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. An autonomous increase in expenditure should result in an increase in a country’s real GNP only if ?
[A] The country’s balance of trade is negative
[B] The country’s economy is working under conditions of less than full employment
[C] It is government expenditure
[D] The multiplier is at least 1.5
Show Answer
Correct Answer: B [The country’s economy is working under conditions of less than full employment]
Notes:
When the economy is working under conditions of less than full employment, the GDP gap is positive and the economy operates at less than potential. At this point, an increase in expenditure would result in an increase in a country’s real GNP.
2. Which fertilizer contains the highest percentage of nitrogen?
[A] Urea
[B] Ammonium nitrate
[C] Calcium nitrate
[D] Calcium ammonium nitrate
Show Answer
Correct Answer: A [Urea]
Notes:
Urea is a white crystalline solid containing about 46% nitrogen. Urea is widely used as a fertilizer and animal feed additive in agriculture. No other solid fertilizer has a higher nitrogen content than urea. Ammonium nitrate contains about 34% nitrogen, calcium ammonium nitrate about 26%, and calcium nitrate about 15.5% nitrogen.
3. Interest rate policy is a tool of which economic policy framework?
[A] Fiscal policy
[B] Industrial policy
[C] Trade policy
[D] Monetary policy
Show Answer
Correct Answer: D [Monetary policy]
Notes:
Monetary policy is conducted by central banks to control money supply and interest rates. In India, the Reserve Bank of India manages monetary policy under the Reserve Bank of India Act, 1934. Changing interest rates is a primary method to influence inflation and economic growth. The Monetary Policy Committee determines policy repo rates. Interest rate changes affect borrowing, spending, and inflation in the economy.
4. An investor or speculator who subscribes to a new issue with the intention of selling them soon after allotment to realize a quick profit is called?
[A] Stag
[B] Tall
[C] Bull
[D] Bear
Show Answer
Correct Answer: A [Stag]
Notes:
The term stag means a speculator who buys and sells stocks in short timeframes to make quick profits. The motove of stag is to make profit quickly on a fast moving trend, rather than buying and holding for the long run.
5. Which organization aids members in balance of payments problems?
[A] World Bank
[B] International Monetary Fund
[C] Asian Development Bank
[D] World Economic Forum
Show Answer
Correct Answer: B [International Monetary Fund]
Notes:
The International Monetary Fund was created in 1944 at the Bretton Woods Conference. Its main function is to provide temporary financial assistance to member countries facing balance of payments deficits. The IMF uses facilities like Stand-By Arrangements and Extended Fund Facility. Membership includes 190 countries as of 2023. The IMF also conducts economic surveillance and policy advice, but direct financial support for balance of payments stability is its core function.
6. Who among the following was the chairman of the expert committee which suggested “Consumption Expenditure” for identifying the BPL?
[A] Abhijit Sen
[B] C Rangrajan
[C] Kirit Parikh
[D] Suresh Tendulkar
Show Answer
Correct Answer: D [Suresh Tendulkar]
Notes:
The correct answer is Suresh Tendulkar. He chaired the expert committee set up by the Planning Commission of India in 2009, which recommended using “Consumption Expenditure” as a criterion for identifying Below Poverty Line (BPL) households. This approach aimed to provide a more accurate assessment of poverty by focusing on actual consumption rather than income, reflecting the living standards of households. The Tendulkar Committee’s recommendations have importantly influenced India’s poverty measurement and policy formulation.
7. In finance, what do Fixed to Floating and Floating to Floating refer to?
[A] Interest rates
[B] Swaps
[C] Foreign exchange rates
[D] Derivative contracts
Show Answer
Correct Answer: B [Swaps]
Notes:
Fixed to Floating and Floating to Floating describe interest rate swaps, which are derivative contracts exchanging fixed and floating interest payments. Interest rate swaps, including vanilla and basis swaps, are widely used for hedging and managing interest rate risk. Basis swaps exchange floating rates based on different benchmarks. These swaps play a major role in global financial markets and are commonly used by banks and corporations.
8. Which of the following Acts mandates the Ministry of Finance to present reports on budgetary trends to Parliament?
- Constitution of India
- Finance Acts of every year
- Fiscal Responsibility and Budget Management Act, 2003
- Order of President of India
Select the correct option from the codes given below:
[A] Only 1 & 2
[B] Only 3
[C] Only 2 & 3
[D] 1, 2 & 4
Show Answer
Correct Answer: B [Only 3]
Notes:
The Fiscal Responsibility and Budget Management Act, 2003 specifically mandates, under Section 7(1), periodic reporting by the Finance Ministry to Parliament on budget receipts and expenditures. The Constitution of India and the Finance Acts do not impose this requirement, nor does an Order of President make such reporting statutory for the Ministry of Finance.
9. Consider the following statements regarding Cash Management Bills (CMBs):
- Cash Management Bills are short-term money market instruments with maturity less than 91 days.
- Cash Management Bills are issued at a discount to face value and redeemed at face value upon maturity.
- Cash Management Bills are issued by the Reserve Bank of India on behalf of the Central Government.
- Cash Management Bills follow a fixed, pre-determined issuance schedule like Treasury Bills.
Which of the above statements is / are correct?
[A] Only 1 and 2 are correct
[B] Only 1, 2, and 3 are correct
[C] All are correct
[D] Only 2 and 3 are correct
Show Answer
Correct Answer: B [Only 1, 2, and 3 are correct]
Notes:
Statements 1, 2, and 3 are correct. Cash Management Bills (CMBs) are short-term securities with maturities less than 91 days, issued at a discount and redeemed at face value, by the RBI on behalf of the Central Government. Statement 4 is incorrect; unlike Treasury Bills, CMBs are issued as per requirement, not on a fixed schedule, enabling flexible management of government cash flows.
10. Which among the following is the primary difference between a free trade area and a customs union?
[A] members of a free trade area adopt a common set of barriers for trade between the members
[B] a free trade area is considered a trade bloc and a customs union is not
[C] members of a customs union adopt a common set of external trade barriers
[D] a free trade area can include parts of a country and a customs union includes entire countries
Show Answer
Correct Answer: C [ members of a customs union adopt a common set of external trade barriers ]
Notes:
The primary difference between a free trade area and a customs union is that members of a customs union adopt a common set of external trade barriers. In a free trade area, member countries eliminate tariffs among themselves but maintain their own external tariffs. Examples include NAFTA (now USMCA) as a free trade area and the European Union as a customs union, which has a unified external tariff policy.
