Economics MCQ Quiz - Objective Question with Answer for Economics - Download Free PDF

The correct answer is 'Industrial development'.

Key Points

 Industrial development

• Industrial development is not considered an economic problem of India, but rather a goal or solution aimed at addressing various economic issues.
• Developing industries can lead to job creation, economic diversification, and increased productivity, which can, in turn, help in solving economic problems such as poverty and economic inequality.

Economic inequality

• Economic inequality refers to the unequal distribution of income and opportunity between different groups in society.
• It is a significant issue in India, characterized by a wide gap between the rich and the poor.
• Efforts to address economic inequality include improving access to education, healthcare, and employment opportunities.

Poverty

• Poverty is a major economic problem in India, with a significant portion of the population living below the poverty line.
• Poverty is characterized by a lack of basic necessities such as food, clothing, and shelter.
• The government has implemented various schemes and programs aimed at poverty alleviation, including food security initiatives, financial inclusion policies, and social welfare schemes.

Industrial backwardness

• Industrial backwardness refers to the state of industries being less developed compared to the general standard or compared to leading industrialized nations.
• It implies inefficiencies, low productivity, and reliance on outdated technology and methods.
• Industrial backwardness is a challenge for India, affecting its competitiveness in the global market and its ability to generate employment and wealth.

The correct answer is - If all the people of the economy increase the proportion of income they save, the total value of savings in the economy will not increase, it will either decline or remain unchanged.

Key Points

• Paradox of Thrift
  • The Paradox of Thrift is an economic theory that suggests that if everyone tries to save more during a recession, aggregate demand will fall, leading to lower overall savings in the economy.
  • This paradox occurs because increased savings reduce consumption, which in turn reduces income and production, leading to a decline in economic growth.
  • As people save more, they spend less, which can decrease businesses' revenues, leading to layoffs and further reductions in income and spending.
  • John Maynard Keynes popularized this concept during the Great Depression, emphasizing the importance of consumption in driving economic growth.

Additional Information

• Option 1: Investment Perspective
  • This option incorrectly interprets the paradox by focusing on investment rather than savings.
  • While increased savings might theoretically lead to more investment, the paradox highlights that the reduced consumption can lead to lower economic growth and investment.
• Option 2: Spending Perspective
  • This option confuses the concept by suggesting increased spending, which is opposite to the idea of increased saving in the paradox.
  • Increased spending would typically lead to higher aggregate demand and economic growth, contrary to what the paradox of thrift describes.
• Option 3: Decreased Saving
  • This option focuses on decreased saving, which does not align with the paradox of thrift.
  • The paradox specifically addresses the scenario where people save more, not less.

The correct answer is - (A), (D), and (E) only

Key Points

• (A) Quantitative tools control the extent of money supply by changing the CRR.
  • Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in the form of cash or as deposits with the central bank.
  • By changing the CRR, the central bank can control the money supply in the economy. Increasing the CRR reduces the money supply, while decreasing the CRR increases the money supply.
• (D) Selling of a bond by RBI leads to reduction in quantity of reserves.
  • When the RBI sells bonds, it absorbs liquidity from the market, thereby reducing the quantity of reserves in the banking system.
  • This process helps in controlling inflation by reducing the money supply.
• (E) The RBI can influence money supply by changing the rate at which it gives loans to the commercial banks.
  • The rate at which RBI lends to commercial banks is known as the repo rate.
  • By increasing the repo rate, borrowing becomes more expensive for banks, leading to a reduction in the money supply. Conversely, decreasing the repo rate makes borrowing cheaper, increasing the money supply.

Additional Information

• (B) There are two types of open market operations – outright and upright.
  • This statement is incorrect. There are two types of open market operations – outright and repurchase (repo).
  • Outright transactions involve the outright buying or selling of government securities, which has a permanent effect on the money supply.
  • Repo transactions involve the temporary buying or selling of government securities with an agreement to reverse the transaction at a later date, affecting the money supply temporarily.
• (C) A fall in the bank rate can decrease the money supply.
  • This statement is incorrect. A fall in the bank rate typically leads to an increase in the money supply. The bank rate is the rate at which the central bank lends to commercial banks.
  • When the bank rate is reduced, it becomes cheaper for banks to borrow, leading to an increase in their lending capacity and thereby increasing the money supply in the economy.

