Economics MCQ Questions with Answer

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Economics MCQ Questions with Answer


Q51. The marginal propensity to consume lies between

(a) 0 to 1

(b) 0 to ∞

(c) 1 to ∞

(d) ∞ to ∞

Answer: (a)

Explanation: Marginal propensity to consume is the ratio of change in consumption due to change in income. It lies between0 to 1.

Q52. Inflation is caused by ​

(a) ​Increase in supply of goods ​

(b) ​Increase in cash with the government ​

(c)​ Decrease in the money supply ​

(d) ​Increase in the money supply

Answer: (d)​

Explanation: Inflation is an increase in the prices of commodities. It is caused due to decrease in supply and an increase in the demand for commodities. So when the money supply in the economy increases it means people have more purchasing capacity and thus demand increases which result in inflation.

Some factors affecting inflationary pressure. ​​

(i) Rising property price → Increase consumer wealth → Demand-pull inflation risk

(ii) Increase world oil price → High cost for business → Cost pull inflation risk

(iii) Depreciatory exchange rate → increase import price, rising export → Cost pull and Demand-pull inflation risk

Q53. Given below are two statements, one labeled as Assertion (A) and the other labeled as Reason (R).

Assertion (A): An important policy instrument of economic liberalization is a reduction in import duties on capital goods.

Reason (R): Reduction in import duties would help the local entrepreneurs to improve technology to face the global markets.

In the context of the above two statements, which one of the following is correct?

(a) Both A and R are true and R is the correct explanation

(b) Both A and R are true R is not a correct explanation

(c) A is true but R is false

(d) A is false but R is true

Answer: (a)

Explanation: Both statements are correct and explain one of the instruments to liberalize the Indian economy.

Q54. Which of the following relationship always holds true?

(a) Income = Consumption + Investment

(b) Income = Consumption + Saving

(c) Saving = Investment

(d) Income = Consumption + Saving + Investment

Answer: (b)

Explanation: It is believed that the consumer’s income is used in consumption and if remains left, it is used for savings for the future. So income = consumption + savings

Q55. The correct sequence in decreasing order of the four sugarcane producing States in India is:

(a) Maharashtra, U . P, Tamil Nadu, Andhra Pradesh

(b) U. P., Maharashtra, Tamil Nadu, Andhra Pradesh

(c) Maharashtra, U. P., Andhra Pradesh, Tamil Nadu

(d) U. P., Maharashtra, Andhra Pradesh, Tamil Nadu

Answer: (b)

Explanation: Uttar Pradesh has the largest area almost 50 per cent of the cane area in the country, followed by Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, Gujarat, Bihar, Haryana, and Punjab.

Q56. ​Which one of the following does not implement the Self–Help Groups (SHGs) – Bank Linkage program?

(a) ​NABARD ​

(b) ​Commercial Banks

​(c) ​RRBs ​

(d) ​Co-operative Banks

Answer: (a)  ​

Explanation: The Self-Help Group-Bank Linkage Programme (SBLP), which was started as a pilot program in 1992 on the basis of the recommendation of the S K Kalia Committee. Commercial banks, cooperative banks, and regional rural banks have been actively participating in the SBLP. NABARD does not implement the SBLP.

Q57. Which of the areas given below is/are mainly funded by the International Development Agency in the developing countries?​​​ ​

I. ​Infrastructure ​
II. Education ​
III. Environment-friendly projects
​IV. Health care ​

Select the correct answer using the codes given below—


(a)  ​I, II and IV ​

(b)  ​I, II and III

​(c)  ​I, II and IV ​

(d)  ​All of these

Answer: (a)

Explanation: The areas such as Infrastructure, Education, and Health care are mainly funded by International Development Agency in the poor and developing countries.

Q58. The entire capital of the ECGC is contributed by—

(a)  ​Banks/FI/Corporates ​

(b)  ​Government of India ​

(c)  ​EXIM Bank

​(d)  ​Insurance Companies

Answer: (b)

Explanation: ECGC Ltd.  (Export Credit Guarantee Corporation of India Ltd.) , wholly owned by the Government of India, was set up in 1957 with the objective of promoting exports from the country by providing Credit Risk Insurance and related services for exports.

Q59. The Eighth Five Year Plan is different from the earliest ones.

