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. Which among the following is a correct definition of Dollarization?
[A] when the inhabitants of a country use US dollars in parallel to or instead of the domestic currency
[B] when the inhabitants of a country use only US Dollars instead of a domestic currency
[C] when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency
[D] None of the above
Show Answer
Correct Answer: C [when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency]
Notes:
when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency, The term is not only applied to usage of the United States dollar, but generally to the use of any foreign currency as the national currency.
2. In which year, the practice of presenting the railway budget separate from the general budget (or vice versa in true sense) started in India?
[A] 1920
[B] 1924
[C] 1925
[D] 1930
Show Answer
Correct Answer: B [1924]
Notes:
In the year 1924, the practice of presenting the railway budget separately from the general budget (or vice versa in true sense) started in India.
3. Progressive taxation aligns with which principle in tax theory?
[A] Benefit principle
[B] Cost of service theory
[C] Ability to pay principle
[D] Equity of sacrifice approach
Show Answer
Correct Answer: C [Ability to pay principle]
Notes:
The ability to pay principle is a basis for progressive taxation, taxing individuals according to their income levels. Progressive tax rates increase as income rises under this principle. India’s income tax is based on this principle, with tax slabs laid down in the Income Tax Act, 1961. Most modern tax systems, including those of the UK and India, use this approach.
4. Who benefits most in the short term from deflation if nominal income remains fixed?
[A] Salary earners with fixed wages
[B] Pensioners with fixed incomes
[C] Equity holders
[D] Borrowers with long-term fixed-rate debt
Show Answer
Correct Answer: A [Salary earners with fixed wages]
Notes:
When prices fall while nominal income stays unchanged, the purchasing power of that income rises. Salary earners with fixed wages can buy more goods and services for the same amount of money, so they gain in the short term. By contrast, borrowers usually lose because the real burden of repayment rises, while equity holders do not get a direct guaranteed benefit from deflation. This makes fixed-wage earners the best answer here.
5. Which RBI function shows its role as the Bankers’ Bank in India?
[A] Issuance of Currency
[B] Ways & Means Advances
[C] Liquidity Adjustment Facility
[D] Maintenance of Currency Chests
Show Answer
Correct Answer: C [Liquidity Adjustment Facility]
Notes:
The Liquidity Adjustment Facility (LAF) was introduced by RBI in June 2000. RBI uses LAF to manage liquidity by allowing banks to borrow money through repurchase agreements (repos) or lend money to RBI through reverse repo. The facility assists banks with short-term liquidity mismatches and enables RBI to maintain monetary stability. LAF operates daily and is managed via electronic bids on the CBS platform.
6. Which of these is NOT an anti-inflationary monetary measure?
[A] Increasing central bank discount rate
[B] Raising Cash Reserve Ratio
[C] Implementing credit rationing policies
[D] Open market purchase of government securities
Show Answer
Correct Answer: D [Open market purchase of government securities]
Notes:
Open market purchase of government securities injects liquidity into the banking system. The Reserve Bank of India buys government securities to increase money supply. This is an expansionary policy used to stimulate economic growth. Anti-inflationary measures contract money supply. RBI uses open market sales, not purchases, to control inflation. Open market operations are conducted under Section 17 of the Reserve Bank of India Act, 1934.
7. Which one of the following is NOT generally considered a sign of economic development?
[A] Changing structure of GDP in favour of industry and services
[B] Larger share of GDP coming from the primary sector
[C] Improved infrastructure and institutional changes in an economy
[D] Rising per capita income and productivity
Show Answer
Correct Answer: B [Larger share of GDP coming from the primary sector]
Notes:
Economic development is usually associated with structural transformation: the share of agriculture/primary sector declines, while industry and services expand. It is also reflected in better institutions, infrastructure, higher productivity and rising per capita income. A larger GDP share from the primary sector generally indicates a less developed economic structure.
8. Which among the following is not an instrument of fiscal policy?
[A] Taxation
[B] Public expenditure
[C] Public debt
[D] Credit Rationing
Show Answer
Correct Answer: D [Credit Rationing]
Notes:
The 3 main instruments of fiscal policy are government taxation and public expenditure and public debt. Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy.
9. Who prescribes the minimum balance requirement for savings bank accounts in India?
[A] State Bank of India
[B] Grameen Bank of India
[C] Reserve Bank of India
[D] None of these
Show Answer
Correct Answer: D [None of these]
Notes:
Minimum balance requirements for savings accounts are generally decided by individual banks, not prescribed uniformly by the Reserve Bank of India. Banks may set their own rules based on their account policies, while RBI only requires transparent disclosure and fair treatment of customers. Therefore, there is no single institution among the given options that prescribes the minimum balance rule for all savings bank accounts in India.
10. Which goods do Middle East arid nations export to India in FY 2024-25? (UPSC Prelims 1996)
[A] Precious stones and pearls
[B] Perfume and coffee
[C] Raw wool and carpets
[D] Fruits and palm oil
Show Answer
Correct Answer: D [Fruits and palm oil]
Notes:
Arid Middle Eastern countries, like Bahrain and UAE, export fruits (notably dates, dry fruits) and edible oils (notably palm oil) to India. These are key exports due to the region’s suitable climate and agriculture, supporting India’s food security needs. FY 2024-25 trade data affirms the trend.
