Chapter 6

1. The concept of 'resident unit' involved in the definition of GDP denotes

a) A business enterprise which belongs to a citizen of India with production units solely
situated in India
b) The unit having predominant economic interest territory in the country for one year or
more irrespective of the nationality or legal status
c) A citizen household which had been living in India during the accounting year and one
whose economic interests are solely in India
d) Households and business enterprises composed of citizens of India alone living in during
the accounting year India

2. Read the following statements and answer the following questions.

I. Intermediate consumption consists of the value of the goods consumed and services as
inputs by a process of production,
II. Intermediate consumption excludes fixed assets whose consumption is recorded as
consumption of fixed capital

a) Only I is true
b) Both I and II are true
c) Only Il is true
d) Neither I nor II is true

3. Non-economic activities are

a) those activities whose value is excluded from national income calculation as it will involve
double counting
b) those which produce goods and services, but since these are not exchanged in a market
transaction they market do not command any value
c) those which do not involve production of goods and services as they are meant to provide
hobbies activities and leisure time
d) those which result in production for self therefore consumption not included national
income calculation and in

4. Which of the following does not enter into the calculation of national income?
a) Exchange of previously produced goods
b) Exchange of second hand goods
c) Exchange of stocks and bonds
d) All the above
5. Read the following statements
I. 'Value added' refers to the difference between value of output and purchase of intermediate
goods.
II. 'Value added' represents the contribution of labour and capital to the production process.

a) Statement I and II are incorrect

b) Statement I and II are correct
c) Statement I is correct and II is incorrect
d) Statement II is correct and I is incorrect

6. Gross Domestic Product (GDP) of any nation

a) excludes capital consumption and intermediate consumption
b) is inclusive of capital consumption or depreciation
c) is inclusive of indirect taxes but excludes subsidies
d) None of the above

7. Which of the following enters into the calculation of national income?

a) The value of the services that accompany the sale
b) Additions to inventory stocks of final goods and materials
c) Stocks and bonds sold during the current year
d) (a) and (b) above

8. Gross National Product market prices GNP MP is at

a) GDP MP + Net Factor Income from Abroad
b) GDP MP - Net Factor Income from Abroad
c) GDP MP - Depreciation
d) GDP MP + Net Indirect Taxes

9. Choose the correct statement

a) GNP includes earnings of Indian corporations overseas and Indian residents working
overseas, but GDP does not include these
b) NNPFC = National Income = FID income (factor earned domestic territory) - NFIA
c) Capital goods and inventory Investment are excluded from computation of GDP
d) NDPMP = GDPMP + Depreciation

10. The basis of distinction between market price and factor cost is
a) net factor income from abroad
b) net indirect taxes (i.e., Indirect taxes - Subsidies)
c) net indirect taxes (i.e., Indirect taxes + Subsidies)
d) depreciation (consumption of fixed capital)
11. If factor income from abroad is positive, then
a) national income will be greater than domestic factor incomes.
b) national income will be less than domestic factor incomes.
c) net exports will be negative
d) domestic factor incomes will be greater than national income

12. The GDP per capita is

a) a measure of a country's economic output per person
b) actual current income receipts of persons
c) national income population divided by
d) (a)and (c) above

13. Which of the following is an example of transfer payment?

a) Old age pensions and family pensions
b) Scholarships given to deserving diligent students.
c) Compensation given for loss of property due to floods
d) All the above

14. Mixed income of the self-employed means

a) net profits received by self-employed people
b) outside wages received by self- employed people
c) combined factor payments which are not distinguishable,
d) wages due to non-economic activities

15. Which of the following is added to national income while calculating personal income?
a) Transfer payments to individuals
b) Undistributed corporate profits
c) Transfer payments made to foreigners
d) Mixed income of self employed

16. National Income Accounting was pioneered by _______________.

(a) Simon Kuznets
(b)Simon Kuznets and Richard Stone
(c) Simon Kuznets, Richard Stone, and Adam Smith
(d) None of these

17. Which of the following ministries is responsible in India for the compilation of National Accounts
Statistics?
(a) Ministry of Commerce & Industry
(b) Ministry of Social Affairs
(c) Ministry of Finance
(d) Ministry of Statistics and Program Implementation
18. __________ is the value of all final goods and services produced in the country within a given period.
a) GDPmp
b) GNPmp
c) NDPfc
d) NNPfc

19. Real GDP increase over time due to the following reason/s:
a) Increase in production of goods
b) Increase in the prices of goods
c) Both a & b
d) None of the above

20. _____________ is a price index that is calculated by dividing the nominal GDP in a given year by the
real GDP for the same year and multiplying it by 100
(a) GDP Deflator
(b) GDP Inflator
(c) GDP Velocity
(d) GDP Accelerator

21. GDP at Current Prices means ____________.

(a) Nominal GDP
(b) Real GDP
(c) GDP at constant prices
(d) None of these

22. GDP Deflator is a price index used to convert ___________.

(a) Nominal GDP to Real GDP
(b) Nominal GDP to National GDP
(c) Real GDP to National GDP
(d) Nominal GDP in percentage

23. What is Real GDP if Nominal GDP is Rs. 5,75,000 and GDP Deflator is 143.75.
(a) Rs. 4,00,000
(b) Rs. 8,26,563
(c) Rs. 1,25,000
(d) None of these

24. Since nominal GDP and real GDP must be the same in the base year, the deflator for the base year
is
(a) Always Zero
(b) Always 100
(c) Always Equal to Nominal GDP
(d) Always Equal to Real GDP
25. If the GDP deflator is greater than 100, then-
(a) Nominal GDP = Real GDP
(b) Nominal GDP > Real GDP
(c) Nominal GDP < Real GDP
(d) Nominal GDP 2 Real GDP

26. _____ is a measure of the market value of all final economic goods and services, produced within
the domestic territory of a country by normal residents during an accounting year including net
factor incomes from abroad
a) GDPmp
b) NDFfc
c) GNPmp
d) NNPmp

27. Choose the correct statement.

(a) GNP includes earnings of Indian corporations overseas and Indian residents working overseas,
but GDP does not include these
(b) NNPFC = National Income = FID (factor income earned in the domestic territory) - NFIA.
(c) Capital goods and inventory investment are excluded from the computation of GDP
(d) NDPMP = GDPMP + Depreciation

28. Which of the following is correct?

(a) NNPMP = GNPMP - Depreciation.
(b) NNPMP = NDPMP + Net factor Income from abroad.
(c) NNPMP = GDPMP + Net factor Income from abroad - Depreciation.
(d) All of the above.

29. Mixed income of the self-employed means

(a) Net profits received by self-employed people
(b) Outside wages received by self-employed people
(C) Combined factor payments which are not distinguishable
(d) Wages due to non-economic activities

30. If net factor income from abroad is positive, then:

(a) national income will be greater than domestic factor incomes.
(b) national income will be less than domestic factor incomes.
(c) net exports will be negative
(d) domestic factor incomes will be greater than national income
31. _____ is a measure of the market value of all final economic goods and services, produced within
the domestic territory of a country by normal residents during an accounting year including net
factor incomes from abroad & excluding Depreciation
a) GDPmp
b) NDFfc
c) GNPmp
d) NNPmp

32. Which of the following is alternately known as the National Income?

(a) Gross National Product at factor Cost
(b) Net National Product at Market Price
(c) Gross National Product at Market Price
(d) Net National Product at Factor Cost

33. What is the formula for computing Operating Surplus?

(a) Gross Value added at Factor Cost - Compensation of Employees Depreciation
(b) Gross Value Added at Factor Cost + Compensation of Employees + Depreciation
(c) Gross Value Added at Market Price Compensation of Employees
(d) Gross Value Added at Factor Cost Compensation of Employees + Depreciation

34. Normally, NNP at market prices are higher than NNP at factor cost because
(a) Indirect taxes exceed government subsidies.
(b) Government subsidies exceed Indirect taxes.
(c) Indirect taxes equal to government subsidies.
(d) Depreciation is always Nil.

35. The money value of output produced within a country’s domestic limits in a year, as received by
the factors of production, is measured by_______
a) GDPmp
b) GDPfc
c) NDPfc
d) NNPfc

36. The value of NDP at FC will be if the following information is given: -

GNP at MP: ₹60,000
Depreciation: ₹4,000
NFIA: ₹3200
Net Indirect Taxes: ₹6,000
(a) 46,800
(b) ₹64,000
(c) 61,080
(d) None of these
37. Which of the following is not a component of operating surplus?
(a) Compensation of Employees
(b) Interest
(c) Royalty
(d) Rent

38. Which of the following is not included in Domestic Income?

(a) Wage & Salaries
(b) Interest & Dividends
(c) Income earned from abroad
(d) None of the above

39. Which of the following will give Personal Income?

(a) Private Income - Undistributed Corporate Profits – Taxes on Profits
(b) Private Income + Undistributed Corporate Profits – Taxes on Profits
(c) Private Income + Undistributed Corporate Profits + Taxes on Profits
(d) Private Income - Undistributed Corporate Profits - All Taxes

40. Private Income: ₹50,000

Undistributed Corporate Profits: ₹10,000
Profit Taxes: ₹2500
What is Personal Income?
(a) ₹37,500
(b) ₹48,000
(c) 34,000
(d) ₹40,000

41. ________ is the income received by the household sector including Non-Profit institutions serving
households.
a) National income
b) Private income
c) Personal income
d) Personal disposable income

42. Personal income excludes:

a) Retained earnings
b) Indirect business taxes
c) Corporate income taxes
d) All of the above
43. Which of the following is added to national income while calculating personal income?
(a) Transfer payments to individuals
(b) Undistributed profits of corporate
(c) Transfer payments made to foreigners
(d) Mixed income of self-employed

44. What is the relationship of Disposable Personal Income (DI) and Personal Income (PI)?
(a) DI= PI + Personal Income Taxes + Non-Tax Payments
(b) DI= PI - Personal Income Taxes+ Non-Tax Payments
(c) DI= PI - Personal Income Taxes - Non-Tax Payments
(d) None of the above

45. _______ method may be most suitable for developed economies

a) Expenditure method
b) Income method
c) Production method
d) None of the above

46. __________ is a measure of the amount of money in the hands of individuals that is available for their
consumption or savings.
a) Personal income
b) Private income
c) Disposable personal income
d) Domestic income

47. Consider the following data:-

Compensation of Employees 1,200
Operating Surplus 2,400
Consumption of fixed capital 480
Mixed-income of Self-employed 1,320
Net Indirect Tax 540
Rent 660
Profit 960
Net factor Income from abroad 60

Which of the following is incorrect?

(a) GDP at MP= 5,940 Crores.
(b) GNP at MP= 6,000 Crores.
(c) NNP at MP= 5,520 Crores.
(d) NNP at FC= 5,940 Crores
48. NNPMP = 15,053 Crores; Indirect Taxes = 335; Crores; NNPFC 14,980 Crores; what will be the
amount of subsidies and Net Indirect Taxes?
(a) ₹262 crores ₹73 crores.
(b) ₹73 crores & ₹262 crores.
(c) ₹335 crores & ₹189 crores.
(d) ₹189 crores & ₹335 crores.

49. The GDP at the market price of a Country in a particular year was Rs. 1,900 crores. The National
Income and Net Factor Income from abroad were Rs. 1671 crores and Rs. 107 Crores. If the Value
of Net Indirect Taxes was Rs. 210 Crores. What is the aggregate value of Depreciation?
(a) 126 Crores
(b) 142 Crores
(c) 336 Crores
(d) None of these

50. ___________ is the flow of goods and services between firms and households.
(a) Real Flow
(b) Money Flow
(c) Consumption Flow
(d) Generation Flow

51. The method of national income measures the contribution of each producing enterprise in the
domestic territory of the country.
(a) Income
(b) Expenditure
(c) Product
(d) Turnover

52. The production of goods for self-consumption is valued at ___________ while calculating national
income through the Product Method.
(a) Historical Prices
(b) Prevailing Market Prices
(c) Prevailing Cost Prices
(d) None of the above

53. "Identifying the producing enterprise and classifying them into individual sectors according to
their activities", is a step followed in which of the following methods of computing national
income?
(a) Product Method
(b) Income Method
(c) Expenditure Method
(d) Profit Method
54. Value added by each producing enterprise is also known as
(a) GVA at market price
(b) GVA at factor price
(c) GDP at market price
(d) GDP at factor price

55. The expenditure on goods and services which is meant for final consumption and investment is
called
(a) Final Consumption
(b) Intermediate Consumption
(c) Basic consumption
(d) None of these

56. What is the value of output on the basis of the following information?
Sales: ₹40,000
Closing Stock: ₹2,000
Opening Stock: ₹500
(a) 42,500
(b) 42,000
(c) 41,500
(d) 38,500

57. Under the value-added method, which of the following will be included while computing National
Income?
(a) Sale and purchase of second-hand goods
(b) Intermediate goods
(c) Production of goods for self-consumption primary
(d) Production of services for self-consumption

58. Consider the following data:

Sales: 20,00,000
Closing Stock: 40,000
Opening Stock: 10,000
Indirect Taxes: 1,00,000
Depreciation: 60,000
Intermediate Consumption: 3,20,000
Purchase of Raw Material: 1,35,000
Rent: 25,000
The amount of Net value added at market price is_________.
(a) ₹16,30,000
(b) ₹16,50,000
(c) ₹16,80,000
(d) ₹16,90,000
59. Consider the following information:
A. NDP at market price 77,000
B. Net Factor Income from abroad (-) 700
C. Depreciation 1,700
D. Subsidies 6,600
E. Indirect Taxes 7,700
The value of National Income is:
(a) 75,000
(b) 75,200
(c) 75,400
(d) 75,500

60. The sum total of all the factor incomes earned within the domestic territory of a country is known
as:
(a) NNPFC
(b) NDPFC
(c) NNPMP
(d) NDPMP

61. Which of the following is included while estimating National Income under Income Method?
(a) Income from the sale of second-hand goods
(b) Income from the sale of shares, bonds, and debentures
(c) Windfall gains like income from lotteries, horse races, etc.
(d) Imputed value of services provided by owners of production units

62. In respect of the following data, what will be the national income using the expenditure method?

Private final consumption: 25,000

Government final consumption: 12,000
Net Domestic capital formation: 6,500
Net Export: 5,000
Net factor income from Abroad: 1000
Net Indirect Taxes: 1,500
(a) ₹49,500
(b) ₹48,000
(c) ₹47,000
(d) ₹45.500
63. Consider the following data:
Sales: 1,050
Opening Stock: 750
Intermediate Consumption: 525
Closing Stock: 600
Net factor Income from Abroad: 45
Depreciation: 225
Excise Tax: 165
Subsidies: 75
What is the amount of National Income by Value Added method?
(a) 900
(b) 375
(c)105
(d) None of these

64. Consider the following information-

Private Final Consumption Expenditure: 67
Gross Domestic Fixed Capital Formation: 1,575
Subsidy: 450
Net Import: 90
Change in Stock: 135
Net acquisition of Valuables: 45
Income Paid to abroad: 90
Depreciation: 135
What is the value of NNP FC (by expenditure method)?
(a) ₹1,957 Crores
(b) ₹1,507 Crores
(c) ₹1,462 Crores
(d) None of these

65. In preparation of state income estimates, certain activities railways, communications, banking, etc.
that cut across state & thus their economic contribution cannot be assigned to any one state
directly are known as
a) Super regional sectors
b) Super sectors
c) Supra Regional Sectors
d) Regional sectors
66. In 1936, who published the masterpiece "The General Theory of Employment, Interest and
Money"?
(a) John Maynard Keynes
(b) John Milton Keynes
(c) Jean Maynard Keynes
(d) Jean Milton Keynes

67. In which year, did the Western world experience the Great Depression?
(a) 1928
(b) 1929
(c) 1930
(d) None of these

68. The history of modern microeconomics was revolutionized in 1936 with the publication by John
Maynard Keynes, what is the name of that masterpiece?
(a) General Theory of Government
(b) General Theory of Employment, Interest and Money
(c) General Theory of reducing unemployment.
(d) None of these

69. The two-sector model breaks the economy down into two primary players namely________.
(a) Households and corporations
(b) Corporation and Business
(c) Business and Government
(d) Government and Foreign

70. As regards "Circular Flow in a Two Sector Economy", ___________refers to the flow of the actual
goods or services while_____________ refers to the payment for the Services (wages) or consumption
payments.
(a) Real Flows, Money Flows
(b) Corporation and Business
(c) Business and Government
(d) Government and Foreign

71. Which of the following is the correct expression of the Short-run aggregate demand function?
(a) AD = C + I
(b) AD = C + I
(c) AD = C+I
(d) AD = C + I
72. Keynes believed that an economy may attain an equilibrium level of output
(a) only at the full-employment level of output
(b) above the full-employment level of output
(c) below the full-employment level of output
(d) None of these

73. As per consumption function, if the disposable income increases, consumers will___________ their
planned expenditure but only by__________ than the increase in income.
(a) increase, less
(b) increase, more
(c) decrease, less
(d) decrease, more

74. The Keynesian assumption is that consumption increases with an increase in disposable income. If
the increase in disposable income is 30%, then what may be the increase in consumption?
(a) Less than 30%
(b) Equal to 30%
(c) More than 30%
(d) Any of the above

75. In the Keynesian Consumption Function C= a+by, what may be the value of b?
(a) b=0
(b) b=1
(c) b > 1
(d) 0<b<1

76. If the consumption function is 20 + 0.5 Yd, then an increase in disposable income by 100 will
result in an increase in expenditure by consumer
(a) 25
(b) 70
(c) 50
(d) 100

77. ____________ is the total supply of goods and services that firms in a national economy plan on
selling during a specific time period.
(a) Ex-ante Aggregate Supply
(b) Planned Aggregate Supply
(c) Projected Aggregate Supply
(d) Both (a) and (b)
78. When income rises from 1,000 to 1,100, saving rises by 40. What are MPS and MPC?
(a) 0.40 and 0.60
(b) 0.60 and 0.40
(c) 1.40 and 1.60
(d) 1.60 and 1.40

79. If S= -30+0.25 (y), then what will be the Consumption Function (C)?
(a) C= 30 + 0.25 (y)
(b) C= -30 + 0.75 (y)
(c) C= 30 + 0.75 (y)
(d) C= -30 + 0.25 (y)

80. Under equation C= a+by, b=0.8, what is the value of the 2-sector expenditure multiplier?
(a) 4
(b) 2
(c) 5
(d) 1

81. Under Keynesian Theory___________ is the amount by which actual aggregate demand exceeds the
level of aggregate demand required to establish the full employment equilibrium.
(a) Inflationary Gap
(b) Deflationary Gap
(c) Contractionary Gap
(d) None of these

82. Consider the following data relating to an economy in equilibrium: -

Autonomous Consumption = 500
MPS= 0.3
Investment Expenditure= 1000
What is national income?
(a) 1,500
(b) 5,000
(c) 150
(d) 5,650

83. Which of the following is the determinant of the value of the investment multiplier?
(a) MPC
(b) APC
(c) TPC
(d) None of these
84. The higher the__________ more will be the value of the multiplier, whereas, the higher the___________
lower will be the value of the multiplier.
(a) MPS, MPC
(b) MPC, MPS
(c) APS, APC
(d) APC, APS

85. An increase in investment by 1000 Crores leads to an increase in national income by 2500 Crores.
What will be the Marginal Propensity to Consume (MPC)?
(a) 2.5
(b) 0.6
(c) 0.4
(d) None of these

86. In an economy, the entire increase in income is spent on consumption. What will be the value of
the multiplier?
(a) 0
(b) 1
(c) Infinity (∞)
(d) -1

87. Consider the following about a simple economy:

Consumption function (C) = 50 +0.8Yd
T= 100
I= 250 crores
G= 100 Crores
What will be the equilibrium level of National Income?
(a) 1200
(b) 1400
(c) 1600
(d) None of these

88. The following information is available regarding structure model of an economy:

C = 40 +0.8Yd
I= 80
G= T = 40
TR= 15
What will be the equilibrium level of income?
(a) 700
(b) 610
(c) 175
(d) None of these
89. In the determination of the equilibrium level of national income, which of the following is correct?
(a) Y= C+1+G+(X-M)
(b) C= a+b (Y-T)
(c) M= M + mY
(d) All of the above

90. In four four-sector models, which of the following formulas is used to calculate the Foreign Trade
Multiplier, if b and m refer to marginal propensity to consume and Marginal propensity to import?
(a)

(b)

(c)

(d)

91. Equilibrium income (Y) = 600; Exports (x) = 20; Imports (M) = 10 + 0.05Y. Calculate Trade
Balance.
(a) Surplus (20)
(b) Deficit (20)
(c) Surplus (30)
(d) Deficit (30)

92. Consider the following: Consumption function (C) = 40 +0.8Y

T=0.1Y
I=60 crores
G=40 Crores
X = 58
M=0.05Y
What will be the equilibrium level of National Income?
(a) 800 crores
(b) 603 crores
(c) 545 crores
(d) None of this.
93. C=60 + 0.9Yd
I=10
M=10 + 0.05Y
What is the foreign trade multiplier?
(a) 0.98
(b) 3.97
(c) 6.66
(d) None of these.

