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. Export of which of the following is an Invisible Export?
[A] Services
[B] Prohibited goods
[C] Unrecorded goods
[D] Goods through smuggling
Show Answer
Correct Answer: A [ Services ]
Notes:
Any export that does not have a tangible physical presence (e.g. expertise, insurance underwriting). Here, Invisible Export means export of Services
2. 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
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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.
3. Which group is classified as a ‘shadow banking system’?
[A] Scheduled Commercial Banks, NBFCs, Hedge Funds
[B] NBFCs, Investment Banks, Hedge Funds
[C] Scheduled Commercial Banks, Private Banks, NBFCs
[D] Scheduled Commercial Banks, Cooperative Banks, Investment Banks
Show Answer
Correct Answer: B [NBFCs, Investment Banks, Hedge Funds]
Notes:
The shadow banking system comprises non-banking financial companies, investment banks, and hedge funds. These entities conduct credit intermediation and liquidity services outside traditional, regulated banking channels. Shadow banking entities do not have access to central bank liquidity or deposit insurance. The Financial Stability Board monitors shadow banking to assess systemic risk. Scheduled commercial banks are not part of the shadow banking system, as they operate under stricter regulation.
4. Which has the highest weightage in the Index of Industrial Production (IIP)?
[A] Electricity
[B] Steel Industry
[C] Refinery Products
[D] Coal
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Correct Answer: C [Refinery Products]
Notes:
Refinery products have the highest weightage of 28.04% in the Index of Industrial Production as per the IIP series with base year 2011-12. The Index of Industrial Production was first published in 1937. The IIP is calculated and released by the National Statistical Office, Ministry of Statistics and Programme Implementation, Government of India.
5. Consider the following statements regarding Narrow Banking:
- In Narrow Banking, banks primarily accept deposits and invest largely in safe, liquid assets such as government securities, while avoiding risky activities including proprietary trading and complex derivatives.
- Asset-Liability Mismatch is rare in Narrow Banking because the liabilities are aligned with the risk and maturity characteristics of the assets.
Which of the above statements is / are correct?
[A] Only 1
[B] Both 1 and 2
[C] Only 2
[D] Neither 1 nor 2
Show Answer
Correct Answer: B [Both 1 and 2]
Notes:
Statement 1 is correct because Narrow Banking limits banks to investing in liquid, safe assets, such as government securities, avoiding higher-risk strategies. Statement 2 is also correct since matching the maturity and risk of assets and liabilities reduces the possibility of asset-liability mismatches. Therefore, both statements correctly describe the essential features of Narrow Banking.
6. Which option defines ‘shares outstanding’ most accurately?
[A] Total shares authorized minus never issued shares
[B] Total issued shares minus treasury shares
[C] Shares held only by institutional investors and insiders
[D] All authorized shares sold to investors
Show Answer
Correct Answer: B [Total issued shares minus treasury shares]
Notes:
Shares outstanding equals total issued shares minus treasury shares. Treasury shares are shares repurchased by the company and held in its treasury. Shares outstanding are used in calculating market capitalization and earnings per share. Only shares held by external shareholders are considered outstanding. This figure changes when the company buys back or issues new shares.
7. Which of the following is the least preferred option by government for deficit financing?
[A] Printing of currency notes
[B] Loans from World bank and IMF
[C] Disinvestment of government holdings
[D] Open sale of government securities and bonds in market
Show Answer
Correct Answer: A [ Printing of currency notes ]
Notes:
Printing of currency creates a situation where too much money chases few goods and thus leads to condition of inflation. So; it is the last preferred option for government.
8. Which tool involves central banks signaling future interest rate intentions?
[A] Forward guidance
[B] Quantitative easing
[C] Open market operations
[D] Reserve requirements
Show Answer
Correct Answer: A [Forward guidance]
Notes:
Forward guidance was widely adopted after the 2008 global financial crisis. The Federal Reserve began explicit forward guidance in 2011. The European Central Bank used this tool in 2013. The Bank of Japan started using forward guidance in 2013. Forward guidance aims to influence market expectations about future monetary policy. It became prominent when policy rates approached zero, limiting conventional monetary tools.
9. The act of simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms is called _?
[A] Arbitrage
[B] Spot market
[C] Ambush marketing
[D] Futures market
Show Answer
Correct Answer: A [ Arbitrage ]
Notes:
Arbitrage is the process of simultaneous buying and selling of an asset from different platforms, exchanges or locations to cash in on the price difference. While getting into an arbitrage trade, the quantity of the underlying asset bought and sold should be the same. Only the price difference is captured as the net pay-off from the trade.
10. Which state in India is the largest producer of salt?
[A] Kerala
[B] Andhra Pradesh
[C] Gujarat
[D] Maharashtra
Show Answer
Correct Answer: C [Gujarat]
Notes:
Gujarat is the largest producer of salt in India because of its extensive dry coast. Gujarat accounts for 77% of the salt produced in our country. Salt industries of Gujarat are thriving in Surat, Kutch, Bhavnagar, Rajkot, Anand, etc.
