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 is the Bank Rate in relation to RBI and commercial banks?
[A] RBI lends long-term loans to banks without requiring collateral or repurchase agreement
[B] RBI lends short-term loans to banks with government securities as collateral
[C] Commercial banks lend to customers
[D] Banks borrow overnight funds from RBI
Show Answer
Correct Answer: A [RBI lends long-term loans to banks without requiring collateral or repurchase agreement]
Notes:
The Bank Rate is the interest rate at which the Reserve Bank of India lends long-term funds to commercial banks without any collateral or repurchase agreement. The RBI notifies the Bank Rate, and it is generally above the Repo Rate. The Bank Rate has been used by RBI since the Reserve Bank of India Act, 1934, to manage liquidity and regulate money supply.
2. In context with the currency management in India the responsibility for coinage vests with which of the following?
[A] Government of India
[B] Reserve Bank of India
[C] Currency Chests
[D] Commercial Banks
Show Answer
Correct Answer: A [Government of India]
Notes:
Government of India on the basis of the Coinage Act, 1906
3. Which tool is used for sterilization during foreign capital inflows to control inflation?
[A] Filtering undeclared foreign assets
[B] Selling government securities in the open market
[C] Imposing restrictions on foreign exchange trading
[D] Allowing currency to appreciate freely
Show Answer
Correct Answer: B [Selling government securities in the open market]
Notes:
Sterilization involves central banks selling government securities in the open market to absorb liquidity created by foreign capital inflows. The Reserve Bank of India uses open market operations for this purpose. By selling government securities, the central bank withdraws excess rupee liquidity from the banking system. This method helps limit the expansion of the money supply and manage inflationary pressures resulting from increased foreign exchange reserves.
4. Pump priming mainly deals with which of the following?
[A] Increased government expenditure during recession
[B] Decreased government expenditure during recession
[C] Increased government income during recession
[D] Decreased government income during recession
Show Answer
Correct Answer: A [Increased government expenditure during recession]
Notes:
Pump priming refers to the collective measures taken by the governments during recession to simulate the economy during recession. This is done usually by cutting the taxes and increased public spending.
5. Which among the following is used for a situation of “Too much money chasing too few goods?
[A] Demand Pull Inflation
[B] Cost pull inflation
[C] Stagflation
[D] Hyperinflation
Show Answer
Correct Answer: A [Demand Pull Inflation]
Notes:
Demand-pull inflation refers to the inflation from rapid growth in aggregate demand and when excess demand causes ‘too much money chasing too few goods.’ This generally happens when an economy is growing at a faster rate.
6. Which tool absorbs excess liquidity from banks most effectively?
[A] Repo Rate
[B] Cash Reserve Ratio (CRR)
[C] Prime Lending Rate
[D] Statutory Liquidity Ratio (SLR)
Show Answer
Correct Answer: B [Cash Reserve Ratio (CRR)]
Notes:
The Reserve Bank of India uses the Cash Reserve Ratio under the Reserve Bank of India Act, 1934. CRR is the percentage of total deposits that banks must keep as reserves with RBI in cash only. An increase in CRR immediately reduces available funds for banks to lend. RBI reviews and announces CRR regularly in its monetary policy statements.
7. Miadi Hundi is similar to which financial instrument?
[A] A post-dated Cheque
[B] A demand Draft
[C] A usance Bill of Exchange
[D] A Promissory Note
Show Answer
Correct Answer: C [A usance Bill of Exchange]
Notes:
Miadi Hundi, also known as Muddati Hundi, is payable after a specified period. A usance bill of exchange is a negotiable instrument also payable after a certain period, not on demand. Unlike Darshani Hundi, which is payable at sight, Miadi Hundi and usance bills both provide deferred payment terms for commercial transactions.
8. Who regulates foreign bank accounts and remittances by Indian residents?
[A] Ministry of External Affairs
[B] Ministry of Finance
[C] Ministry of Overseas Indians
[D] Reserve Bank of India
Show Answer
Correct Answer: D [Reserve Bank of India]
Notes:
The Reserve Bank of India regulates foreign currency accounts and remittances for Indian residents. RBI acts under the Foreign Exchange Management Act, 1999 and the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015. Amendments until 2025 empower RBI to set conditions for outward and inward remittance and opening of overseas bank accounts. RBI issues notifications for compliance with FEMA rules.
9. Which state ranked first in India’s 2019 ease of doing business assessment?
[A] Gujarat
[B] Uttar Pradesh
[C] Telangana
[D] Andhra Pradesh
Show Answer
Correct Answer: D [Andhra Pradesh]
Notes:
Andhra Pradesh secured the top position in the Business Reforms Action Plan (BRAP) 2019 assessment for ease of doing business in India. The assessment was conducted jointly by the Department for Promotion of Industry and Internal Trade and the World Bank. Andhra Pradesh implemented 100% of the reforms suggested under BRAP 2019. This ranking was released in September 2020.
10. How has the World Bank recently classified India’s economy?
[A] Low-income economy
[B] High-income economy
[C] Upper-middle-income economy
[D] Lower-middle-income economy
Show Answer
Correct Answer: D [Lower-middle-income economy]
Notes:
In the World Bank’s 2024 income classification, India is designated as a lower-middle-income economy. The Atlas method sets lower-middle-income as those with a GNI per capita between $1,136 and $4,495 for fiscal year 2026. India’s latest GNI per capita falls within this range according to World Bank data released in July 2024.
