Economics MCQ

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Question 1
Which of the following committees defined poverty line for the first time in India?

A.    Y.K. Alagh Committee
B.    Lakdawala Committee
C.    Suresh Tendulkar Committee
D.    Rangarajan Committee


Answer : A

Explanation : Y K Alagh Committee

Till 1979, the approach to estimate poverty was traditional i.e. lack of income.  It was later decided to measure poverty precisely as starvation i.e. in terms of how much people eat. This approach was first of all adopted by the YK Alagh Committee’s recommendation in 1979 whereby, the people consuming less than 2100 calories in the urban areas or less than 2400 calories in the rural areas are poor.


Question 2
The term ‘Bad Bank’ refers to a bank:


A.    Facing liquidity crisis as a result of bad loans
B.    Dedicated towards financing the needs of the badly performing sectors of the economy
C.    That buys the bad loans of the other banks to free up their books for fresh lending
D.    That fails to meet its Cash Reserve Ratio obligations


Answer : C 

Explanation : Bad banks are set up to buy the bad loans and other illiquid holdings of another financial institution.

Critics of bad banks say that the option encourages banks to take undue risks, leading to moral hazard, knowing that poor decisions could lead to a bad bank bailout.

Examples of bad banks include Grant Street National Bank. Bad banks were also considered during the financial crisis of 2008 as a way to shore up private institutions with high levels of problematic assets.


Question 3

Which among the following is not an international agreement centered around Finance and Economic Cooperation?

A.  Abuja Treaty
B.  Cooperation Council for the Arab States of the Gulf
C.  Kyoto protocol
D.  None of the above


Answer : C

Explanation : The Kyoto Protocol is an international agreement that aimed to manage and reduce carbon dioxide emissions and greenhouse gases. The Protocol was adopted at a conference in Kyoto, Japan, in 1997 and became international law on February 16, 2005.


Question 4

‘Swiss Challenge Method’ sometimes seen in the news is related to:

A.    A process of giving contracts to private companies
B.    A method of imparting skill training to youth
C.    A method of social impact assessment
D.    A process of bringing behavioural changes to make government programs more effective

Answer : A

Explanation : Swiss challenge method is a process of giving contracts.Any person with credentials can submit a development proposal to the government. That proposal will be made online and a second person can give suggestions to improve and beat that proposal. It is a  form of public procurement, wherein a government invites bids for a public project, and then publishes the bid, before inviting competing counter proposals to either match or improve the initial proposal.


Question 5

The poverty estimates released by the Government of India is based on the data collected by

A.    Central Statistical Organisation
B.    NITI Aayog
C.    National Sample Survey Office
D.    Ministry of Rural development

Answer : C


Explanation : Poverty estimation in India is carried out by NITI Aayog’s task force through the calculation of poverty line based on the data captured by the National Sample Survey Office under the Ministry of Statistics and Programme Implementation (MOSPI). NITI Aayog as a policy think tank has replaced Planning Commission, which was earlier responsible for calculating the poverty line in India.


Question 6

The term ‘Economic Convergence’ refers to?

A.    Less developed countries growing faster than the higher income countries
B.    Reducing inequalities between the poor and the rich people
C.    A term used by World Bank to refer the impact of environmental degradation on growth
D.    None

Answer : A

Explanation : The idea of convergence in economics (also sometimes known as the catch-up effect) is the hypothesis that poorer economies' per capita incomes will tend to grow at faster rates than richer economies. As a result, all economies should eventually converge in terms of per capita income.

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Question 7

Deficit financing means that the government borrows money from the?

A.    Revenue Department
B.    World Bank
C.    RBI
D.    SBI

Answer : C

Explanation : Deficit financing means filling the gap between government revenue and government expenditure in a government budget either by borrowing funds from central bank which is Reserve Bank of India (RBI) in case of India or printing currency.


Question 8

Which of the following organisations publish the Gender Inequality Index?

A.    World Bank
B.    UNDP
C.    World Economic Forum
D.    IMF

Answer : B

Explanation : The Gender Inequality Index (GII) is an index for measurement of gender disparity that was introduced in the 2010 Human Development Report 20th anniversary edition by the United Nations Development Programme (UNDP). India is at 122 out of 162 countries. Neighbours China (39), Sri Lanka (86), Bhutan (99), Myanmar (106) were placed above India.


Question 9

The sum total of incomes received for the services of labour, land, capital in a country is called:

A.    Gross domestic income
B.    Gross domestic product
C.    Gross national income
D.    National income

Answer : A 

Explanation : The Gross Domestic Income (GDI) is the total income received by all sectors of an economy within a state. It includes the sum of all wages, profits, and taxes, minus subsidies. Since all income is derived from production (including the production of services), the gross domestic income of a country should exactly equal its gross domestic product (GDP).

