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

The correct option is '3 Only'.

Key Points

• Macroeconomic equilibrium occurs when aggregate demand equals aggregate supply.
  • This statement is correct.
  • Macroeconomic equilibrium is achieved when the total amount of goods and services demanded (aggregate demand) equals the total amount of goods and services supplied (aggregate supply).
• An increase in government spending shifts the aggregate demand curve to the right.
  • This statement is correct.
  • Government spending is a component of aggregate demand. An increase in government spending will increase aggregate demand, shifting the aggregate demand curve to the right.
• At equilibrium, there is no unplanned inventory accumulation.
  • This statement is correct.
  • In macroeconomic equilibrium, the quantity of goods produced matches the quantity of goods demanded, resulting in no unplanned changes in inventory levels.
• A decrease in investment spending leads to an increase in output and employment.
  • This statement is incorrect.
  • A decrease in investment spending generally leads to a decrease in aggregate demand, which typically results in lower output and employment.
• The economy can remain in equilibrium even if there is a high level of unemployment.
  • This statement is correct.
  • Equilibrium can occur at various levels of employment. The economy can be in a state of equilibrium even if there is high unemployment, especially if the aggregate demand is low.

Additional Information

• Macroeconomic Equilibrium: This occurs when the overall quantity of goods and services produced in an economy equals the overall quantity of goods and services demanded.
• Aggregate Demand: The total demand for goods and services within an economy, including consumption, investment, government spending, and net exports.
• Aggregate Supply: The total supply of goods and services that firms in an economy plan on selling during a specific time period.
• Unemployment in Equilibrium: Even if the economy is in equilibrium, it does not necessarily mean that full employment is achieved. Structural factors and insufficient aggregate demand can result in equilibrium with high unemployment.

The correct option is ‘2 Only’.

Key Points

• GDP measures the total market value of all final goods and services produced within a country's borders in a given period.
  • This statement is correct.
  • Gross Domestic Product (GDP) includes all production within the borders of a country, regardless of who owns the means of production.
• GNP includes the total income earned by residents of a country, whether earned domestically or abroad.
  • This statement is correct..
  • Gross National Product (GNP) considers all income earned by a country’s residents, including earnings from abroad.
• GDP excludes income earned by foreign residents within the country's borders.
  • This statement is incorrect.
  • GDP does include income earned by foreign residents within the country’s borders, as it measures all production within the country.
• GNP is always higher than GDP for a country with net income receipts from abroad.
  • This statement is correct.
  • If a country has net income receipts from abroad, its GNP will be higher than its GDP.
• GDP and GNP are the same for a country with no foreign trade.
  • This statement is incorrect.
  • Even without foreign trade, there can be differences between GDP and GNP due to income receipts and payments to and from abroad.

Additional Information

• GDP: GDP is a measure of a country’s economic output and growth. It encompasses the value of goods and services produced within a country’s borders.
• GNP: GNP is a broader measure than GDP, as it includes the value of income earned by residents from overseas investments, minus the income earned within the domestic economy by foreign residents.
• Income receipts and payments: These include wages, interests, rents, and dividends received from or paid to abroad, and they can affect the difference between GDP and GNP.

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

Key Points

• (A) The balance of payments accounts track the flow of goods, services, and capital between a country and the rest of the world.
  • The balance of payments is a comprehensive record of all economic transactions between residents of a country and the rest of the world.
  • It includes trade in goods and services, financial capital, and financial transfers.
  • It helps in understanding a country's economic position and its interactions with the global economy.
• (C) The capital account records transactions involving financial assets.
  • The capital account is part of the balance of payments that records all transactions involving the ownership of financial assets and liabilities.
  • It includes investments such as stocks, bonds, and real estate, as well as loans and banking capital.
  • It is crucial for understanding how investments and financial flows affect a country's economy.
• (D) An exchange rate is the price of one currency in terms of another currency.
  • An exchange rate determines how much one currency is worth relative to another.
  • It plays a significant role in international trade and finance, influencing the cost of imports and exports.
  • Exchange rates can be influenced by factors such as interest rates, economic stability, and market speculation.

Additional Information

• (B) A surplus in the current account implies that the country is importing more than it is exporting.
  • This statement is incorrect. A surplus in the current account actually means that a country is exporting more goods, services, and income than it is importing.
  • It indicates a net positive flow of money into the country from the rest of the world.
• (E) A country’s balance of payments is always balanced by definition.
  • This statement is misleading. While the balance of payments must balance in theory due to accounting principles, individual components such as the current account and capital account can show surpluses or deficits.
  • Discrepancies are usually adjusted through changes in foreign exchange reserves or errors and omissions.

