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.
11. Which action increases cash reserves of commercial banks by RBI?
[A] Release gold from its reserves
[B] Purchase government securities in open market operations
[C] Prohibit bills of exchange transactions
[D] Increase IMF tranche reserves
Show Answer
Correct Answer: B [Purchase government securities in open market operations]
Notes:
The Reserve Bank of India increases cash reserves of commercial banks by purchasing government securities through open market operations. When government securities are purchased, funds are transferred to commercial banks, raising their cash reserves. OMOs are used by the RBI as a monetary policy instrument to regulate liquidity and money supply. As of 2023, RBI actively uses OMOs to manage system liquidity.
12. How does currency devaluation help correct a Balance of Payments deficit?
[A] It lowers export prices in foreign currency and raises import prices in home currency
[B] It raises export prices in foreign currency and lowers import prices in home currency
[C] It raises prices of both exports and imports in foreign currency
[D] It lowers prices of both exports and imports in home currency
Show Answer
Correct Answer: A [It lowers export prices in foreign currency and raises import prices in home currency]
Notes:
Devaluation reduces the home currency’s value relative to foreign currencies, making exports cheaper for foreign buyers and imports costlier for domestic consumers. This increases export demand and decreases import demand. Higher exports and reduced imports support an improved current account balance. The Marshall-Lerner condition states devaluation is effective if demand elasticities for exports and imports combined exceed one.
13. Consider the following economic activities:
- Outsourcing of goods production to foreign countries
- Outsourcing of services to foreign countries
- Increase in domestic tourism spending
- Increase in foreign tourist arrivals
Which of the above activities would contribute to increasing the deficit in a country's current account?
[A] Only 1
[B] Only 1 and 2
[C] 1, 2 and 3
[D] 1, 2 and 4
Show Answer
Correct Answer: B [Only 1 and 2]
Notes:
Outsourcing goods and services to foreign countries (statements 1 and 2) increases payments made abroad, thereby worsening the current account deficit. Domestic tourism spending (3) does not affect the current account, as funds remain within the economy. Increase in foreign tourist arrivals (4) actually improves the current account by bringing foreign currency into the country.
14. What relationship does the Laffer Curve show between tax rates and tax revenue?
[A] Tax revenue increases continuously as tax rates rise
[B] Tax revenue increases then decreases after an optimal tax rate
[C] Tax revenue decreases continuously as tax rates rise
[D] Tax revenue remains constant at all tax rates
Show Answer
Correct Answer: B [Tax revenue increases then decreases after an optimal tax rate]
Notes:
The Laffer Curve was developed by economist Arthur Laffer in 1974. It illustrates that government tax revenue increases with higher tax rates up to a specific optimal point. Beyond this optimal rate, further increases in the tax rate lead to a decline in revenue due to reduced economic activity and shrinking tax base. The precise optimal rate is not fixed and varies by country and economy.
15. The negotiable instruments are passed freely from one party to another almost in the same way as money. To be negotiable, the letter of credit must include a / an:
[A] conditional promise to pay on demand or at a definite time
[B] unconditional promise to pay on demand or at an indefinite time
[C] unconditional promise to pay on demand or at a definite time
[D] conditional promise to pay on demand or at a indefinite time
Show Answer
Correct Answer: A [ conditional promise to pay on demand or at a definite time ]
Notes:
To be negotiable, the letter of credit must include an unconditional promise to pay on demand or at a definite time. The LC is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met. In it all parties deal in documents.
16. Imposing an Import quota helps in__:
- correcting unfavourable balance of payments
- improving balance of trade
- protecting domestic industries
- promoting exports
Select the correct option from the codes given below:
[A] Only 1 & 2
[B] Only 1 & 3
[C] Only 1, 2 & 3
[D] 1, 2, 3 & 4
Show Answer
Correct Answer: C [ Only 1, 2 & 3 ]
Notes:
An import restriction imposed on imported goods, to reduce the quantity of certain goods allowed into a country from a particular exporting country, in a stated period. The purpose may be to conserve foreign currency, if there is an unfavourable balance of payments, or to protect the home market against foreign competition (see protective duty). Quotas are usually enforced by means of import licenses.
17. If a company has “Trade Receivables”, this implies that __:
[A] It has made a sale but yet to collect payments
[B] It has received payments but yet to make a delivery
[C] It has received an order but yet to make delivery
[D] None of the above is a correct definition
Show Answer
Correct Answer: A [ It has made a sale but yet to collect payments ]
Notes:
If a company has receivables, this means it has made a sale but has yet to collect the money from the purchaser.
18. Which state is the largest silk producer in India?
[A] Karnataka
[B] Assam
[C] Kerala
[D] Andhra Pradesh
Show Answer
Correct Answer: A [Karnataka]
Notes:
Karnataka produced 13,278 tonnes of raw silk in 2024-25, the highest in India. The state has consistently led silk production, accounting for around one-third of the country’s total output annually. Major silk-producing districts in Karnataka include Mandya, Kolar, Chikkaballapur, and Ramanagara. The Central Silk Board reports Karnataka’s dominance in mulberry silk production nationwide for several years.
19. Which tax causes a burden on the poorer section of the society?
[A] Indirect Tax
[B] Direct Tax
[C] Both Direct and Indirect Tax
[D] None of these
Show Answer
Correct Answer: A [Indirect Tax]
Notes:
Indirect taxes make the distribution of income more unequal because of their regressive effects. The poor will get taxed a higher proportion of their income than the rich, making it a regressive tax.
20. Which one of the following schemes was intended to tap the black money? (UPSC Prelims 1992)
[A] UTI Bonds
[B] India Development Bonds
[C] Long term operations scheme
[D] SBI Deposit scheme
Show Answer
Correct Answer: B [India Development Bonds]
Notes:
India Development Bonds schemes was intended to tap the black money.
