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. Which defines fiduciary issue of currency notes?
[A] The portion of notes issued beyond metallic reserves, backed by trust or securities
[B] The issue of notes with metallic backing
[C] The issue of notes without any metallic backing
[D] The issue of notes with partial metallic backing
Show Answer
Correct Answer: A [The portion of notes issued beyond metallic reserves, backed by trust or securities]
Notes:
Fiduciary issue is the amount of currency notes issued in excess of gold or silver reserves, backed by government securities or public trust. The Bank Charter Act of 1844 introduced the fiduciary system in England, limiting note issue not fully backed by gold. Modern systems such as those used by the Reserve Bank of India also use the fiduciary issue principle.
3. In which of the following countries first Stock Exchange opened?
[A] Uk
[B] Netherlands
[C] USA
[D] India
Show Answer
Correct Answer: B [Netherlands]
Notes:
The first stock exchange was in the Netherlands when the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange
4. In which situation does investment increase?
[A] Increase in output and increase in capital stock
[B] Decrease in output and increase in capital stock
[C] Increase in output and decrease in capital stock
[D] Decrease in output and decrease in capital stock
Show Answer
Correct Answer: A [Increase in output and increase in capital stock]
Notes:
Investment rises when both output and capital stock increase. According to investment theory, higher output raises firms’ desired capital stock, and greater actual capital stock often results from increased investment activity. The investment function states that investment depends positively on output levels. Firms expand productive capacity by investing when higher output raises desired capital stock beyond the existing level.
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. In finance, what do Fixed to Floating and Floating to Floating refer to?
[A] Interest rates
[B] Swaps
[C] Foreign exchange rates
[D] Derivative contracts
Show Answer
Correct Answer: B [Swaps]
Notes:
Fixed to Floating and Floating to Floating describe interest rate swaps, which are derivative contracts exchanging fixed and floating interest payments. Interest rate swaps, including vanilla and basis swaps, are widely used for hedging and managing interest rate risk. Basis swaps exchange floating rates based on different benchmarks. These swaps play a major role in global financial markets and are commonly used by banks and corporations.
7. Which among the following agency is responsible for enforcement of Foreign Exchange Management Act 1999 and Prevention of money Laundering Act 2002 in India?
[A] Reserve Bank of India
[B] Department of Revenue
[C] Enforcement Directorate
[D] Income Tax Department
Show Answer
Correct Answer: C [Enforcement Directorate]
8. 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.
9. Which of the following bodies procures, distributes, exports and imports agricultural commodities?
[A] FCI
[B] NAFED
[C] NABARD
[D] All of them
Show Answer
Correct Answer: B [ NAFED ]
Notes:
NAFED is the apex body in cooperative sector and deals in procurement , distribution, export and import of selected agricultural commodities.
10. 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.