The correct option is '4) (A), (B), and (D) only'

Key Points

• Fiscal policy involves government spending and tax policies to influence economic activity.
  • This statement is correct.
  • Fiscal policy is a tool used by the government to manage the economy by adjusting its spending levels and tax rates.
• Fiscal policy is used to manage inflation and unemployment.
  • This statement is correct.
  • By adjusting spending and taxes, the government can influence economic activity, which can help manage inflation and unemployment rates.
• A balanced budget leads to economic stability in all cases.
  • This statement is incorrect.
  • A balanced budget does not always lead to economic stability. Other factors, such as the state of the economy, monetary policy, and global economic conditions, also play significant roles.
• An expansionary fiscal policy typically involves an increase in government spending and/or tax cuts.
  • This statement is correct.
  • Expansionary fiscal policy is aimed at stimulating the economy by increasing demand through higher government spending and/or reducing taxes.
• Fiscal policy cannot influence the distribution of income.
  • This statement is incorrect.
  • Fiscal policy can influence the distribution of income through progressive taxation and targeted spending programs.

Additional Information

• Balanced Budget: A balanced budget means that government spending equals its revenue. While it may contribute to economic stability, it is not a guaranteed solution for all economic problems.
• Expansionary Fiscal Policy: This type of policy is used to combat economic recessions by increasing demand. It can lead to higher deficits in the short term but aims to boost economic growth.
• Distribution of Income: Fiscal policy can play a crucial role in reducing income inequality through progressive taxation and social welfare programs.

The correct answer is - (B), (C), and (D) only

Key Points

• Commercial banks provide loans to individuals and businesses.
  • Commercial banks play a crucial role in providing financial services to both individuals and businesses, helping them meet their financial needs.
  • They offer various types of loans, such as personal loans, business loans, mortgages, and auto loans.
• Commercial banks create money through the lending process.
  • When commercial banks lend money, they essentially create new money by crediting the borrower's account with a deposit, which increases the money supply.
  • This process is known as "fractional reserve banking," where banks keep a fraction of deposits as reserves and lend out the rest.
• Commercial banks operate under the regulations set by the central bank.
  • Commercial banks must adhere to the rules and regulations established by the central bank of the country, which oversee their operations and ensure financial stability.
  • These regulations include maintaining reserve requirements, following lending guidelines, and adhering to interest rate policies.

Additional Information

• Commercial banks only deal with government transactions.
  • This statement is incorrect. Commercial banks deal with a wide range of transactions involving individuals, businesses, and governments.
  • They provide services like accepting deposits, offering loans, and facilitating payments and money transfers for various entities.
• Commercial banks do not offer any form of savings accounts.
  • This statement is incorrect. Commercial banks offer various types of savings accounts to their customers, including regular savings accounts, fixed deposits, and recurring deposits.
  • Savings accounts are one of the primary services provided by commercial banks to encourage saving habits among individuals.

The correct answer is Russia.

Key Points

• The constitution of India has borrowed most of its provisions from the constitution of different countries in the world.
• According to Dr B R Ambedkar, the constitution of India has been framed after ransacking all the known constitutions of the world.
• The important provisions borrowed from Russia are:
  • Five-year plan.
  • Fundamental duties.

Additional Information

• The important provisions borrowed from Britain are:
  • Parliamentary form of government
  • Rule of Law.
  • Single Citizenship.
  • Office of Comptroller and Auditor General of India.
  • Bicameralism.
  • Writs.
• The important provisions borrowed from the United States are:
  • Fundamental rights.
  • Preamble.
  • Independence of judiciary.
  • Judicial review.
  • Impeachment.
  • Post of vice-president.
• The important provisions borrowed from Germany:
  • Suspension of Fundamental Rights during the emergency.

The correct answer is Horticulture and Honey.

Key Points

• The Golden Revolution is related to Horticulture and Honey.
• It started in 1991 and lasted till 2003.
• Father of Golden Revolution: Nirpakh Tutaj.
• The Golden Fibre Revolution is related to Jute Production.

Additional Information

The correct answer is Second Five Year Plan.

