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 goods are consumed collectively by the community?
[A] Public Goods
[B] Consumer Goods
[C] Non-durable Goods
[D] Durable Goods
Show Answer
Correct Answer: A [Public Goods]
Notes:
Public goods are non-excludable and non-rivalrous commodities or services. They are made available to all members of society without direct payment. Examples include national defense, clean air, and street lighting. Governments usually fund public goods due to the free rider problem. Paul Samuelson formally defined public goods in 1954. Provision and maintenance typically rely on taxation and government administration.
2. Countervailing duty is imposed on which of the following?
[A] Imported goods benefiting from subsidies provided by the exporting country
[B] Exported goods
[C] Imported goods on which import subsidy is applicable
[D] Exported goods on which export subsidy is applicable
Show Answer
Correct Answer: A [Imported goods benefiting from subsidies provided by the exporting country]
Notes:
Countervailing duty is a trade remedy levied on imported goods when those goods receive subsidies in the exporting country. The purpose is to neutralize the unfair price advantage created by the subsidy and protect domestic producers from injury. Such duties are generally used after an investigation confirms the presence of subsidization and its impact on competing domestic industry. Therefore, the duty is imposed on subsidized imports, not on exports.
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. Consider the following statements about the Government Securities (G-sec) market in India:
- Speculation exists in the G-sec market, particularly through activities such as margin trading and short-term position trading.
- Institutional investors dominate the G-sec market, accounting for the majority of trading volume.
Which of the above statements is/are correct?
[A] Only 1 is correct
[B] Only 2 is correct
[C] Both 1 and 2 are correct
[D] Neither 1 nor 2 is correct
Show Answer
Correct Answer: C [Both 1 and 2 are correct]
Notes:
Both statements are correct. The G-sec market does witness speculative activities, including margin trading and short-term trades, often leading to price volatility. Furthermore, institutional investors such as banks, insurance companies, and pension funds are the predominant participants in the G-sec market, holding and trading most government securities for liquidity and investment purposes.
5. 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.
6. Which is NOT an anti-inflationary measure by the central bank?
[A] Raising the Bank Rates
[B] Raising Reserve Ratio Requirements
[C] Rationing of Credit
[D] Purchase of securities in Open Markets
Show Answer
Correct Answer: D [Purchase of securities in Open Markets]
Notes:
The Reserve Bank of India purchases government securities in open market operations to increase liquidity in the banking system. Increased liquidity leads to higher money supply in the economy. Higher money supply may lower interest rates and promote borrowing. This process is utilized to support economic growth and is considered an expansionary monetary policy. Open market purchase of securities is not used to control inflation.
7. 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.
8. In which of the following market forms a firm does not exercise control over price?
[A] Monopoly
[B] Mixed Competition
[C] Perfect competition
[D] Oligopoly
Show Answer
Correct Answer: C [Perfect competition]
Notes:
In economics, specifically general equilibrium theory, a perfect market is defined by several idealizing conditions, collectively called perfect competition.
9. What is an Indian Depository Receipt (IDR)?
[A] A deposit account with a public sector bank.
[B] A depository account with Indian depositories.
[C] An instrument in the form of a depository receipt.
[D] An instrument in the form of deposit receipt issued by Indian depositories.
Show Answer
Correct Answer: C [An instrument in the form of a depository receipt.]
Notes:
An Indian Depository Receipt (IDR) is a financial instrument denominated in Indian Rupees, issued by a domestic depository against the equity shares of a foreign company. IDRs are listed and traded on Indian stock exchanges. The concept was introduced under Section 605A of the Companies Act, 1956 and regulated by SEBI. The first IDR was issued by Standard Chartered PLC in 2010.
10. If capital stock is everlasting, what is the depreciation rate? (UPSC Prelims 1991)
[A] Zero
[B] High
[C] Low
[D] Infinite
Show Answer
Correct Answer: A [Zero]
Notes:
Everlasting capital stock does not lose value or efficiency, so the depreciation rate is zero as no part decreases in utility or worth over time.
