- Quantitative easing (QE) is used by central banks to –
(A) Increase taxes
(B) Curb inflation
(C) Inject liquidity into the economy
(D) Encourage exports
Answer: (C)
Explanation: Quantitative easing involves central banks purchasing assets, like government bonds, to inject liquidity into the economy. In India, though less common, the RBI could use QE during crises to boost money supply, stimulating lending and growth, unlike tax or export policies. - WTO’s Agreement on Agriculture (AoA) addresses –
(A) Urban employment
(B) Food subsidies and market access
(C) Education spending
(D) Fiscal deficit norms
Answer: (B)
Explanation: The WTO’s Agreement on Agriculture (AoA) focuses on reducing trade distortions through rules on food subsidies, market access, and export competition. In India, AoA impacts policies like MSP subsidies, balancing domestic support with global trade obligations. - Bank nationalization in India first took place in –
(A) 1949
(B) 1955
(C) 1969
(D) 1980
Answer: (C)
Explanation: India nationalized 14 major commercial banks in 1969 to expand credit to agriculture and small industries, enhancing financial inclusion. A second wave occurred in 1980, but 1969 marked the significant shift in banking control. - Gig economy refers to –
(A) Government employment
(B) Fixed salaried jobs
(C) Freelance and short-term contract work
(D) Large corporations
Answer: (C)
Explanation: The gig economy involves freelance or short-term contract work, often platform-based. In India, platforms like Uber or Zomato rely on gig workers, offering flexibility but raising concerns about job security, unlike traditional salaried or government jobs. - M3 in money supply refers to –
(A) Currency with public + demand deposits
(B) M1 + savings deposits + term deposits
(C) M1 – cash reserves
(D) Only bank reserves
Answer: (B)
Explanation: M3, a broad money supply measure in India, includes M1 (currency with public + demand deposits) plus savings and time deposits. It reflects total liquid and less-liquid assets, guiding RBI’s monetary policy decisions. - Gresham’s Law implies –
(A) Bad money drives out good money
(B) Money chases inflation
(C) Higher prices lower demand
(D) Better quality products survive
Answer: (A)
Explanation: Gresham’s Law states that “bad money” (e.g., debased currency) drives out “good money” (e.g., higher-value coins) when both circulate, as people hoard the latter. In India’s history, clipped coins were hoarded, reducing circulation of full-value coins. - The Lausanne School is associated with –
(A) Keynesian theory
(B) Marginal utility analysis
(C) General equilibrium theory
(D) Fiscal federalism
Answer: (C)
Explanation: The Lausanne School, led by Walras and Pareto, developed general equilibrium theory, analyzing how markets interact to achieve economy-wide balance. This contrasts with Keynesian focus on demand or marginal utility’s emphasis on consumer satisfaction. - Investment multiplier is inversely related to –
(A) MPC
(B) MPS
(C) Inflation
(D) Tax rate
Answer: (B)
Explanation: The investment multiplier (1/MPS) is inversely related to the marginal propensity to save (MPS). In India, if MPS is 0.25, the multiplier is 4; a higher MPS (e.g., 0.5) reduces it to 2, as less income is spent. - Keynesian economics rejects –
(A) Full employment in the long run
(B) Role of government in economy
(C) Demand-side measures
(D) Underemployment equilibrium
Answer: (A)
Explanation: Keynesian economics rejects the classical view of automatic full employment in the long run, arguing economies can persist in underemployment due to insufficient demand. In India, government stimulus addresses such demand shortfalls, supporting Keynesian principles. - Duesenberry’s relative income hypothesis suggests –
(A) Consumption is based on relative income levels
(B) Saving is constant
(C) Income does not affect consumption
(D) Demand creates supply
Answer: (A)
Explanation: Duesenberry’s hypothesis posits that consumption depends on income relative to others, not just absolute income. In India, middle-class households may spend more to match peers’ lifestyles, even if their income is modest, influencing consumption patterns. - Operation Flood is related to –
(A) Oil production
(B) Water irrigation
(C) Milk production
(D) Food grain storage
Answer: (C)
Explanation: Operation Flood, launched in 1970, transformed India into a leading milk producer through dairy cooperatives like Amul. It boosted milk production and rural incomes, distinct from irrigation or grain storage initiatives. - Capital formation in an economy depends largely on –
(A) Inflation
(B) Consumption
(C) Savings and investment
(D) FDI only
Answer: (C)
Explanation: Capital formation relies on savings (funds available) and investment (funds deployed in assets like machinery). In India, high domestic savings rates support infrastructure investment, while FDI supplements but isn’t the sole driver. - The Phillips Curve becomes vertical in the –