94. Calculate the consumption of Fixed Capital consumed from the following data:
NNP at Factor Cost: 6,250
GDP at Market Price: 7,000
Net Indirect Taxes: 250
Net Factor Income from Abroad: 150
(a) 450 Crores
(b) 550 Crores
(c) 650 Crores
(d) None of these

95. ___________ refers to the ratio of consumption expenditure to the corresponding level of total
income.
(a) Average propensity to consume
(b) Marginal propensity to consume
(c) Overall propensity to consume
(d) Moderate propensity to consume

96. What will be the value of Average Propensity to Save (APS) When C=300 at Y = 1,000?
(a) 0.3
(b) 0.7
(c) 1.3
(d) 3.1

97. If APS and Y are 0.375 and 1800, then what will be the value of C?
(a) 375
(b) 675
(c) 1,125
(d) 1,425
98. In the Four sector model, which of the following additional flow is considered as compared with
three sector model?
(a) Exports
(b) Imports
(c) Net capital Inflow
(d) All of the above

99. In the Keynesian model, equilibrium aggregate output is determined by:

(a) Aggregate demand
(b) Consumption function
(c) The national demand for labor
(d) The price level

100. Keynes believed that an economy may attain equilibrium level of output:
(a) Only at the full employment level of output
(b) Below the full-employment level of output
(c) Only if prices were inflexible
(d) Both (a) and (c)

101. According to Keynes, consumption expenditure is determined by:

(a) The level of interest rates

(b) The extent of government taxes and subsidies
(c) Disposable income
(d) Autonomous investment expenditure

102. The marginal propensity to consume (MPC) can be defined as:

(a) A change in spending due to a change in income

(b) A change in income that is saved after consumption
(c) Part of income that is spent on consumption
(d) Part of income that is not saved

103. If the consumption function is expressed as C=a+bY, then b represents:

(a) Autonomous consumer expenditure when income is zero

(b) The marginal propensity to consume
(c) The expenditure multiplier when consumption is increased
(d) Part of disposable income
104. If the consumption function is expressed as C = a+bY, then a represents:

(a) Autonomous consumer expenditure

(b) The marginal propensity to consume
(c) The consumption-income relationship
(d) A non-linear consumption function

105. If the consumption function is C=20+0.5Yd, then an increase in disposable income by 100
will result in an increase in consumer expenditure by:

(a) 25
(b) 70
(c) 50
(d) 100

106. If the autonomous consumption equals ₹2,000 and the marginal propensity to consume
equals 0.8, and disposable income equals ₹10,000, then total consumption will be:

(a) ₹8,000
(b) ₹6,000
(c) ₹10,000
(d) None of the above

107. In the Keynesian cross diagram, the point at which the aggregate demand function crosses
the 45-degree line indicates the:

(a) Level of full employment income

(b) Less than full employment level of income
(c) Equilibrium level of income, which may or may not be full employment level of income
(d) Autonomous level of income, which may not be full employment level of income

108. In a closed economy, aggregate demand is the sum of:

(a) Consumer expenditure, demand for exports, and government spending

(b) Consumer expenditure, planned investment spending, and government spending
(c) Consumer expenditure, actual investment spending, government spending, and net exports
(d) Consumer expenditure, planned investment spending, government spending, and net exports

109. Under the equation C=a+bY, b=0.8, what is the value of the two-sector expenditure
multiplier?

(a) 4
(b) 2
(c) 5
(d) 1
110. If the GDP Deflator of a country in the year 2020 is 140.75 and in the year 2021 is 157.33,
then what is the inflation rate in the year 2021?
a) 9.09%
b) 10.97%
c) 11.78%
d) 12.34%

111. If GDP at market price is ₹6,700 crore and depreciation is 530 crores, then what will be the
NDP at market price?
a) 6,200 crore
b) 6,170 crore
c) 7,230 crore
d) 6,690 crore

112. Suppose the consumption of an economy is given by C 30+ 0.5Y and investment 12+0.15Y.
What will be the equilibrium level of National Income?
a) 120
b) 115
c) 105
d) 112

113. Which of the following refers to the mixed income of the self-employed?
a) Combined factor payments which are not distinguishable
b) Wages due to non-economic activities
c) Net profits received by self-employed
d) Outside wages received by self-employed

114. What does Disposable Personal Income (DPI) represent?

a) The total income earned by individuals before taxes
b) The income individuals have for consumption or saving
c) The total savings accumulated by individuals
d) The total income of a country's government

115. The ratio between nominal GDP and real GDP is known as:
a) Inflation Rate
b) Gross Domestic Product deflator
c) Gross National Product
d) Net National Product
116. Which of the following is not the limitation in the computation of the national income?
a) Issue of transfer payments
b) Services of durable goods
c) Difficulty of incorporating the distribution of income
d) Quality improvements due to technological innovations

117. Which method measures the contribution of each producing enterprise in the domestic
territory of a country over an accounting year by consolidating production of each industry less
intermediate purchases from all other industries?
a) Income Disposal Method
b) Value Added Method
c) Income Method
d) Expenditure Method

118. In the three-sector model of a closed economy (neglecting foreign trade), what are the
three components of aggregate demand
a) Consumption, Savings, and Investment
b) Consumption, Exports, and Government Spending
c) Consumption, Investment, and Government Spending
d) Consumption, Imports, and Exports

119. According to the Keynesian theory of income and employment, national income depends
upon:
a) Aggregate Effective Supply
b) Aggregate Effective Savings
c) Aggregate Effective Demand
d) Aggregate Effective Production

120. What are the phases included in the circular flow of income?
a) Production, Saving and Expenditure
b) Production, Income and Taxation
c) Production, Distribution and Disposition
d) Income, Saving and Investment.

121. The state-level estimates are typically prepared by the State Income Units of the respective
states. Which organization is primarily responsible for this task?
a) Directorates of Economics and Statistics (DESs)
b) Central Statistical Organization (CSO)
c) Ministry of Finance
d) Reserve Bank of India
122. What will be the Total Income if the value of Average Propensity to Consume (APC) is 0.45
and Total Consumption = 900 crores?
a) 2,500 crores
b) 2,000 crores
c) 2,050 crores
d) 2,100 crores

123. Joseph had a shoe company in US. The profits earned from its manufacturing unit operating
in India will comes under
a) GDP of India and GNP of US
b) GDP of US and GNP of India
c) GNP of US and GNP of India
d) GDP of US and GDP of India

______________________________________________________________
Chapter 7
1. The main macroeconomic goals of any nation are:
a. Economic Growth
b. High level of Employment
c. Stable Price levels
d. All of the above

2. ________ was a bold advocate of free markets and minimal governmental activity.
a) Alfred Marshall
b) J.M. Keynes
c) Milton Friedman
d) Adam Smith

3. As per Adam Smith, the role of government was-

a) national defense
b) establishing a system of justice & internal law & order
c) establishment and maintenance of highly beneficial public institutions.
d) All of the above

4. Who gave 'the Theory of Public Finance (1959)?

a) Adam smith
b) Richard Musgrave
c) A.C. Pigou
d) Alfred Marshall
5. Who introduced the three-branch taxonomy of the role of government in his book ‘The Theory of
Public Finance'?
a) Keynes
b) Buchanan
c) Richard Musgrave
d) Garrett Hardin

6. Which of the government function is considered as Microeconomic Function?

a. Resource allocation
b. Income redistribution
c. Both a & b
d. Macroeconomic Stabilization

7. Efficient allocation of available resources in an economy is assumed to take place only when
market is:
a. Monopoly
b. Monopolistic competitive
c. Perfectly competitive
d. Any of the above

8. Market failures that hinder the efficient allocation of resources occur due to
a) Imperfect competition and the presence of monopoly power
b) Incomplete Markets
c) Externalities
d) All of the above

9. Which one is the Allocation instrument that the government can use to influence resource
allocation?
a) The government may directly produce an economic good
b) The Government may use the price mechanism
c) The Government may influence allocation through legislation and force.
d) All of the above

10. Allocation Function in Government Budgeting determines____________.

a) who and what will be taxed
b) how and on what the government revenue will be spent
c) Level of involvement of the public sector in the economy
d) All of the above
11. Government Redistribution policies are likely to have efficiency costs because
a) Resources will be inefficiently utilized
b) Progressive taxation policies may create disincentive to work and save
c) Tax Revenue will be increases
d) All of the above.

12. The stabilization function is concerned with the performance of the aggregate economy in terms
of-
a) Labour employment and capital utilization
b) Overall output & income
c) General price level
d) All of the above

13. Macroeconomic stability is said to exist when:

a) Economy's output = production capacity
b) Economy's total spending = total output
c) The economy's labour resources are fully employed and inflation is low and stable.
d) All of the above

14. Using the proceeds from progressive taxes and using it for financing public services that benefit
low-income households, is an example of____________.
a) Allocation Function
b) Redistribution Function
c) Stabilization Function
d) None & the above

15. Aim of Redistribution Function is___________.

a) Achieve an equitable distribution of societal output among households.
b) Advancing the well-being of those members of the society who suffer from deprivations
c) Providing equality in income, wealth, and opportunities
d) All of the above

16. Recently, in this year's budget, the Government increased the Tax on Cigarettes. This is an example
of which function of public finance?
a) Allocation Function
b) Redistribution Function
c) Stabilization Function
d) All of the above
17. The Government adopting a Progressive taxation System to tax people on the level of their income
is an example of which function of public finance?
a) Redistribution Function
b) Allocation Function
c) Stabilization Function
d) All of the above

18. Macroeconomic stabilization may be achieved through

a) Education policy
b) Fiscal policy
c) Monetary policy
d) (b) and (c) above

19. Contractionary fiscal policy can involve:

a) Increasing the interest rates and decreasing money supply
b) Decreasing government spending and increasing taxes.
c) Increasing government spending & increasing taxes.
d) Decreasing the interest rates and increasing money supply

20. Fiscal policy is the deliberate policy of govt. where it uses

a) Instruments of taxation,
b) Public expenditure
c) Public borrowing
d) All of the above

21. What is the primary goal of countercyclical fiscal policy in budgeting?

a) Increasing government expenditure
b) Stabilizing the economy during economic downturns.
c) Minimizing Taxation.
d) Reducing public debt.

22. India is a federation of _____________.

a) 28 states and 7 union territories.
b) 28 states and 8 union territories.
c) 27 states and 7 union territories.
d) 27 states and 8 union territories.

23. ____________ deals with the division of governmental functions and financial relations among the
different levels of government.
a) Vertical Equity
b) Horizontal Equity
c) Fiscal Federalism
d) Either a) or b)
24. Economic stabilization and income redistribution is the responsibility of:
a. State & local governments
b. Central government
c. Both
d. None of the above

25. Article_______ of the Constitution demarcates powers of union & state by classifying their powers
into three lists
a) 268
b) 269
c) 246
d) 275

26. Federalism is an institutional arrangement to accommodate two sets of government - one at the
national level and the other at____________.
a) Regional level
b) State Level
c) International level
d) District level

27. In order to control high inflation, the government may

a) Decrease expenditure & raise tax
b) Increase expenditure & raise tax
c) Decrease expenditure & reduce tax
d) Increase expenditure & reduce tax

28. The Finance Commission is responsible for

a) Evaluating the state of finances of union and state Government
b) Recommending the sharing of taxes between them.
c) Laying down the principles determining the distribution of these taxes among states
d) All of the above

29. The 15th Finance Commission was constituted on

a) 24th Nov 2017
b) 21st Nov 2017
c) 27th Nov 2017
d) 23th Nov 2017

30. GST accounts for________.

a) 35% of the gross tax revenue of the union & 44% tax revenue of the state
b) 40% of the gross tax revenue of the union & 60% tax revenue of the state
c) 25% of the gross tax revenue of the union & 24% tax revenue of the state
d) 55% of the gross tax revenue of the union & 35% tax revenue of the state
31. How can the government perform a redistribution function on the expenditure side of the budget?
a) By providing free or subsidized education, healthcare, etc to deserving people
b) Through progressive taxation
c) Both a & b
d) None of the above

32. Who can levy taxes on agricultural income?

a) State Government
b) Central Government
c) Both a & b
d) None of the above

33. The Finance Commission recommended share of states in the central taxes (vertical devolution)
for the year 2021-26 be____________.
a) 35%
b) 44%
c) 42%
d) 41%

34. Borrowing by the government of India and borrowing by states are defined under________ of the
Constitution of India

a) Article 246 & 247

b) Article 268 & 269
c) Article 292 & 293
d) Article 255 & 256

35. _______ is entrusted with providing social sector services such as health and education, and police
protection.

a) Central Government
b) State Government
c) Local self-government
d) All of the above

36. In the event of conflicting legislation in the concurrent list, the law passed by the prevails
a) State Government
b) Central Government
c) Chief Minister of State
d) Both a & c
37. ___________ is entrusted with providing public utility services such as water supply and sanitation.
a) Central Government
b) State Government
c) Local self-government
d) All of the above

38. While recommending transfers, the Finance Commission considers issues related to _____________,
which deals with deciding about the share of all states in the revenue collected by center and
___________ which deals with allocation among states their share of central revenue.

a) Horizontal equity; Vertical Equity

b) Vertical Equity; Horizontal Equity
c) Both a & b
d) None of the above

39. GST was rolled out in India on___________.

a) 1st April 2014
b) 1st April 2017
c) 1st July 2014
d) 1st July 2017

40. GST Compensation cess amount was given to

a) The manufacturing states for loss of revenue arising on account of implementation of GST
b) The States who collects less GST than expected
c) Compensate the loss suffered by the states in their service sector
d) All of the above

41. ___________ is applied to the inter-state movement of goods and services and to imports and exports
a) CGST
b) SGST
c) IGST
d) UTGST

42. Which of the following represents the total amount of money the government owes to external
creditors and domestic lenders?
a) National debt
b) Fiscal deficit
c) Revenue deficit
d) All of the above
43. Which of the following is not a reason for market failure?
a. Market Power
b. Externalities
c. Public goods
d. Complete Information

44. Complete Market failure occurs when_____________.

a) The market does not supply products at all despite the fact that such products and services
are wanted by people.
b) The market does actually function but it produces the wrong quantity or at the wrong
price.
c) The whole market fails
d) None of the above

45. Externalities are also referred to as

a) Spillover effects
b) Neighborhood effects
c) Third-party effects or side effects
d) All of the above

46. __________________ is initiated in production and imposes an external cost on others?

a) Negative Consumption Externality
b) Negative Production Externality
c) Positive Production Externality
d) Positive Consumption Externality

47. Which of the below is initiated in Consumption and confers external benefits on others?
a) Negative Externality Consumption
b) Positive Production Externality
c) Negative Production Externality
d) Positive Consumption Externality

48. Which of the following is true?

Social Costs are __________
a) Social Costs are costs borne by business in a transaction
b) Social Costs are external costs borne by third parties not directly involved in the
transaction.
c) Social Cost = Private Cost + External Cost
d) All of the above
49. Who introduced the concept of "collective consumption good" in his paper "The Pure Theory of
Public Expenditure"?
a) Paul A. Samuelson
b) Adam Smith
c) JM Keynes
d) Alfred Marshall

50. Public goods are characterized by:

a) Non-excludability and non-rivalry
b) Excludability and rivalry
c) Excludability and non-rivalry
d) Non-excludability and rivalry

51. Though public goods are extremely valuable for the well-being of the society, left to the market,
they will be_____________
a) Not be produced at all
b) Under-produced
c) Both a & b
d) Over produced

52. Smoking cigarettes in public places causes passive smoking by others. This is an example
of_____________
a) negative production externality is received in consumption
b) negative production externality is received in production
c) negative consumption externality is received in production
d) negative consumption externality is received in consumption

53. A firm that offers training to its employees to increase their skills generates benefits for other
firms when they hire such workers as they change their jobs. This is an example of_________________
a) Positive production externality is received in consumption
b) Positive production externality is received in production
c) Positive consumption externality is received in production
d) Positive consumption externality is received in consumption

54. Excessive consumption of alcohol causes impairment in efficiency for work. This is an example
of____________.

a) negative production externality is received in consumption

b) negative consumption externality is received in production
c) negative production externality is received in production
d) negative consumption externality is received in consumption
55. _____________ occurs when there is an imbalance in information between the buyer and the seller i.e.
when the buyer knows more than the seller or the seller knows more than the buyer
a) Asymmetric information
b) Symmetric information
c) Complete information
d) Imperfect information

56. ___________ is about an informed person's taking advantage of a less-informed person through an
unobserved action.
a) Adverse Selection
b) Asymmetric Information
c) Moral Hazard
d) None of the above

57. The concept of the Lemons Problem was given by_______________.

a) Paul Samuelson
b) George Akerlof
c) JM Keynes
d) Adam Smith

58. __________ is also known as command solutions, prohibit specific activities that explicitly create
negative externalities.
a. Market based initiatives
b. Direct controls
c. Both a & b
d. None of the above

59. The concept of Pollution Tax was given by______________.

a) AC Pigou
b) JM Keynes
c) Adam Smith
d) George Akerlof

60. Problems in administering an efficient pollution tax:

a) Easy to determine and administer
b) If the demand for the good is inelastic, the tax may have only an insignificant effect in
reducing demand
c) Potential positive consequences on employment and investment
d) None of the above
61. ____________ are goods that have substantial positive externalities and hence they are socially
desirable.
a) Private goods
b) Public goods
c) Merit goods
d) Demerit goods

62. Which are these goods are produced and consumed as public goods and services despite the fact
that they can be produced or consumed as private goods which may prove dangerous to society.
a) scientific approval of drugs,
b) production of strategic products such as atomic energy,
c) provision of security at airports etc
d) All of the above

63. __________ is the maximum price sellers are allowed to charge for a good or service.
a) Price floor
b) Price ceiling
c) Both a & b
d) None of the above

64. __________ is the minimum price buyers are required to pay

a) Price floor
b) Price ceiling
c) Both a & b
d) None of the above

65. When prices of certain essential commodities rise excessively, government may resort to control
in the form of:
a. Price Floor
b. Price ceiling
c. Both a & b
d. None of the above

66. A __________ is a statement that presents the details of where the money comes from and where the
money goes to
a) Budget
b) Demand for grant
c) Appropriation bill
d) Fiscal bill
67. The budget is prepared by the Ministry of Finance in consultation with ___________.
a) The President
b) NITI Aayog and other relevant ministries
c) The Prime Minster
d) Public

68. The budget process mainly consists of

a) The administrative process, wherein the budget along with the accompanying documents
are prepared in consultation with various stakeholders;
b) The legislative process wherein the budget is passed by the parliament after discussions.
c) Both a and b
d) None of the above

69. The budgetary procedures are-

a) Preparation of the budget
b) Presentation and enactment of the budget
c) Execution of the budget
d) All of the above

70. Which Article of the constitution provides that in respect of every financial year, the 'president
shall cause to be laid before both the houses of parliament the “Annual Financial Statement"
a) Article 111
b) Article 112
c) Article 113
d) Article 114

71. The budget documents depict information relating to receipts and expenditures for two years.
They are:
a) Budget estimates (BE) of receipts and expenditures in respect of current and ensuing
financial
b) For the current year through Revised Estimates (RE); and
c) Actuals of the year preceding the current year
d) All of the above

