which supports medium-term relief; a supplemental-reserve facility, which provides loans in cases of extraordinary short-term deficits; and, since 1987, a poverty-reduction and growth facility. Each facility has its own access limit, disbursement plan, maturity structure, and repayment schedule.

Q336. For channelizing the unaccounted money for productive purposes the Government Introduced the scheme of :

(a) Special Bearer Bonds        

(b) Resurgent India Bonds      

(c) Provident Funds

(d) Market Loans

Answer (A )

Explanation:

A bearer bond is a bond or debt security issued by a business entity such as a corporation, or a government. As a bearer instrument, it differs from the more common types of investment securities in that it is unregistered—no records are kept of the owner, or the transactions involving ownership. Whoever physically holds the paper on which the bond is issued is the presumptive owner of the instrument. This is useful for investors who wish to retain anonymity

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Q337. Selling cost means:

(a) Cost of selling a product                                               

(b) Cost incurred in transportation

(c) Cost Incurred in the advertisement                               

(d) Cost Incurred on factors of production

Answer (C )

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.

Q338. Funds that flow into a country to take advantage of favorable rates of interest in that country is called

(a) Cold Money          

(b) Black Money      

(c) Hot Money              

(d) White Money

Answer (C )

Explanation:

Hot money signifies currency that quickly and regularly moves between financial markets, which ensures investors lock in the highest available short-term interest rates. Hot money continuously shifts from countries with low interest rates to those with higher rates. These financial transfers affect the exchange rate and potentially impact a country's balance of payments

Q339. Ad Valorem tax is levied

(a) According to the value-added by the Government. 

(b) According to value addition To a commodity

(c) According to the value given by producers                      

(d) According to value added by the finance ministry

Answer (C )

Explanation:

An ad valorem tax is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT).

Q340. Legal Tender Money is 

(a) Accepted only by Government                                       

(b) Accepted by people and Government as per the law

(c) Not accepted for business purposes by law             

(d) Not accepted by Government

Answer (B)

Explanation:

Legal tender is anything recognized by law as a means to settle a public or private debt or meet a financial obligation, including tax payments, contracts, and legal fines or damages. The national currency is legal tender in practically every country. A creditor is legally obligated to accept legal tender toward repayment of a debt. 

Q341. A high Statutory Liquidity' Ratio (SLR)

(a) Restricts lending                                                       

(b) Increases supply of cash

(c) Provides funds to the state                                          

(d) Increases the strength of the banks

Answer (A )

Explanation:

In India, the Statutory liquidity ratio (SLR) is the Government term for the reserve requirement that commercial banks are required to maintain in the form of cash, gold reserves, Reserve Bank of India (RBI)- approved securities before providing credit to the customers. The SLR to be maintained by banks is determined by the RBI in order to control the expansion.

Q342. A situation of a large number of firms producing similar goods is termed as :

(a) Perfect competition       

(b) Monopolistic competition             

(c) Pure competition               

(d) Oligopoly

Answer (A)

Explanation:

A situation of a large number of firms producing similar goods is termed perfect competition.

The four conditions that are in place, in a perfectly competitive market are; many buyers and sellers, identical products, informed buyers and sellers, and free-market entry and exit.

Q343. Multinational Corporation is also called

(a) Trading Corporation

(b) International Corporation  

(c) Finance Corporation

(d) Transnational Corporation

Answer (D)

Explanation:

A transnational corporation, also known as a multinational corporation, is a corporation that has a home base, but is registered, operates, and has assets or other facilities in at least one other country at one time. These corporations have a headquarters in one country, such as the company that Bill worked for in our example, but have offices or factories in various other countries. 

Q344. The difference between the price the consumer is prepared to pay for a commodity and the price which he actually pays is called

(a) Consumer's Surplus         

(b) Producer's Surplus    

(c) Landlord’s Surplus         

(d) Worker's Surplus

Answer (A )

Explanation:

Consumer surplus is an economic measurement of consumer benefits. Consumer surplus happens when the price that consumers pay for a product or service is less than the price they're willing to pay. It's a measure of the additional benefit that consumers receive because they're paying less for something than what they were willing to pay.

A consumer surplus occurs when the consumer is willing to pay more for a given product than the current market price.

Q345. A very high rise in National Income at current market prices and a low rise at constant prices reveals

(a) The high rate of growth in the economy at the current period

(b) The increased production in the current period

(c) The improper growth of the economy     

(d) The high rate of inflation prevailing in the economy

Answer (D )

Explanation:

A very high rise in National Income at current market prices and a low rise at constant prices reveals the high rate of inflation prevailing in the economy.

National income at Current prices- It is the money value of final goods and services produced by normal residents of a country in a year, measured at the prices of the current year. For example, measurement of India’s National Income of 2013-2014 at the prices of 2013-2014.

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. 

Q346. Corporation tax is a tax imposed on

(a) The net incomes of the companies                         

(b) The corporate properties

(c) The utilities provided by the corporation                 

(d) The tax imposed by the corporation on individual properties

Answer (A)

Explanation:

A corporate tax is a tax imposed on the net profit of a corporation that is taxed at the entity level in a particular jurisdiction. 

Q347. Commercial banks create credit

(a) on the basis of their securities                                     

(b) on the basis of their assets

(c) on the basis of their reserve fund                           

(d) on the basis of their deposits

Answer (D )

Explanation:

Commercial banks create credit on the basis of their deposits.

Q348. Gross National Product means

(a) The gross value of finished goods                           

(b) Money values of the total national production for any given period

(c) The gross value of raw materials and semi-finished products     

(d) The money value of inputs and outputs

Answer (B )

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 plus net income from abroad.

GNP= GDP + Net income from Abroad

Q349. Bank money refers to

(a) Currency notes                       

(b) Coins                      

(c) Gold bullions                           

(d) Cheques

Answer (D )

Explanation:

Bank money refers to cheques, drafts, and bank credits other than currency that are the equivalent of money.

Q350. What is ‘AGMARK?

(a) It is a marketing seal issued on the graded agricultural commodity

(b) It stands for agricultural marketing

(c) It represents agricultural management and regulation     

(d) None of these

Answer (B )

Explanation:

AGMARK is a quality certificate that labels a product pure and of necessary quality as per guidelines specified by a governing body. It acts as a third-party guarantee for agricultural products consumed in India. The quality of an agricultural commodity is based on its intrinsic merit, and these standards are devised keeping in mind International laws and specifications so that we comply with the WTO requirements.

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