Economics MCQ Quiz - Objective Question with Answer for Economics - Download Free PDF

The correct answer is - Foreign currency and gold with RBI

Key Points

• Foreign currency reserves are primarily maintained by the Reserve Bank of India (RBI).
• These reserves consist of:
  • Foreign currency assets (FCA), which include foreign currencies like the US dollar, euro, pound sterling, and yen.
  • Gold reserves, held by the RBI as part of its overall reserve assets.
• The reserves are crucial for stabilizing the exchange rate and ensuring liquidity in times of economic uncertainty.
• Other options, such as deposits with SBI or assets of EXIM Bank, are not components of the country's official foreign currency reserves.

Additional Information

• Purpose of foreign currency reserves:
  • To manage the country's balance of payments (BoP).
  • To stabilize the domestic currency in the foreign exchange market.
  • To act as a buffer against external economic shocks or crises.
• Composition of reserves:
  • Foreign currency assets (FCA): The largest component, including investments in foreign government bonds and deposits.
  • Gold: A tangible reserve held by the RBI for diversification and value stability.
  • Special Drawing Rights (SDRs): Allocated by the International Monetary Fund (IMF) to supplement official reserves.
  • Reserve Tranche Position (RTP): The portion of India's quota with the IMF that can be accessed without conditions.
• Importance:
  • Foreign currency reserves are vital for maintaining confidence in the country's economy.
  • They help mitigate risks arising from external financial disturbances.

The correct answer is - J M Keynes

Key Points

• J M Keynes
  • John Maynard Keynes was a renowned economist who advocated for a mixed economy, blending elements of capitalism and socialism.
  • He argued that government intervention is crucial to stabilize economies during periods of recession or economic crises.
  • Keynes proposed that a combination of public and private sectors would help ensure economic growth and social welfare.
  • His ideas formed the foundation of modern macroeconomics and influenced the adoption of mixed economies worldwide.

Additional Information

• Mixed Economy
  • It is an economic system that incorporates elements of both capitalism (private ownership) and socialism (government ownership).
  • In a mixed economy, the government regulates certain industries and provides public goods, while private enterprises drive innovation and competition.
• Keynesian Economics
  • Keynesian theory emphasizes the role of government spending and fiscal policies to manage economic fluctuations.
  • It introduced concepts like aggregate demand and highlighted the importance of maintaining employment levels to avoid economic downturns.

The correct answer is - A.C. Pigou

Key Points

• A.C. Pigou
  • He is credited with advancing the welfare-oriented definition of economics.
  • According to Pigou, economics is a study of how resources are allocated to maximize social welfare.
  • This definition places emphasis on improving human welfare and addressing social and economic issues.
  • It contrasts with definitions focused purely on wealth or scarcity, highlighting the role of economics in achieving better living conditions.

Additional Information

• Welfare Economics
  • Focuses on how economic policies and decisions impact the well-being of individuals and society.
  • Central concepts include equity, efficiency, and the distribution of resources.
  • A.C. Pigou's work laid the foundation for modern welfare economics, influencing social policy and taxation theories.
• Key Figures in Economics
  • Adam Smith: Known as the "Father of Economics," he emphasized wealth creation and free markets.
  • Alfred Marshall: Advocated for economics as the study of human behavior in relation to wealth.
  • Lionel Robbins: Defined economics as the science of scarcity and choice, focusing on efficient resource allocation.

The correct answer is - J.K. Mehta

Key Points

• J.K. Mehta introduced the concept of 'Wantlessness' in economics.
• The term 'Wantlessness' refers to a state where an individual's desires are fully satisfied, leaving no further wants.
• J.K. Mehta, a noted Indian economist, emphasized this concept in the context of achieving economic satisfaction and self-contentment.
• This idea aligns with broader philosophical and economic discussions on the balance between human desires and resources available.

Additional Information

• J.K. Mehta's Contributions
  • He is known for his work in Welfare Economics and his interpretation of economic concepts with a philosophical perspective.
  • His ideas often reflect a blend of Western economic theories with Indian philosophical thoughts.
• Application of Wantlessness
  • In modern economics, the idea of wantlessness can be linked to consumer equilibrium, where an individual achieves maximum satisfaction given their constraints.
  • This concept is also relevant in discussions of sustainable consumption and minimalism, promoting reduced desires for a balanced and content lifestyle.

