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 term refers to high inflation, slow growth, and high unemployment occurring together?
[A] Depression
[B] Stagflation
[C] Recession
[D] Reflation
Show Answer
Correct Answer: B [Stagflation]
Notes:
Stagflation refers to an economic situation where high inflation, stagnant economic growth, and elevated unemployment occur simultaneously. The term was coined in the 1960s. A notable period of stagflation happened during the 1970s oil crisis when global oil prices rose sharply. Policymakers find stagflation challenging because inflation and unemployment move in opposite directions to typical business cycles.
2. 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.
3. Which condition does not trigger RBI’s Prompt Corrective Action (PCA) for banks?
[A] High Non-Performing Assets (NPA)
[B] Low Capital Adequacy Ratio (CAR)
[C] Low Return on Assets (RoA)
[D] High Leverage Ratio
Show Answer
Correct Answer: D [High Leverage Ratio]
Notes:
The RBI’s PCA framework mandates intervention if a bank records net NPA above 6%, capital adequacy ratio below 9%, or negative return on assets for four years. PCA restrictions include halting dividend payments and branch expansion. A leverage ratio above 25 times Tier 1 capital also triggers PCA. Leverage ratio measures a bank’s core capital relative to its total assets and exposure.
4. Investment in which among the following is the Most Risk Free asset of a Bank as per the RBI guidelines?
[A] Housing Loans
[B] Government Approved Securities
[C] Venture Capital Investments
[D] Loans against Jewellery
Show Answer
Correct Answer: B [Government Approved Securities]
5. Round-tripping refers to which of the following practices?
[A] Policy to boost FDI
[B] Means of tax evasion
[C] Policy of export promotion
[D] Calculation of National Income
Show Answer
Correct Answer: B [Means of tax evasion]
Notes:
Round-tripping is the practice of moving domestic funds to foreign jurisdictions and then reinvesting them in the original country to evade taxes or regulatory restrictions. Round-tripping is commonly linked to misuse of tax havens. In 2008, round-tripping was estimated to cause a global tax revenue loss of $8 billion to $27 billion. This practice is illegal in several countries, including India.
6. According to FERA ,Foreign Exchange includes which of the following?
[A] Traveler’s Cheque
[B] Letters of Credit
[C] Bill of Exchange expressed or drawn in Indian Currency
[D] All of the above
Show Answer
Correct Answer: D [All of the above]
Notes:
According to FERA ,1973 Foreign Exchange means Foreign Currency, which includes: Any Draft Traveller’s Cheque Letters of Credit Bill of Exchange expressed in Indian Currency but payable in Foreign Currency
7. What does a decreasing agricultural sector share in GDP indicate for a country?
[A] The country is heading toward developed nation status
[B] The country is becoming a developing nation
[C] The country is becoming less developed
[D] Agricultural production has completely stopped
Show Answer
Correct Answer: A [The country is heading toward developed nation status]
Notes:
The agricultural sector’s GDP share typically declines as countries industrialize and modernize. In 2023, developed economies like the United States had agriculture contributing less than 1% to GDP. In developing nations, the sector’s share is higher—such as Kenya at around 33%. A falling agricultural share indicates structural transformation toward an industrial and service-based economy.
8. Who takes the decision regarding the saving and loan activities in a self Help Group (SHG)?
[A] Private Bank
[B] Reserve Bank of India
[C] Members of group
[D] Non Government Organizations
Show Answer
Correct Answer: C [Members of group]
Notes:
Self Help Groups (SHGs) are small groups of poor people. The members of an SHG face similar problems. They help each other, to solve their problems. SHGs promote small savings among their members.
9. Which industry employs the most workers in India?
[A] Jute
[B] Sugar
[C] Textiles
[D] Iron and Steel
Show Answer
Correct Answer: C [Textiles]
Notes:
The textile industry is the largest employer in India after agriculture. It directly employs about 45 million people as of 2023. Including allied sectors, total employment exceeds 100 million. The industry includes handlooms, powerlooms, spinning, and garment manufacturing. The Indian textile and apparel market was valued at USD 223 billion in 2021 and has significant export share globally.
10. Which of the following are part of Gross National Product(GNP)?
[A] Imports
[B] Exports
[C] Money earned by resident abroad
[D] All of the above
Show Answer
Correct Answer: D [All of the above]
Notes:
Gross National Product is the value of all finished goods and services owned by a country’s residents over a period of time.
GNP: GDP+ NR (Net receipts from abroad or inflows from abroad) – NP (Net payment outflow to foreign assets)
