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Economics and the Economy: an Introduction — GK Questions with Answers

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24 questions
  1. A "closed economy" is an economy in which — (UPSC, 2011)
    1. the money supply is fully controlled
    2. deficit financing takes place
    3. only export takes place
    4. neither export nor import takes place
    Show answer

    Answer: (D) neither export nor import takes place

    The only mark of a closed economy is that it does not trade with other economies — the consumer gets everything within the economic borders.

  2. Mixed economy means an economy where — (UPSC, 2009)
    1. both agriculture and industry are equally promoted by the state
    2. the private sector exists alongside the public sector
    3. small-scale industries matter along with heavy industries
    4. the economy is controlled by military as well as civilian rule
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    Answer: (B) the private sector exists alongside the public sector

    Mixed refers to a mixture of ownership — the government decides for the public sector and businessmen for the private sector.

  3. The Greek word Oikonomos is made of which two words
    1. oikos and polis
    2. oikos and nomos
    3. nomos and demos
    4. oikos and logos
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    Answer: (B) oikos and nomos

    Oikos means house and nomos means law or custom — together, the rules of the household.

  4. Which branch moved the focus of economics from wealth alone to the welfare of the whole society
    1. Development economics
    2. Behavioural economics
    3. Welfare economics
    4. Information economics
    Show answer

    Answer: (C) Welfare economics

    A view centred on wealth left out the poor, the elderly and children; welfare economics filled that gap.

  5. Which one of these is not studied by macro economics
    1. National income
    2. Balance of payments
    3. A firm's production decision
    4. Inflation
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    Answer: (C) A firm's production decision

    A single firm's decision belongs to micro economics; the other three deal with the whole economy.

  6. Why do people sometimes take economic decisions that are not sensible — which branch studies this
    1. Behavioural economics
    2. Environmental economics
    3. Demographic economics
    4. International economics
    Show answer

    Answer: (A) Behavioural economics

    Behavioural economics looks at how social, mental and emotional factors act on economic decisions.

  7. Comparative advantage is the guiding principle of which branch
    1. Development economics
    2. International economics
    3. Information economics
    4. Welfare economics
    Show answer

    Answer: (B) International economics

    By this principle, whatever its level of development, every country can produce something more cheaply than others.

  8. Which of the following pairs is correct
    1. Communism — class co-operation
    2. Capitalism — state ownership of resources
    3. Communism — belief in violent revolution
    4. Capitalism — opposition to democracy
    Show answer

    Answer: (C) Communism — belief in violent revolution

    Communism believes in violent revolution and class struggle, while capitalism believes in non-violent movement and class co-operation.

  9. Who wrote Wealth of Nations
    1. Karl Marx
    2. Friedrich Engels
    3. Adam Smith
    4. Lenin
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    Answer: (C) Adam Smith

    Adam Smith is taken as the main thinker of capitalism; Das Capital and Communist Manifesto are works of Marx.

  10. In which year was the USSR formed
    1. 1917
    2. 1922
    3. 1929
    4. 1949
    Show answer

    Answer: (B) 1922

    After the Bolshevik Revolution of 1917, the USSR was formed in 1922 and broke up in 1991.

  1. In which year were economic reforms introduced in China
    1. 1949
    2. 1962
    3. 1978
    4. 1991
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    Answer: (C) 1978

    After 1978 China took up capitalism in its economy, but politically it is a communist country even today.

  2. Which of these is not counted as a communist country today
    1. Cuba
    2. North Korea
    3. Venezuela
    4. The United Kingdom
    Show answer

    Answer: (D) The United Kingdom

    The United Kingdom is an example of a mixed economy, like India and Russia.

  3. An economy where everything used for production sits entirely in government hands is
    1. a mixed economy
    2. an open economy
    3. a command economy
    4. a free market economy
    Show answer

    Answer: (C) a command economy

    A command economy runs on controlled planning; with no competition, resources are allocated inefficiently.

  4. What is the biggest mark of a traditional economy
    1. Resources are shared on the basis of rituals and customs
    2. The government holds complete control
    3. Exports form a large part of GDP
    4. The consumer has the widest choice
    Show answer

    Answer: (A) Resources are shared on the basis of rituals and customs

    Here the family decides economic roles and individual choice is very small; tribes in the Amazon are the example.

  5. What kind of relation does the law of demand show
    1. Positive
    2. Negative
    3. No relation
    4. First positive, then negative
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    Answer: (B) Negative

    When price rises demand falls and when price falls demand rises — that is why the demand curve slopes downwards.

  6. Which one of these is not an exception to the law of demand
    1. Veblen goods
    2. Giffen goods
    3. Natural disaster
    4. Life-saving drugs
    Show answer

    Answer: (C) Natural disaster

    A natural disaster is an exception to the law of supply, not to the law of demand.

  7. Goods tied to social status and luxury are called
    1. Giffen goods
    2. Veblen goods
    3. Substitute goods
    4. Complementary goods
    Show answer

    Answer: (B) Veblen goods

    The demand for Veblen goods does not fall when their price rises, because being costly is their very identity.

  8. Supply falling because of the Covid lockdown is an example of which exception
    1. Monopoly in the market
    2. Government policy
    3. Natural disaster
    4. The nature of the good
    Show answer

    Answer: (B) Government policy

    A government policy ties down supply, however high the price may be.

  9. When demand is greater than supply, which policy is held to be more effective
    1. Fiscal policy
    2. Monetary policy
    3. Trade policy
    4. Industrial policy
    Show answer

    Answer: (B) Monetary policy

    Demand above supply brings inflation, and the RBI's monetary policy works better for pulling liquidity down.

  10. In a slowdown, what do the RBI and the government do
    1. The RBI raises interest rates and the government cuts spending
    2. The RBI cuts interest rates and the government raises spending
    3. Both cut their spending
    4. Both raise interest rates
    Show answer

    Answer: (B) The RBI cuts interest rates and the government raises spending

    A slowdown means liquidity is low. Cutting rates and raising government spending adds liquidity and creates fresh demand.

  1. What is the reward of capital called
    1. Rent
    2. Wages
    3. Interest
    4. Profit
    Show answer

    Answer: (C) Interest

    Land–rent, labour–wages, capital–interest and entrepreneur–profit; these four pairs are fixed.

  2. The correct formula for market price is
    1. Factor cost + indirect tax − subsidy
    2. Factor cost − indirect tax + subsidy
    3. Factor cost + subsidy + indirect tax
    4. Factor cost − subsidy − indirect tax
    Show answer

    Answer: (A) Factor cost + indirect tax − subsidy

    An indirect tax pushes the price up so it is added, and a subsidy brings the price down so it is subtracted.

  3. While calculating industrial production in India, mining is placed in which sector
    1. Primary
    2. Secondary
    3. Tertiary
    4. Quaternary
    Show answer

    Answer: (B) Secondary

    Mining generally belongs to the primary sector, but in India it is counted in the secondary sector for industrial production.

  4. By the latest World Bank classification, India falls in which group
    1. Low income
    2. Lower middle income
    3. Upper middle income
    4. High income
    Show answer

    Answer: (B) Lower middle income

    In the lower middle income group, gross national income per person lies between 1,176 and 4,635 dollars.

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