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. If India’s external commercial borrowings increase, what is the likely macroeconomic impact?
[A] External debt will increase, but macroeconomic impact depends on hedging and exchange rates
[B] External debt will increase, but forex reserves will remain unaffected
[C] External debt will remain unaffected due to RBI’s forward book management
[D] External debt will increase proportionally, with no impact on current account deficit
Show Answer
Correct Answer: A [External debt will increase, but macroeconomic impact depends on hedging and exchange rates]
Notes:
At end-March 2025, India’s outstanding commercial borrowings reached $291.6 billion, a 16.4% rise from the previous year. Increase in ECBs directly raises external debt. Macroeconomic stability varies with hedging costs and exchange rate fluctuations, which can affect inflation and liquidity. The impact is also influenced by RBI’s management of foreign exchange reserves and currency volatility, not only the debt quantum.
2. An autonomous increase in expenditure should result in an increase in a country’s real GNP only if ?
[A] The country’s balance of trade is negative
[B] The country’s economy is working under conditions of less than full employment
[C] It is government expenditure
[D] The multiplier is at least 1.5
Show Answer
Correct Answer: B [The country’s economy is working under conditions of less than full employment]
Notes:
When the economy is working under conditions of less than full employment, the GDP gap is positive and the economy operates at less than potential. At this point, an increase in expenditure would result in an increase in a country’s real GNP.
3. In which Five Year Plan was the Khadi and Village Industries Commission launched?
[A] First
[B] Second
[C] Third
[D] Fourth
Show Answer
Correct Answer: B [Second]
Notes:
The Khadi and Village Industries Commission was established in April 1957 during the Second Five Year Plan. It assumed the functions of the former All India Khadi and Village Industries Board. The commission operates as a statutory body under the Ministry of Micro, Small and Medium Enterprises, Government of India. Its objectives include promoting and developing khadi and village industries in rural areas.
4. Which among the following plan document has a subtitle ” Inclusive growth” ?
[A] 10th Five year Plan
[B] 11th Five year Plan
[C] National Solar Mission
[D] Bhart Nirman
Show Answer
Correct Answer: B [11th Five year Plan]
Notes:
The correct answer is the 11th Five Year Plan. Launched in 2007, it emphasized “Inclusive Growth” to address poverty and inequality in India. This plan aimed to enhance social and economic development, focusing on sectors like education, health, and rural development. The 11th Plan set a target of 9% GDP growth, which indicates the importance of inclusive policies for sustainable development.
5. If the people prefer to keep cash with them rather than deposits, which among the following impacts will be seen on the Money Supply of the country?
[A] The money supply of the country will increase
[B] The money supply of the country will decrease
[C] The money supply of the country will not change
[D] The money supply of the country may increase or decrease
Show Answer
Correct Answer: B [The money supply of the country will decrease]
Notes:
If people prefer to keep cash with them rather than making deposits in banks, the impact on the Money Supply of the country will be as follows:
[B] The money supply of the country will decrease.
The reason for this is that money supply is typically categorized into different measures, with M1 and M2 being common examples. M1 includes currency (physical cash) in circulation and demand deposits (checking accounts). When people hold more cash and make fewer deposits, it reduces the amount of money in demand deposits, which are considered a part of the money supply. Therefore, if people choose to keep more cash on hand, it reduces the overall money supply in the country, leading to a decrease.
6. 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.
7. According to RBI, when does a cash credit account become an NPA?
[A] A bill purchased remains overdue for over 90 days
[B] A cash credit account is out of order for over 90 days
[C] Interest or principal overdue for over 180 days
[D] Loan in Rabi season unpaid by Kharif season
Show Answer
Correct Answer: B [A cash credit account is out of order for over 90 days]
Notes:
RBI guidelines classify a cash credit account as Non-Performing Asset if it remains out of order for more than 90 days. The Income Recognition and Asset Classification (IRAC) norms were issued in 1992 and updated periodically. An account is considered out of order if outstanding balance remains continuously in excess of sanctioned limit or drawings are not regularly serviced as per RBI notifications.
8. Consider the following statements regarding Cost Push Inflation:
- Cost Push Inflation is a function of the costs such as wages, rent, interest rates etc.
- Cost Push Inflation can be controlled easily in comparison to Demand Pull Inflation.
- The purchasing power of Rupee decreases in case of Cost Push Inflation.
- Cost Push Inflation often results from supply shocks like oil price increases.
Which of the above statements is / are correct?
[A] 1, 3 and 4
[B] Only 1
[C] 1 and 2
[D] 2 and 3
Show Answer
Correct Answer: A [1, 3 and 4]
Notes:
Cost-push inflation arises from increases in production costs like wages and raw materials (statement 1). It cannot be controlled easily compared to demand-pull inflation (statement 2 is incorrect). Inflation reduces the purchasing power of money (statement 3). Supply shocks, e.g., rising oil prices, often trigger cost-push inflation (statement 4). Thus, 1, 3, and 4 are correct.
9. Who among the following heads the Trade and Economic Relations Committee (TERC) in India?
[A] Prime Minister
[B] Minister of Commerce
[C] Finance Minister
[D] Finance Secretary
Show Answer
Correct Answer: A [Prime Minister]
Notes:
The Trade and Economic Relations Committee (TERC) in India is headed by the Prime Minister. This committee was established to enhance India’s trade relations and economic policies, reflecting the government’s focus on international trade as a key driver of economic growth. The Prime Minister’s leadership underscores the importance of trade in India’s economic strategy.
10. Which of the following is used by RBI for sterilization of the Capital Inflows?
[A] Base Rate System
[B] CRAR Obligations
[C] Open Market Operations
[D] Credit Authorization Scheme
Show Answer
Correct Answer: C [ Open Market Operations ]
Notes:
An open market operation (OMO) is an activity by a central bank to give (or take) liquidity in its currency to (or from) a bank or a group of banks. The central bank can either buy or sell government bonds in the open market.
