Indian Economy MCQs
Indian Economy Multiple Choice Questions (MCQs) for SSC, State and all One Day Examinations of India. Objective Questions on Indian Economy for competitive examinations.
1. What happens to deposit rates if RBI tightens monetary policy?
[A] Deposit rates will decrease
[B] Deposit rates will remain unchanged
[C] Deposit rates will increase
[D] Rates may increase or decrease
Show Answer
Correct Answer: C [Deposit rates will increase]
Notes:
When the RBI tightens its policy by raising the repo rate, banks face higher borrowing costs from the RBI. Banks increase deposit rates to attract funds from the public. For example, the repo rate was increased multiple times in 2022 and banks responded by increasing fixed deposit rates between May and December 2022.
2. What does “round tripping” in FDI refer to?
[A] The use of FDI to set up subsidiaries worldwide
[B] Domestic capital routed abroad and reinvested as foreign investment
[C] Repatriation of FDI profits to the investor’s home country
[D] Cross-border flows through free trade zones without taxes
Show Answer
Correct Answer: B [Domestic capital routed abroad and reinvested as foreign investment]
Notes:
Round tripping in FDI involves domestic capital sent to foreign jurisdictions and then returning as foreign investment. Such investments often use offshore financial centers or low-tax countries. This mechanism enables companies to claim incentives for foreign investors. It led to significant FDI inflows for countries such as India and China through countries like Mauritius and Hong Kong via special purpose vehicles.
3. The Direct Taxes Code (DTC) is associated with which tax?
[A] Income Tax
[B] Sales Tax
[C] Excise Duty
[D] Service Tax
Show Answer
Correct Answer: A [Income Tax]
Notes:
The Direct Taxes Code (DTC) was proposed in 2009 to replace the Income Tax Act, 1961. It aimed to simplify and consolidate laws related to direct taxes in India. The DTC focused on income tax and other direct taxes. The DTC Bill was introduced in Parliament in 2010 but has not been enacted as of 2024. Indirect taxes like sales tax and excise duty are not covered.
4. Which term refers to the maximum capital a company can raise in its lifetime?
[A] Authorized Capital
[B] Registered Capital
[C] Nominal Capital
[D] All of the above
Show Answer
Correct Answer: D [All of the above]
Notes:
Authorized capital is the maximum share capital stated in a company’s Memorandum of Association. Registered capital and nominal capital are alternate terms for authorized capital. This ceiling cannot be exceeded without shareholder approval and modification in company documents as per the Companies Act, 2013.
5. What is amortization in banking?
[A] A lump-sum repayment of loan at maturity
[B] Gradual repayment with both principal and interest
[C] Payment of interest only, principal at end
[D] Writing off intangible asset expenses
Show Answer
Correct Answer: B [Gradual repayment with both principal and interest]
Notes:
Amortization refers to scheduled loan repayment through periodic payments including both principal and interest. Each payment gradually reduces the outstanding loan balance. Early payments cover more interest; later ones pay more principal. Mortgages and term loans typically follow an amortization schedule with set time frames like 15 or 30 years. The balance decreases with every regular installment.
6. Which of the following activities can help to reduce the government’s budget deficit?
- Implementation of Goods and Services Tax (GST)
- Rationalization of Subsidies
- Reduction in Income Tax
Select the correct option from codes given below:
[A] 1 & 2 Only
[B] 3 Only
[C] 2 & 3 Only
[D] 1, 2 & 3
Show Answer
Correct Answer: A [ 1 & 2 Only ]
Notes:
Implementation of Goods and Services Tax (GST) could help government raise tax revenues and reduce fiscal deficit. Fiscal deficit can be reduced by rationalizing subsidies in different sectors. Reduction in Income Tax will reduce government’s earnings and hence will increase budget deficit.
7. Natural Gas is one of the materials used in making of Fertilizers. Which among the following is the function of Natural gas in production of Fertilizers?
[A] As a fuel, to supply heat
[B] As a Reducing agent
[C] As a catalyst to produce complex fertilizers
[D] As a feedstock for the production of ammonia
Show Answer
Correct Answer: D [As a feedstock for the production of ammonia]
Notes:
Natural gas, essentially methane, is upgraded by combination with nitrogen from the air to form nitrogen fertilizer. 80% of the gas is used as feedstock for fertilizer while 20% is used for heating the process and producing electricity.
8. What is the effect of increasing the Cash Reserve Ratio (CRR)?
[A] It decreases the money supply
[B] It increases interest rates
[C] It decreases inflation
[D] All of the above
Show Answer
Correct Answer: D [All of the above]
Notes:
CRR is the portion of deposits banks must keep with the Reserve Bank of India. When CRR increases, banks have less money to lend, which lowers the money supply. With reduced funds available, lending interest rates rise. Reduced money supply and higher lending rates lead to lower inflation. As of 2024, RBI uses CRR as a monetary policy tool for credit and inflation control.
9. What do we call the money that is lent for more than one day but less than 15 days in the call money market?
[A] Call Money
[B] Term Money
[C] Notice Money
[D] None of the above
Show Answer
Correct Answer: C [Notice Money]
Notes:
The money that is lent for more than one day and less than 15 days in the call money market is referred to as “Notice Money”. Term Money refers to Money lent for 15 days or more in the Inter Bank Market.
10. Where is the headquarters of Hindustan Zinc Ltd?
[A] Jaipur
[B] Jodhpur
[C] Jaisalmer
[D] Udaipur
Show Answer
Correct Answer: D [Udaipur]
Notes:
Hindustan Zinc Limited (HZL) is an integrated mining and resources producer of zinc, lead, … Chanderiya (Chittorgarh), Debari (Udaipur) & Dariba (Rajsamand) in Rajasthan with total zinc and lead production capacity of 1.0 million tonnes.