(A) Short run
(B) Long run
(C) Recession
(D) Boom
Answer: (B)
Explanation: In the long run, the Phillips Curve is vertical, indicating no trade-off between inflation and unemployment, as economies reach natural unemployment rates. In India, long-term policies focus on structural reforms, as inflation doesn’t reduce unemployment permanently. - Index of Industrial Production (IIP) base year is currently –
(A) 2004–05
(B) 2011–12
(C) 2017–18
(D) 2009–10
Answer: (B)
Explanation: The IIP, compiled by India’s NSO, uses 2011–12 as its base year, measuring output in manufacturing, mining, and electricity. This base reflects economic structures, guiding policymakers on industrial performance trends. - The Five-Year Plan model adopted by India was originally based on –
(A) US Marshall Plan
(B) Soviet Union model
(C) Chinese model
(D) British model
Answer: (B)
Explanation: India’s Five-Year Plans, starting in 1951, were inspired by the Soviet Union’s centralized planning model, emphasizing state-led industrialization and agriculture. Unlike the US Marshall Plan (post-war aid), it focused on long-term economic goals. - Bank rate is –
(A) Rate at which banks lend to public
(B) Rate at which RBI lends to commercial banks without collateral
(C) Repo rate
(D) Reverse repo rate
Answer: (B)
Explanation: The bank rate is the rate at which the RBI lends to commercial banks without collateral, influencing credit availability. In India, a higher bank rate raises borrowing costs, distinct from repo (collateral-based) or public lending rates. - Shadow banking refers to –
(A) Underground financial system
(B) Non-banking financial intermediaries
(C) Offshore banking
(D) Cooperative banks
Answer: (B)
Explanation: Shadow banking involves non-banking financial intermediaries, like NBFCs in India, providing credit outside traditional banking regulations. While less regulated, they support financing needs, unlike illegal underground systems or offshore banks. - Disinflation is –
(A) Negative inflation
(B) Decrease in price level
(C) Decline in the rate of inflation
(D) Persistent inflation
Answer: (C)
Explanation: Disinflation is a decline in the inflation rate, where prices rise slower. In India, if inflation drops from 6% to 3%, it’s disinflation, not deflation (negative inflation) or a price level decrease, maintaining positive price growth. - Per capita income =
(A) GDP / working population
(B) National income / total population
(C) Net exports / population
(D) Consumption / population
Answer: (B)
Explanation: Per capita income is national income (e.g., NNP at factor cost) divided by total population, reflecting average income. In India, this measures living standards, unlike GDP per worker or consumption-based metrics. - Wage rigidity may result in –
(A) Full employment
(B) Involuntary unemployment
(C) High productivity
(D) Hyperinflation
Answer: (B)
Explanation: Wage rigidity, where wages don’t fall despite surplus labor, leads to involuntary unemployment. In India, minimum wage laws may keep wages high, preventing market clearing and leaving workers jobless, unlike productivity or inflation effects. - The money multiplier is –
(A) Reserve ratio / bank deposits
(B) 1 / CRR
(C) 1 / Reserve ratio
(D) M1 / M0
Answer: (C)
Explanation: The money multiplier is 1/reserve ratio, indicating how much money banks create per unit of reserves. In India, with a 4% CRR (reserve ratio = 0.04), the multiplier is 1/0.04 = 25, amplifying money supply through lending. - The output gap measures –
(A) The inflation rate
(B) Difference between potential and actual output
(C) Export-import ratio
(D) Fiscal deficit
Answer: (B)
Explanation: The output gap is the difference between potential (full-capacity) and actual output. In India, a negative gap (actual < potential) signals underutilized resources, guiding policies to boost demand, unlike inflation or trade metrics. - Price discrimination is possible only under –
(A) Perfect competition
(B) Monopoly
(C) Monopolistic competition
(D) Oligopoly
Answer: (B)
Explanation: Price discrimination, charging different prices for the same product, requires market power, typical in monopolies. In India, a sole railway operator can charge varied fares, unlike perfect competition where uniform prices prevail. - The Pigou Effect refers to –
(A) Higher government spending leads to inflation
(B) Higher real balances increase aggregate demand
(C) Inflation reduces real income
(D) Crowding out
Answer: (B)
Explanation: The Pigou Effect suggests that higher real money balances (due to falling prices) increase wealth, boosting aggregate demand. In India, deflation could raise purchasing power, encouraging spending, countering Keynesian demand deficiency. - Inclusive growth was emphasized in which Five-Year Plan?
