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. Which among the following is a correct definition of Dollarization?
[A] when the inhabitants of a country use US dollars in parallel to or instead of the domestic currency
[B] when the inhabitants of a country use only US Dollars instead of a domestic currency
[C] when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency
[D] None of the above
Show Answer
Correct Answer: C [when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency]
Notes:
when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency, The term is not only applied to usage of the United States dollar, but generally to the use of any foreign currency as the national currency.
2. In which year India launched Targeted Public Distribution System ?
[A] 1995
[B] 1996
[C] 1997
[D] 1998
Show Answer
Correct Answer: C [1997]
Notes:
The Targeted Public Distribution System (TPDS) replaced the erstwhile PDS from June 1997. Under the new system a two tier subsidized pricing system was introduced to benefit the poor.
3. 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.
4. What is the main reason companies issue sweat equity shares?
[A] To provide more profits to retail investors
[B] To reduce cash flow requirements for compensation
[C] To retain and attract top talent via ownership stakes
[D] To save taxes on employee compensation
Show Answer
Correct Answer: C [To retain and attract top talent via ownership stakes]
Notes:
Sweat equity shares are offered to employees or directors for their work or know-how, as per Section 54 of the Companies Act, 2013. Such shares are issued to retain and attract skilled personnel by granting ownership stakes without immediate cash outflow. SEBI regulates sweat equity issuance for listed companies. Companies often use sweat equity during initial stages to incentivize and retain employees without cash expenditure.
5. What happens to bank product prices during an inflationary trend?
[A] Increasing Trend
[B] Decreasing Trend
[C] Constant Trend
[D] No clear trend
Show Answer
Correct Answer: A [Increasing Trend]
Notes:
During inflation, central banks often raise policy rates, causing banks to increase loan and deposit rates. Higher inflation causes nominal lending and deposit rates to be repriced upwards. In 2023, the Reserve Bank of India increased repo rates in response to inflation, leading to higher lending rates in the Indian banking sector.
6. What relationship does the Laffer Curve show between tax rates and tax revenue?
[A] Tax revenue increases continuously as tax rates rise
[B] Tax revenue increases then decreases after an optimal tax rate
[C] Tax revenue decreases continuously as tax rates rise
[D] Tax revenue remains constant at all tax rates
Show Answer
Correct Answer: B [Tax revenue increases then decreases after an optimal tax rate]
Notes:
The Laffer Curve was developed by economist Arthur Laffer in 1974. It illustrates that government tax revenue increases with higher tax rates up to a specific optimal point. Beyond this optimal rate, further increases in the tax rate lead to a decline in revenue due to reduced economic activity and shrinking tax base. The precise optimal rate is not fixed and varies by country and economy.
7. Consider the following statements regarding the classification of government expenditure in India prior to 2017-18:
- Subsidies were classified under non-plan expenditures of the government.
- Interest payments and debt servicing were classified under non-plan expenditures of the government.
- Defence expenditures were classified under non-plan expenditures of the government.
Which of the above statements is/are correct?
[A] Only 1
[B] 1 and 2 only
[C] 2 and 3 only
[D] 1, 2 and 3
Show Answer
Correct Answer: D [1, 2 and 3]
Notes:
All three statements are correct. Before 2017-18, the government’s non-plan expenditure included subsidies, interest payments and debt servicing, and defence expenditures. Non-plan expenditures covered routine and obligatory expenses such as salaries, pensions, subsidies, interest, defence outlays, and grants. From 2017-18 onward, the classification was replaced by Revenue and Capital expenditure categories.
8. The Financial Action Task Force (FATF) is an initiative of:
[A] SAARC
[B] IMF
[C] BRICS
[D] G7 countries
Show Answer
Correct Answer: D [ G7 countries ]
Notes:
The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Member of G7. The FATF has developed a series of Recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction. Group of 7 (G7) is a group consisting of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
9. What is India’s current global ranking in cotton production?
[A] First
[B] Second
[C] Third
[D] Fourth
Show Answer
Correct Answer: B [Second]
Notes:
In 2025, India ranks second worldwide in cotton production, producing about 5.1 million tonnes. China ranks first with 7.5 million tonnes. India accounts for 20% of world cotton production and leads in total cotton cultivation area, covering 38% of the world’s cotton-growing land. The expected output for 2025-26 in India is around 23.5-24.5 million bales.
10. Which of the following countries doesn’t matches to its famous tourist place?
[A] China – Great Wall of China
[B] Bhutan – Paro Taktsang
[C] Nepal – Pashupatinath Temple
[D] Sri Lanka – Padmanabhaswamy Temple
Show Answer
Correct Answer: D [Sri Lanka – Padmanabhaswamy Temple]
Notes:
Padmanabhaswamy Temple is located in Thiruvananthapuram, Kerala, India. The temple is built in an intricate fusion of the indigenous Kerala style and the Tamil style of architecture.