The correct answer is - Ex-Post

Key Points

• Ex-Post
  • Ex-Post is a Latin term meaning "after the fact".
  • It refers to analyses or evaluations that are conducted after an event has occurred.
  • This method is used to assess the outcomes and effectiveness of policies, investments, or decisions based on actual results.
  • In finance and economics, Ex-Post analysis helps to understand the real performance compared to expectations or forecasts.

Additional Information

• Ex-Ante
  • Ex-Ante is a Latin term meaning "before the event".
  • It involves predictions or forecasts made prior to an event happening.
  • This type of analysis is used to anticipate future outcomes and plan accordingly.
• Constant
  • In mathematics and economics, a constant is a value that does not change.
  • It is often used in equations and models to represent a fixed value.
• Variable
  • A variable is any quantity that can change or vary.
  • In statistical and mathematical models, variables represent elements that can assume different values.

The correct answer is - It accepts deposits and give loans to people.

Key Points

• Central Bank
  • The Central Bank is the primary monetary authority of a country, often responsible for implementing monetary policy, issuing currency, and overseeing the financial system.
  • While commercial banks accept deposits and give loans to individuals and businesses, the Central Bank does not engage in these activities directly with the public.
  • Instead, the Central Bank regulates and supervises commercial banks to ensure the stability and efficiency of the financial system.

Additional Information

• Control of Money Supply
  • The Central Bank uses various tools such as interest rates, open market operations, and reserve requirements to control the money supply in the economy.
  • This helps in managing inflation, stabilizing the currency, and fostering economic growth.
• Banker to the Government
  • The Central Bank acts as a banker to the government by managing its accounts, facilitating transactions, and providing short-term funding.
  • It also advises the government on economic and financial matters.
• Issuance of Currency
  • The Central Bank has the sole authority to issue currency notes and coins in the country.
  • This ensures a uniform and controlled supply of money, reducing the risk of counterfeiting and maintaining public confidence in the currency.

The correct answer is Hyderabad.

Key Points

• The head office of the Insurance Regulatory and Development Authority of India (IRDAI) is situated in Hyderabad. 
• Insurance Regulatory and Development Authority of India (IRDAI):
  • It was constituted by the recommendations of the Malhotra Committee report, in 1999.
  • It is an autonomous body.
  • It regulates and develops the insurance industry.
  • The IRDA was incorporated as a statutory body in April 2000.
  • Objective: Enhance customer satisfaction through increased consumer choice and lower premiums while ensuring the financial security of the insurance market.
  • Today there are 34 general insurance companies and 24 life insurance companies operating in the country.

Additional Information

The correct answer is agricultural rural hinterland.

Key Points

• Industrially developed urban centers are usually surrounded by an "agricultural rural hinterland."
• In geographical terms, a 'hinterland' refers to the area surrounding a town or port, which is served by the port or town for the transportation of goods.
• In context, an agricultural rural hinterland serves as the region that supplies the urban center with agricultural products or raw materials and in return, it receives industrial goods and services.
• However, it's important to note that the exact nature and characteristics of the hinterland can change based on specific geographical or economic contexts.
• For instance, a seaport city might indeed have a "seaport hinterland" where the surrounding areas rely on the port for trade and transportation access.

Macroeconomics is also called the theory of income.

Key Points

•  Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole.
• It focuses on the aggregate changes in the economy such as unemployment, growth rate, gross domestic product, and inflation.  
• Macroeconomics is also known as the Theory of Income and Employment, or income analysis, as it focuses on how income and employment levels are determined in an economy. The subject of macroeconomics revolves around the determination of income and employment.
• Income and employment theory, a body of economic analysis concerned with the relative levels of output, employment, and prices in an economy. By defining the interrelation of these macroeconomic factors, governments try to create policies that contribute to economic stability.