(A) Ninth
(B) Tenth
(C) Eleventh
(D) Twelfth
Answer: (C)
Explanation: The Eleventh Five-Year Plan (2007–12) emphasized inclusive growth, aiming for equitable development in India. It focused on reducing poverty and disparities, integrating marginalized groups into economic progress, unlike earlier plans’ growth-centric approaches. - Cross elasticity of demand is positive for –
(A) Complementary goods
(B) Giffen goods
(C) Substitutes
(D) Inferior goods
Answer: (C)
Explanation: Cross elasticity is positive for substitutes, as a price rise in one increases demand for the other. In India, if tea prices rise, coffee demand increases, unlike complements (negative elasticity) or inferior goods (negative income elasticity). - Which of the following is not included in calculating HDI?
(A) Education
(B) Life expectancy
(C) Gender ratio
(D) GNI per capita
Answer: (C)
Explanation: The Human Development Index (HDI) includes education, life expectancy, and GNI per capita. Gender ratio, while addressed in other indices like GDI, is not part of HDI, which focuses on human development outcomes in India. - Nominal GDP is GDP measured at –
(A) Constant prices
(B) Market prices of base year
(C) Current market prices
(D) Factor cost
Answer: (C)
Explanation: Nominal GDP is measured at current market prices, reflecting inflation. In India, nominal GDP includes price changes, unlike real GDP (constant prices) or GDP at factor cost (excluding taxes and subsidies). - Marshall-Lerner condition is related to –
(A) Balance of trade
(B) Price elasticity of exports and imports
(C) GDP growth
(D) Tax revenue
Answer: (B)
Explanation: The Marshall-Lerner condition states that currency devaluation improves the trade balance if the sum of export and import price elasticities exceeds 1. In India, a rupee devaluation boosts exports if this condition holds, impacting trade. - Green revolution focused primarily on –
(A) Oilseeds
(B) Fruits and vegetables
(C) Cereals, especially wheat
(D) Dairy sector
Answer: (C)
Explanation: The Green Revolution in India (1960s–70s) focused on cereals, particularly wheat, using high-yield varieties and irrigation. It boosted food security, unlike oilseeds or dairy, which saw later interventions like Operation Flood. - Negative interest rate policy is adopted to –
(A) Encourage saving
(B) Control inflation
(C) Boost lending and investment
(D) Strengthen currency
Answer: (C)
Explanation: Negative interest rates discourage saving and encourage lending and investment by charging banks for holding reserves. In India, though not adopted, this could stimulate economic activity during slowdowns, weakening the currency rather than strengthening it. - A regressive tax affects –
(A) Poor and rich equally
(B) Rich more than poor
(C) Poor more than rich
(D) None of the above
Answer: (C)
Explanation: A regressive tax, like some indirect taxes in India (e.g., pre-GST sales tax), imposes a higher burden on the poor, as it takes a larger share of their income. Unlike progressive taxes, it exacerbates inequality. - The FDI cap in insurance sector in India (as of 2023) is –
(A) 49%
(B) 74%
(C) 100%
(D) 51%
Answer: (B)
Explanation: As of 2023, India’s FDI cap in the insurance sector is 74%, raised from 49% in 2021 to attract foreign investment. This allows greater foreign participation in companies like LIC, boosting capital inflows. - Elasticity of supply is greater in –
(A) Short term
(B) Long term
(C) At zero output
(D) At full capacity
Answer: (B)
Explanation: Supply elasticity is greater in the long term, as firms adjust all inputs (e.g., capital, labor). In India, agricultural supply responds more to price changes over years (e.g., adopting new crops) than in the short term with fixed resources. - Revenue receipts of government include –
(A) Dividends from PSUs
(B) Borrowings
(C) Recovery of loans
(D) Disinvestment
Answer: (A)
Explanation: Revenue receipts include non-repayable incomes like dividends from PSUs (e.g., ONGC in India), taxes, and grants. Borrowings, loan recoveries, and disinvestment are capital receipts, as they affect liabilities or assets. - A tax imposed on goods produced within the country is –
(A) Customs
(B) Excise
(C) GST
(D) Toll
Answer: (B)
Explanation: Excise duty is levied on goods produced domestically, like cigarettes in India. While GST also applies to domestic goods, excise is specific to production, unlike customs (imports) or tolls (usage fees). - NITI Aayog is primarily a –
(A) Constitutional body
(B) Statutory body
(C) Policy think tank
(D) Regulatory authority
Answer: (C)
Explanation: NITI Aayog, established in 2015, is a policy think tank, advising the Indian government on economic and social development. Unlike constitutional (e.g., Election Commission) or statutory bodies, it lacks regulatory powers, replacing the Planning Commission. - Sterilization in monetary policy refers to –
(A) Export promotion
(B) Reducing black money
(C) Counteracting forex inflows/outflows
(D) Raising interest rates
Answer: (C)
Explanation: Sterilization involves offsetting forex inflows/outflows to stabilize money supply. In India, if RBI buys dollars (increasing money supply), it sells bonds to absorb excess liquidity, preventing inflation, unlike export or black money policies. - The Laffer Curve relates –
(A) Tax rate and tax revenue
(B) Inflation and employment
(C) Demand and supply
(D) Cost and production
Answer: (A)
Explanation: The Laffer Curve shows that tax revenue rises with tax rates up to a point, beyond which higher rates reduce revenue due to disincentives. In India, high tax rates may deter work, guiding optimal tax policy design. - Which indicator reflects cost of living?
