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. A new private bank in India is established under which act?
[A] Banking Regulation Act 1949
[B] Companies Act 2013
[C] RBI Act 1934
[D] Banking Companies (Acquisition and Transfer) Act 1970
Show Answer
Correct Answer: B [Companies Act 2013]
Notes:
In India, a new private bank is legally incorporated under the Companies Act 2013 as a banking company. The Companies Act 2013 governs formation, registration, and operation of companies in India. Banks must first be incorporated as companies before applying for a banking license from the Reserve Bank of India. The Companies Act 2013 replaced the Companies Act 1956.
3. Which of the following are instruments of monetary policy?
- Bank Rate Policy
- Reserve Ratio Requirements
- Liquidity Adjustment Facility
- Open Market Operations
Select the correct option from the codes given below:
[A] Only 1, 2 & 3
[B] Only 2, 3 & 4
[C] Only 1, 2 & 4
[D] 1, 2, 3 & 4
Show Answer
Correct Answer: D [1, 2, 3 & 4]
Notes:
Bank Rate Policy, Reserve Ratio Requirements, Liquidity Adjustment Facility, and Open Market Operations are all principal monetary policy instruments used by central banks including RBI. They regulate money supply, liquidity, and interest rates in the economy. Each plays a specific role in achieving monetary stability and economic objectives as part of monetary policy operations.
4. Which among the following phrases generally denotes National Income?
[A] Gross National Product at Market Prices
[B] Net National Product at Market Prices
[C] Gross National Product at Factor Cost
[D] Net National Product at Factor Cost
Show Answer
Correct Answer: D [Net National Product at Factor Cost]
Notes:
Net National Product at Factor Cost generally denotes National Income.
5. What is dematerialization of securities in financial markets?
[A] The shortening of debt repayment periods on bonds
[B] Repurchase of outstanding shares by a company
[C] Conversion of physical share certificates into electronic format
[D] Prevention of share prices from falling below a minimum
Show Answer
Correct Answer: C [Conversion of physical share certificates into electronic format]
Notes:
Dematerialization converts physical securities into electronic format held in demat accounts. In India, this process is regulated by SEBI. Compulsory dematerialization for listed companies began in 1996 and for private companies from October 27, 2023. Investors must open demat accounts with SEBI-registered Depository Participants. Dematerialization reduces risks related to theft and forgery and enables faster settlements.
6. 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.
7. In economy, which among the following can be measured by calculating concentration ratios?
[A] Devlopment
[B] Inflation
[C] Competition
[D] Social Security
Show Answer
Correct Answer: C [Competition]
Notes:
Competition is generally measured by calculating concentration ratios. Concentration ratios indicate whether an industry consists of a few large firms or many small firms. Two of the most commonly used metrics are the Herfindahl Hirschman Index (HHI) and the N-firm concentration ratio.
8. Consider the following statements regarding Exchange Earners’ Foreign Currency (EEFC) Accounts:
- They are opened with the Reserve Bank of India (RBI)
- They earn interest on deposits
- They need a minimum balance to be maintained by the account holder
- They are non-interest bearing current accounts opened with authorized dealer banks
Which of the above statements is / are correct?
[A] Only 1
[B] 1 and 2
[C] Only 4
[D] 2 and 3
Show Answer
Correct Answer: C [Only 4]
Notes:
EEFC accounts are non-interest bearing current accounts maintained by authorized dealer (Category-I) banks following RBI regulations. These do not earn interest and require no minimum balance. Such accounts are not held directly with RBI but through authorized dealers. Therefore, only statement 4 is correct as per current RBI rules.
9. Which term refers to the maximum capital a company can raise in its lifetime?
[A] Authorized Capital
[B] Registered Capital
[C] Nominal Capital
[D] All of the above
Show Answer
Correct Answer: D [All of the above]
Notes:
Authorized capital is the maximum share capital stated in a company’s Memorandum of Association. Registered capital and nominal capital are alternate terms for authorized capital. This ceiling cannot be exceeded without shareholder approval and modification in company documents as per the Companies Act, 2013.
10. What are the primary motives behind countries depreciating their currencies?
[A] To maintain dominance in export markets only
[B] To address trade imbalances and manage foreign currency debt
[C] To increase capital inflows and reduce inflation
[D] To boost domestic wages and employment
Show Answer
Correct Answer: B [To address trade imbalances and manage foreign currency debt]
Notes:
Currency depreciation makes exports cheaper and imports costlier, reducing trade deficits. Many developing countries use depreciation to ease repayment burdens of foreign currency debt. The Asian Financial Crisis of 1997 saw multiple countries devalue currencies to manage debt. Currency devaluation has been used by China and Argentina to address trade imbalances. Such policies are often monitored by the International Monetary Fund.