72. The finance minister makes a detailed budget speech at the time of presenting the budget before
the
a) Lok Sabha
b) Rajya Sabha
c) Vidhan Sabha
d) All of the above
73. Part A of the budget speech gives an outline of ___________.
a) the progress the government has made on various developmental measures, the direction
of future policies, and the government's tax proposals
b) the prevailing macroeconomic situation of the country and the budget estimates for the
next financial year.
c) Government’s tax proposals
d) All of the above

74. By convention in an election year, the budget may be presented

a) Once
b) Twice
c) Thrice
d) Four times

75. All revenues received, loans raised and all money received by the government in repayment of
loans are credited to_____________.

a) Consolidated Fund of India

b) Contingency Fund of India
c) Contingency Fund of State
d) Public Account

76. ____________ is a fund placed at the disposal of the President to enable him/her to make advances to
the executive/Government to meet urgent unforeseen expenditures.

a) Consolidated Fund of India

b) Contingency Fund of India
c) Contingency Fund of State
d) Public Account

77. Under Article 266(1) of the Constitution of India, __________ is used in relation to all the fund flows
where government is acting as a banker. The expenditure from this fund need not be approved by
the parliament.
a) Consolidated Fund of India
b) Contingency Fund of India
c) Contingency Fund of State
d) Public Account
78. Motions for reduction to various demands for grants are made in the form of _________________
seeking to reduce sums sought by government.

a) Cut Motions
b) Reduce Motion
c) Guillotine Motion
d) None of the above

79. ____________ is intended to give authority to the government to incur expenditure from and out of
the Consolidated Fund of India

a) Finance Bill
b) Appropriation Bill
c) Cut Motion
d) None of the above

80. On the last day of the days allotted for discussion on the demand for grants, the speaker puts all
the outstanding demands for grants to the vote of the house. This process is knowns as___
a) Cut Motion
b) Guillotine
c) Discussion Bill
d) Appropriation Bill

81. The Finance Bill is introduced in the Lok Sabha _______ the presentation of the general budget.
a. After
b. Before
c. Either a or b
d. None of the above

82. The Parliament has to pass the Finance Bill within__________ of its introduction.
a) 60 days
b) 90 Days
c) 45 Days
d) 75 Days

83. Department of Revenue exercises control for matters relating to direct & indirect union taxes
through_________________.

a) Central Board of Direct Taxes (CBDT) and

b) Central Board of Indirect Taxes and Customs (CBIC)
c) Both a & b
d) None of the above
84. _______ receipts are those receipts that lead to a reduction in the assets or an increase in the
liabilities of the government
a. Capital Receipts
b. Revenue Receipts
c. Tax Receipts
d. None of the above

85. Centre's net tax revenue is calculated after deduction of __________ from Total Tax Revenue.
a) states' share
b) National Calamity Contingent Duty (NCCD)
c) Both a and b
d) None of the above

86. The institutions responsible for public debt management are:

a) Reserve Bank of India
b) Ministry of Finance (MOF)
c) Both b and c
d) None of the above

87. Recoveries of loan advances are an example of____________.

a) Debt capital receipts
b) Non-debt capital receipts
c) Revenue Receipts
d) Non-Tax Revenue receipts

88. Disinvestment by government is classified under which category:

a. Revenue Receipts
b. Debt capital Receipts
c. Non-Debt capital receipts
d. Non-Tax Revenue

89. ____________ is nodal department for overseeing the public financial management system in the
central government and matters connected with state finances.
a) Department of Revenue
b) Department of Expenditure
c) Public Debt Management
d) Department of Financial Management
90. The risk associated with external debt is the___________ visà-vis the currency of denomination of
external loans leading to___________ in the government's debt servicing cost.

a) appreciation in the value of domestic currency, increase

b) depreciation in the value of foreign currency, increase
c) appreciation in the value of domestic currency, decrease
d) depreciation in the value of domestic currency, increase

91. The broad pillars of debt management strategy:

a. Low cost of borrowings
b. Risk Mitigation
c. Market development
d. All of the above

92. Which institutions is responsible for managing domestic marketable debt?

a) Ministry of Finance
b) Department of Economic Affairs
c) RBI
d) Budget division

93. External debt (bilateral and multilateral loans) is managed by____________.

a) Internal debt management department
b) Department of Economic Affairs in the Ministry of Finance
c) RBI
d) Budget Division

94. Interest payments on debt are an example of______________.

a) Revenue Expenditure
b) Capital Expenditure
c) Revenue Receipts
d) Capital Receipts

95. ______________ shows the government revenue is insufficient to meet the regular expenditures in
connection with the normal functioning of the government.
a) Revenue Deficit
b) Budgetary Deficit
c) Fiscal Deficit
d) Primary Deficit
96. The excess of total expenditure over total receipts excluding borrowings during a given fiscal year
is called the_________________.
a) Revenue Deficit
b) Budgetary Deficit
c) Fiscal Deficit
d) Primary Deficit

97. ________________ shows the total borrowing requirements of the government from all sources.
a) Revenue Deficit
b) Budgetary Deficit
c) Fiscal Deficit
d) Primary Deficit

98. ____________ tells how much of the government's borrowings are going towards meeting expenses
other than interest payments.
a) Revenue Deficit
b) Budgetary Deficit
c) Fiscal Deficit
d) Primary Deficit

99. ______________ is a progress card on what various ministries and departments have done with the
outlays in the previous annual budget.
a) Cut Motions
b) Guillotine
c) Outcome budget
d) None of the above

100. Fiscal policy is in the nature of a _________________.

a) Supply-side policy
b) Demand-side policy
c) Revenue-side policy
d) Expenditure-side policy

101. In which type of budget, fiscal policy will be unnecessary

a. Surplus Budget
b. Deficit Budget
c. Balances Budget
d. None of the above
102. The most common objectives of Fiscal Policy are:
a) Achievement and maintenance of full employment
b) Maintenance of price stability,
c) Acceleration of rate of economic development
d) All of the above

103. _____________ may get higher priority in developing countries as objectives of fiscal policy.
a) stability and equality
b) economic growth, employment, and equity
c) Equity & Economic Growth
d) economic growth & Stability

104. The policy measure used to close a recessionary gap is___________.

a) Contractionary fiscal policy
b) Expansionary fiscal Policy
c) Recessionary fiscal policy
d) None of the above

105. In the expansionary fiscal policy, governments budgets are normally:

a. Deficit
b. Surplus
c. Balanced
d. None of the above

106. Contractionary fiscal policy works through:

a. Decrease in government spending
b. Increase in government spending
c. Increase in personal taxes
d. Both b & c

107. ____________ means when there are possible delays in bringing in legislation and
implementing them on account of bureaucracy.
a) Recognition Lag
b) Decision Lag
c) Implementation Lag
d) Impact Lag

108. Decrease in government spending & increase in taxes is an example of___________.

a) Anti-inflationary monetary policy
b) Contractionary fiscal policy
c) Expansionary fiscal Policy
d) Recessionary monetary policy
109. Contractionary fiscal policy should ideally lead to a ___________ government budget deficit or
a ___________ budget surplus.

a) Smaller, smaller
b) Smaller, larger
c) Larger, larger
d) Larger, smaller

110. Government expenditure is _____________ when there is a fear of inflationary rise in prices.
a) Increased
b) Decreased
c) Remains the same
d) None of the above

111. During a recession and depression, government can

a) Levy new taxes
b) Increase the rates of existing taxes
c) Lower the tax rates
d) Both a & b

112. During inflation, the government can

a) Levy new taxes
b) Decrease government spending
c) Lower the tax rates
d) Both a & b

113. ____________ has a negative net effect on aggregate demand since leakages will be greater
than injections.
a) Balanced Budget
b) Budget Surplus
c) Budget Deficit
d) Both b & c

114. Which of the following is a recognition lag?

a) Delay in recognizing the need for a policy change
b) Delay in making a decision on the most appropriate policy
c) Delay in bringing in legislation and implementing them on account of bureaucracy
d) When outcomes of a policy are not visible for some time
115. Contractionary fiscal policy can involve:
a) Increasing consumption investment and taxes. And
b) Decreasing government spending and increasing taxes.
c) Increasing government spending and increasing taxes.
d) None of the above

116. Which of the following can be said to be true about merit Goods?
a) Socially desirable
b) Likely to be under-produced/under-consumed
c) Requires Govt. support
d) All of the above

117. An expansionary fiscal policy is used for:

a) Reduction in inflation
b) Increase in exports
c) Appreciation of currency
d) Close the recessionary gap

118. Which lag involves delays in bringing in legislation and implementing them?
a) Decision lag
b) Impact lag
c) Implementation lag
d) Recognition lag

119. When spending by government in an economy replaces the private spending, it is known
as:
a. Crowding out
b. Government spending
c. Inflationary policy
d. None of the above

120. Budget ____ reduces national debt, a budget__________ will add to the national debt.
a. Deficit; surplus
b. Surplus; deficit
c. Balanced; deficit
d. Surplus; balanced
121. Redistribution policies are likely to have efficiency costs because
(a) They will reduce the efficiency of governments
(b) They may create disincentives to work and save
(c) Governments have to forego taxes
(d) They are likely to make the poor people dependent on the rich

122. Macroeconomic stabilization may be achieved through

(a) Free market economy
(b) Fiscal policy
(c) Monetary policy
(d) (b) and (c) above

123. Which of the following policies of the government fulfils the redistribution function
(a) Parking the army on the northern borders of the country
(b) Supply of food grains at subsidized prices to the poor people
(c) Controlling the supply of money through monetary policy
(d) All of the above

124. Choose the correct statement

(a) Fiscal policy involves the use of changes in taxation and government spending; while
monetary policy involves the use of price and profit controls.
(b) Fiscal policy involves the use of price and profit controls; while monetary policy involves
the use of taxation and government spending.
(c) Fiscal policy involves the use of changes in taxation and government spending; while
monetary policy involves the use of changes in the supply of money and interest rates.
(d) Fiscal policy involves the use of changes in the supply of money and interest rates; while
monetary policy involves the use of changes in taxation and government spending.

125. The justification for government intervention is best described by

(a) The need to prevent recession and inflation in the economy
(b) The need to modify the outcomes of private market actions
(c) The need to bring in justice in distribution of income and wealth
(d) All the above
126. Read the following statements:
1. The market-generated allocation of resources is usually imperfect and leads to inefficient
allocation of resources in the economy
2. Market failures can at all times be corrected through government intervention
3. Public goods will not be produced in sufficient quantities in a market economy Of the three
statements above:
(a) 1,2 and 3 are correct
(b) 1 and 3 are correct
(c) 2 and 3 are correct
(d) 3 alone is correct

127. When a government offers unemployment benefits and also resorts to progressive taxation
which function does it seem to fulfill?
(a) It is trying to establish stability in an economy
(b) It is trying to redistribute income and wealth
(c) It is trying to allocate resources to their most efficient use
(d) It is creating a source of market failure

128. Government of Emeline Land decides to provide most modern road infrastructure
throughout the nation. This can be classified as
(a) Distribution function
(b) Allocation function
(c) Stabilization function
(d) None of the above

129. Which function does the government perform when it provides transfer payments to offer
support to the underprivileged
(a) Allocation
(b) Efficiency
(c) Distribution
(d) None of the above

130. Which of the following is true in respect of centre and state government finances?
(a) The centre can tax agricultural income and mineral rights
(b) Finance commission recommends distribution of taxes between the centre and states
(c) GST subsumes majority of direct taxes and a few indirect taxes
(d) IGST is collected by the state governments
131. GST compensation is given to
(a) to the industries which have made losses due to the introduction of GST
(b) to compensate for the lower rates of GST on essential items
(c) to the states to compensate for the loss of revenue due to the introduction of GST
(d) to compensate for the loss of input tax credit in manufacturing

132. Which of the following is true in respect of the role of Finance Commissions in India?
I. The distribution between the union and the states of the net proceeds of taxes
II. Allocation between the states of the respective shares of such proceeds.
III. Make Recommendations on integrated GST on inter-state movement of goods and services
IV. To recommend expenditure decentralization among different states

(a) I and II are correct

(b) II and III are correct
(c) I, II and III are correct
(d) All the above are correct

133. In a federal set up, the stabilization function can be effectively performed by
(a) Respective state governments
(b) Ministry of taxes
(c) The government at the centre
(d) None of the above

134. Which of the following is concerned with division of economic responsibilities between the
central and state Government of India?
(a) NITI Aayog
(b) central bank
(c) Finance Commission
(d) Parliament

135. Fiscal Federalism refers to ______________.

(a) Organizing and implementing development plans
(b) Sharing of political power between centers and states
(c) The management of fiscal policy by a nation
(d) Division of economic functions and resources among different layers of the government

136. Which one of the following taxes is levied by the state government only?
(a) Corporation tax
(b) Wealth tax
(c) Income tax
(d) None of the above
137. The percentage of share of states in central taxes for the period 2021-26 recommended by
the Fifteenth Finance Commission is
(a) 38 percent
(b) 41 percent
(c) 42 percent
(d) The commission has not submitted its report

138. Which of the following is not a criterion for determining distribution of central taxes among
states for 2021-26 period
(a) Demographic performance
(b) Forest and ecology
(c) Infrastructure performance
(d) Tax and fiscal efforts

139. As per the Supreme Court verdict in May 2022

(a) The union has greater powers than the states for enacting GST laws
(b) The union and state legislatures have “equal, simultaneous powers “to make laws on
Goods and Services Tax
(c) The union legislature’s enactments will prevail in case of a conflict between those of the
union and the states
(d) The state legislatures can make rules only with the permission of the central government

140. Providing social sector services such as health and education is

(a) the responsibility of the central government
(b) the responsibility of the respective state governments
(c) the responsibility of local administrative bodies
(d) none of the above

141. ‘Market failure’ is a situation which occurs when

(a) private goods are not sufficiently provided by the market
(b) public goods are not sufficiently provided by public sector
(c) The market fails to form or they allocate resources efficiently
(d) (b) and (c) above

142. Which of the following is an example of market failure?

(a) Prices of goods tend to rise because of shortages
(b) Merit goods are not sufficiently produced and supplied
(c) Prices fall leading to a fall in profits and the closure of firms
(d) None of the above
143. Which of the following is an outcome of market power?
(a) makes price equal to marginal cost and produces a positive external benefit on others
(b) can cause markets to be efficient due to a reduction in costs
(c) makes the firms price makers and restrict output so as to make allocation inefficient
(d) (b) and(c) above

144. Markets do not exist

(a) for goods which have positive externalities
(b) for pure public goods
(c) for goods which have negative externalities
(d) none of the above

145. Which of the following is the right argument for the provision of public good by the
government?
(a) Governments have huge resources at their disposal
(b) Public goods will never cause any type of externality
(c) Markets are unlikely to produce a sufficient quantity of public goods
(d) Provision of public goods is very profitable for any government

146. An adequate amount of a pure public good will not be provided by the private market
because of
(a) the possibility of free-riding
(b) the existence of very low prices and low profits
(c) governments would any way produce them, so there will be overproduction
(d) there are restrictions as well as taxes on the production of public goods

147. The free rider problem arises because of

(a) ability of participants to produce goods at zero marginal cost
(b) marginal benefit cannot be calculated due to the externalities present
(c) the good or service is non-excludable
(d) general poverty and unemployment among people

148. A chemical factory has full information regarding the risks of a product but continues to sell
it. This is possible because of

(a) asymmetric information

(b) moral hazard
(c) free riding
(d) (a) and (c) above
149. If an individual tends to drive his car in a dangerously high speed because he has a
comprehensive insurance cover, it is a case of
(a) free riding
(b) moral hazard
(c) poor upbringing
(d) Inefficiency

150. Smoking in public is a case of

(a) Negative consumption externality
(b) Negative production externality
(c) Internalizing externality
(d) None of the above

151. Read the following statements

I. The market-based approaches to control externalities operate through price
mechanism
II. When externalities are present, the welfare loss would be eliminated
III. The key is to internalizing an externality is to ensure that those who create the
externalities include them while making decisions Of the above statements
(a) II and III are correct
(b) I only is correct
(c) II only is correct
(d) I and III are correct

152. Which of the following statements is false?

(a) Tradable permits provide incentive to innovate and reduce negative externalities
(b) A subsidy on a good which has substantial positive externalities would reduce its cost and
consequently its price would be lower
(c) Substantial negative externalities are involved in the consumption of merit goods.
(d) Merit goods are likely to be under-produced and under consumed through the market
mechanism

153. Which one of the following would you suggest for reducing negative externality?
(a) Production subsidies
(b) Excise duty
(c) Pigouvian taxes
(d) All of the above
154. A Pigouvian subsidy
(a) cannot be present when externalities are present
(b) is a good solution for negative externality as prices will increase
(c) is not measurable in terms of money and therefore not practical
(d) may help production to be socially optimal when positive externalities are present

155. If governments make it compulsory to avail insurance protection, it is because

(a) Insurance companies need to be running profitably
(b) Insurance will generate moral hazard and adverse selection
(c) Insurance is a merit good and government wants people to consume it
(d) None of the above

156. The Competition Act, 2002 aims to -

(a) protect monopoly positions of firms that have developed unique innovations
(b) to promote and sustain competition in markets
(c) to determine pricing under natural monopoly.
(d) None of the above

157. Rules regarding product labeling

(a) Seeks to correct market failure due to externalities
(b) It is a method of solving the problem of public good
(c) It may help solve market failure due to information failure
(d) Reduce the problem of monopolies in the product market

158. Identify the incorrect statement

(a) A minimum support price for agricultural goods is a market intervention method to
guarantee steady and assured incomes to farmers.
(b) An externality is internalized if the ones that generated the externality incorporate them
into their private cost-benefit analysis
(c) The production and consumption of demerit goods are likely to be less than optimal under
free markets
(d) Compared to pollution taxes, the cap and trade method is administratively cheap and
simple to implement and ensures that pollution is minimized in the most cost-effective
way.

