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. India’s first Export Promotion Industrial park was opened in:
[A] Delhi
[B] Nagpur
[C] Jaipur
[D] Bangalore
Show Answer
Correct Answer: C [Jaipur]
Notes:
India’s first Export Promotion Industrial Park (EPIP) was opened in Jaipur. The EPIP in Rajasthan at Sitapura is complete. The park is the largest Export-Park in Northern India.
The EPIP scheme was implemented to create infrastructure for exports in specific locations. The parks have modern infrastructure to boost the export of commodities and services. Units in the EPIP must commit to exporting at least 33% of their production.
2. In context with the macroeconomics , Philips Curve is a relationship between the rates of ___?
[A] Unemployment & Exim trade
[B] Unemployment and Inflation
[C] Unemployment and Demand
[D] Unemployment and Poverty
Show Answer
Correct Answer: B [Unemployment and Inflation]
Notes:
Phillips curve developed by A. W. Phillips says that the inflation and unemployment have a stable and inverse relationship; which means that higher inflation is associated with lower unemployment and vice versa. However, later it was proved that this curve is applicable only in the short-run, and in long-run, inflationary policies would not decrease unemployment.
3. Which is NOT a source of government tax revenue?
[A] Excise taxes on gasoline and cigarettes
[B] Property taxes
[C] Customs duties and tariffs
[D] Fees and charges for government services
Show Answer
Correct Answer: D [Fees and charges for government services]
Notes:
Fees and charges for government services refer to user charges for specific services like public utilities, hospital fees, and tolls. These are not taxes, which are compulsory payments. Tax revenue sources include excise taxes, property taxes, and customs duties. User charges represent voluntary payments for direct services and are classified as non-tax revenue.
4. Which of the following statements best describes a progressive tax system?
[A] The tax rate decreases as the taxable amount increases
[B] The tax rate stays the same regardless of the taxable amount
[C] The tax rate increases as the taxable amount increases
[D] The tax rate is randomly determined
Show Answer
Correct Answer: C [The tax rate increases as the taxable amount increases]
Notes:
In a progressive tax system, higher income earners pay a higher tax rate compared to those who earn less. This is based on the assumption that individuals who earn more have the ability and the capacity to pay more taxes. Most income tax systems in the world are progressive, including the United States, Canada, and the United Kingdom.
5. Who benefits most from deflation in the short term?
[A] Salary earners with stable employment
[B] Pensioners with fixed incomes
[C] Equity holders
[D] Borrowers with long-term fixed-rate debt
Show Answer
Correct Answer: A [Salary earners with stable employment]
Notes:
Deflation increases the real value of money, allowing salary earners with stable employment to purchase more goods and services with unchanged nominal wages. Since their income remains steady while prices fall, their purchasing power temporarily rises. The Reserve Bank of India has identified deflation’s short-term impact on employed individuals as increased real wages due to price drops. Deflation generally reduces income for most others.
6. Which among the following is correct representation of the Money Multiplier?
[A] Ratio of Broad Money (M3) to Reserved Money (M0) i.e. M3/M0
[B] Ratio of Broad Money (M3) to Narrow Money (M1) i.e. M3/M1
[C] Ratio of Narrow Money (M1) to Broad Money (M3) i.e. M1/M3
[D] Ratio of Narrow Money (M1) to Reserved Money (M0) i.e. M1/M0
Show Answer
Correct Answer: A [Ratio of Broad Money (M3) to Reserved Money (M0) i.e. M3/M0]
Notes:
The correct representation of the Money Multiplier is the ratio of Broad Money (M3) to Reserved Money (M0), expressed as M3/M0. The Money Multiplier indicates how much money supply can increase based on the reserves held by banks. M0 represents the total of a country’s physical currency, while M3 includes all liquid or near-liquid assets. This relationship is crucial in understanding monetary policy and banking operations.
7. The minimum interest rate of a bank below which it is not viable to lend, is known as ____:
[A] Reserved Rate
[B] Base Rate
[C] Marginal Rate
[D] Prime Lending Rate
Show Answer
Correct Answer: B [Base Rate]
Notes:
The correct answer is “Base Rate.” The Base Rate is the minimum interest rate set by a bank for lending to its customers. It serves as a benchmark for various loans and is influenced by factors like the central bank’s policy rate and the bank’s cost of funds. The Base Rate ensures that banks cover their costs and maintain profitability while lending. In many countries, including India, the Base Rate is a crucial component of monetary policy and financial stability.
8. Which one of the following is NOT a sign of economic development?
[A] Changing structure of GDP in favour of industry
[B] Larger share of GDP coming from primary sector
[C] Larger capital inflows
[D] Institutional changes in an economy.
Show Answer
Correct Answer: C [ Larger capital inflows ]
Notes:
Larger capital inflows are not always sign of economic development.
9. What does the greenshoe option allow underwriters to do during an IPO?
[A] Sell up to 15% additional shares beyond the original offering
[B] Record investor demands and change IPO pricing
[C] Purchase shares back from investors at a discount
[D] None of the above
Show Answer
Correct Answer: A [Sell up to 15% additional shares beyond the original offering]
Notes:
The greenshoe option is an IPO underwriting clause first used by Green Shoe Manufacturing Company. It allows underwriters to sell up to 15% extra shares above the original IPO amount to support share price stability and meet demand. The Securities and Exchange Commission permits this clause. The option helps underwriters stabilize prices by covering over-allotted shares in the aftermarket.
10. Which was NOT a stipulated target in the FRBM Act, 2003?
[A] Elimination of revenue deficit
[B] Reduction of fiscal deficit to 3% of GDP
[C] Limiting government guarantees to 0.5% of GDP
[D] Complete elimination of primary deficit
Show Answer
Correct Answer: D [Complete elimination of primary deficit]
Notes:
The FRBM Act, 2003 mandated elimination of revenue deficit, reduction of fiscal deficit to 3% of GDP, and limitation of government guarantees. The Act did not stipulate complete elimination of the primary deficit as a statutory target. The focus was on fiscal and revenue deficit reduction. The 2018 amendment revised several targets but did not mandate elimination of the primary deficit as a statutory requirement.