The correct answer is - Major role of public sector

Key Points

• Liberalisation
  • It involves reducing government control over economic and financial policies.
  • It focuses on promoting private sector participation and minimizing the dominance of the public sector.
  • The concept of liberalisation encourages competition in the market, leading to better efficiency and innovation.
• Major role of public sector
  • In liberalisation, the public sector does not play a dominant role; instead, the focus shifts toward private sector-led growth.
  • This is contrary to the principles of liberalisation, which aim to reduce the monopolistic control of the public sector.
  • Therefore, major role of public sector is excluded from the scope of liberalisation.

Additional Information

• Encouragement of competition
  • Liberalisation promotes fair competition to improve the quality of goods and services.
  • It allows private players to enter markets previously dominated by government-controlled entities.
• Development of financial markets
  • One of the key aspects of liberalisation is the growth and modernization of financial markets.
  • This includes measures such as deregulating interest rates and allowing foreign investment.
• Liberalisation of economic policies
  • Economic liberalisation involves reducing tariffs, quotas, and restrictions to facilitate free trade.
  • It aims to create an open and globalized economy.

The correct answer is Hyderabad.

Key Points

• The head office of the Insurance Regulatory and Development Authority of India (IRDAI) is situated in Hyderabad. 
• Insurance Regulatory and Development Authority of India (IRDAI):
  • It was constituted by the recommendations of the Malhotra Committee report, in 1999.
  • It is an autonomous body.
  • It regulates and develops the insurance industry.
  • The IRDA was incorporated as a statutory body in April 2000.
  • Objective: Enhance customer satisfaction through increased consumer choice and lower premiums while ensuring the financial security of the insurance market.
  • Today there are 34 general insurance companies and 24 life insurance companies operating in the country.

Additional Information

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is a flagship Programme of the Government of India.

Important Points MGNREGA:

• The scheme was introduced as a social measure that guarantees “the right to work”.

The correct answer is agricultural rural hinterland.

Key Points

• Industrially developed urban centers are usually surrounded by an "agricultural rural hinterland."
• In geographical terms, a 'hinterland' refers to the area surrounding a town or port, which is served by the port or town for the transportation of goods.
• In context, an agricultural rural hinterland serves as the region that supplies the urban center with agricultural products or raw materials and in return, it receives industrial goods and services.
• However, it's important to note that the exact nature and characteristics of the hinterland can change based on specific geographical or economic contexts.
• For instance, a seaport city might indeed have a "seaport hinterland" where the surrounding areas rely on the port for trade and transportation access.

The correct answer is Reserve bank of India.

Key PointsReserve Bank of India (RBI) is India’s central bank.

• In compliance with the terms of the Reserve Bank of India Act, 1934, it was founded on April 1, 1935 in Calcutta.
  • It was permanently moved to Mumbai in 1937.
• Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India.
• It also functions as the "lender of last resort" and is considered Banker to Banks.
• It regulates the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.
• It also monitors the monetary policies through its Monetary Policy Committee (MPC).

Additional InformationState Bank of India:

• The Imperial Bank of India was nationalized to establish the State Bank of India on July 1, 1955.
• It is the biggest public-sector bank in India.
• Its first chairman was John Mathai.
• Its present chairman is Dinesh Kumar Khara.
• It administers public debt, acts as the government's bank, and collects money and makes payments on the government's behalf.
• It lends money to commercial banks and takes deposits from them.
• It acts as a representative for cooperative banks.

​Nationalised Bank:

• These are also known as Public Sector Bank.
• Banks are classified as public sector, where the public interest is the primary goal and the government has retained a majority of its share.
• In order to enter the banking industry after gaining independence, the Indian government began nationalising the Imperial Bank of India in 1955.
• It was renamed the State Bank of India after the Reserve Bank of India acquired 60% of the company.
• The Indian government nationalized fourteen more banks in 1969.

​Union Bank of India:

• It was founded in 1919.
• The Government of India nationalized it in 1969.
• It is the fifth-largest public-sector bank.
• Mahatma Gandhi officially opened it as a limited corporation.
• The present MD and CEO of Union Bank of India is A. Manimekhalai.

The correct answer is Geometrically

Key Points

Malthus' theory of population:

• Population and Food Supply: Malthus theorised that any population grows in geometric progression.
•  He believed that a balance between population growth and food supply can be established through preventive and positive checks.

Important Points Major Elements of the Malthusian Theory

Population and Food Supply: 

• The Malthusian theory provided an explanation for why population growth is geometric.
• At this rate, the population would double in 25 years. However, there is an arithmetic increase in the food supply.
• The amount of food available grows more slowly than the population. In other words, there won't be enough food in a few years.
• A growing population is indicated by the food supply shortfall.