159. The incentive to let other people pay for a good or service, the benefits of which are
enjoyed by an individual
(a) Is a case of negative externality
(b) Is a case of market efficiency
(c) Is a case of free-riding
(d) Is inappropriate and warrant action
160. A government subsidy
(a) is a market-based policy
(b) involves the government paying part of the cost to the firms in order to promote the
production of goods having positive externalities
(c) is generally provided for merit goods
(d) all the above

161. The production and consumption of demerit goods are

(a) likely to be more than optimal under free markets.
(b) likely to be less than optimal under free markets
(c) likely to be subjected to price intervention by government
(d) a) and c) above

162. The argument for education subsidy is based on

(a) Education is costly
(b) the ground that education is merit good
(c) education creates positive externalities
(d) b) and c) above

163. Read the following statements

I. Social costs are the total costs incurred by the society when a good is consumed or produced.
II. The external costs are not included in firms’ income statements or consumers’ decisions
III. Each firm’s cost which is considered for determining output would be only private cost or
direct cost of production which does not include external costs
IV. Production and consumption decisions are efficient only when private costs are Considered Of
the above
(a) Statements I and III are correct
(b) Statements I,II and III are correct
(c) Statement I only is correct
(d) All the above are correct

164. Government failure occurs when

(a) Government fails to implement its election promises on policies
(b) A government is unable to get reelected
(c) Government intervention is ineffective and produces fresh and more serious problems
(d) None of the above
 Question -The following hypothetical figures relate to country A

Revenue receipts 20,000

Recovery of loans 1,500

Borrowing 15,000

Other receipts 5,000

Expenditure on revenue account 24,500

Expenditure on capital account 26,000

Interest payments 2,000

165. The revenue deficit for country A is

(a) 5,000
(b) 24,000
(c) 4,500
(d) None of the above

166. The fiscal deficit of country A is

(a) 14,000
(b) 24,000
(c) 23,500
(d) None of the above

167. The primary deficit of Country A is

(a) 26,000
(b) 26,500
(c) 22,000
(d) 24,500

168. In NITI Aayog, NITI stands for

(a) National Initiative for Transforming India
(b) National Institution for Transforming India
(c) National Institute for Technology and Innovation
(d) None of the above
169. The Appropriation Bill is intended to
(a) reduce unnecessary expenditure on the part of the government
(b) give authority to the government to incur expenditures from and out of the Consolidated
Fund of India
(c) give authority to the government to incur expenditure from the revenue receipts only
(d) be passed before the budget is taken for discussion

170. Public debt management aims at

(a) An efficient budgetary policy to avail of domestic debt facilities
(b) Raising loans from international agencies at lower rates of interest
(c) Raising the required amount of funding at the desired risk and cost levels
(d) Management of public expenditure to reduce public debt

171. The railway budget is

(a) Part of the general budget, but is presented by the railway minister
(b) Part of the general budget for the budget for financial year 2017-18.
(c) Part of the general budget for the budget for financial year 2021-22
(d) Part of the general budget but presented on the next day of the general budget

172. Outcome budgeting

(a) shares information about the money allocated for various purposes in a budget
(b) establishes a direct link between budgetary allocations and performance targets measured
through output and outcome indicators
(c) establishes a direct link between budgetary performance targets and public account
disbursals
(d) shares information about public policies and programs under the budget

173. Corporate tax

(a) is collected by the union government and can be a capital receipt or revenue receipt
(b) maybe collected by the respective states and fall under revenue receipts
(c) maybe collected either by the centre or states and fall under revenue receipts
(d) is collected by the union government and is a revenue receipt

174. Government borrowings from foreign governments and institutions

(a) Capital receipt
(b) Revenue receipt
(c) Accounts for fiscal deficit
(d) Any of the above depending on the purpose of borrowing
 Question: The following table relates to the revenue and expenditure figures of a hypothetical
economy

Recovery of loans 5.1

Salaries of govt. servants 41.1

Capital expenditure 45.0

Interest payments 1.3

Payments towards subsidies 3.2

Other receipts ( mainly from dis-investment) 11.6

Tax revenue ( net of states’ share) 26.3

Non-tax revenue 12.3

Borrowings & other liabilities 6.8

States’ share in tax revenue 11.9

175. The capital receipts are

(a) 23.5
(b) 19.7
(c) 11.3
(d) None of the above

176. Revenue deficit is

(a) 23.6
(b) 13.0
(c) 7.0
(d) 2.6

177. The non–debt capital receipts of this country is

(a) 45.1
(b) 16.7
(c) 15.8
(d) None of the above
178. A budget is said to be unbalanced when
(a) when the government’s revenue exceeds the government’s expenditure
(b) when the government’s expenditure exceeds the government’s revenue
(c) either budget surplus or budget deficit occurs
(d) All the above

179. Fiscal deficit refers to

(a) the excess of government’s revenue expenditure over revenue receipts
(b) The excess of total expenditure over total receipts excluding borrowings
(c) Primary deficit - interest payments
(d) None of these

180. The budget of the government generally impacts

(a) the resource allocation in the economy
(b) redistribution of income and enhance equity
(c) stability in the economy by measures to control price fluctuations
(d) all the above

181. Which of the following is a statement submitted along with the budget as a requirement of
the FRBM Act
(a) Annual Financial Statement
(b) Macro-Economic Framework Statement
(c) Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement
(d) (b) and (c) above

182. Government borrowing is treated as capital receipt because

(a) It is mainly used for creating assets by the government
(b) It creates a liability for the government
(c) Both a) and b) above are correct
(d) None of the above is correct

183. The ‘Retail Direct ‘scheme is

(a) Initiated by the Reserve Bank of India
(b) facilitates investment in government securities by individual investors.
(c) Direct sale of goods and services by government departments
(d) Both (a) and (b) are correct

184. Non-debt capital receipts

(a) do not add to the assets of the government and therefore not treated as capital receipts
(b) are those that do not create any future repayment burden for the government
(c) are those that create future liabilities for the government
(d) facilitate capital investments at low cost
185. Which of the following is a capital receipt?
(a) License fee received
(b) Sale proceeds from disinvestment
(c) Assistance from Japan for COVID-19 vaccine
(d) Dividend from a public sector enterprise

186. Grants given by the central government to state governments is

(a) A revenue expenditure as it is meant to meet the current expenditure of the states
(b) A revenue expenditure as it does neither creates any asset nor reduces any liability of the
government
(c) A capital expenditure because it increases the capital base of the states
(d) It is a grant and so does not come under revenue expenditure or capital expenditure

187. Short-term credit from the Reserve Bank to state governments to bridge temporary
mismatches in cash flows is known as
(a) RBI credit to states
(b) Commercial credit of RBI
(c) Ways and Means Advances (WMA)
(d) Short term facility

188. Richard Musgrave introduced a three-branch taxonomy describing the role of government
in a market economy. What are these branches?
a. Resource allocation, income generation, and price stability
b. Resource allocation, income redistribution, and macro economic stabilisation
c. Production efficiency, income equality, and fiscal sustainability
d. Price regulation, employment generation, and fiscal responsibility

189. Under which Supreme Court verdict do the Union and State Legislatures have "equal,
simultaneous and unique powers" to make laws on Goods and Services Tax (GST)?
a. June 2020 verdict
b. July 2021 verdict
c. Feb 2022 verdict
d. May 2022 verdict

190. If the primary deficit is 20,500 crores and the net interest liabilities of a country are 3,500
crores, then what will be the fiscal deficit?
a. 17,000 crores
b. 21,500 crores
c. 19,500 crores
d. 24,000 crores
191. The following figures relate to country for a particular financial year:
Particulars Amount (₹ in crores)

Revenue Deficit 10,000

Fiscal Deficit 24,000

Net Interest Liability 2,000

Borrowing 6,000

Expenditure on Revenue Account 3,000

What will be the primary deficit of country 'A'?

a. 8,000 crores
b. 22,000 crores
c. 18,000 crores
d. 21,000 crores

192. All revenues received, loans raised and all moneys received by the government in
repayment of loans are credited to the:
a. Consolidated fund of India
b. Contingency fund of India
c. Public provident fund of India
d. Public Account

193. Fiscal policy refers to the

(a) use of government spending, taxation, and borrowing to influence the level of economic
activity
(b) government activities related to the use of government spending for the supply of essential
goods
(c) use of government spending, taxation, and borrowing to reduce fiscal deficits
(d) and (b) above
194. If real GDP is continuously declining and the rate of unemployment in the economy is
increasing, the appropriate policy should be to

(a) Increase taxes and decrease government spending

(b) Decrease both taxes and government spending
(c) Decrease taxes and increase government spending
(d) Either (a) or (c)

195. Which of the following are likely to occur when an economy is in an expansionary phase of
a business cycle?
(A) Rising unemployment rate
(B) Falling unemployment rate
(C) Rising inflation rate
(D) Deflation
(E) Falling or stagnant wage for workers
(F) Increasing tax revenue
(G) Falling tax revenue

(a) A, B and F are most likely to occur

(b) B, C and F are most likely to occur
(c) D, E and F are most likely to occur
(d) A, E and G are most likely to occur

196. During recession the fiscal policy of the government should be directed towards
(a) Increasing the taxes and reducing the aggregate demand
(b) Decreasing taxes to ensure higher disposable income
(c) Increasing government expenditure and increasing taxes
(d) None of the above

197. According to Keynesian economics, when we have inflation an effective fiscal policy should
not include
(a) increase corporate taxes.
(b) decrease aggregate demand.
(c) Increase government purchases.
(d) None of the above is correct
198. Keynesian economists believe that
(a) fiscal policy can have very powerful effects in altering aggregate demand, employment and
output in an economy
(b) when the economy is operating at less than full employment levels and when there is a
need to offer stimulus to demand fiscal policy is of great use
(c) Wages are flexible and therefore business fluctuations would be automatically adjusted
(d) (a) and (b) above

199. Which of the following may ensure a decrease in aggregate demand during inflation?
(a) decrease in all types of government spending and/ or an increase in taxes
(b) increase in government spending and/ or a decrease in taxes
(c) decrease in government spending and/ or a decrease in taxes
(d) All the above

200. A recession is characterized by

(a) Declining prices and rising employment
(b) Declining unemployment and rising prices
(c) Declining real income and rising unemployment.
(d) Rising real income and rising prices

201. Which one of the following is an example of fiscal policy?

(a) A tax cut aimed at increasing disposable income and spending
(b) A reduction in government expenditure to contain inflation
(c) An increase in taxes and a decrease in government expenditure to control inflation
(d) All the above

202. Which of the following would illustrate a recognition lag?

(a) The time required to identify the appropriate policy
(b) The time required to identify to pass legislation
(c) The time required to identify the need for a policy change
(d) The time required to establish the outcomes of fiscal policy

203. An expansionary fiscal policy, taking everything else constant, would in the short --run
have the effect of
(a) a relatively large increase in GDP and a smaller increase in price
(b) a relatively large increase in price, a relatively smaller increase in GDP
(c) both GDP and price will be increasing in the same proportion
(d) both GDP and price will be increasing in a smaller proportion
204. Which statement (s) is (are) correct about crowding out?
I. A decline in private spending may be partially or completely offset by the expansion of demand
resulting from an increase in government expenditure.
II. Crowding out effect is the negative effect fiscal policy may generate when money from the
private sector is ‘crowded out’ to the public sector.
III. When spending by the government in an economy increases government spending would be
crowded out.
IV. Private investments, especially the ones that are interest–sensitive, will be reduced if interest
rates rise due to increased spending by the government
(a) I and III only
(b) I, II, and III
(c) I, II, and IV
(d) III only

205. Which of the following policies is likely to shift an economy’s aggregate demand curve to
the right?
(a) Increase in government spending
(b) Decrease in taxes
(c) A tax cut along with an increase in public expenditure
(d) All the above

206. Identify the incorrect statement

(a) A progressive direct tax system ensures economic growth with stability because it
distributes the burden of taxes unequally
(b) A carefully planned policy of public expenditure helps in redistributing income from the
rich to the poorer sections of the society. There are possible conflicts
(c) between different objectives of fiscal policy such that a policy designed to achieve one goal
may adversely affect another
(d) An increase in the size of government spending during recessions may possibly ‘crowd-
out’ private spending in an economy.
207. Read the following statements
I. Fiscal policy is said to be contractionary when revenue is higher than spending i.e., the
government budget is in surplus
II. Other things constant, a fiscal expansion will raise interest rates and “crowd out” some private
investment
III. During inflation new taxes can be levied and the rates of existing taxes are raised to reduce
disposable incomes
IV. Classical economists advocated contractionary fiscal policy to solve the problem of inflation Of
the above statements
(a) I and II are correct
(b) I, II and III are correct
(c) Only III is correct
(d) All are correct

208. While resorting to expansionary fiscal policy

(a) the government may possibly have a budget surplus as increased expenditure will bring
more output and more tax revenue
(b) the government may run into budget deficits because tax cuts reduce government income
and the government expenditures exceed tax revenues in a given year
(c) it is important to have a balanced budget to avoid inflation and bring in stability
(d) None of the above will happen

209. Contractionary fiscal policy

(a) is resorted to when government expenditure is greater than tax revenues of any particular
year
(b) increase the aggregate demand to sustain the economy
(c) to increase the disposable income of people through tax cuts and to enable greater demand
(d) is designed to restrain the levels of economic activity of the economy during an
inflationary phase

210. When government spending is deliberately reduced to bring in stability

(a) the government is resorting to contractionary fiscal policy
(b) the government is resorting to expansionary fiscal policy
(c) trying to limit aggregate demand to sustainable levels
(d) (a) and c) above

211. An increase in personal income taxes

(a) reduces disposable incomes leading to a fall in consumption spending and aggregate
demand
(b) is desirable during inflation or when there is excessive levels of aggregate demand
(c) is to compensate for the deficiency in effective demand by boosting aggregate spending
(d) both a) and b) are correct
212. While the government resorts to deliberate fiscal policy it may not attempt to manipulate
(a) Government expenditures on public works
(b) The rates of personal income taxes and corporate taxes
(c) Government expenditures on goods and services purchased by the government
(d) The rate of interest prevailing in the economy

213. Which of the following fiscal remedies would you advise when an economy is facing a
recession?
(a) the government may cut interest rates to encourage consumption and investment
(b) the government may cut taxes to increase aggregate demand
(c) the government may follow a policy of balancing the budget.
(d) None of the above will work

214. If governments compete with the private sector to borrow money to secure resources for
expansionary fiscal policy
(a) it is likely that interest rates will go up and firms may not be willing to invest
(b) it is likely that interest rates will go up and individuals too may be reluctant to borrow and
spend
(c) it is likely that interest rates will go up and the desired increase in aggregate demand may
not be realized
(d) All the above are possible.
_____________________________________________________________
Chapter – 8
1. Money can be anything that can serve as:
a. Store of value
b. Unit of account
c. Medium of exchange
d. All of the above

2. Following are the characteristics of ‘Fiat Money’ except?

a) It is materially worthless, i.e. no intrinsic value
b) It has value because a nation collectively agrees to ascribe a value to it, as government
made it legal tender
c) It works because people believe it will
d) It is not durable
3. Which of the following is not the characteristic of Money?
a) It should be generally accepted
b) It should be recognizable
c) It should not be difficult to counterfeit
d) It should possess uniformity

4. Demand for money is in the nature of _____________ demand

a. Autonomous
b. Derived
c. Both a. and b.
d. None of the above

5. Demand for money is

a) Demand for real balances
b) Actually demand for liquidity and demand to store value
c) a decision about how much of one's given stock of wealth should be held in the form of
money rather than as other assets such as bonds
d) All of the above

6. Demand for money depends on:

a. Income of individuals
b. General price level
c. Rate of Interest
d. All of the above

7. The quantity which people desire to hold is _________ proportional to the prevailing price level.
a) Directly
b) Inversely
c) Depends on the situation
d) None of the above

8. Higher the interest rate in the market ___________ the demand of money
a. Higher
b. Lower
c. No change in
d. None of the above

9. Innovations such as Internet banking, application-based transfers & ATMs___________ the need for
holding liquid money.
a) Increase
b) Reduce
c) Does not affect
d) None of the above
10. The Quantity theory of money was propounded by___________ of Yale University in his book__________
published in________.
a) Irving Fisher; The Purchasing Power of Money; 1991
b) Irving Fisher; The Purchasing Power of Money; 1911
c) Adam Smith; Wealth of Nations; 1931
d) None of the above

11. Fisher’s version is also termed as:

a. Equation of exchange
b. Transaction approach
c. Cash Balance approach
d. Both a. and b.

12. Calculate the value of Money supply as per Quantity theory of money, using the following data:
V= 24, P= 12, T = 40
a) 20
b) 480
c) 240
d) 200

13. In the equation, MV = PT, Demand for money is denoted by________.

a) MV
b) M
c) PT
d) T

14. The expanded form of the Quantity Theory of Money is____________.

a) MV + MV’ = PT
b) M'V' = PT
c) MV + M'V' = PT
d) None of the above

15. As per the quantity theory of money, change in general level of commodity prices are determined
first and foremost by changes in_________________
a) Quantity of money in circulation
b) Total number of transactions
c) Velocity of money in circulation
d) All of the above
16. Cambridge version holds that money increases utility in the following ways:
a) enabling the possibility of splitting of sale and purchase to two different points of time
rather than being simultaneous
b) being an uncertainty hedge against uncertainty
c) Both a & b
d) None of the above

17. Cambridge Approach is also known as__________

a. Transaction approach
b. Cash balance approach
c. Inventory approach
d. None of the above

18. Cambridge money demand function is stated as:

a. Md = k Y
b. Md = KP
c. Md = k PY
d. Md = k Y

19. In the Cambridge money demand function, what does 'k' represents:
a) Real national income
b) proportion of income that people want to hold as cash balances
c) Investment multiplier
d) Money multiplier

20. Keynesian theory of Demand for Money is also known as___________.

a) Equation of exchange
b) Liquidity Preference Theory
c) Transaction approach
d) Classical Approach

21. According to Keynes, people hold money in cash for:

a. Transaction motive
b. Precautionary motive
c. Speculative motive
d. All of the above

22. __________ motive for holding cash relates to ‘the need for cash for current transactions for personal
and business exchange’
a. Transaction motive
b. Precautionary motive
c. Speculative motive
d. All of the above
23. Money is demanded to bridge the time gap between the receipt of income planned and
expenditures. Which motive is referred in the statement?
a) Transaction demand for money
b) Precautionary demand for money
c) Speculative demand for money
d) All of the above

24. As per Keynesian theory, the transaction demand for money is _________ related to the interest rate.
a. Directly
b. Indirectly
c. Not
d. Positively

25. Individuals as well as businesses keep a portion of their income to finance such unanticipated
expenditure. This shows____________.
a) Transaction demand for money
b) Precautionary demand for money
c) Speculative demand for money
d) All of the above

26. People demand to hold money balances to take advantage of future changes in the rate of interest.
This shows_______________.
a) Transaction demand for money
b) Precautionary demand for money
c) Speculative demand for money
d) All of the above

27. The market value of bonds & market rate of interest are:
a) Directly related
b) inversely related
c) Not related
d) None of the above

28. As per the speculative motive of holding money, If the wealth holders consider that current rate of
interest is high compared to the normal rate of interest,
a. They expect bond prices to fall
b. They will hold the cash balance
c. They will convert their cash balances into bonds
d. They expect the rate of interest to rise in future
29. As per the speculative motive of holding money, if the wealth holders consider the current interest
rate as low, compared to the 'critical rate of interest', then-
a) they expect the rate of interest to rise in the future
b) they expect a fall in bond prices
c) they would have an incentive to hold their wealth in the form of liquid cash rather than
bonds
d) All of the above

30. Speculative demand for money and interest are:

a. Directly related
b. Inversely related
c. Not related
d. None of the above

31. _____________ is a situation when expansionary monetary policy does not increase interest rate, or
income & hence does not stimulate economic growth.
a) Expansion
b) Liquidity Trap
c) Crowding out
d) None of the above

32. The liquidity trap is synonymous with ______________

a. Effective Monetary policy
b. Ineffective monetary policy
c. Ineffective fiscal policy
d. None of the above

33. The speculative demand curve becomes ___________ with respect to interest rates in case of liquidity
trap
a. Perfectly elastic
b. Perfectly inelastic
c. Parallel to y-axis
d. None of the above

34. Inventory Theoretic Approach was given by__________________.

a) JM Keynes
b) Milton Friedman
c) Irving Fisher
d) Baumol & Tobin
35. As per Baumol, people hold money for ______________
a. Transaction purpose
b. Precautionary purpose
c. Speculative purpose
d. All of the above

36. ________ claims that transaction demand for money depends on the rate of interest
a. Irving fisher
b. JM Keynes
c. Baumol & Tobin
d. All of the above

37. As per Baumol & Tobin, higher the brokerage fees, _______ the transaction demand for money
a. Lower
b. Higher
c. Can’t say
d. No change in
38. As per ______________, demand for money is determined by the permanent income and not the
current income
a. Irving fisher
b. JM Keynes
c. Baumol
d. Friedman

39. As per Friedman, if the opportunity cost of money holdings rises, demand for money _______
a. Decreases
b. Increases
c. No change
d. Either a or b

40. As per Tobin’s liquidity preference function, the demand for holding money will be less at ______
rate of interest
a. Lower
b. Higher rate
c. Any
d. Zero

41. _______________ refers to the total quantity of money available with the public
a. Money Demand
b. Money Supply
c. Demand deposits
d. High powered money
42. 'Supply of money' excludes-
a) interbank deposits
b) money held by the government
c) money held by the banking system
d) All of the above

43. Empirical analysis of money supply is important because-

a) It is essential from a monetary policy perspective
b) It facilitates analysis of monetary developments to provide an understanding of causes of
money growth
c) Both a & b
d) None of the above

44. Supply of money depends on:

a. Decision of the central bank & response of the commercial banks
b. Decision of the central bank & habits of the individuals
c. Commercial banks & Government
d. All of the above

45. Most common measure of money supply are -

a) High Powered Money by Central bank
b) Credit Money by commercial bank
c) Both a & b
d) Money issued by Government

46. __________ is the primary source of money supply in all countries

a. Commercial banks
b. Government
c. Central bank
d. All of the above

47. Calculate narrow money from the following data:

Currency with the public – Rs. 10,000 crore
Demand deposits with the banking system – Rs. 12,000 crore
Time deposit with the banking system – Rs. 11,000 crore
Other deposits with RBI – Rs. 8,000 crore
Demand deposits of post office saving banks – Rs. 2,000 core
a. Rs. 42,000 crore
b. Rs. 44,000 crore
c. Rs. 30,000 crore
d. Rs. 22,000 crore
48. Calculate Currency with Public respectively-
Notes in Circulation - Rs. 43,22,288
Circulation of Rupee Coins - Rs. 26,422
Circulation of Small Coins - Rs. 2345
Cash on hand with Banks – Rs. 12345
a. Rs. 43,38,710
b. Rs. 43,51,055
c. Rs. 43,63,400
d. None of the above

