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. RBI conducts open market operations mainly in which market?
[A] Primary market only
[B] Secondary market only
[C] Both primary and secondary markets
[D] Gilt-edged market
Show Answer
Correct Answer: D [Gilt-edged market]
Notes:
The Reserve Bank of India conducts open market operations primarily in the gilt-edged market. Gilt-edged market refers to the market for government securities. RBI buys and sells government securities to regulate money supply. OMOs in India deal only with government securities, not private securities. Gilt-edged securities are considered low risk and are issued by the Government of India.
2. Which among the following imposes a greater burden (relative to resources) on the poor than on the rich ?
[A] Progressive tax
[B] Regressive Tax
[C] Lump Sum tax
[D] Proportional tax
Show Answer
Correct Answer: B [Regressive Tax]
Notes:
A regressive tax is the one in which tax rate decreases as the amount subject to taxation increases; and the tax rate progresses from high to low. The lowest amount is subject to higher taxation and this leads to individuals with low income bear the highest burden of regressive taxes. Such tax does not take into account the ability to pay.
3. Which is the primary unit under the Lead Bank Scheme for banking infrastructure?
[A] Town
[B] Village
[C] District
[D] Block
Show Answer
Correct Answer: C [District]
Notes:
The Lead Bank Scheme was introduced by the Reserve Bank of India in 1969. The scheme adopted a district-based approach for banking infrastructure development. Under this scheme, each district is allocated to a commercial bank, called the Lead Bank for the district. The scheme covers all districts in India except certain metropolitan cities and Union Territories.
4. Why are commercial banks called creators of money?
[A] Because they buy securities from the central government
[B] Because the loans they issue create new deposits
[C] Because they distribute existing money in the system
[D] Because they purchase investments from investors
Show Answer
Correct Answer: B [Because the loans they issue create new deposits]
Notes:
Commercial banks create money when issuing loans by crediting the borrower’s account with new deposits, thus increasing the money supply. This accounts for over 90% of money creation in modern economies, as seen in the period 2001-2020. The process operates under central bank monetary policies and reserve requirements. The bank records loans as assets and matching deposits as liabilities, expanding broad money aggregates such as M1 to M4 without needing prior cash deposits.
5. Economic growth is normally coupled with?
[A] Inflation
[B] Hyper Inflation
[C] Deflation
[D] Stagflation
Show Answer
Correct Answer: A [Inflation]
Notes:
Economic growth results in higher disposable income available with the consumers which increases the overall demand along with the supply available for the consumers. This increase in demand spurs inflation, which eventually becomes a necessary evil for a growing economy.
6. In context with the share markets in India, public issue refers to which of the following?
[A] first time issuance of shares of a company via stock exchange
[B] first time issuance of shares of a public company via stock exchange
[C] allotment of shares to 50 or more investors
[D] allotment of shares to public by 50% or more fraction of the total equity
Show Answer
Correct Answer: C [ allotment of shares to 50 or more investors ]
Notes:
The primary market issuance is done either through public issues or private placement. Under Companies Act, 1956, an issue is referred as public if it results in allotment of securities to 50 investors or more. However, when the issuer makes an issue of securities to a select group of persons not exceeding 49 and which is neither a rights issue nor a public issue it is called a private placement.
7. Which of the following are included in the Forex of India?
[A] Foreign Currency Assets
[B] SDRs
[C] Reserve Position in the IMF
[D] All of the above
Show Answer
Correct Answer: D [All of the above]
Notes:
The Foreign exchange reserves of India consists of below four categories: 1. Foreign Currency Assets 2. Gold 3. Special Drawing Rights (SDRs) 4. Reserve Tranche Position
8. What do we call the money that is lent for more than one day but less than 15 days in the call money market?
[A] Call Money
[B] Term Money
[C] Notice Money
[D] None of the above
Show Answer
Correct Answer: C [Notice Money]
Notes:
The money that is lent for more than one day and less than 15 days in the call money market is referred to as “Notice Money”. Term Money refers to Money lent for 15 days or more in the Inter Bank Market.
9. Which is a primary cause of inflation?
[A] Increase in money supply
[B] Fall in production
[C] Increase in money supply and fall in production
[D] Decrease in money supply and rise in production
Show Answer
Correct Answer: C [Increase in money supply and fall in production]
Notes:
Inflation is caused by an increase in the money supply and a decrease in production. Demand-pull inflation arises when the growth in money supply surpasses economic output. Cost-push inflation occurs with supply shocks or reduced production. Both factors together can increase the general price level. India has experienced inflation due to these sources in multiple years.
10. The standard of living of a nation is best judged by which metric?
[A] Increase in GNP per capita at factor cost
[B] Increase in GDP per capita (PPP)
[C] Human Development Index (HDI)
[D] Genuine Progress Indicator (GPI)
Show Answer
Correct Answer: C [Human Development Index (HDI)]
Notes:
The Human Development Index (HDI) was introduced in 1990 by the United Nations Development Programme. It combines three dimensions: life expectancy at birth, mean and expected years of schooling, and gross national income per capita adjusted for purchasing power parity. HDI is published annually in the Human Development Report covering most United Nations member countries.