The correct answer is The rate of inflation would increase.

Important Points 

• When the actual unemployment rate is less than the natural rate, inflation increases.
• When the actual unemployment rate exceeds its natural rate, inflation decreases.
• So, the natural rate of unemployment can be seen as the rate of unemployment required to keep inflation constant.

Key Points 

• The natural rate of unemployment:
  • The natural rate of unemployment is the unemployment rate that would exist in a growing and healthy economy.
  • In other words, the natural rate of unemployment includes only frictional and structural unemployment and not cyclical unemployment.
  • The natural rate of unemployment is related to two other important concepts: full employment and potential real GDP.
  • The economy is considered to be at full employment when the actual unemployment rate is equal to the natural rate.
  • When the economy is at full employment, real GDP is equal to potential real GDP.
  • When the economy is below full employment, the unemployment rate is greater than the natural unemployment rate and real GDP is less than potential.
  • When the economy is above full employment, then the unemployment rate is less than the natural unemployment rate and real GDP is greater than potential.

Additional Information

• Inflation:
  • Inflation is the rate of increase in prices over a given period of time.
  • Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.
  • But it can also be more narrowly calculated—for certain goods, such as food, or for services, such as a haircut, for example.
• Deflation:
  • Deflation is a serious economic issue that can exacerbate a crisis and turn a recession into a full-blown depression.
  • When prices fall and are expected to drop in the future, businesses and individuals choose to hold on to money rather than spend or invest.
  • This leads to a drop in demand, which in turn forces businesses to cut production and sell off inventories at even lower prices.
  • In order to correct the situation of deflation Securities are purchased by the central bank.
• Stagflation:
  • Stagflation refers to an economic condition where economic growth is very slow or stagnant and prices are rising. 
  • The term stagflation was coined by British politician Iain Macleod, who used the phrase in his speech to parliament in 1965.
• Hyperinflation:
  • Hyperinflation is a situation where the price increases are too sharp. 
  • Hyperinflation often occurs when there is a large increase in the money supply, which is not supported by growth in Gross Domestic Product (GDP). 
  • Such a situation results in an imbalance in the supply and demand for money. 

The correct answer is agglomeration economies.Key Points

• Agglomeration economies refer to the benefits that arise from the clustering of industries in urban centers. These benefits include:
  • Economies of scale: Firms can share infrastructure and resources, reducing costs and increasing efficiency.
  • Access to skilled labor: A concentration of industries in one area can attract a skilled workforce, making it easier for firms to find and hire qualified employees. 
  • Innovation: Proximity to other firms can lead to knowledge spillovers and collaboration, fostering innovation and growth.
  • Reduced transportation costs: By locating near other firms and suppliers, firms can reduce transportation costs and increase speed of delivery.

Additional Information

• Rural economies refer to economies that are based on agriculture and natural resources.
• Amalgamation economies refer to the benefits that arise from the consolidation of firms in a particular industry.
• Urban economies refer to the overall economic activity and growth of urban areas.

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is a flagship Programme of the Government of India.

Important Points MGNREGA:

• The scheme was introduced as a social measure that guarantees “the right to work”.

The correct answer is Marshall.

Key Points

•  Indifference curve:
  • An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent.
  • Along the curve, the consumer has an equal preference for the combinations of goods shown—i.e. is indifferent about any combination of goods on the curve.
  • Typically, indifference curves are shown convex to the origin, and no two indifference curves ever intersect.
  • Standard indifference curve analysis operates on a simple two-dimensional graph.
  • Each axis represents one type of economic good.
  • Along the indifference curve, the consumer is indifferent between any of the combinations of goods represented by points on the curve because the combination of goods on an indifference curve provides the same level of utility to the consumer.
  • The slope of the indifference curve is equal to the marginal rate of substitution.