49. Calculate Narrow Money (M1)

Currency with the public - Rs. 222,525
Demand Deposits with Banks – Rs. 1,34,440
Time Deposits with Banks – Rs. 2,80,556
Post office Demand Deposits – Rs. 3,233
Other Deposits with RBI: Rs. 55,655
Time deposits with post office – Rs. 2,345
a) Rs. 4,12,600
b) Rs. 4,12,620
c) Rs. 4,15,853
d) None of the above

50. Money created by RBI is

a. Monetary Base
b. High powered Money
c. Reserve money
d. All of the above

51. If Money supply in the economy is Rs. 100 and monetary base is Rs. 20, then money multiplier is:
a. 2000
b. 0.2
c. 5
d. None of the above

52. ________ is defined as a ratio that relates the changes in the money supply to a given change in the
monetary base
a. Required reserve ratio
b. Excess reserve ratio
c. Money Multiplier
d. Deposit ratio
53. If required reserve ratio is 10%, then money multiplier will be?
a) 1
b) 0.1
c) 10
d) 2

54. Reserve ratio & money multiplier is

a. Directly related
b. Inversely related
c. Positively related
d. Not related

55. Relationship between excess reserve & Money multiplier is:

a. Directly related
b. Inversely related
c. Not related
d. Positively related

56. Excess reserve ratio is ___________ related to the market interest rate
a. Directly
b. Inversely
c. Not
d. Positively

57. Whether money multiplier and credit multiplier always equal?

a) Yes
b) No, they are equal only when we assume banks do not hold excess reserves & public does
not hold currency and deposit whole money in bank
c) No, they are never equal
d) None of the above

58. As per Milton Friedman & Anna Schwartz which of the following factors are the determinants of
money supply:
a) Stock of high-powered money
b) Reserve-ratio
c) Currency Deposit Ratio
d) All of the above
59. If public decides to keep more money in their pocket and less money in bank. It leads to
an_____________ in currency ratio &____________ in money multiplier.
a) Increase, rise
b) Increase, fall
c) decrease, rise
d) decrease, fall

60. Fearing shortage of money in ATMs, people decide to withdraw the money from the bank & hold
with themselves. This will lead to________________.
a) Decrease in currency ratio & decrease in money multiplier
b) decrease in currency ratio & increase in money multiplier
c) Increase in currency ratio & decrease in money multiplier
d) Increase in currency ratio & increase in money multiplier

61. ______________ represents degree of adoption of banking habits by people.

a) Required reserve ratio
b) Excess reserve ratio
c) Currency deposit ratio
d) Time deposit-demand deposit ratio

62. Banks open large number ATMs all over the country. This will lead to_______________.
a) Decrease in currency ratio & decrease in money multiplier
b) decrease in currency ratio & increase in money multiplier
c) Increase in currency ratio & decrease in money multiplier
d) Increase in currency ratio & increase in money multiplier

63. An ___________ in time deposit- demand deposit ratio means that greater availability of free reserves
& _______ in money multiplier
a) Increase, increase
b) Decrease, increase
c) Increase, decrease
d) Decrease, decrease

64. Money supply varies __________ with changes in monetary base & _____________ with the currency &
reserve ratios
a. Directly; directly
b. Inversely; directly
c. Directly; inversely
d. Inversely; inversely
65. If Required Reserve Ratio= 0.2
Excess Reserve Ratio= 0.10
Currency Deposit Ratio= 0.3
Calculate Money multiplier
a) 2.17
b) 2
c) 1.67
d) None of the above

66. Calculate Money Multiplier, if:

Reserve Ratio (r) = 10%
Currency = Rs 500 crores
Deposits = Rs 800 crores
Excess Reserve = Rs 4 crores
a) 2.08
b) 2.22
c) 1.99
d) None of the above

67. __________ of government securities by central bank will reduce the money supply
a. Purchase
b. Sale
c. Both a. and b.
d. None of the above

68. Can Multiplier be zero?

a. Yes, when interest rates are too low
b. Yes, when interest rates are too high
c. No, it can never be zero
d. None of the above

69. The Central Bank in its execution of Monetary policy, functions within a framework which has the
following basic components-
a) The Objectives of monetary policy,
b) The Analytics of monetary policy which focus on Transmission mechanisms
c) The Operating procedure which focuses on operating targets & instruments
d) All of the above

70. The primary objective of monetary policy has been: ___________.

a) Price stability
b) Economic growth
c) Both a & b
d) None of the above
71. As per savings and investment channel, ________ interest rates on bank deposits reduce the
incentives of households to save their money.
a. Lower
b. Higher
c. Moderate
d. None of the above

72. _______________ lending rates can increase investment spending by business.

a. Lower
b. Higher
c. Moderate
d. None of the above

73. As per cash flow channel, reduction in interest rates can be expected to ________ spending in the
Indian economy.
a. Decrease
b. Increase
c. Have not effect on
d. None of the above

74. As per Asset Prices & wealth channel, ________ interest rates support asset prices by encouraging
demand for assets.
a. Lower
b. Higher
c. Moderate
d. None of the above

75. As per Asset Price & Wealth Channel, an increase in asset prices__________ people's wealth. This can
lead to___________ consumption and housing investment as households generally spend some share
of any increase in their wealth.
a) Decrease, lower
b) Increase, higher
c) Decrease, higher
d) Increase, lower

76. As per Exchange Rate Channel, a reduction in interest rates in India (compared with rest of world)
results in a _____________ exchange rate, making foreign goods and services more ______________
compared with those produced in India.
a) Higher, affordable
b) Lower, expensive
c) Higher, expensive
d) Lower, affordable
77. Amount set aside, which banks can neither lend it to anyone nor can it earn any interest rate or
profit.
a) Statutory Liquidity Ratio
b) Excess Reserve Ratio
c) Cash Reserve Ratio
d) All of the above

78. Banks are required to set aside this portion in liquid assets such as cash, gold or RBI approved
securities.
a) Cash Reserve ratio
b) Excess Reserve Ratio
c) Statutory Liquid Ratio
d) None of the above

79. When the RBI _____ government securities, the liquidity sucked from the market.
a) Purchases
b) Sells
c) Either a or b
d) None of the above

80. ________ tools are selective tools that have an effect on a specific sector of the economy
a. Quantitative tools
b. Qualitative tools
c. Both a. and b.
d. None of the above

81. ‘Controlling credit by not lending to selective industries or speculative businesses’. Which
qualitative tool is referred in the statement?
a. Selective credit control
b. Moral suasion
c. Margin requirement
d. All of the above

82. Which of the following is not a quantitative tool of monetary policy?

a) Cash Reserve Ratio
b) Statutory Liquidity Ratio
c) Repo Rate
d) Margin Requirements
83. RBI convinces banks to keep money in government securities, rather than certain sectors. This is
an example of_____________.
a) Selective credit control
b) Market stabilization scheme
c) Margin Requirement
d) Moral Suasion

84. The interest rate at which RBI lends long term funds to banks is referred to as the ____________.
a) Repo Rate
b) Reverse-Repo Rate
c) Interest rate
d) Bank Rate

85. _________ is used to prescribe penalty to the bank if it does not maintain the prescribed SLR or CRR
a. Repo Rate
b. Reverse-Repo Rate
c. Interest rate
d. Bank Rate

86. _____________ is the rate at which banks borrow from RBI on a short- term basis against a repurchase
agreement.
a) Repo Rate
b) Reverse-Repo Rate
c) Bank Rate
d) None of the above

87. If Repo rate is 4%, then reverse repo rate will be:
a) 5%
b) 3%
c) 4%
d) Reverse repo rate is not linked to repo rate.

88. ________ rate is the penal rate at which the Central Bank lends money to banks, over the rate
available under the repo policy.
a) Repo Rate
b) MSF Rate
c) Reverse-Repo rate
d) Bank Rate
89. Banks availing MSF Rate can use a maximum of_____________ of SLR securities.
a) 2%
b) 1%
c) 5%
d) 10%

90. The Monetary policy framework is an agreement reached between Government of India and
Reserve Bank of India on the _______________ tolerable inflation rate that RBI should target to achieve
price stability.
a. Minimum
b. Maximum
c. Desired
d. Any of the above

91. Inflation target is set by Govt. of India, in consultation with RBI, once in every ___ years.
a) 2
b) 5
c) 3
d) 4

92. RBI is mandated to publish a Monetary policy report every ________ months, explaining the source
of inflation and the forecast of inflation for the coming period of six to eighteen months.
a. 12
b. 6
c. 18
d. 2

93. The following factors are notified by central government as constituting a failure to achieve the
inflation target.
a. Average inflation is more than upper tolerance level of the inflation target for any three
consecutive quarters
b. Average inflation is less than lower tolerance level for any three consecutive quarters
c. Both a and b
d. None of the above

94. Open Market Operation implies

a. Buying and selling securities by RBI
b. Buying and selling securities by commercial banks
c. Buying and selling securities by Investors
d. Buying and selling securities by the government
95. The targeted inflation rate for RBI:
a. 4%
b. 2%
c. 6%
d. 5%

96. Mr. A, who is self-employed decided to keep more money in his savings account, considering the
prevailing economic and political conditions. What is the motive for such a move by A?
a. Transactions Motive
b. Speculative Motive
c. Precautionary Motive
d. Conservative Motive

97. As per Keynes, the expected rate of return on money is:

a. Nominal interest rate
b. Rate of inflation
c. Zero
d. Real Interest rate

98. Among the following identified by Friedman, which one is not one of the four determinants of
demand for money?
a. Average return on five asset classes
b. Price level in the economy
c. Inflation Rate
d. Forex Trade

99. Reverse repo rate is:

a. Equal to CRR
b. Equal to Bank rate
c. Equal to MSF
d. lower than the Repo rate

100. When the central bank conducts open market operations to purchase government
securities, what happens to the monetary base and the money supply?
a. Monetary base increases, money supply increases
b. Monetary base increases, money supply decreases
c. Monetary base decreases, money supply increases
d. Monetary base decreases, money supply decreases
101. Which of the following is true with regard to the Liquidity Trap?
a. Speculative Demand is parallel to X-Axis
b. The desire to hold a bond is infinity
c. Ineffective Monetary Policy
d. Both A & C

102. Choose the incorrect statement

(a) Anything that would act as a medium of exchange is money
(b) Money has generalized purchasing power and is generally acceptable in the settlement of
all transactions
(c) Money is a totally liquid asset and provides us with means to access goods and services
(d) Currency which represents money does not necessarily have intrinsic value.

103. Money performs all of the three functions mentioned below, namely
(a) medium of exchange, price control, store of value
(b) unit of account, store of value, provide yields
(c) medium of exchange, unit of account, store of value
(d) medium of exchange, unit of account, income distribution

104. Demand for money is

(a) Derived demand
(b) Direct demand
(c) Real income demand
(d) Inverse demand

105. Higher the ______________, higher would be ________________of holding cash and lower will be
the ______________________
(a) demand for money, opportunity cost, interest rate
(b) price level , opportunity cost, interest rate
(c) real income , opportunity cost, demand for money
(d) interest rate, opportunity cost, demand for money

106. The quantity theory of money holds that

(a) changes in the general level of commodity prices are caused by changes in the quantity of
money
(b) there is strong relationship between money and price level and the quantity of money is
the main determinant of the price
(c) changes in the value of money or purchasing power of money are determined
first and foremost by changes in the quantity of money in circulation
(d) All the above
107. The Cambridge approach to quantity theory is also known as
(a) Cash balance approach
(b) Fisher’s theory of money
(c) Classical approach
(d) Keynesian Approach

108. Fisher’s approach and the Cambridge approach to the demand for money consider
(a) money’s role in acting as a store of value and therefore, demand for money is for storing
value temporarily.
(b) money as a means of exchange and therefore demand for money is termed as liquidity
preference
(c) money as a means of transactions and therefore, demand for money is only transaction
demand for money.
(d) None of the above

109. Real money is

(a) nominal money adjusted to the price level
(b) real national income
(c) money demanded at given rate of interest
(d) nominal GNP divided by price level

110. The precautionary money balances people want to hold

(a) as income elastic and not very sensitive to rate of interest
(b) as income inelastic and very sensitive to rate of interest
(c) are determined primarily by the level of transactions they expect to make in the future.
(d) are determined primarily by the current level of transactions

111. Speculative demand for money

(a) is not determined by interest rates
(b) is positively related to interest rates
(c) is negatively related to interest rates
(d) is determined by the general price level

112. According to Keynes, if the current interest rate is high

(a) people will demand more money because the capital gain on bonds would be less than
return on money
(b) people will expect the interest rate to rise and bond price to fall in the future.
(c) people will expect the interest rate to fall and bond price to rise in the future.
(d) Either a) or b) will happen
113. The inventory-theoretic approach to the transactions demand for money
(a) explains the negative relationship between money demand and the interest rate.
(b) explains the positive relationship between money demand and the interest rate.
(c) explains the positive relationship between money demand and general price level
(d) explains the nature of expectations of people with respect to interest rates and bond prices

114. According to Baumol and Tobin’s approach to demand for money, the optimal average
money holding is:
(a) a positive function of income Y and the price level P
(b) a positive function of transactions costs c,
(c) a negative function of the nominal interest rate i
(d) All the above

115. ___________ considered demand for money is as an application of a more general theory of
demand for capital assets
(a) Baumol
(b) James Tobin
(c) J M Keynes
(d) Milton Friedman

116. The nominal demand for money rises if

(a) the opportunity costs of money holdings – i.e. bonds and stock returns, rB and rE ,
respectively- decline and vice versa
(b) the opportunity costs of money holdings – i.e. bonds and stock returns, rB and rE ,
respectively- rises and vice versa
(c) the opportunity costs of money holdings – i.e. bonds and stock returns, rB and rE ,
respectively remain constant
(d) b) and c) above

117. Reserve money is also known as

(a) central bank money
(b) base money
(c) high powered money
(d) all the above

118. Choose the correct statement from the following

(a) Money is deemed as something held by the public and therefore only currency held by the
public is included in money supply.
(b) Money is deemed as something held by the public and therefore inter -bank deposits are
included in money supply.
(c) Since inter-bank deposits are not held by the public, therefore inter-bank deposits are
excluded from the measure of money supply.
(d) Both (a) and (c) above.
119. Reserve Money is composed of
(a) currency in circulation + demand deposits of banks (Current and Saving accounts) + Other
deposits with the RBI.
(b) currency in circulation + Bankers’ deposits with the RBI + Other deposits with the RBI.
(c) currency in circulation + demand deposits of banks + Other deposits with the RBI.
(d) currency in circulation + demand and time deposits of banks + Other deposits with the RBI.

120. M1 is the sum of

(a) currency and coins with the people + demand deposits of banks (Current and Saving
accounts) + other deposits of the RBI.
(b) currency and coins with the people + demand and time deposits of banks (Current and
Saving accounts) + other deposits of the RBI.
(c) currency in circulation + Bankers’ deposits with the RBI + Other deposits with the RBI
(d) none of the above

121. Under the’ minimum reserve system’ the central bank is

(a) empowered to issue currency to any extent by keeping an equivalent reserve of gold and
foreign securities.
(b) empowered to issue currency to any extent by keeping only a certain minimum reserve of
gold and foreign securities.
(c) empowered to issue currency in proportion to the reserve money by keeping only a
minimum reserve of gold and foreign securities.
(d) empowered to issue currency to any extent by keeping a reserve of gold and foreign
securities to the extent of ` 350 crores

122. The primary source of money supply in all countries is

(a) the Reserve Bank of India
(b) the Central bank of the country
(c) the Bank of England
(d) the Federal Reserve

123. The supply of money in an economy depends on

(a) the decision of the central bank based on the authority conferred on it.
(b) the decision of the central bank and the supply responses of the commercial banking
system.
(c) the decision of the central bank in respect of high powered money.
(d) both a) and c) above.
124. Banks in the country are required to maintain deposits with the central bank
(a) to provide the necessary reserves for the functioning of the central bank
(b) to meet the demand for money by the banking system
(c) to meet the central bank prescribed reserve requirements and to meet settlement
obligations.
(d) to meet the money needs for the day to day working of the commercial banks

125. If the behaviour of the public and the commercial banks is constant, then
(a) the total supply of nominal money in the economy will vary directly with
(b) the total supply of nominal money in the economy will vary directly with the rate of
interest and inversely with reserve money
(c) the total supply of nominal money in the economy will vary inversely with the supply of
high powered money
(d) all the above are possible

126. Under the fractional reserve system

(a) the money supply is an increasing function of reserve money (or high powered money)
and the money multiplier.
(b) the money supply is an decreasing function of reserve money (or high powered money)
and the money multiplier.
(c) the money supply is an increasing function of reserve money (or high powered money) and
a decreasing function of money multiplier.
(d) none of the above as the determinants of money supply are different

127. The money multiplier and the money supply are

(a) positively related to the excess reserves ratio e.
(b) negatively related to the excess reserves ratio e.
(c) not related to the excess reserves ratio e.
(d) proportional to the excess reserves ratio e.

128. The currency ratio represents

(a) the behaviour of central bank in the issue of currency.
(b) the behaviour of central bank in respect cash reserve ratio.
(c) the behaviour of the public.
(d) the behaviour of commercial banks in the country.

129. The size of the money multiplier is determined by

(a) the currency ratio (c) of the public,
(b) the required reserve ratio (r) at the central bank, and
(c) the excess reserve ratio (e) of commercial banks.
(d) all the above
130. _____________tells us how much new money will be created by the banking system for a given
increase in the high-powered money.
(a) The currency ratio
(b) The excess reserve ratio (e)
(c) The credit multiplier
(d) The currency ratio (c)

131. The money multiplier will be large

(a) for higher currency ratio (c), lower required reserve ratio (r) and lower excess reserve
ratio (e)
(b) for constant currency ratio (c), higher required reserve ratio (r) and lower excess reserve
ratio (e)
(c) for lower currency ratio (c), lower required reserve ratio (r) and lower excess reserve ratio
(e)
(d) None of the above

132. The ratio that relates the change in the money supply to a given change in the monetary
base is called the
(a) required reserve ratio.
(b) money multiplier.
(c) deposit ratio.
(d) discount rate.