Question 10

Which one of the following is the banker of the banks?

A.    Union bank of India
B.    Central bank of India
C.    RBI
D.    SBI

Answer : C 

Explanation : As the banker to banks, the Reserve Bank fulfills this role. Banks are required to maintain a portion of their demand and time liabilities as cash reserves with the Reserve Bank. For this purpose, they need to maintain accounts with the Reserve Bank.

Question 11

Voluntary National Reviews is related to?

A.    Implementation of Sustainable Development Goals
B.    Reforms in UN Security Council
C.    Implementation of the Kigali Agreement
D.    Implementation of the Paris Climate Agreement

Answer : A

Explanation : Voluntary National Review (VNR) is a process through which countries assess and present progress made in achieving the global goals and the pledge to leave no one behind. The purpose of VNRs is to present a snapshot of where the country stands in Sustainable Development Growth implementation, with a view to help accelerate progress through experience sharing, peer-learning, identifying gaps and good practices, and mobilizing partnerships.

Question 12

What are the General Anti Avoidance Rules (GAAR)?

A.    Set of rules curbing aggressive tax planning
B.    Set of rules curbing money laundering
C.    Set of rules curbing black money
D.    Set of rules for regulating investments by foreigners in India

Answer : A

Explanation : General Anti-avoidance Rule (GAAR) is a concept which generally empowers the Revenue Authority in a country to deny tax benefit of transactions or arrangements which do not have any commercial substance and the only purpose of such a transaction is achieving the tax benefit.

Question 13

Which one of the following departments is responsible for the preparation and presentation of the Economic Survey?

A.    Finance
B.    Revenue
C.    Expenditure
D.    Economic affairs

Answer : D

Explanation : The Economic Survey is prepared by the Economic Division of the Department of Economic Affairs in the Finance Ministry under the overall guidance of the Cheif Economic Adviser. After receiving inputs from the senior officers in the Ministry of Finance, the final version of the Economic Survey is scrutinized by the Finance Secretary and finally approved by the Union Finance Minister. Economic Survey is the flagship annual document of the Ministry of finance. It gives a detailed account of the various sectors of the economy and overall economic scenario of the country in the past years and provides an outline for the year ahead

It is important from UPSC / APSC perspective

Question 14

Logistics Performance Index is released by?

A.    IMF
B.    World Bank
C.    WTO
D.    World Economic Forum

Answer : B

Explanation : The Logistics Performance Index (LPI) is an interactive benchmarking tool created by the World Bank to help countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance. It is the weighted average of the country scores on six key dimensions: efficiency of the clearance process, quality of trade and transport related infrastructure, ease of arranging competitively priced shipments, competence and quality of logistics services, ability to track and trace consignments, timeliness of shipments in reaching destination within the scheduled or expected delivery time. This measure indicates the relative ease and efficiency with which products can be moved into and inside a country.

Question 15

Which among the following is not an Indirect Tax?

A.    Corporate Tax
B.    Service Tax
C.    Excise Duty
D.    Custom Duty

Answer : A 

Explanation : A corporate tax, also called corporation tax or company tax, is a direct tax imposed by a jurisdiction on the income or capital of corporations. Many countries impose such taxes at the national level, and a similar tax may be imposed at state or local levels

Question 16

Which of the body regulates Mutual Funds in India?

A.    RBI
B.    SEBI
D.    AMFI

Answer : B

Explanation : Mutual funds are regulated by the Securities and Exchange Board of India (SEBI). In 1996, SEBI formulated the Mutual Fund Regulation.

Question 17

World Investment Report is released by 

A.    World Bank 
B.    IMF 
C.    United Nations Conference on Trade and Development (UNCTAD)

Answer : C

Explanation : The World Investment Report focuses on trends in foreign direct investment (FDI) worldwide, at the regional and country levels and emerging measures to improve its contribution to development. The United States remains the largest recipient of FDI, attracting $251 billion in inflows, followed by China with flows of $140 billion and Singapore with $110 billion.

Question 18

Index of Industrial Production (IIP) is published by?

A.    National Sample Survey Organisation
B.    Central Statistical Organisation
C.    Department of Industrial Policy and Promotion
D.    Ministry of Commerce and Industries

Answer : B

Explanation : The Index of Industrial Production is an index for India which details out the growth of various sectors in an economy such as mineral mining, electricity and manufacturing. It is computed and published by the Central Statistical Organisation (CSO) on a monthly basis.

Question 19

Which among the following is the most volatile foreign capital?