Key Points

• Second Five-year plan (1956 to 1961)
  • The second plan was conceived in an atmosphere of economic stability.
  • It was felt agriculture could be accorded lower priority. 
  • Industries got more importance in the 2nd five-year plan. The focus was mainly on heavy industries. 
  • The Indian government boosted the manufacturing of industrial goods in the country.
  • This was done primarily to develop the public sector.
  • The Plan Focussed on rapid industrialization- heavy & basic industries.
  • Advocated huge imports through foreign loans.
  • Therefore, the Indian Government adopted a mixed economy during the second five-year plan. Hence, Option 2 is correct.
  • The Industrial Policy 1956 was based on the establishment of a socialistic pattern of society as the goal of economic policy.
  • Acute shortage of forex led to pruning of development targets, the price rise was also seen ( about 30%) vis a vis decline in the earlier Plan & the 2nd FYP was only moderately successful.

Important Points

• The 2nd year five-year plan functioned based on the Mahalanobis model. 
• The Mahalanobis model was propounded by the famous Prasanta Chandra Mahalanobis in the year 1953.
• As many as five steel plants including the ones in Durgapur, Rourkela ,Bhilai were set up as per the 2nd five-year plan. 
• During the term of the 2nd five-year plan, Atomic Energy Commission came into being.
• The Commission was established in the year 1957. 
• During the same period, the Tata Institute of Fundamental Research was born.

Additional Information

• First Five Year Plan:
  • It was launched from 1951 to 1956, under the leadership of Jawaharlal Nehru. 
  • It was based on the Harrod-Domar model with a few modifications. 
  • Its main focus was on the agricultural development of the country.
  • This plan was successful and achieved a growth rate of 3.6% (more than its target of 2.1%). 
  • At the end of this plan, five IITs were set up in the country. 
• Third Five Year Plan:
  • It was made from 1961 to 1966.
  • It is also called ‘Gadgil Yojna’, after the Deputy Chairman of Planning Commission D.R. Gadgil.
  • The target of this plan was to make the economy independent.
  • The stress was laid on agriculture and the improvement in the production of wheat. 
  • India was engaged in two wars: (1) the Sino-India war of 1962 and (2) the Indo-Pakistani war of 1965. These wars exposed the weakness in our economy and shifted the focus to the defense industry, the Indian Army, and the stabilization of the price (India witnessed inflation). 
  • The plan was a flop due to wars and drought. The target growth was 5.6% while the achieved growth was 2.4%. 
• Fourth Five Year Plan:
  • Its duration was from 1969 to 1974, under the leadership of Indira Gandhi. 
  • The two main objectives of this plan i.e. growth with stability and progressive achievement of self-reliance.
  • Fourteen major Indian banks were nationalized.
  • Indo-Pakistani War of 1971 and the Bangladesh Liberation War took place. 
  • Implementation of Family Planning Programmes was amongst major targets of the Plan
  • It failed and could achieve a growth rate of 3.3% only against the target of 5.7%.

The correct answer is Primary sector.

Key Points:

• Activities that generate income are termed as economic activities.
• On the basis of economic activities, the Indian economy can be divided into 3 major sectors that are the primary sector, the secondary sector, and the tertiary sector.
• Dairy comes under the primary sector.
• Primary sector: Primary activities are directly dependent on the environment as these refer to the utilization of the earth’s resources. It, thus includes hunting and gathering, pastoral activities, fishing, apiculture, etc.
• Secondary sector: Secondary activities add value to natural resources by transforming raw materials into valuable products. Therefore, they are concerned with manufacturing, processing and construction industries. For eg: Shoe factory.
• Tertiary sector: Tertiary activities include both production and exchange. The production involves the ‘provision’ of services that are consumed. The exchange involves trade, transport and communication facilities that are used to overcome distance. For eg: Consultancy.

The correct answer is option 4 i.e 1950.

Key Points

• The Planning Commission was an institution which formulated Five-Year Plans in India.
  • Planning Commission set up in 1950.
  • Planning commission was established based on the recommendation of an advisory planning board under the chairmanship of KC Neogy.
  • Headquarters: Yojana Bhavan, New Delhi.
  • Planning commission is only an advisory body.
  • The concept of planning was based on the Russian model introduced by Joseph Stalin.
  • The Prime Minister is the chairman of the planning commission.
  • Jawaharlal Nehru was the first chairman of the planning commission.
  • Deputy chairman of the planning commission was appointed by the Union Cabinet.
  • Gulzarilal Nanda was the first deputy Chairman of the Planning Commission.
• Narendra Modi government dissolved the Planning Commission in 2014.
• The planning commission was replaced by the newly formed NITI Aayog in 2015.

The correct answer is 1956-61.

Key Points

• 1956-61 was the duration of the Second Five Year Plan.
• The Second Five Year Plan was based on Mahalanobis Model.
• ​Its main focus was on the industrial development of the country.
• P. C. Mahalanobis was a famous Indian statistician who founded the Indian Statistical Institute.
• The plan lagged behind the target growth rate of 4.5% and achieved a growth rate of 4.27%.