Additional Information

• Property of indifference curves:
  • The indifference curve convex to the origin.
  • The indifference curves, higher is the level of satisfaction.
  • The indifference curve is downward sloping.
  • Two indifference curves cannot intersect each other.
  • As we move down the indifference curve from left to right, the slope of the indifference curve tends to Decline.
  • Two indifference curves cannot cut each other because Each indifference curve represents a different level of satisfaction.

Important Points

• Alfred Marshall:
  • Alfred Marshall was the dominant figure in British economics (itself dominant in world economics) from about 1890 until his death in 1924.
  • His specialty was microeconomics—the study of individual markets and industries, as opposed to the study of the whole economy.
  • In his most important book, Principles of Economics, Marshall emphasized that the price and output of a good are determined by both supply and demand: the two curves are like scissor blades that intersect at equilibrium. 

The correct answer is Reserve bank of India.

Key PointsReserve Bank of India (RBI) is India’s central bank.

• In compliance with the terms of the Reserve Bank of India Act, 1934, it was founded on April 1, 1935 in Calcutta.
  • It was permanently moved to Mumbai in 1937.
• Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India.
• It also functions as the "lender of last resort" and is considered Banker to Banks.
• It regulates the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.
• It also monitors the monetary policies through its Monetary Policy Committee (MPC).

Additional InformationState Bank of India:

• The Imperial Bank of India was nationalized to establish the State Bank of India on July 1, 1955.
• It is the biggest public-sector bank in India.
• Its first chairman was John Mathai.
• Its present chairman is Dinesh Kumar Khara.
• It administers public debt, acts as the government's bank, and collects money and makes payments on the government's behalf.
• It lends money to commercial banks and takes deposits from them.
• It acts as a representative for cooperative banks.

​Nationalised Bank:

• These are also known as Public Sector Bank.
• Banks are classified as public sector, where the public interest is the primary goal and the government has retained a majority of its share.
• In order to enter the banking industry after gaining independence, the Indian government began nationalising the Imperial Bank of India in 1955.
• It was renamed the State Bank of India after the Reserve Bank of India acquired 60% of the company.
• The Indian government nationalized fourteen more banks in 1969.

​Union Bank of India:

• It was founded in 1919.
• The Government of India nationalized it in 1969.
• It is the fifth-largest public-sector bank.
• Mahatma Gandhi officially opened it as a limited corporation.
• The present MD and CEO of Union Bank of India is A. Manimekhalai.

• All the public sector establishments and those private sector establishments which employ 10 hired workers or more are called formal sector establishments and those who work in such establishments are formal sector workers.
• All other enterprises and workers working in those enterprises form the informal sector. Thus, the informal sector includes millions of farmers, agricultural labourers, owners of small enterprises and people working in those enterprises as also the self-employed who do not have any hired workers.
• It also includes all non-farm casual wage labourers who work for more than one employer such as construction workers and headload workers. 
• The government, through its labour laws, enable workers to protect their rights in various ways. This section of the workforce forms trade unions, bargains with employers for better wages and other social security measures.
• Workers in formal and informal sectors, which are also referred to as organised and unorganised sectors.

The correct answer is Δs/Δy.

Key Points

The marginal propensity to save

• The marginal propensity to save (MPS) refers to the proportion of an aggregate raise in income that a consumer saves rather than spends on the consumption of goods and services.
• Put differently, the marginal propensity to save is the proportion of each added money of income that is saved rather than spent.
• MPS is a component of Keynesian macroeconomic theory and is calculated as the change in savings divided by the change in income, or as the complement of the marginal propensity to consume (MPC).
• Marginal propensity to save is the proportion of an increase in income that gets saved instead of spent on consumption.
• MPS varies by income level. MPS is typically higher at higher incomes.
• MPS helps determine the Keynesian multiplier, which describes the effect of increased investment or government spending as an economic stimulus.

Formula: MPS= dS/dY                         

• where: MPS = marginal propensity to save
• dS = change in savings
• dY = change in income