Basic Concepts and Terminologies in Economy
1. Fisher effect shows the relationship between:
1. Inflation 2. Unemployment
3. Interest rate 4. Economic growth
Select the correct answer using the code be-low.
(a) 1 and 3 only (b) 2 and 3 only
(c) 1 and 4 only (c) 1,2,3 and 4
2. The Pareto principle is sometimes used to judge:
1. Effectiveness of welfare programmes.
2. Efficient allocation of public finances
Which of the above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
3. In the Philips curve, what is the relationship between the rate of unemployment
and inflation in the short-run?
(a) Unemployment and inflation are not related to each other.
(b) Decreasing unemployment rate leads to lower inflation in the economy.
(c) Decreasing unemployment rate requires higher inflation in the economy.
(d) Inflation can grow event at constant levels of unemployment in the economy.
4. Okun’s law is the relationship between:
(a) Inflation and GDP growth rate
(b) Unemployment rate and gross national product (GNP)
(C) Supply and demand of currency in an economy
(d) Population and economic growth rate
5. Ricardian equivalence is a proposition that argues that consumers are forward looking.
It argues that:
(a) Taxation and borrowing are equivalent means of financing expenditure
(b) Borrowing abroad and borrowing domestically are equivalent means of financing
Expenditure
(c) Saving or investment are equivalent
(d) None of the above
6. Which of the following is NOT one of the components of Mundell’s impossible trinity?
(a) Free capital flows
(b) Fixed exchange rate
(c) Balanced budget
(d) Independent monetary policy
7. Laffer curve shows the relationship between:
(a) Tax rate and tax revenue
(b) Inflation and unemployment
(c) GDP growth and endogenous technology
(d) Enviromental degradation and economic inequality
8. Expectations argumented Philips curve is often used to predict the short-term and long-term impact of macroeconomic management policies in an economy. The term expectations about:
(a) GDP growth rate
(b) Inflation
(c) External balance
(d) Enviromental degradation
9. The famous Kuznets inverted-U curve is often used by policymakers to study the:
(a) Rise and fall in inequality with economic growth
(b) Trade-off between inflation and economic unemployment
(c) Change in energy elasticity with growth
(d) Effects of tax policy on redistribution of income in a society
10. Lorenz curve is associated with the determination of:
(a) Economic inequality
(b) Tax revenue for different tax bases
(c) Unemployment as against rates of inflation
(d) Market prices in situations of boom and recession
11. Which of these is/are examples of fixed capital formation?
1. Accumulation of foreign exchange reserve
2. Road and bridge construction
3. Energy infrastructure
4. Office equipment such as computers
Select the correct answer using the codes be-low
(a) 2,3 and 4 only (b) 1,2, and 4 only
(c) 1,3, and 4 only (d) 2 and 3 only
12. A high savings rate in the economy can lead to:
1. Lower interest rate for investments
2. Lower consumption demand leading to moderation of inflation
3. Reduced revenue deficit in the public budget
13. Aggregate demand in an economy usually increases with an increase in:
1. National income
2. Investment
3. Government spending
Select the correct answer using the codes be-low
(a) 1 and 2 only (b) 2 and 3 only
(c) 1 and 3 only (d) 1,2, and 3
14. With reference to the term consumer surplus, consider the following statements.
1. Consumer surplus explains the situation of a buyer’s market where supply exceeds the
demand.
2. Economics with a consumer surplus are developed economics.
Which of the above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
15. For his contributions in the field of behavioural economics, US economist Richard Thaler won the 2017 Nobel Economics Prize. The study of behavioural economics includes how market decisions are made and the mechanisms that driver public choice. In this context, consider the following.
1. As per Heuristics, most decisions made by humans are done using rules of thumb.
2. Mis-pricings and non- rational decisions are part of market behavior and are considered
as market inefficiencies.