Additional Information

• The five-year plans were one of the central plans.
• The plans were formulated and were financed by the central government.
• These were launched in 1951, with the first five-year plans covering the years 1951-56.
• There were three breaks in five-year plans during 1966-69, 1978-80, and 1991-92.
• "Twelfth Five Year Plan" duration is from 2012 to 2017, and it was under the leadership of Manmohan Singh.
• It was the last five-year plan because Niti Aayog replaced it with the planning commission.
• Its main theme was “Faster, More Inclusive and Sustainable Growth”.
• Its growth rate target was 8%.​

​

The correct answer is Third five year plan.

Key Points

• The third Five Year Plan was launched from 1961-1966 under the leadership of Pandit Jawaharlal Nehru.
  • The Deputy Chairman of the Planning commission at the time of the third five-year plan was D. R. Gadgil.
  • The plan was also known as the Gadgil Yojana.
  • The independent economy (establishment of a self-reliant and self-generating economy), agriculture, and improvement in the production of wheat were the major objectives of the plan.
  • The third Five Year Plan was affected due to drought and two wars (Sino-India war of 1962 and Indo-Pakistani war of 1965).

Additional Information

• The First five-year plan 
  • This plan was launched from 1951-1956 under the leadership of Pandit Jawaharlal Nehru.
  • It was based on the Harrod-Domar model.
  • The targeted growth rate of the plan was 2.1%.
  • The plan was successful and achieved a growth rate of 3.6% which was more than its target.
  • The agricultural development of the country was the major objective of the plan.
  • At the end of this plan, five IITs were set up in the country.
• The second five-year plan
  • ​​​This plan is based on P.C Mahalanobis Model.
  • It was planned from 1 April 1956 to 31 March 1961.
  • It is popularly known as Mahalanobis Plan.
  • The second five-year plan accords high priority to industrialization, and especially to the development of basic and heavy industries.
  • This plan includes substantial investment in iron and steel, coal and Heavy engineering, Machine building, Heavy chemicals, and Cement Industries.​
• ​Fourth-Five year Plan:
  • ​The duration of this Plan is 1969-1974 under the leadership of Indira Gandhi.
  • The two main objectives of this Plan are growth with Stability and Progressive achievement with self-reliance.
  • During this Plan, 14 major Indian Banks were nationalized.
  • At this time, the Indo-Pak war of 1971 and the Bangladesh liberation war took Place.
  • The main emphasis was on the growth rate of agriculture to enable other sectors to move forward.
  • First, two years of the plan saw record production.
  • The last three years did not measure up due to poor monsoon.
  • Implementation of Family Planning Programmes was amongst the major targets of the Plan.

Important Points

The correct answer is Custom duties.

Important Points

• The tax imposed on the import and export of commodities is called Custom duties.
• This is a form of foreign trade control and a policy that taxes foreign goods to encourage or protect domestic industry.
• Tariffs may be set (a constant sum per unit of imported goods or a percentage of the price) or variable (the amount varies by price). Import taxation means that consumers are less likely to purchase them because they are more costly.
• An excise tax is an indirect tax on the sale of a particular good or service charged by the Government.
• A VAT (Value-added tax) is a consumption tax that is imposed on a product whenever a value is added at each stage of the supply chain, from production to point of sale.
• Goods and Services Tax(GST) is an Indirect tax on the purchase of goods and services used in India.

The correct answer is Ellora Caves.

Key Points

• In April 2019, RBI issued new Rs. 20 currency notes in the Mahatma Gandhi (New) series. 
• The new Rs 20 notes have the signature of the Reserve Bank's Governor.
• The base colour of the new note is Greenish Yellow.
• The new (Rs 20) denomination has the motif of Ellora Caves on the reverse side of the note.
• The dimension of the banknote will be 63 mm x 129 mm.

Additional Information

The correct answer is Sanchi Stupa.

Key Points 

• Rs 200 note
  • The motif of the new denomination Rs. 200 is Sanchi Stupa on the reverse and its colour is Bright Yellow.
  • The dimension of the banknote is 66 mm*146 mm.
  • It is released on 25 August 2017.
  • The obverse design is of Mahatma Gandhi.
• The Reserve Bank of India has the sole authority to issue banknotes in India except for the one-rupee note which is released by the Ministry of Finance.
• The Government of India is the issuing authority of coins and supplies coins to the Reserve Bank on demand.
• Along with new 200 Rs. note Rs. 2000, 500, 200, 100, 50, 20,10 banknotes were also released.

Additional Information