133. For a given level of the monetary base, an increase in the required reserve ratio will denote
(a) a decrease in the money supply.
(b) an increase in the money supply.
(c) an increase in demand deposits.
(d) Nothing precise can be said

134. For a given level of the monetary base, an increase in the currency ratio causes the money
multiplier to _____ and the money supply to _____.
(a) decrease; increase
(b) increase; decrease
(c) decrease; decrease
(d) increase; increase

135. If commercial banks reduce their holdings of excess reserves

(a) the monetary base increases.
(b) the monetary base falls.
(c) the money supply increases.
(d) the money supply falls.
136. Which of the following is the function of monetary policy?
(a) regulate the exchange rate and keep it stable
(b) regulate the movement of credit to the corporate sector
(c) regulate the level of production and prices
(d) regulate the availability, cost and use of money and credit

137. The main objective of monetary policy in India is _______:

(a) reduce food shortages to achieve stability
(b) economic growth with price stability
(c) overall monetary stability in the banking system
(d) reduction of poverty and unemployment

138. The monetary transmission mechanism refers to

(a) how money gets circulated in different sectors of the economy post monetary policy
(b) the ratio of nominal interest and real interest rates consequent on a monetary policy
(c) the process or channels through which the evolution of monetary aggregates affects the
level of product and prices
(d) none of the above

139. A contractionary monetary policy-induced increase in interest rates

(a) increases the cost of capital and the real cost of borrowing for firms
(b) increases the cost of capital and the real cost of borrowing for firms and households
(c) decreases the cost of capital and the real cost of borrowing for firms
(d) has no interest rate effect on firms and households

140. During deflation

(a) the RBI reduces the CRR in order to enable the banks to expand credit and increase the
supply of money available in the economy
(b) the RBI increases the CRR in order to enable the banks to expand credit and increase the
supply of money available in the economy
(c) the RBI reduces the CRR in order to enable the banks to contract credit and increase the
supply of money available in the economy
(d) the RBI reduces the CRR but increase SLR in order to enable the banks to contract credit
and increase the supply of money available in the economy

141. Which of the following statements is correct?

(a) The governor of the RBI in consultation with the Ministry of Finance decides the policy
rate and implements the same
(b) While CRR has to be maintained by banks as cash with the RBI, the SLR requires holding of
approved assets by the bank itself
(c) When repo rates increase, it means that banks can now borrow money through open
market operations (OMO)
(d) None of the above
142. RBI provides financial accommodation to the commercial banks through repos/reverse
repos under
(a) Market Stabilisation Scheme (MSS)
(b) The Marginal Standing Facility (MSF)
(c) Liquidity Adjustment Facility (LAF).
(d) Statutory Liquidity Ratio (SLR)

143. ______________is a money market instrument, which enables collateralized short term
borrowing and lending through sale/purchase operations in debt instruments.
(a) OMO
(b) CRR
(c) SLR
(d) Repo

144. In India, the term ‘Policy rate’ refers to

(a) The bank rate prescribed by the RBI in its half yearly monetary policy statement
(b) The CRR and SLR prescribed by RBI in its monetary policy statement
(c) the fixed repo rate quoted for sovereign securities in the overnight segment of Liquidity
Adjustment Facility (LAF)
(d) the fixed repo rate quoted for sovereign securities in the overnight segment of Marginal
Standing Facility (MSF)

145. Reverse repo operation takes place when

(a) RBI borrows money from banks by giving them securities
(b) banks borrow money from RBI by giving them securities
(c) banks borrow money in the overnight segment of the money market
(d) RBI borrows money from the central government

146. The Monetary Policy Framework Agreement is on

(a) the maximum repo rate that RBI can charge from government
(b) the maximum tolerable inflation rate that RBI should target to achieve price stability.
(c) the maximum repo rate that RBI can charge from the commercial banks
(d) the maximum reverse repo rate that RBI can charge from the commercial banks

147. An open market operation is an instrument of monetary policy which involves buying or
selling of ________from or to the public and banks
(a) bonds and bills of exchange
(b) debentures and shares
(c) government securities
(d) none of these
148. Which statement (s) is (are) true about the Monetary Policy Committee?
I. The Reserve Bank of India (RBI) Act, 1934 was amended on June 27, 2016, to give a statutory
backing to the Monetary Poli
II. The Monetary Policy Committee shall determine the policy rate through debate and a majority
vote by a panel of experts required to achieve the inflation target.
III. The Monetary Policy Committee shall determine the policy rate through consensus from the
governor of the RBI
IV. The Monetary Policy Committee shall determine the policy rate through debate and a majority
vote by a panel of bankers chosen for the purpose
(a) I only
(b) I and II only
(c) III and IV
(d) III only

149. If the monetary base in an economy is 250 crores through an open market operation by the
central bank, and the money supply is₹ 1,000 crores, calculate the money multiplier.
a. 0.25
b. 1
c. 4
d. 0.40

150. If the reserve ratio (R) is 0.10 and there is an increase in the reserves by ₹1,000, what will
be the change in the money supply?
a. ₹10,000
b. ₹1,000
c. ₹100
d. ₹10

151. Which of the following is NOT a function of money?

a. Providing a common measure of value
b. Acting as a medium of exchange
c. Serving as a unit of account
d. Easily reproducible by people

152. The concept of "aversion of risk" is propounded by

a. James Tobin
b. Milton Friedman
c. John Maynard Keynes
d. Alfred Marshall
153. What type of currency is issued by the central bank?
a. Commodity money
b. Digital money
c. Fiat money
d. Representative money

154. In an economy, the money supply (M) is₹ 500 crores, the velocity of money (V) is 5 and the
total number of transactions (T) is 10,000, Calculate the average price level (P) in the economy.
a. 25 thousand
b. 25 lakhs
c. 50 lakhs
d. 50 thousand

155. What does RBI publish every six months, providing explanations of the sources of inflation
and forecasts for the upcoming period of six to eighteen months?
a. Economic Outlook Report
b. Financial Stability Report
c. Monetary Policy Report
d. Inflation Targeting Framework

156. Reverse Repo rate is linked to repo rate in the following way:
a. Reverse Repo Rate = Repo Rate + 1
b. Reverse Repo Rate = Repo Rate – 1
c. Reverse Repo Rate = Repo Rate x 0.1%
d. Reverse Repo Rate Repo Rate x 0.01%
 CHAPTER 9
1. ___________ is the exchange of goods and services as well as resources between countries and
involves transactions between residents of different countries.
a) National Trade
b) International Trade
c) Domestic Trade
d) None of the above

2. Which of the following is not the benefit of International trade?

a) International trade is a powerful stimulus to economic efficiency
b) International trade is beneficial to the community since it tends to decrease the likelihood
of domestic monopolies.
c) International trade provides greater stimulus to innovative services like banking, etc.
d) Trade cycles and the economic crisis occurring in different countries are likely to get
transmitted rapidly to other countries.

3. Which theory of international trade advocated maximizing exports to accumulate wealth and
minimizing imports by imposing high tariff.
a) Theory of Absolute Advantage
b) Mercantilists' View of International Trade
c) Theory of Comparative Advantage
d) None of the above

4. Which theory of International trade argues that trade is a Zero-sum game?

a) Theory of Absolute Advantage
b) Mercantilists' View of International Trade
c) Theory of Comparative Advantage
d) None of the above

5. _____ was the first one to put across the possibility that international trade is not a zero sum game
and international trade was absolute cost advantage?
a) David Ricardo
b) Adam Smith
c) Eli Heckscher
d) Paul Krugman
6. According to which theory, trade between two countries would be mutually beneficial if each
national can produce one good with less expenditure than the other.
a) The Mercantilists' International Trade
b) Theory of Comparative Advantage
c) Theory of Absolute Advantage
d) Heckscher-Ohlin Theory of Trade

Question: The table below shows the output of Wheat and Rice by using one hour of labour time in
country A and country B-

Goods Country A Country B

Wheat 10 5
(Units/hour)

Rice 5 10
(Units/hour)

Answer the following MCQs 7 & 8 using the above table-

7. Which country has an absolute advantage in the production of Rice?

a) Country A
b) Country B
c) Both A & B
d) None of the above

8. Which country has an absolute advantage over another country in the production of wheat?
a) Country A
b) Country B
c) Both A & B
d) None of the above

9. Who observed that trade was driven by comparative rather than absolute costs of producing a
good?
a) David Ricardo
b) Adam Smith
c) Eli Heckscher
d) Paul Krugman
10. As per which theory of International trade, one country who is more productive than others in all
the goods should still import goods?
a) The Mercantilists' International Trade
b) Theory of Comparative Advantage
c) Theory of Absolute Advantage
d) Heckscher-Ohlin Theory of Trade

11. “Countries well-endowed with capital such as factories and machinery should export capital
intensive products while those endowed with labour should export labour intensive products”
Which international trade theory is referred here?
a) Mercantilists' View of International Trade
b) Theory of Absolute Advantage
c) Theory of Comparative Advantage
d) Heckscher-Ohlin Theory of Trade

12. As per which theory, International trade is only a special case of inter-regional trade?
a) Mercantilists' View of International Trade
b) Theory of Absolute Advantage
c) Theory of Comparative Advantage
d) Heckscher-Ohlin or Modern Theory of Trade

13. Which theory considers labour as the sole factor of production?

a) Theory of Absolute Advantage
b) Theory of Comparative Advantage
c) Both a & b
d) Heckscher-Ohlin Theory of Trade

14. Which theory does not take into account the factor price differences?
a) Mercantilists' view of international trade
b) Theory of Comparative Advantage
c) Heckscher-Ohlin Theory of Trade
d) None of the above

15. Who introduced the New International Trade Theory?

a) David Ricardo
b) Adam Smith
c) Eli Heckscher
d) Paul Krugman
16. According to NTT, two key concepts that gives advantages to countries that import goods to
compete with products from the home country are:
a) Economies of Scale
b) Network Effects
c) Both a & b
d) None of the above

17. __________ refers to the way one person's value for a good or service is affected by its value to
others.
a) Bandwagon effect
b) Network Effects
c) Economies of scale
d) Both a & b

18. According to which theory, value or price of a commodity depends exclusively on the amount of
labour going on its production and therefore factor prices will be the same
a) Mercantilists' View of International Trade
b) Theory of Absolute Advantage
c) Theory of Comparative Advantage
d) Heckscher-Ohlin theory of Trade

19. Which of the following theory is also known as factor endowment theory?
a) Mercantilists' View of International Trade
b) Theory of Absolute Advantage
c) Theory of Comparative Advantage
d) Heckscher-Ohlin or Modern Theory of Trade

20. Which theory described international trade as only as special case on inter-regional trade?
a) Mercantilists' View of International Trade
b) Theory of Absolute Advantage
c) Theory of Comparative Advantage
d) Heckscher-Ohlin or Modern Theory of Trade

21. ___________ is a state policy aimed at protecting domestic producers against foreign competition
through the use of tariffs, quotas and non-tariff trade policy instruments.

a) Trade Policy
b) Protectionism
c) Trade Liberalization
d) Free Trade
22. _________________ refers to opening up of domestic markets to goods and services from the rest of the
world by bringing down trade barriers

a) Trade Policy
b) Protectionism
c) Trade Liberalization
d) None of the above

23. ____________ encompasses all instruments that governments may use to promote or restrict imports
and exports
a) Trade Policy
b) Protectionism
c) Trade Liberalization
d) None of the above

24. ____________ is a fixed amount of money per physical unit or according to the weight or
measurement of the commodity imported or exported.

a) Ad Valorem Tariff
b) Specific Tariff
c) Compound Tariff
d) Mixed Tariff

25. ______________ is a tariff where duty is levied a fixed percentage of the value of the traded
commodity.

a) Ad Valorem Tariff
b) Specific Tariff
c) Compound Tariff
d) Mixed Tariff

26. _____ is a combination of an ad valorem and a specific tariff

a) Ad Valorem Tariff
b) Specific Tariff
c) Compound Tariff
d) Mixed Tariff

27. _______ is calculated on the basis of the specific contents of the imported goods i.e., the duties are
payable by its components or related items
a) Technical Tariff
b) Compound Tariff
c) Mixed Tariff
d) Variable Tariff
28. A duty typically fixed to bring the price of an imported commodity up to the level of the domestic
support price for the commodity.
a) Tariff Rate quota
b) Variable Tariff
c) Technical Tariff
d) Bound Tariff

29. _____ refer to the import tariff which countries promise to impose to imports from other members
of the WTO
a) MFN Tariffs
b) Bound Tariffs
c) Applied Tariffs
d) Technical Tariffs

30. Which of the following is not true about Bound Tariff?

a) It represents the maximum level of import duty that can be levied on a product imported
by WTO member
b) WTO member is always free to impose a tariff that is lower than the bound level
c) Once Bound, a tariff rate becomes permanent and can never be increased in any situation.
d) None of the above

31. The tariff on a product increase as that product moves through the value-added chain
a) Preferential Tariff
b) Escalated Tariff
c) Applied Tariff
d) Technical Tariff

32. _______ is a protectionist tariff that a domestic government imposes on foreign imports when it is
confirmed that goods are priced below fair market value.
a) Escalated Tariff
b) Anti-Dumping duties
c) Countervailing Duties
d) All of the above

33. The tariff which are imposed to offset the artificially low prices charged by exporters who enjoy
export subsidies and tax concessions from their government in their home country
a) Anti-Dumping duties
b) Countervailing Duties
c) Bound Tariff
d) None of the above
34. _____ are the subset of _____ that have a ‘protectionist or discriminatory intent’
a) Non-Tariff Barriers; Non-Tariff Measures
b) Non-Tariff Measures; Non-Tariff Barriers
c) Trade barriers; Non-Trade Measures
d) None of the above

35. ____ measures are applied to protect human, animal or plant life from risks arising from additives,
pests, etc.
a) Technical Barriers to Trade
b) Sanitary & Phytosanitary measures
c) Non-Technical Measures
d) None of the above

36. What is the purpose of a voluntary export restraint (VER)?

a) To limit the quantity of exports.
b) To encourage foreign producers to export more
c) To reduce the cost of imports.
d) To comply with international trade agreements.

37. _____ is a total ban imposed by government on import or export of some or all commodities to
particular country or regions for a specified or indefinite period.
a) Safeguard measures
b) Embargos
c) Administrative procedures
d) None of the above

38. The number of dollars supplied will decrease if:

a) imports into the United States increase.
b) the expected future exchange rate falls
c) the interest rate in the United States falls
d) fewer abroad. u.s. residents travel

39. Generalized System of Preferences is an example of-

a) Unilateral trade agreements
b) Customs union
c) Regional Preferential Trade Agreements
d) Bilateral Agreements
40. ____________ is a group of countries that eliminate all tariffs on trade among themselves but
maintain a common external tariff on trade with countries outside the union.
a) Common Market
b) Customs union
c) Free-trade area
d) None of the above

41. _________________ is a group of countries that have a free trade agreement between themselves and
the members maintain their own distinct external tariff
a) Trading Bloc
b) Free-Trade area
c) Custom Union
d) Common Market

42. _______________ is a type of RTA which provides for the free flow of output and of factors of
production by reducing or eliminating internal tariffs on goods and by creating a common set of
external tariffs.
a) Trading Bloc
b) Free-Trade area
c) Custom Union
d) Common Market

43. GATT lost its relevance by the 1980s because-

a) international investments had expanded substantially
b) intellectual property rights and trade-in services were covered not
c) world merchandise trade increased by leaps and bounds and was beyond its scope
d) All of the above

44. _____________ marked the birth of the Trade Organization (WTO)

a) July 1, 1996
b) July 1, 1994
c) July 1, 1995
d) None of the above

45. The WTO's top-level decision-making body is the___________ which can make decisions on all
matters under any of the multilateral trade agreements
a) Ministerial Conference
b) General Council
c) Goods Council, Services. Council and Intellectual Property (TRIPS) Council
d) None of the above
46. The total member countries under WTO currently:
a) 164
b) 171
c) 169
d) 161

47. The secretariat of WTO is based in:

a) Geneva
b) Italy
c) London
d) India

48. The Ministerial Conference meets at least once every _____________ years.
a) 1
b) 2
c) 3
d) 4

49. As per _______________, imported and locally produced goods should be treated equally - at least after
the foreign goods have entered the market.
a) Most-favored-nation Principle
b) National Treatment Principle
c) Principle of Freer trade
d) None of the above

50. As per which guiding principle of WTO, if a country grants someone a special favor then that
country has to do the same for all other WTO members.
a) Most-favored-nation Principle
b) National Treatment Principle
c) Principle of Freer trade
d) None of the above

51. The most controversial topic in the Doha Agenda is:

a) Trade in intellectual property rights-based goods
b) Trade in agriculture goods
c) Trade in manufactured goods
d) All of the above

52. Dumping occurs when manufacturers sell goods in a foreign country-

a) below the sales prices in their domestic market
b) below their full average cost of the product
c) Above the sales price in their domestic market
d) Both a & b
53. A 5% tariff on the import of Raw material and a 10% tariff on the import of finished goods, is an
example of-
a) Specific Tariff
b) Technical Tariff
c) Escalated Tariff
d) Bound Tariff

54. ____________ combines two policy instruments: quotas and tariffs. Imports entering under specified
quota portions are subject to lower Imports or zero tariff rates. Imports above the quantitative
threshold face a higher tariff.
a) Technical Tariff
b) Tariff Rate Quota
c) Mixed Tariff
d) Escalated Tariff

55. Which of the following is not an effect of tariff?

a) Create obstacles to trade, decrease imports & exports
b) Discourages domestic consumers from buying imported goods
c) Tariffs decrease government revenues of importing country
d) Domestic consumers get more consumer surplus

56. Food laws, quality standards, industrial standards, organic certification, eco-labelling, and
marketing and label requirements- are examples of-
a) Technical Barriers to Trade
b) Sanitary & Phytosanitary (SPS) Measures
c) Non-technical Measures
d) None of the above

57. ____________ are set below the free trade level of imports and are usually enforced by issuing
licenses.
a) Binding Quota
b) Non-binding Quota
c) Absolute quota
d) None of the above

58. _________________ is refers to a type of informal quota administered by an exporting country

voluntarily restraining the number of goods that can be exported out of that country during a
specified period of time.
a) Ban on exports
b) Voluntary Export Restraint
c) Export Taxes
d) Export Subsidies & Incentive
59. In which of the exchange rate system, government and central banks do not participate in the
market for foreign exchange
a) Free-floating exchange rate system
b) Managed float system
c) Fixed exchange rate system
d) Both a & b

60. Which of the following is not an advantage of free floating exchange rate system?
a) It is self-regulating, no need of government intervention
b) Market forces also restrain large swings in demand or supply
c) The central bank is not required to maintain a huge foreign exchange reserves
d) It is unpredictable

61. Which exchange rate system avoids current fluctuations and eliminates exchange rate risks?
a) Free-floating exchange rate system
b) Managed float system
c) Fixed exchange rate system
d) None of the above

62. ____ beings in more currency and monetary stability and credibility but lacks flexibility. On the
contrary, ________ has greater policy flexibility but lacks stability.
a) Fixed rate; floating rate
b) Floating rate; fixed rate
c) Free floating; managed floating
d) Managed floating; free floating

63. _____________ refers to the rate at which a person can trade the currency of one country for the
currency of another country
a) Real exchange rate
b) Nominal exchange rate
c) Real effective exchange rate
d) Nominal effective exchange rate

64. ________________ is argued to be efficient and highly transparent as the exchange rate is free to
fluctuate in response to the supply and demand without any government intervention
a) fixed exchange rate regime
b) flexible exchange rate regime
c) Managed floating exchange rate regime
d) None of the above
65. _____ is the rate at which a persona can trade the goods and services of one country for the goods
and services of another
a) Real Exchange Rate
b) Nominal Exchange Rate
c) Real effective exchange rate
d) Nominal effective exchange rate

66. Real exchange rate=

a) Nominal exchange rate x [Foreign price / Domestic price]
b) Nominal exchange rate X [Domestic price / Foreign price]
c) Nominal exchange rate X [Foreign price / Foreign price index]
d) Nominal exchange rate X [Domestic price index / Foreign price]

67. The Nominal Exchange rate of India is Rs 75/ $, the Price Index in India is 120 and the Price Index
in the USA is 40$ . What will be the Real Exchange Rate of India?
a) 30
b) 25
c) 28
d) 35

68. ______________ are transaction wherein contracts are agreed upon to buy or sell currencies for future
delivery which are carried out in forward and/or futures markets
a) Current Transactions
b) Future transactions
c) Both a & b
d) None of the above

69. _____________ is considered a vehicle currency

a) Indian Rupee
b) US Dollars
c) Pounds
d) Japanese Yen

70. ) If spot exchange rate is Rs. 80/$ and forward exchange rate is Rs. 85/$ then it is
a) Forward premium
b) Forward discount
c) Spot premium
d) None of the above
71. On the demand side, people desire foreign currency to
a) To purchase goods and services from another country
b) for unilateral transfers such as gifts, awards, grants donations or endowments
c) to make investment abroad
d) All of the above

72. _________ takes place when there is an decrease in the home currency price of the foreign currency
(or, alternatively, an increase in the foreign currency price of the home currency)
a) Home-currency appreciation
b) foreign-currency appreciation
c) Home-currency depreciation
d) Both b & c

73. ________________ is a deliberate downward adjustment in the value of a country's currency relative to
another country's currency or group of currencies or standards.
a) Devaluation
b) Appreciation
c) Revaluation
d) Depreciation

74. ______ of a country’s currency raises the relative price of its exports and lowers the relative price of
its imports
a) Appreciation
b) Depreciation
c) Both a & b
d) None of the above

75. Outcome of exchange rate depreciation is an _____________ impact on the economy at an aggregate
level
a) Contractionary
b) Expansionary
c) Both
d) None of the above

76. Explain the implications of the following on the exchange rate- Investors in India perceive that the
returns on investments in the US would be much more lucrative than elsewhere. As a result, there
is a huge increase in demand for investments in US dollar-denominated financial investments.

a) INR will appreciate, and USD will appreciate

b) INR will depreciate, and USD will appreciate
c) INR will depreciate, and USD will depreciate
d) INR will appreciate, and USD will depreciate
77. __________________ are "all investments involving a long-term relationship and reflecting a lasting
interest and control of a resident entity in one economy in an enterprise resident in an economy
other than that of the direct investor
a) Foreign Portfolio Investment (FPI)
b) Foreign Direct Investment (FDI)
c) Both a & b
d) None of the above