Checks on Population:

• Disequilibrium occurs when there is a gap between the rate of population growth and the availability of food.
• People will therefore not have access to even enough food for survival. Due to a scarcity of food, many will perish.
• Malthus referred to the occurrence of adversities like epidemics, wars, starvation, famines, and other natural disasters as positive checks.
• Contrarily, there are artificial checks referred to as preventive checks.

Positive Checks:

• The natural world has its own mechanisms for regulating the expanding human population.
• It raises the population to the level at which food is readily available.
• Famines, earthquakes, floods, diseases, wars, etc. are examples of the positive checks.
• When population expansion becomes out of control, nature becomes more active.

Preventive Checks:

• Late marriage, self Control, and simple living are preventive strategies that help to balance population increase and food availability.
• These procedures not only limit population increase but also have the potential to avoid the terrible effects of positive checks.

Macroeconomics is also called the theory of income.

Key Points

•  Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole.
• It focuses on the aggregate changes in the economy such as unemployment, growth rate, gross domestic product, and inflation.  
• Macroeconomics is also known as the Theory of Income and Employment, or income analysis, as it focuses on how income and employment levels are determined in an economy. The subject of macroeconomics revolves around the determination of income and employment.
• Income and employment theory, a body of economic analysis concerned with the relative levels of output, employment, and prices in an economy. By defining the interrelation of these macroeconomic factors, governments try to create policies that contribute to economic stability.

The correct answer is The rate of inflation would increase.

Important Points 

• When the actual unemployment rate is less than the natural rate, inflation increases.
• When the actual unemployment rate exceeds its natural rate, inflation decreases.
• So, the natural rate of unemployment can be seen as the rate of unemployment required to keep inflation constant.

Key Points 

• The natural rate of unemployment:
  • The natural rate of unemployment is the unemployment rate that would exist in a growing and healthy economy.
  • In other words, the natural rate of unemployment includes only frictional and structural unemployment and not cyclical unemployment.
  • The natural rate of unemployment is related to two other important concepts: full employment and potential real GDP.
  • The economy is considered to be at full employment when the actual unemployment rate is equal to the natural rate.
  • When the economy is at full employment, real GDP is equal to potential real GDP.
  • When the economy is below full employment, the unemployment rate is greater than the natural unemployment rate and real GDP is less than potential.
  • When the economy is above full employment, then the unemployment rate is less than the natural unemployment rate and real GDP is greater than potential.

Additional Information

• Inflation:
  • Inflation is the rate of increase in prices over a given period of time.
  • Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.
  • But it can also be more narrowly calculated—for certain goods, such as food, or for services, such as a haircut, for example.
• Deflation:
  • Deflation is a serious economic issue that can exacerbate a crisis and turn a recession into a full-blown depression.
  • When prices fall and are expected to drop in the future, businesses and individuals choose to hold on to money rather than spend or invest.
  • This leads to a drop in demand, which in turn forces businesses to cut production and sell off inventories at even lower prices.
  • In order to correct the situation of deflation Securities are purchased by the central bank.
• Stagflation:
  • Stagflation refers to an economic condition where economic growth is very slow or stagnant and prices are rising. 
  • The term stagflation was coined by British politician Iain Macleod, who used the phrase in his speech to parliament in 1965.
• Hyperinflation:
  • Hyperinflation is a situation where the price increases are too sharp. 
  • Hyperinflation often occurs when there is a large increase in the money supply, which is not supported by growth in Gross Domestic Product (GDP). 
  • Such a situation results in an imbalance in the supply and demand for money. 

The correct answer is agglomeration economies.Key Points

• Agglomeration economies refer to the benefits that arise from the clustering of industries in urban centers. These benefits include:
  • Economies of scale: Firms can share infrastructure and resources, reducing costs and increasing efficiency.
  • Access to skilled labor: A concentration of industries in one area can attract a skilled workforce, making it easier for firms to find and hire qualified employees. 
  • Innovation: Proximity to other firms can lead to knowledge spillovers and collaboration, fostering innovation and growth.
  • Reduced transportation costs: By locating near other firms and suppliers, firms can reduce transportation costs and increase speed of delivery.

Additional Information

• Rural economies refer to economies that are based on agriculture and natural resources.
• Amalgamation economies refer to the benefits that arise from the consolidation of firms in a particular industry.
• Urban economies refer to the overall economic activity and growth of urban areas.