The critical difference lies in the fact that:

(a) It has a considerably larger outlay compared to the earlier plans

(b) It has a major thrust on agricultural and rural development

(c) Considerable emphasis is placed on infrastructure growth

(d) Industrial licensing has been abolished

Answer: (a)

Explanation: Eighth Five Year Plan (1992-97) had a bigger outlay with energy being given 26.6% of total outlay to a cheque with a targeted growth rate of 6.78% per annum.

Q60. Consider the following statements regarding Indian Planning:

  1. The Second Five-Year Plan emphasized the establishment of heavy industries.
  2. The Third Five-Year Plan introduced the concept of import substitution as a strategy for industrialization.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: (a)

Explanation: India’s Second Five-Year Plan (1956-61) was to set India on the path of industrialization. P.C. Mahalanobis was the moving spirit behind the second five-year plan. He gave the highest priority to strengthening the industrial base of the economy. India’s Third Five-Year Plan (1961-66) emphasized long-term development.

Q61. Indian Human Development Report does not give for each sample village:

(a) Infrastructure and Amenities Index

(b) Education Related Index

(c) Health-Related Index

(d) Unemployment Related Index

Answer: (d)

Explanation: The National Human Development Report 2001, is an attempt to map the state of human development in India. While considering the state of human development, and the related economic, educational, and health attainments, the report analyses governance for human development. To facilitate monitoring, many process indicators have been created. The Human Development Index, Gender Disparity Index, and Human Poverty Index have been calculated for India after modifying the UNDP methodology.

Q62. 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 is an amount out of private and external costs, borne collectively by society on a recurring basis. This cost may occur due to any event, action, or policy change.

Q63. With reference to Balance of Payments, which of the following constitutes/constitutes the Current Account?

  1. Balance of trade
  2. Foreign assets
  3. Balance of invisibles
  4. Special Drawing Rights

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3

(c) 1 and 3

(d) 1, 2 and 4

Answer: (c)

Explanation: The current account consists of the balance of trade and the balance of Invisibles.

Q64. Which one of the following statements appropriately describes the “fiscal stimulus”?

(a) It is a massive investment by the government in the manufacturing sector to ensure the supply of goods to meet the demand surge caused by rapid economic growth.

(b) It is an intense affirmative action of the government to boost economic activity in the country.

(c) It is the government’s intensive action on financial institutions to ensure disbursement of loans to agriculture and allied sectors to promote greater food production and contain food inflation.

(d) It is an extreme affirmative action by the government to pursue its policy of financial inclusion.

Answer: (b)

Explanation: Governments use fiscal policy to influence the level of aggregate demand in the economy. It is an effort to achieve economic objectives of price stability, full employment, and economic growth.

Q65. Which of the following sectors of the Indian Economy is prohibited from Foreign Direct Investments (FDIs)? ​

(a)  ​Retail Trading ​

(b)  ​Lottery Business

​(c)  ​Gambling and Betting ​

(d)  ​All of the above

Answer: (d) ​

Explanation: Retail trading, lottery business, and gambling, and betting are the sectors of the Indian economy that are prohibited from Foreign Direct Investment (FDIs).

Q66. The process of curing inflation by reducing the money supply is called ​

(a)​Cost-push inflation ​

(b)​Down–pull inflation/Demand-pull inflation ​

(c)​Disinflation ​


Answer: ​(c)​

Explanation: The process of curing inflation by reducing the money supply is called disinflation. Disinflation is a decrease in the rate of inflation – a slowdown in the rate of increase of the price level of goods and services in GDP. ​​

Cost pull inflation – It is caused by an increase in prices of inputs like Labour, raw material, etc. The increased price of the factors of production leads to the decreased supply of Goods. ​​

Demand-pull inflation – It is asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real GDP rises and unemployment falls.

Q67. The microfinance institutions (MFI) registered as Non-Banking Finance Companies (NBFC) are presently regulated by—​​​

(a) ​SEBI

​(b) ​Reserve Bank of India ​

(c) ​MUDRA (SIDBI) Bank ​


Answer: (b)

Explanation: ​Microfinance Institutions (MFIs) are regulated by the Reserve Bank of India (RBI).

Q68. Who said, “Economics is the Science of Wealth”?