78. As per the IMF manual on 'Balance of payments', FDI occurs through the acquisition of more
than_____________________ of the shares of the target asset

a) 5%
b) 10%
c) 50%
d) 51%

79. The components of FDI are ______________.

a) Equity capital
b) Reinvested earnings
c) Other direct capital in the form of intra-company loans
d) All of the above

80. The modes of FDI are_________________.

a) opening of overseas companies,
b) including the establishment of Subsidiaries or branches,
c) creation of joint ventures on a contract basis
d) All of the above

81. A cell phone service provider based in the USA, moving to India to provide the same service. This
is an example of-
a) Horizontal FDI
b) Vertical FDI
c) Conglomerate FDI
d) All of the above

82. An automobile manufacturing company may acquire an interest in a foreign company that
supplies parts or raw materials required for the company. This is an example of-
a) Horizontal FDI
b) Vertical FDI
c) Conglomerate FDI
d) Reciprocal FDI
83. ________________ is one where an investor makes a foreign investment in a business unrelated to an
existing business in the home country.
a) Horizontal FDI
b) Vertical FDI
c) Conglomerate FDI
d) Reciprocal FDI

84. The purchase of a bond (certificate of indebtedness) of a Swiss company or the Swiss government
by a citizen or company based in France. is an example of-
a) Foreign Direct Investment
b) Foreign Portfolio Investment
c) Reciprocal FDI
d) All of the above

85. _____________ is not concerned with either the manufacture of goods or with the provision of
services
a) Foreign Direct Investment
b) Foreign Portfolio Investment
c) Reciprocal FDI
d) All of the above

86. ______________ is only short-term interest and generally remains invested for short periods.
a) Foreign Direct Investment
b) Foreign Portfolio Investment
c) Reciprocal FDI
d) All of the above

87. _____________ is not a reason for foreign direct investment

a) Infrastructure lags
b) High rates of inflation
c) Unskilled Labour & low literary rate
d) All of the above

88. ______________ is a form of FDI which makes use of the existing infrastructure by merging, acquiring
or leasing, instead of developing a completely new one
a) Greenfield investment
b) Brownfield investment
c) Both a & b
d) None of the above
89. Establishment of a new overseas affiliate for freshly starting production by a parent company is
________ FDI
a) Greenfield investment
b) Brownfield investment
c) Both a & b
d) None of the above

90. Which of the following does not represent a difference between internal trade and
international trade?
(a) transactions in multiple currencies
(b) homogeneity of customers and currencies
(c) differences in legal systems
(d) none of the above

91. The theory of absolute advantage states that

(a) national wealth and power are best served by increasing exports and decreasing imports
(b) nations can increase their economic well-being by specializing in the production of goods
they produce more efficiently than anyone else.
(c) that the value or price of a commodity depends exclusively on the amount of labour going
into its production and therefore factor prices will be the same
(d) differences in absolute advantage explains differences in factor endowments in different
countries

92. Which of the following theories advocates that countries should produce those goods for which it
has the greatest relative advantage?
(a) Modern theory of international trade
(b) The factor endowment theory
(c) The Heckscher-Ohlin Theory
(d) None of the above

93. Which of the following holds that a country can increase its wealth by encouraging exports and
discouraging imports?
(a) Capitalism
(b) Socialism
(c) Mercantilism
(d) Laissez faire
94. Given the number of labour hours to produce cloth and grain in two countries, which country
should produce grain?

Labour cost (hours) for production of one unit

Country A Country B

Cloth 40 80

Grain 80 40

(a) Country A
(b) Country B
(c) Neither A nor B
(d) Both A and B

95. According to the theory of comparative advantage

(a) trade is a zero-sum game so the net change in wealth or benefits among the participants is
zero.
(b) trade is not a zero-sum game so the net change in wealth or benefits among the
participants is positive
(c) nothing definite can be said about the gains from trade
(d) gains from trade depend upon factor endowment and utilization

96. Given the number of labour hours to produce wheat and rice in two countries and that these
countries specialize and engage in trade at a relative price of 1:1 what will be the gain of country
X?

Labour cost (hours) for the production of one unit

Wheat Rice

Country X 10 20

Country Y 20 10

(a) 20 labour hours

(b) 10 labour hours
(c) 30 labour hours
(d) Does not gain anything
97. Assume India and Bangladesh have the unit labour requirements for producing tables and mats
shown in the table below. It follows that:

Labour cost (hours) for the production of one unit

India Bangladesh

Tables 3 8

Mats 2 1

(a) Bangladesh has a comparative advantage in mats

(b) India has a comparative advantage in tables
(c) Bangladesh has an absolute advantage in mats
(d) All the above are true

98. Comparative advantage refers to

(a) a country’s ability to produce some good or service at the lowest possible cost compared to
other countries
(b) a country’s ability to produce some good or service at a lower opportunity cost than other
countries.
(c) Choosing a productive method that uses minimum of the abundant factor
(d) (a) and (b) above

99. Ricardo explained the law of comparative advantage on the basis of

(a) opportunity costs
(b) the law of diminishing returns
(c) economies of scale
(d) the labour theory of value

100. A specific tariff is

(a) a tax on a set of specified imported good
(b) an import tax that is common to all goods imported during a given period
(c) a specified fraction of the economic value of an imported good
(d) a tax on imports defined as an amount of currency per unit of the good

101. A tariff on imports is beneficial to domestic producers of the imported good because
(a) they get a part of the tariff revenue
(b) it raises the price for which they can sell their product in the domestic market
(c) it determines the quantity that can be imported to the country
(d) it reduces their producer surplus, making them more efficient
102. A tax applied as a percentage of the value of an imported good is known as
(a) preferential tariff
(b) ad valorem tariff
(c) specific tariff
(d) mixed or compound tariff

103. Escalated tariff refers to

(a) nominal tariff rates on raw materials which are greater than tariffs on manufactured
products
(b) nominal tariff rates on manufactured products which are greater than tariffs of raw
materials
(c) a tariff which is escalated to prohibit imports of a particular good to protect domestic
industries
(d) none of the above

104. Voluntary export restraints involve:

(a) an importing country voluntarily restraining the quantity of goods that can be exported
into the country during a specified period of time
(b) domestic firms agreeing to limit the quantity foreign products sold in their domestic
markets
(c) an exporting country voluntarily restraining the quantity of goods that can be exported out
of a country during a specified period of time
(d) quantitative restrictions imposed by the importing country's government.

105. Anti-dumping duties are

(a) additional import duties so as to offset the effects of exporting firm's unfair charging of
prices in the foreign market which are lower than production costs.
(b) additional import duties so as to offset the effects of exporting firm's increased
competitiveness due to subsidies by government
(c) additional import duties so as to offset the effects of exporting firm's unfair charging of
lower prices in the foreign market
(d) Both (a) and (c) above

106. A countervailing duty is

(a) a tariff that aim to offset artificially low prices charged by exporters who enjoy export
subsidies and tax concessions in their home country
(b) charged by importing countries to ensure fair and market-oriented pricing of imported
products
(c) charged by importing countries to protect domestic industries and firms from unfair price
advantage arising from subsidies
(d) All the above
107. Which of the following is an outcome of tariff?
(a) create obstacles to trade and increase the volume of imports and exports
(b) domestic consumers enjoy consumer surplus because consumers must now pay only a
lower price for the good
(c) discourage domestic consumers from consuming imported foreign goods and encourage
consumption of domestically produced import substitutes
(d) increase government revenues of the importing country by more than value of the total
tariff it charges

108. SPS measures and TBTs are

(a) permissible under the WTO to protect the interests of countries
(b) may result in the loss of competitive advantage of developing
(c) Countries increases the costs of compliance to the exporting countries
(d) All the above

109. Which of the following is not a non-tariff barrier?

(a) Complex documentation requirements
(b) Import quotas on specific goods
(c) Countervailing duties charged by importing country
(d) Pre shipment product inspection and certification requirements

110. Under tariff rate quota

(a) countries promise to impose tariffs on imports from members other than those who are
part of a preferential trade agreement
(b) a country permits an import of limited quantities at low rates of duty but subjects an
excess amount to a much higher rate
(c) lower tariff is charged for goods imported from a country that is given preferential
treatment
(d) none of the above

111. Non-tariff barriers (NTBs) include all of the following except:

(a) import quotas
(b) Tariffs
(c) export subsidies
(d) technical standards of products

112. Which of the following culminated in the establishment of the World Trade Organization?
(a) The Doha Round
(b) The Tokyo Round
(c) The Uruguay Round
(d) The Kennedy Round
113. Choose the correct statement
(a) The GATT was meant to prevent exploitation of poor countries by richer countries
(b) The GATT dealt with trade in goods only, while, the WTO covers services as well as
intellectual property.
(c) All members of the World Trade Organization are required to avoid tariffs of all types
(d) All the above

114. The ‘National treatment’ principle stands for

(a) the procedures within the WTO for resolving disagreements about trade policy among
countries
(b) the principle that imported products are to be treated no worse in the domestic market
than the local ones
(c) exported products are to be treated no worse in the domestic market than the local ones
(d) imported products should have the same tariff, no matter where they are imported from

115. ‘Bound tariff’ refers to

(a) clubbing of tariffs of different commodities into one common measure
(b) the lower limit of the tariff below which a nation cannot be taxing its imports
(c) the upper limit on the tariff that a country can levy on a particular good, according to its
commitments under the GATT and WTO.
(d) the limit within which the country’s export duty should fall so that there are cheaper
exports

116. The essence of ‘MFN principle’ is

(a) equality of treatment of all member countries of WTO in respect of matters related to trade
(b) favour one, country, you need to favour all in the same manner
(c) every WTO member will treat all its trading partners equally without any prejudice and
discrimination
(d) all the above

117. The World Trade Organization (WTO)

(a) has now been replaced by the GATT
(b) has an inbuilt mechanism to settle disputes among members
(c) was established to ensure free and fair trade internationally.
(d) (b) and c) above

118. The Agreement on Agriculture includes explicit and binding commitments made by WTO
Member governments
(a) on increasing agricultural productivity and rural development
(b) market access and agricultural credit support
(c) market access, domestic support and export subsidies
(d) market access, import subsidies and export subsidies
119. The Agreement on Textiles and Clothing
(a) provides that textile trade should be deregulated gradually and the tariffs should be
increased
(b) replaced the Multi-Fiber Arrangement (MFA) which was prevalent since 1974
(c) granted rights of textile exporting countries to increase tariffs to protect their domestic
textile industries
(d) stipulated that tariffs in all countries should be the same

120. The Agreement on Trade-Related Aspects of Intellectual Property Rights

(a) stipulates to administer a system of enforcement of intellectual property rights.
(b) provides for most-favoured-nation treatment and national treatment for intellectual
properties
(c) mandates to maintain high levels of intellectual property protection by all members
(d) all the above

121. The most controversial topic in the yet to conclude Doha Agenda is
(a) trade in manufactured goods
(b) trade in intellectual property rights-based goods
(c) trade in agricultural goods
(d) market access to goods from developed countries

122. The WTO commitments

(a) affect developed countries adversely because they have comparatively less agricultural
goods
(b) affect developing countries more because they need to make radical adjustments
(c) affect both developed and developing countries equally
(d) affect none as they increase world trade and ensure prosperity to all.

123. Based on the supply and demand model of determination of exchange rate, which of the
following ought to cause the domestic currency of Country X to appreciate against dollar?
(a) The US decides not to import from Country X
(b) An increase in remittances from the employees who are employed abroad to their families
in the home country
(c) Increased imports by consumers of Country X
(d) Repayment of foreign debts by Country X

124. All else equal, which of the following is true if consumers of India develop taste for
imported commodities and decide to buy more from the US?
(a) The demand curve for dollars shifts to the right and Indian Rupee appreciates
(b) The supply of US dollars shrinks and, therefore, import prices decrease
(c) The demand curve for dollars shifts to the right and Indian Rupee depreciates
(d) The demand curve for dollars shifts to the left and leads to an increase in exchange rate
125. ‘The nominal exchange rate is expressed in units of one currency per unit of the other
currency. A real exchange rate adjusts this for changes in price levels’. The statements are
(a) wholly correct
(b) partially correct
(c) wholly incorrect
(d) None of the above

126. Match the following by choosing the term which has the same meaning
i) floating exchange rate ii) fixed exchange rate

iii) pegged exchange rate a. depreciation

iv) devaluation b. revaluation

v) appreciation c. flexible exchange rate

(a) (i c); (ii d); (iii b); (iv a))

(b) (i b); (ii a); (iii d); (iv c)
(c) (i a ); (ii d ) ; (iii b); (iv c)
(d) (i d); ( ii a); (iii b); (iv c)

127. Choose the correct statement

(a) An indirect quote is the number of units of a local currency exchangeable for one unit of a
foreign currency
(b) the fixed exchange rate regime is said to be efficient and highly transparent.
(c) A direct quote is the number of units of a local currency exchangeable for one unit of a
foreign currency
(d) Exchange rates are generally fixed by the central bank of the country

128. Which of the following statements is true?

(a) Home-currency appreciation or foreign-currency depreciation takes place when there is a
decrease in the home currency price of foreign currency
(b) Home-currency depreciation takes place when there is an increase in the home currency
price of the foreign currency
(c) Home-currency depreciation is the same as foreign-currency appreciation and implies that
the home currency has become relatively less valuable.
(d) All the above
129. An increase in the supply of foreign exchange
(a) shifts the supply curve to the right and as a consequence, the exchange rate declines
(b) shifts the supply curve to the right and as a consequence, the exchange rate increases
(c) more units of domestic currency are required to buy a unit of foreign exchange
(d) the domestic currency depreciates and the foreign currency appreciates

130. Currency devaluation

(a) may increase the price of imported commodities and, therefore, reduce the
international competitiveness of domestic industries
(b) may reduce export prices and increase the international competitiveness of domestic
industries
(c) may cause a fall in the volume of exports and promote consumer welfare through increased
availability of goods and services
(d) (a) and (c) above

131. At any point of time, all markets tend to have the same exchange rate for a given currency
due to
(a) Hedging
(b) Speculation
(c) Arbitrage
(d) Currency futures

132. ‘Vehicle Currency’ refers to

(a) a currency that is widely used to denominate international contracts made by parties
because it is the national currency of either of the parties
(b) a currency that is traded internationally and, therefore, is in high demand
(c) a type of currency used in euro area for synchronization of exchange rates
(d) a currency that is widely used to denominate international contracts made by parties even
when it is not the national currency of either of the parties

133. Which of the following statements is incorrect?

(a) Direct investments are real investments in factories, assets, land, inventories etc. and
involve foreign ownership of production facilities.
(b) Foreign portfolio investments involve flow of ‘financial capital’.
(c) Foreign direct investment (FDI) is not concerned with either manufacture of goods or with
provision of services.
(d) Portfolio capital moves to a recipient country which has revealed its potential for higher
returns and profitability.
134. Which of the following is a component of foreign capital?
(a) Direct inter government loans
(b) Loans from international institutions (e.g. World Bank, IMF, ADB)
(c) Soft loans for e.g. from affiliates of World Bank such as IDA
(d) All the above

135. Which of the following would be an example of foreign direct investment from Country X?
(a) A firm in Country X buys bonds issued by a Chinese computer manufacturer.
(b) A computer firm in Country X enters into a contract with a Malaysian firm for the latter to
make and sell to it processors
(c) Mr. Z a citizen of Country X buys a controlling share in an Italian electronics firm
(d) None of the above

136. Which of the following types of FDI includes creation of fresh assets and production
facilities in the host country?
(a) Brownfield investment
(b) Merger and acquisition
(c) Greenfield investment
(d) Strategic alliances

137. Which is the leading country in respect of inflow of FDI to India?

(a) Mauritius
(b) USA
(c) Japan
(d) USA

138. An argument in favour of direct foreign investment is that it tends to

(a) promote rural development
(b) increase access to modern technology
(c) protect domestic industries
(d) keep inflation under control

139. Which of the following is a reason for foreign direct investment?

(a) secure access to minerals or raw materials
(b) desire to capture of large and rapidly growing emerging markets
(c) desire to influence home country industries
(d) (a) and (b) above
140. A foreign direct investor
(a) May enter India only through automatic route
(b) May enter India only through government route
(c) May enter India only through equity in domestic enterprises
(d) Any of the above

141. Foreign investments are prohibited in

(a) Power generation and distribution
(b) Highways and waterways
(c) Chit funds and Nidhi company
(d) Airports and air transport

142. Which of the following statement is false in respect of FPI?

(a) portfolio capital in general, moves to investment in financial stocks, bonds and other
financial instruments
(b) is effected largely by individuals and institutions through the mechanism of capital market
(c) is difficult to recover as it involves purely long-term investments and the investors have
controlling interest
(d) investors also do not have any intention of exercising voting power or controlling or
managing the affairs of the company.

143. As of 1 February 2021, how many Regional Trade Agreements (RTAs) were in force
worldwide?
a) 239 RTAS
b) 339 RTAs
c) 439 RTAS
d) 539 RTAS

144. Which of the following is the correct formula to calculate Excess Reserves?
a) Excess Reserves = Total reserves - Required reserves
b) Excess Reserves = Total reserves + Required reserves
c) Excess Reserves = Total reserves / Required reserves
d) Excess Reserves = Total reserves x Required reserves.

145. What does the principle of Absolute Advantage refer to?

a) The ability to produce a greater quantity of a goods using fewer resources
b) The ability to produce a greater quantity of a goods using the same amount of resources as
competitors
c) The ability to produce a lesser quantity of a goods using the same amount of resources as
competitors
d) The ability to produce a greater variety of goods than competitors
146. The North American Free Trade Agreement (NAFTA), is a trade agreement signed between
a) United States of America and Canada
b) United States of America, Canada, and Mexico
c) United States of America and Mexico
d) Canada and Mexico

147. What does TRIPS stand for?

a) Trade-Related Agreements on Investment Policies
b) Trade-Related Aspects of Intellectual Property Rights
c) Transnational Regulations for International Product Standards
d) Trade Regulations for International Patent Systems

148. Suppose the exchange rate between INR and EUR changes from 1 EUR = 80 INR to 1 EUR =
85 INR. What can be said about the change in the value of the INR relative terms to the EUR?
a) INR has appreciated against EUR. 7
b) INR has depreciated against the EUR.
c) EUR has no effect against INR.
d) EUR has depreciated against INR.

149. What is the main difference between Foreign Direct Investment (FDI) and Foreign Portfolio
Investment (FPI)?
a) FDI creates physical assets, while FPI involves only financial assets.
b) FDI involves financial assets, while FPI creates physical assets.
c) Both FDI and FPI create physical assets.
d) Both FDI and FPI involve only financial assets.

150. Foreign corporations invest in India to benefit from the country's particular investment
privileges such as tax breaks and comparatively lower salaries. This type of investment is an
example of:
a) Foreign Portfolio Investment
b) Joint Venture
c) Foreign Direct Investment
d) Strategic Alliance

151. A tariff which a WTO member binds itself with a legal commitment not to raise tariff rate
above a certain level is known as:
a) Applied tariff
b) Bound tariff
c) Specific tariff
d) Most-favoured nation tariffs
152. Which of the following is covered under Technical Barriers to Trade (TBT)?
a) Only food products.
b) Only non-food traded products.
c) Only technical standard products.
d) Both food and non-food traded products.