A.    FDI
B.    Foreign Portfolio Investment (FPI)
C.    External commercial borrowings
D.    Loans from international financial institutions

Answer : B


Explanation : In economics, foreign portfolio investment is the entry of funds into a country where foreigners deposit money in a country's bank or make purchases in the country's stock and bond markets, sometimes for speculation.

A foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Foreign portfolio investment (FPI) instead refers to investments made in securities and other financial assets issued in another country. FDI is a long term capital while FPI is a short time capital.


Question 20

GDP is the:

A.    Total Value of final goods and services produced within the country in a year
B.    Total value of final goods and services produced by the nationals in a year
C.    Total value of final goods and services less depreciation
D.    None of the above

Answer : A

Explanation : The gross domestic product is the broad quantitative measure of economic activity. It is the measure of the market value of all final goods and services produced in a year inside the boundary of a country.

Question 21

Which statement is correct for nominal GDP

i. Nominal GDP is calculated based on current prices.
ii. Nominal GDP is calculated based on the base prices.
iii. Data on Nominal GDP shows an accurate picture of the economy as compared to real GDP.

A  Only ii, iii
B  Only ii
C  Only i
D  i, iii


Answer : C

Explanation : Nominal GDP is an assessment of economic production in an economy but includes the current prices of goods and services in its calculation. GDP is typically measured as the monetary value of goods and services produced. Nominal GDP is calculated on the basis of current prices. While real GDP is calculated on the base year prices and its data are more reliable or accurate as compared to Nominal GDP.

Question 22

The value of which work is added in the calculation of GDP?

A  Housewives' works
B  A teacher teaching his own child
C  The value of resale of old shares
D  Construction of new house by an artisan

Answer : D

Explanation : The value of the construction of a new house is added in the calculation of the GDP because it is a new production work in the economy. 
Please note that a product will only be counted in GDP one time in its life. So, current transactions involving assets and property produced in previous periods are not counted in the current GDP. As such resale of share is not included in the GDP because it is a mere transfer of ownership

Question 23

Which of the following departments formulates India’s FDI Policy?

A.    Department of Economic Affairs
B.    Department of Revenue
C.    Department of Finance
D.    Department of Industrial Policy and Promotion

Answer : D

Explanation : The Department of Industrial Policy & Promotion is the nodal Department for formulation of the policy of the Government on Foreign Direct Investment (FDI). It is also responsible for maintenance and management of data on inward FDI into India, based upon the remittances reported by the Reserve Bank of India.

Question 24

GINI Coefficient is a measure of?

A.    Income inequality
B.    Gender pay disparity
C.    Negative externalities
D.     Absolute poverty


Answer : A 

Explanation : The Gini coefficient is a single number aimed at measuring the degree of inequality in a distribution. It is most often used in economics to measure how far a country's wealth or income distribution deviates from a totally equal distribution

Question 25

Round Tripping is used as a:

A.    Policy to boost FDI in the economy
B.    Means of tax evasion
C.    Policy of export promotion
D.     Calculation of national income

Answer : B 

Explanation : Round tripping refers to money that leaves the country though various channels and makes its way back into the country often as foreign investment.In international scenarios, round tripping is used for tax evasion and money laundering.

Question 26

‘Predatory Pricing’ refers to

A.    The pricing of goods at such a high level that it exerts monopoly in the economy
B.    The practice of subsidising goods in the economy by the government reducing private sector participation
C.    The pricing of goods and services at high levels during peak demand levels
D.    The pricing of goods and services at such a low level that other firms being unable to compete are forced to leave the market

Answer : D 

Explanation : Predatory pricing is the illegal act of setting prices low in an attempt to eliminate the competition. Predatory pricing violates antitrust law, as it makes markets more vulnerable to a monopoly. 
Recently The Confederation of All India Traders (CAIT), a trade body representing brick-and-mortar retailers, has urged the Commerce and Finance Ministers to launch a probe into the deep discounting practices of e-commerce players like Amazon and Flipkart for ‘predatory pricing’. But do you think that deep discounts are same as predetory pricing 

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Question 27

The FOREX reserves in India is kept in the custody of?

A.    RBI
B.    EXIM Bank
C.    Ministry of Finance
D.    Select Public Sector Banks

Answer : A


Explanation : Foreign Exchange Reserves (also called Forex Reserves) are assets held by Central Banks and monetary authorities, in different reserve currencies, mostly the US dollar, and to a lesser extent the euro. 
In India, the Reserve Bank of India Act 1934 contains the enabling provisions for the RBI to act as the custodian of foreign reserves

India's total foreign exchange (Forex) reserves stand at around US$545.038 Billion on 18 September 2020. China currently has the highest Forex Reserves in the world

Question 28

The percentage of bank deposits which banks have to keep with the RBI is called

A.    Statutory liquidity ratio
B.    Cash reserve ratio
C.    Capital adequacy ratio
D.    CASA ratio

Answer : B 


Explanation : Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank (RBI for India)
The aim here is to ensure that banks do not run out of cash to meet the payment demands of their depositors. CRR is a crucial monetary policy tool and is used for controlling money supply in an economy.