(a) Robbins

(b) J.S. Mill

(c) Adam Smith

(d) Keynes

Answer: (c)

Explanation: Adam Smith and Ricardo and other classical economists defined economics as a science of national wealth. The understanding of economics was that by studying economics we can know the allocation and distribution of wealth.

Q69. Which one of the following is not an instrument of selective credit control in India?

(a) Regulation of consumer credit

(b) Rationing of credit

(c) Margin requirements

(d) Variable cost reserve ratios

Answer: (d)

Explanation: Variable Reserve Ratio (Cash Reserve Ratio) is aimed to control the only volume of credit (quantitative method) not both volume and purpose of credit for which bank gives loans. (Qualitative method and selective control method are used for these purposes. It has a number of limitations.

Q70. Which of the following statements is true about supply-side economics? ​

(a)​ The main change made by the tax laws of 1981 and 1986 was to increase marginal tax rates in order to balance the budget ​

(b)​ The Laffer Curve says that, if marginal tax rates fall, tax revenues will rise, and the budget deficit will decrease

​(c)​ If the tax laws of 1981 and 1986 had had their intended effect, consumption would have risen, causing an increase in both real GDP and in the price level

(d)​ all of these

Answer: ​(b)​

Explanation: The Laffer Curve says that, if marginal tax rates fall, tax revenues will rise, and the budget deficit will decrease.

Supply-side economics is a macroeconomic theory that gives economic growth that can be most effectively created by investing in capital and by lowering barriers to the production of goods and services.

Q71. Consider the following statements in regard to zero-base budgeting (ZBB): ​

(1) ​Existing Government programs can be discarded under ZBB if they are found to be outdated. ​

(2) ​ZBB is difficult to be applied to Human Development programs as the outcome of such a program is intangible in nature. ​

Which of the statements given above is/are correct?

​(a) ​1 only ​

(b) ​2 only ​

(c) ​Both 1 and 2 ​

(d) ​Neither 1 nor 2

Answer: (c)

Explanation: Zero-based budgeting is an approach to planning and decision-making which reverses the working process of traditional budgeting. In zero-based budgeting, every line item of the budget must be approved, rather than only changes. During the review process, no reference is made to the previous level of expenditure. Regarding Zero Base Budgeting (ZBB) existing government programs can be discarded under ZBB if they are found to be outdated. Moreover, ZBB is difficult to be applied to Human Development programs as the outcome of such programs is intangible in nature.

Q72. Which one of the following is not a method of measurement of National income?

​(a) ​Value Added Method

​(b) ​Income Method ​

(c) ​Expenditure Method

​(d) ​Investment Method

Answer: (d)

Explanation: The investment method is not a method of measurement of National income. There are three methods of measurement: income method, product or value-added method, and the expenditure method. ​​

The investment method is only appropriate if the property is let or operated under a management structure by a third party.

​​Income method – Under this method National income is measured as a flow of factor income.

Q73. ​Which company, adopted the Taj Mahal through the ‘Clean India Campaign’ of the tourism ministry?

​(a)  ​Indian oil ​

(b)  ​BPCL ​

(c)  ​HPCL

​(d)  ​ONGC

Answer: (d)

Explanation: With an aim to attract more visitors to the country by improving cleanliness and hygiene at tourist destinations, Tourism Ministry launched the “Clean India” campaign at the world heritage site Taj Mahal which has been adopted by ONGC. It is the second site to be covered under this project. The first one was Qutub Minar.

Q74. What is CRISIL? ​

(a) ​Bank

​(b) ​Insurance Company ​

(c) ​Depository

​(d) ​Credit Rating Agency

Answer: (d)

Explanation: CRISIL is the Credit Rating Agency of India. CRISIL’s majority shareholder is Standard and Poor’s (S&P). ​​

CRISIL: It is a global analytical company providing ratings, research, and risk and policy advisory services. It was founded in 1987, Headquarters (Mumbai).

Q75. During the episode of sustained fall in crude oil prices during the year 2015, which among the following best describes the pricing strategy of the OPEC countries? ​

(a)  ​Transfer pricing

​(b)  ​Predatory pricing ​

(c)  ​Defensive pricing

​(d)  ​Profit maximizing prices

Answer: (c)

Explanation: Defensive Pricing is a pricing strategy where a product or service is set at a very low price with the intention to drive competitors out of the market.

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