(A) WPI
(B) CPI
(C) GDP deflator
(D) IIP
Answer: (B)
Explanation: The Consumer Price Index (CPI) reflects the cost of living by tracking retail price changes for goods like food and fuel in India. WPI focuses on wholesale prices, and GDP deflator measures broader price levels, not consumer costs. - A balanced budget multiplier is always –
(A) Equal to 0
(B) Equal to 1
(C) Less than 1
(D) Greater than 1
Answer: (B)
Explanation: The balanced budget multiplier is 1, as equal increases in government spending and taxes raise GDP by the same amount. In India, ₹100 crore in spending funded by ₹100 crore in taxes boosts GDP by ₹100 crore, maintaining fiscal balance. - Jobless growth refers to –
(A) Rising inflation and unemployment
(B) GDP growth without employment generation
(C) More jobs without GDP rise
(D) Stagnation in agriculture
Answer: (B)
Explanation: Jobless growth occurs when GDP grows without creating jobs, often due to automation. In India, IT and capital-intensive sectors drive growth, but employment lags, posing challenges for labor-intensive sectors like agriculture. - IS curve slopes –
(A) Upward
(B) Downward
(C) Vertical
(D) Horizontal
Answer: (B)
Explanation: The IS curve, in the IS-LM model, slopes downward, showing that lower interest rates boost investment and output. In India, RBI’s rate cuts stimulate investment, increasing GDP along the IS curve, balancing goods markets. - LM curve shows equilibrium in –
(A) Labor market
(B) Money market
(C) Capital market
(D) Foreign exchange
Answer: (B)
Explanation: The LM curve depicts money market equilibrium, where money supply equals demand. In India, higher income increases money demand, requiring higher interest rates to balance, shaping the upward-sloping LM curve in the IS-LM framework. - Productivity in economics means –
(A) Output per unit of input
(B) Capital formation
(C) Export growth
(D) Investment rate
Answer: (A)
Explanation: Productivity measures output per unit of input, like labor or capital. In India, higher agricultural productivity (e.g., tons of rice per worker) boosts efficiency, distinct from capital formation or export growth metrics. - The Reserve Bank of India was nationalized in –
(A) 1935
(B) 1949
(C) 1956
(D) 1962
Answer: (B)
Explanation: The RBI was nationalized in 1949, shifting from private to government control to align monetary policy with national goals. Established in 1935, it gained public ownership post-independence, strengthening India’s financial system. - Consumer surplus is highest when –
(A) Supply is scarce
(B) Prices fall sharply
(C) Demand is inelastic
(D) Prices are fixed
Answer: (B)
Explanation: Consumer surplus, the benefit from paying less than willingness to pay, is highest when prices fall sharply. In India, a smartphone price drop increases surplus, as consumers gain more value, unlike scarce supply or inelastic demand scenarios. - Public goods are generally provided by –
(A) Private firms
(B) NGOs
(C) Government
(D) Foreign investors
Answer: (C)
Explanation: Public goods, like India’s defense or street lighting, are non-rival and non-excludable, leading to market failure. Governments provide them, funded by taxes, as private firms lack incentives due to free-rider problems. - PPP (Purchasing Power Parity) is used to –
(A) Compare currencies based on GDP
(B) Compare inflation
(C) Compare income inequality
(D) Compare labor markets
Answer: (A)
Explanation: Purchasing Power Parity (PPP) compares currencies by equating purchasing power for a basket of goods. In India, PPP adjusts GDP to reflect local costs, enabling fairer international comparisons than nominal GDP, unlike inflation or inequality metrics. - Minimum Alternate Tax (MAT) is applicable to –
(A) Individual taxpayers
(B) Farmers
(C) Companies with low taxable income
(D) State governments
Answer: (C)
Explanation: MAT ensures companies with low taxable income (e.g., due to exemptions) pay a minimum tax in India. It targets firms, not individuals, farmers, or governments, promoting tax equity among profitable corporations.