Which of the above is/are correct/
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
16. If an economy predominantly keeps producing consumption goods at the expense of capital goods it will lead to:
1. Short-term as well as long-term inflation
2. A roadblock in the long-term growth
Which of the above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
17. The Philips curve suggests that:
1. Lower the inflation, lower is the unemployment
2. Higher the environmental degradation, higher is the economic inequality
Which of the above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (c) Neither 1 nor 2
18. A shortage of investible capital in an economy can result from:
1. Very high and erratic inflation
2. Low savings
3. High borrowings costs
Select the correct answer using the codes be-low
(a) 1 and 2 only (b) 2 and 3 only
(c) 3 only (c) 1,2, and 3
19. The main difference between secondary activities and tertiary activities is that:
1. The expertise provided by tertiary services relies more on the specialized skills and
knowledge of the workers than on the production techniques or the machinery as in
secondary sector.
2. Tertiary activities involve the commercial output of services rather than the production of
tangible goods as in the secondary sector.
Which of the above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
20. A seller’s market is an economic situation in which:
(a) Goods are scarce and sellers can keep prices high
(b) There is only buyer and a large number of sellers leading to monopsony
(c) Goods are plenty and sellers are forced to keep prices low
(d) There is only one seller and a large number of buyers leading to monopoly
21. Pareto optimality is a situation where:
(a) Resources are allocated in a way in which it is impossible to make any one individual
better off without making at least one individual worse off
(b) Resources are allocated in the most socially desirable way
(c) Resources are allocated as per democratic means basesd on the princioles of equity and
Fairness
(d) All of the above apply
22. What are wage goods?
(a) Goods consumed by the salaried class
(b) Heavy capital goods used for income generation in a nation
(c) Goods produced by the organized sector
(d) Export based goods
23. The concept of Engel’s elasticity, in economics is used to analyse:
(a) Inward foreign remittances
(b) Consumer behaviour
(c) Impact of monetary policy
(d) Government budgeting
24. According to Ricardian ideas, a landowner should have a claim only to:
(a) Half of the produce of an agricultural land
(b) Average rent that prevailed at a given time
(c) Taxable part of the produce
(d) The produce voluntarily given by the cultivators
25. What is paradox of thrift?
(a) When people try to save more, they actually end up saving less
(b) When a nation tries to produce more, it ends up producing less
(c) When a bank lends, the borrowers do not receive an amount less than that was lent to
them
(d) When a nation exports more, its total savings decline
26. The term blue economy in India’s MOUs with other countries refers to:
(a) Electronics based economy
(b) Ocean based economy
(c) An economy that gives greater priority to bluechip companies
(d) Fisheries based economy
27. Aggregate demand is an important economic indicator. It can be increased by:
1. More investments
2. Increasing bank rate by RBI
3. Lower taxation
Select the correct answer using the codes be-low.
(a) 1 and 2 only (b) 2 and 3 only
(c) 1 and 3only (d) 1,2, and 3
28. Forced savings, a term often used by policy-makers, refers to:
(a) A non-desirable tax imposed on taxpayers
(b) Excessive provident fund contribution by private sector employees
(c) Reduction of consumption consequent to a steep rise in prices
(d) Savings generated by large capital goods investments
29. The term allocative effeiciency is often used in economics to connote a state of:
(a) Highest production quantum
(b) Highest economic welfare of agents involved
(c) Production level relating to highest employment of labour
(d) Highest consumption quantum
30. Economic efficiency as used by economists and policymakers is related to which of the
Following?
1. Optimal allocation of goods and services
2. Resources efficient production
3. Reaching equal income levels for all economic agents
Select the correct answer using the codes be-low.
(a) 1 and 2 only (b) 2 and 3 only
(c) 1 and 3 only (d) 1,2, and 3
Answer key
1. (a) 2. (c) 3. (c) 4. (b) 5. (a) 6. (c) 7. (a) 8. (b) 9. (a) 10. (a) 11. (a) 12. (a) 13. (d)
14. (d) 15. (c) 16. (c) 17. (d) 18. (d) 19. (c) 20. (a) 21. (a) 22. (a) 23. (b) 24. (b) 25. (a) 26. (a)27. (c) 28. (c) 29. (a) 30. (a)