153. What term is used for the rate between currencies Y and Z, which is derived from the given
rates of another set of two pairs of currency (say, X and Y, and, X and Z)?
a) Bid rate
b) Ask rate
c) Spot rate
d) Cross rate

CHAPTER 10
1. Between the first and the_______________ , India is believed to have had the largest economy of the
ancient and the medieval world.
a) The seventeenth century BC
b) the eighteenth century AD
c) the nineteenth century BC
d) the seventeenth century AD

2. India is believed to have controlled between _______ and _________ of the world’s wealth.
a. One fourth; one fifth
b. One third; one fourth
c. One fifth; one sixth
d. None of the above

3. _______________ was the dominant occupation and the main source occupation of livelihood for the
majority of people.
a) Manufacturing
b) Agriculture
c) Service Sector
d) None of the above

4. ________ is believed to be a kind of handbook for King Chandragupta Maurya

a) Karmashastra
b) Yuddhashastra
c) Arthashastra
d) None of the above
5. The rule of East India company was from
a) 1858 to 1947
b) 1757 to 1858
c) 1757 to 1858
d) 1750 to 1850

6. British government in India ruled from

a) 1858 to 1947
b) 1757 to 1947
c) 1850 to 1947
d) None of the above

7. ___________ led to the virtual reversal of India’s foreign trade from an exporter of manufactured
goods to an exporter of raw materials.
a. Industrial revolution in India
b. Industrial Revolution in Britain
c. Both a and b
d. Poor quality of Manufactured goods

8. During latter half 18th century, Indian exports of finished goods were subject to _______ tariffs and
imports were charged to _________ tariffs under discriminatory tariffs
a. Lower; Higher
b. Higher; Higher
c. Higher; Lower
d. Lower; Lower

9. The cotton mill industry in India had _______ million spindles in the 1930s
a. 10
b. 9
c. 8
d. 12

10. The cotton milling business grew steadily throughout the second half of the ______________________
and achieved high international competitiveness.
a) 19th century
b) 18th century
c) 17th century
d) 20th century
11. At the end of 19th century, the Indian jute mill industry was the ________ in the world in terms of the
amount of raw jute consumed in production.
a. 2nd largest
b. 8th largest
c. Largest
d. 3rd Largest

12. India’ iron industry was ranked __________ in the world in terms of output in 1930s
a. 5th
b. 8th
c. 2nd
d. 3rd

13. Just before the Great Depression, India was ranked as the _____ largest industrialized country
measure by the value of Manufactured products
a. 2nd
b. 12th
c. 8th
d. 5th

14. The literacy rate was just above______________ percent and barely ________________ years of life
expectancy in 1951.
a) 20, 35
b) 18, 32
c) 18, 30
d) 20, 32

15. At the time of independence, all the economic policies were formulated in line with the __________
strategy
a. Capitalistic
b. Socialistic
c. Both a and b
d. None of the above

16. __________ was the cornerstone of Nehru’s development strategy

a. Agriculture
b. Rapid Industrialization
c. Privatization
d. All of the above
17. Industrial Policy Resolution (1948) envisaged an expanded role of ____ sector
a. Private
b. Public
c. Both a and b
d. Foreign

18. Which of the following is not related to Industrial Policy Resolution 1956?
a. Expansion of the scope of the public sector
b. Focus on Industrial development
c. Dampening of private initiative and enterprise
d. Private investments were encouraged

19. During 1950-80, Hindu growth rate was around _________

a. 5%
b. 3.8%
c. 3.5%
d. 3%

20. The strategy for agriculture development till mid 1960s was reliance on:
a. Land reforms
b. Innovative farm technologies
c. High yield varieties
d. All of the above

21. With continuous failures of monsoon, two severe and consecutive droughts struck India in _________
and ___________________.
a) 1965; 1966
b) 1966; 1967
c) 1967;1968
d) 1968;1969

22. The green revolution was materialized by

a. Innovative farm technologies
b. High yielding seed varieties
c. Fertilizers and pesticides
d. All of the above

23. The economic performance during the period of _____ is the worst in independent India’s history
a. 1950-1965
b. 1965-1981
c. 1980-1990
d. 1960-1965
24. The initiatives from _________ to _____ practically referred to as ‘early liberalization’.
a. 1991 to 1995
b. 1981 to 1989
c. 1965 to 1981
d. 1981-1999

25. These initiatives, spanning 1981 to 1989, were practically referred to as_________________.
a) 'early liberalization'
b) 'reforms by stealth'
c) Both a and b
d) None of the above

26. During 1980s, the facility of ___________ was accorded for industry groups to allow flexibility and
rapid changes in their product mix without going in for fresh licensing.
a. Broad-banding
b. Free licenses
c. Government approval
d. None of the above

27. The following steps are taken in 1980s Reforms, except:

a. Delicensing of 25 broad categories of industries was done
b. Multipoint excise duties were converted into MODVAT
c. Price and distribution controls on all the industries were entirely abolished
d. Open general license was steadily expanded.

28. India embarked on a bold set of immediate reforms in 1991 under ___ government
a. Jawaharlal Nehru
b. Indira Gandhi
c. Narsimha Rao
d. Manmohan Singh

29. Before the 1991 reforms, the foreign exchange reforms touched the lowest point with a reserve on
only _____ which was barely sufficient for _______ of imports
a. $1.5 billion; 4 weeks
b. $1.2 billion; 2 weeks
c. $1.2 billion; 4 weeks
d. $1.5 billion; 2 weeks
30. The reforms, popularly known as liberalization, privatization, and globalization, spelt a major shift
in economic philosophy and fundamental change in approach and had the following objectives:
a) Industrial development & macroeconomic stabilization.
b) Reorientation of the economy & macroeconomic stabilization
c) Price stability & expansion of foreign exchange reserves
d) None of the above

31. Drastic monetary and financial sector reforms were introduced with the objective of making the
financial system more efficient and transparent. These included many measures, which is among
them?
a) Interest rate liberalization and reduction in controls on banks by the RBI
b) Opening of new private sector banks
c) Liberalisation of bank branch licensing policy
d) All of the above

32. New Economic policy focused on Stabilization measure which were ______ measures & structural
reforms measures which were ______
a. Long term; short term
b. Short term; long term
c. Long term; long term
d. Short term; short term

33. Monetary policy reforms during 1990s were focused on:

a. Reducing the burden on non-performing assets
b. Reduction in control on banks by RBI
c. Opening of new private sector banks
d. All of the above

34. The SEBI which was setup in 1988 was given statutory recognition in ________
a. 1990
b. 1991
c. 1992
d. 1988

35. The New Industrial Policy’ was announced by the government on

a) 24 Aug 1991
b) 24 July 1990
c) 24 July 1991
d) 22 July 1991
36. Following are the reforms of New Economic policy, except:
a. End to the ‘License Raj’
b. MRTP Act was restructured and provisions related to Mergers, Amalgamations and
takeover was repealed
c. Foreign investment was liberalized and automatic approval was introduced for FDI in all
the industries.
d. Many goods produced by small scale industries have been de reserved.

37. In 1990-921, highest tariff rate was

a. 85%
b. 300%
c. 355%
d. 400%

38. The trade policy reforms aimed at:

a) dismantling of quantitative restrictions on imports and exports.
b) focusing on a more outward-oriented regime with phased reduction and simplification of tariffs
c) removal of licensing procedures for imports.
d) All of the above

39. In July 1991, the Indian government devalued the rupee by

a. 15%
b. 10%
c. 18%
d. 20%

40. From 1993 onwards, India has followed a ______ exchange rate system
a. Fixed
b. Free Floating
c. Managed floating
d. None of the above

41. On ________________, the apex policy-making body namely the planning commission, was replaced by
the National Institution for Transforming India (NITI) Aayog
a) 1st January 1991
b) 1st January 2015
c) 31st Jan 2015
d) 1st Feb 2010
42. _____ is expected to serve as a ‘Think Tank’ of the government.
a. Planning Commission
b. NITI Aayog
c. Finance Ministry
d. All of the above

43. NITI Ayog will work towards which of the objectives?

a) To evolve a shared vision of national development priorities, sectors, and strategies with
the active involvement of states.
b) To foster cooperative federalism
c) To pay special attention to the sections of our society that may be at risk of not benefiting
from adequate progress. from economic
d) All of the above

44. Which Initiatives of NITI Aayog facilitates and improves access to Indian government data?
a) India Policy Insights (IPI)
b) E-Amrit
c) NDAP
d) Shoonya

45. __________ campaign aims to improve air quality in India by accelerating the development of electric
vehicles
a. Methanol Economy
b. ‘LiFE’
c. Shoonya
d. E-Amrit

46. India has emerged as the world’s largest producer of:

a. Vegetables
b. Cotton
c. Pulses
d. All of the above

47. Gross value added by the agriculture and allied sector was ___ in 2021-22
a. 30%
b. 52.3%
c. 18.8%
d. 49%
48. The minimum support price of all 23 mandated crops is fixed at ______ times of average cost of
production
a. 2
b. 1.5
c. 3
d. 2.5

49. The government of India has allowed _______ % FDI in marketing of food products under the
automatic route
a. 49%
b. 26%
c. 74%
d. 100%

50. ________ is a novel insurance scheme for financial support to farmers suffering crop loss/damage
a. Pradhan Mantri Fasal Bima Yojana (PMFBY)
b. Paramparagat Krishi Vikas Yojana ( PKVY)
c. Both
d. None of the above

51. The Indian industry holds a significant position in the Indian economy contributing about
_____________of total gross value added in the country and employing over 12.1 crores of people.
a) 25%
b) 30%
c) 35%
d) 40%

52. In Jan 31, 2023 the Manufacturing Purchasing Managers’ Index in India stood at
a. 55
b. 55.4
c. 54.5
d. 54.4

53. India’s rank in Global innovation index (GII) improved to ___________ in 2022 from ____ in 2015
a. 40th; 82nd
b. 41st; 82nd
c. 40th; 81st
d. None of the above
54. ______________ is a one stop for investor related approvals and services in the country and aims to
provide continuous facilitations and support to investors
a. FAME India scheme
b. Udyami Bharat
c. National single window system
d. PM Gati Shakti national master plan

55. ______ scheme to promote manufacturing of electric and hybrid vehicle technology
a. Udyami Bharat
b. FAME-India
c. PLI Scheme
d. PM Gati Shakti national master plan

56. The service sector is the largest sector of India and accounts for __ of total india’s GVA
a. 18.8%
b. 30%
c. 53.89%
d. 58.3%

57. _____ is the fastest growing sector in India and has the highest labour productivity
a. Primary
b. Secondary
c. Tertiary
d. Foreign sector

58. _______ sector is the largest recipient of FDI inflows in India

a. Agriculture
b. Industrial
c. Service
d. Secondary

59. The real GDP of India grew by __________ in July-September of 2022-23 driven by strong private
consumption and investment.
a) 6.3%
b) 6.6%
c) 7.3%
d) 7.6 %

60. In Monetary & Financial Sector reforms, what steps were taken regarding reserve requirements?
a) Decrease in both SLR and CRR
b) Increase in both SLR and CRR
c) Increase in SLR & Decrease in CRR
d) Decrease in SLR & Increase in CRR
61. The Foreign Investment Promotion Board (FIPB) was abolished in May 2017, and a new regime
namely____________ has been put in place.
a) Foreign Investment Facilitation Board
b) Foreign Investment Facilitation Portal
c) Domestic Investment Promotion Portal
d) Foreign Investment Promotion Portal

62. ______________ FDI under automatic route is permitted for the sale of coal, and coal mining activities,
including associated processing infrastructure and for insurance intermediaries
a) 20%
b) 49%
c) 51%
d) 100%

63. India is among the top_____________ World Trade Organization (WTO) members in service exports
and imports
a) 2
b) 3
c) 5
d) 10

64. India is the world's_______________ producer of fruits, vegetables, farmed fish, tea, cotton, sugarcane,
wheat, rice, cotton and sugar.
a) Largest
b) Second Largest
c) Third Largest
d) Fifth

65. The Indian industry stagnated under the colonial rule because
a) Indians were keen on building huge structures and monuments only
b) Deterioration was caused by high prices of inputs due to draught
c) The Indian manufacturers could not compete with the imports of cheap machine-made
goods
d) None of the above

66. The sequence of growth and structural change in the Indian economy is characterized by
a) The historical prominence of pattern sectors agriculture, industry, services as
b) The historical prominence of pattern sectors industry, services, agriculture as
c) The unique experience of the sequence as agriculture, and services. Industry
d) All the above are correct
67. Merchandise Exports from India Scheme was replaced by -
a) Remission of Duties and Taxes on Export Products (RODTEP) in 2021
b) National Logistics Policy (NLP) in 2020
c) Remission of Duties and Taxes on Export Products (RODTEP) in 2019
d) None of the above

68. FAME-India Scheme aims to

a) Enhance faster industrialization through private participation
b) to promote manufacturing of electric and technology hybrid vehicle
c) to spread India's fame among its trading partners
d) None of the above

69. In terms of Ease of Doing Business in 2020, India ranks

a) 63
b) 77
c) 45
d) None of the above

70. E-NAM is -
a) An electronic name card given to citizens of India
b) National Agriculture Market with the objective of creating unified national a market for
agricultural commodities.
c) a pan-India electronic trading portal which network existing APMC mandis
d) b) and c) above

71. Which of the following is not a policy reform included in the new economic policy of 1991-
a) Removing licensing requirements for all industries
b) The foreign liberalized investment was
c) Liberalisation of international trade
d) The disinvestment of government holdings of equity share capital of public sector
enterprises

72. The strategy of agricultural development in India before the Green Revolution was -
a) High-yielding varieties of seeds and chemical fertilizers to boost productivity
b) Institutional reforms such as land reforms
c) Technological gradation of agriculture
d) All the above

73. The Industrial Policy Resolution (1948) aimed at -

a) Market-oriented economic reforms and opening up the economy of
b) A shift from Industrialization state to sector-led industrialization led to private
c) an expanded role for the public sector and licensing to the private sector
d) an expanded role of the private sector and a limited role of the public sector
74. The new economic policy of 1991 manifests in -
a) State-led industrialization and import substitution
b) Rethinking the role of markets versus the state
c) Emphasized the role of good governance
d) Bringing about a reduction in poverty and redistributive justice

75. The post-independence economic policy was rooted in -

a) A capitalist mode of production with heavy industrialization
b) social and redistribution economic and industrialization directed by the state
c) social and economic redistribution through private sector initiatives
d) Industrialization led by private entrepreneurs and redistribution by the state

76. The Indian industry stagnated under the colonial rule because
(a) Indians were keen on building huge structures and monuments only
(b) Deterioration was caused by high prices of inputs due to draught
(c) The Indian manufactures could not compete with the imports of cheap machine made
goods
(d) None of the above

77. The first wave of liberalization starts in India

(a) In 1951
(b) In 1980’s
(c) In 1990
(d) In 1966

78. The sequence of growth and structural change in Indian economy is characterized by
(a) The historical pattern of prominence of sectors as agriculture, industry, services
(b) The historical pattern of prominence of sectors as industry, services, agriculture
(c) Unique experience of the sequence as agriculture, services, industry
(d) All the above are correct

79. Merchandise Exports from India Scheme was replaced by -

(a) Remission of Duties and Taxes on Export Products (RoDTEP) in 2021
(b) National Logistics Policy (NLP) in 2020
(c) Remission of Duties and Taxes on Export Products (RoDTEP) in 2019
(d) None of the above
80. The Foreign Investment Promotion Board (FIPB)
(a) a government entity through which inward investment proposals were routed to obtain
required government approvals
(b) no more exists as the same is replaced by a new regime namely Foreign Investment
Facilitation Portal
(c) no more exists as all inward investments are through automatic route and need no
approval
(d) is the body which connects different ministries in respect of foreign portfolio investments

81. FAME-India Scheme aims to

(a) Enhance faster industrialization through private participation
(b) to promote manufacturing of electric and hybrid vehicle technology
(c) to spread India’s fame among its trading partners
(d) None of the above

82. In terms of Ease of Doing Business in 2020 India ranks

(a) 63
(b) 77
(c) 45
(d) None of the above

83. E-NAM is -
(a) An electronic name card given to citizens of India
(b) National Agriculture Market with the objective of creating a unified national market for
agricultural commodities.
(c) a pan-India electronic trading portal which networks the existing APMC mandis
(d) b) and c) above

84. Which of the following is not a policy reform included in the new economic policy of 1991 -
(a) removing licensing requirements for all industries
(b) Foreign investment was liberalized
(c) Liberalisation of international trade
(d) The disinvestment of government holdings of equity share capital of public sector
enterprises

85. Imports of foreign goods and entry of foreign investments were restricted in India because -
(a) The government wanted people to follow the policy of’ Be Indian; Buy Indian’
(b) Because foreign goods were costly and meant loss of precious foreign exchange
(c) Government policy was directed towards protection of domestic industries from foreign
competition
(d) Government wanted to preserve Indian culture and to avoid influence of foreign culture
86. The ‘Hindu growth rate’ is a term used to refer to -
(a) the high rate of growth achieved after the new economic policy of 1991
(b) the low rate of economic growth of India from the 1950s to the 1980s, which averaged
around 3.5 per cent per year
(c) the low growth of the economy during British period marked by an average of 3.5 percent
(d) the growth rate of the country because India is referred to as ‘Hindustan’

87. In the context of the new economic policy of 1991, the term ‘disinvestment’ stands for -
(a) A policy whereby government investments are reduced to correct fiscal deficit
(b) The policy of sale of portion of the government shareholding of a public sector enterprise
(c) The policy of public partnership in private enterprise
(d) A policy of opening up government monopoly to the privates sector

88. The objective of introducing Monopolies and Restrictive Trade Practices Act 1969 was -
(a) to ensure that the operation of the economic system does not result in the concentration of
economic power in hands of a few
(b) to provide for the control of monopolies
(c) to prohibit monopolistic and restrictive trade practice
(d) all the above

89. Which one of the following is a feature of green revolution -

(a) use of soil friendly green manure to preserve fertility of soil
(b) grow more crops by redistributing land to landless people
(c) High yielding varieties of seeds and scientific cultivation
(d) Diversification to horticulture

90. The strategy of agricultural development in India before green revolution was -
(a) High yielding varieties of seeds and chemical fertilizers to boost productivity
(b) Institutional reforms such as land reforms
(c) Technological up gradation of agriculture
(d) All the above

91. The Industrial Policy Resolution (1948) aimed at -

(a) Market oriented economic reforms and opening up of economy
(b) A shift from state led industrialization to private sector led industrialisation
(c) an expanded role for the public sector and licensing to the private sector
(d) an expanded role of private sector a limited role of public sector
92. The new economic policy of 1991 manifest in -
(a) State led industrialization and import substitution
(b) Rethinking the role of markets versus the state
(c) Emphasized the role of good governance
(d) Bringing about reduction in poverty and redistributive justice

93. The post-independence economic policy was rooted in -

(a) A capitalist mode of production with heavy industrialization
(b) social and economic redistribution and industrialization directed by the state
(c) social and economic redistribution through private sector initiatives
(d) Industrialization led by private entrepreneurs and redistribution by state

94. On which date was the 'New Industrial Policy announced by Government of India?
a. 15th August 1947
b. 24th July 1991
c. 26th January 1950
d. 5th September 1992

95. On which date was the apex policy-making body, the Planning Commission, replaced by the
National Institution for Transforming India (NITI) Aayog?
a. 1 April 2015
b. 1 July 2015
c. 1 January 2015
d. 1 July 2016

96. Which government scheme supports and promotes organic farming, as well as the improvement
of soil health?
a. National Rural Employment Guarantee Act (NREGA)
b. Rashtriya Krishi Vikas Yojana (RKVY)
c. Pradhan Mantri Fasal Bima Yojana (PMFBY)
d. Paramparagat Krishi Vikas Yojana (PKVY)

97. Which initiative aims at the empowerment of Micro Small and Medium Enterprises (MSMEs)?
a. Udyami Bharat
b. Start-up India
c. Make in India
d. Digital India
98. Transportation and storage, real estate service, public administration and education are the
activities in India which are covered by:
a. Primary sector
b. Secondary sector
c. Tertiary sector
d. Private sector

99. What is the full form of DPIIT?

a. Department for Promotion of Industry and International Trade
b. Department for Promotion of Industrial and Internal Trade
c. Directorate for Promotion of Industry and Internal Trade
d. Department for Promotion of Industry and Internal Trade

100. Which of the following is not the aim of the 'Methanol Economy' programme?
a. Converting coal reserves and municipal solid waste into methanol.
b. Reducing Greenhouse gas (GHG) emissions.
c. Reducing India's oil import bill
d. Converting industrial waste into methanol.

101. Which of the following statements is true in relation to the object of The National Data and
Analytics Platform (NDAP)?
a. To ensure data security.
b. To facilitate and improve access to Indian government data.
c. To convert all government data in electronic form.
d. To formulate a national cyber security law.

102. The India Development Update (IDU) report published by____ in November 2022:
a. United Nations Development Programme (UNDP)
b. International Monetary Fund (IMF)
c. World Bank
d. Asian Development Bank (ADB)