Current CRR is 4% - this means that the banks will have to keep Rs 4 with the RBI whenever bank deposits increase by Rs 100

Question 29

What is the share of Government in NABARD?

A.    51%
B.    49%
C.    74%
D.    99%

Answer : D

Explanation : Post selling of its share by RBI, Government of India now holds 99% share in NABARD

Question 30

Maximum share in total external debt of India is that of

A.    Long term borrowings
B.    Short term borrowings
C.    Medium term borrowings
D.    Ultra long term borrowings

Answer : A

Explanation : At end-March 2020, India’s external debt was placed at US$ 558.5 billion, recording an increase of US$ 15.4 billion over its level at end-March 2019. At end-March 2020, long-term debt (with original maturity of above one year) was placed at US$ 451.7 billion, recording an increase of US$ 17.0 billion over its level at end-March 2019.


Source -

Question 31

What is the Capital Adequacy Ratio for a new bank applying for a license in India, as per the draft RBI guidelines

A.    13%
B.    10%
C.    11%
D.    12%

Answer : A

Explanation : The bank shall be required to maintain a minimum capital adequacy ratio of 13 per cent of its risk weighted assets (RWA) for a minimum period of 3 years after the commencement of its operations subject to any higher percentage as may be prescribed by RBI from time to time.


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Question 32

National Small Savings Fund is a part of

A.    Consolidated Fund of India
B.    Public Account of India
C.    PM’s Relief Fund
D.    Contingency Fund of India

Answer : B 

Explanation : National Small Savings Fund (NSFF) is a part of the Public account of India and set up in 1999. According to the economists, the public account, of which the NSSF is the major component, funds one-third of the central government’s fiscal deficit once off-budget expenditures are included.

Question 33

‘Retrospective Taxation’ refers to?

A.    A tax system in which tax rates reduces as income increases
B.    A tax law that takes effect from a date before it is passed
C.    A tax levied on activities that generate negative externalities
D.    A tax levied on black market activities

Answer : B

Explanation : Recently in news due to the Vodafone Case

‘Retrospective’ means ‘looking back over the past’. Retrospective tax is nothing but a combination of two words “retrospective” and “tax” where “retrospective” means taking effect from a date in the past and “tax” refers to a new or additional levy of tax on a specified transaction. In simple words it allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the law is passed.

Till date one of the major and most controversial retrospective amendment carried out was bringing indirect transfer under tax bracket by Finance Act 2012. This is connected to the famous Vodafone case where they were imposed a retrospective tax demand due to a 2007 purchase of 67% stake in Hutchison Whampoa for $11 billion by Vodafone. 

However in September 2020, in a unanimous decision, the Permanent Court of Arbitration at The Hague ruled that India’s retrospective demand of Rs 22,100 crore as capital gains and withholding tax imposed on Vodafone for a 2007 deal was “in breach of the guarantee of fair and equitable treatment”. The court has also asked India not to pursue the tax demand any more against Vodafone Group.


Additional read -

Question 34

For measuring Headline Inflation which of the following price index is considered?

A.    CPI
B.    WPI
C.    CPI Agricultural Labour
D.    CPI Industrial Workers

Answer : A

Explanation : Headline inflation is the raw inflation figure reported through the Consumer Price Index (CPI). The percentage change in CPI over a period of time gives the amount of inflation over that specific period, i.e. the increase in prices of a representative basket of goods consumed.

CPI is a comprehensive measure used for estimation of price changes in a basket of goods and services  such as transportation, food, and medical care etc

Question 35

Which of the following is a qualitative tool of monetary policy?

A.    Repo rate
B.    Cash reserve ratio
C.    Moral Suasion
D.    Statutory Liquidity ratio

Answer : C

Explanation : The instruments of Monetary Policy can be qualitative or quantitative in nature:
Quantitative instruments influence the money volume and Credit supply in the system. These include variations in reserve ratio requirements, bank rate and Open Market Operations.
The Qualitative Instruments are also known as the Selective Tools of monetary policy. These tools are not directed towards the quality of credit or the use of the credit. They are used for discriminating between different uses of credit.qualitative instruments are: credit rationing, moral suasion and direct action (by RBI on banks).