BUSINESS ECONOMICS
Multiple Choice Questions
Total marks - 100 Total duration - 2 hrs
1.
What is the formula for calculating Gross Domestic Product (GDP) using the expenditure
approach?
Options:
(a) GDP = Consumption + Investment + Government Spending
(b) GDP = Consumption + Investment + Government Spending + Net Exports
(c) GDP = Consumption + Investment
(d) GDP = Consumption + Net Exports
2.
Which component of National Income represents the income earned by individuals and
businesses before taxes and other deductions?
Options:
(a) Personal Income
(b) Disposable Income
(c) Gross National Product (GNP)
(d) Gross Domestic Product (GDP)
3.
The industrial sector depends on the agricultural sector because:
Options:
(a) The agricultural sector provides food and other products for the consumption purposes of
industrial sector
(b) The agricultural sector provides raw materials for the development of agro-based industries
of the economy
(c) The agricultural sector provides market for the industrial products
(d) All of the above
4.
Which of the following is a factor income?
Options:
(a) Profits
(b) Transfer payments
(c) Subsidies
(d) Indirect taxes
5.
Which of the following is NOT an example of a transfer payment in the sense of the
national income accounts?
Options:
(a) Government family allowances
(b) Public unemployment insurance benefits
(c) Dividends paid by corporations to stockholders
(d) Disability pensions paid from the social insurance system
6.
The difference between real and nominal GDP is...
Options:
(a) Nominal GDP only accounts for citizens
(b) Nominal GDP uses price-levels of some base year
(c) Nominal GDP uses actual price-levels
(d) Real GDP also includes services, whereas nominal GDP only takes goods into account
7.
For a person to keep his real income steady at a certain level from one year to the next, his
nominal income must:
Options:
(a) Stay the same as the price index rises
(b) Rise as fast as the price index rises
(c) Rise faster than the price index
(d) Rise if the price index falls
8.
If the GDP gap is positive, then:
Options:
(a) The inflation rate is falling
(b) Actual GDP is greater than potential GDP
(c) Potential GDP is greater than actual GDP
(d) The unemployment rate is rising
9.
A nation's gross domestic product (GDP):
Options:
(a) Can be found by summing C + I + G + Xn
(b) Is the dollar value of the total output produced by its citizens, regardless of where they are
living
(c) Can be found by summing C + S + G + Xn
(d) Is always some amount less than its NDP
10.
Gross investment refers to:
Options:
(a) Private investment minus public investment
(b) Net investment plus replacement investment
(c) Net investment after it has been "inflated" for changes in the price level
(d) Net investment plus net exports
11.
The amount of after-tax income received by households is measured by:
Options:
(a) Discretionary income
(b) National income
(c) Disposable income
(d) Personal income
12.
Which one is a component of profit?
Options:
(a) Dividend
(b) Undistributed Profit
(c) Corporate Profit Tax
(d) All of these
13.
Gross value method is employed in India:
Options:
(a) To avoid double counting
(b) To avoid the impact of inflation
(c) To capture the consumption levels
(d) To calculate the exports
14.
Consumer Price Index is calculated:
Options:
(a) Once in 45 days
(b) Once in 3 months
(c) Once in fortnight
(d) Once in a month
15.
The difference between gross domestic investment and net domestic investment is equal to:
Options:
(a) Unwanted inventory changes
(b) The difference between NDP and national income
(c) The difference between GDP and NDP
(d) None of the above
16.
According to Keynes, what can cause involuntary unemployment in an economy?
Options:
(a) High interest rates
(b) Insufficient aggregate demand
(c) Government intervention
(d) Excessive savings
17.
The concept of "animal spirits" in Keynesian theory refers to:
Options:
(a) The unpredictable behavior of financial markets
(b) Psychological factors influencing economic decisions
(c) Government regulations affecting business confidence
(d) The impact of interest rates on investment
18.
Break-even point occurs when:
Options:
(a) Y = S
(b) S = 0
(c) Y = C
(d) Both (b) and (c)
19.
Which of the following is concerned with division of economic responsibilities between the
central and state Government of India?
Options:
(a) NITI Aayog
(b) Central Bank
(c) Finance Commission
(d) Parliament
20.
Fiscal Federalism refers to:
Options:
(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
21.
Which one of the following taxes is levied by the state government only?
Options:
(a) Corporation tax
(b) Wealth tax
(c) Income tax
(d) None of the above
22.
The percentage of share of states in central taxes for the period 2021-26 recommended by
the Fifteenth Finance Commission is:
Options:
(a) 38 percent
(b) 41 percent
(c) 42 percent
(d) The commission has not submitted its report
23.
Which of the following is not a criterion for determining distribution of central taxes
among states for 2021-26 period?
Options:
(a) Demographic performance
(b) Forest and ecology
(c) Infrastructure performance
(d) Tax and fiscal efforts
24.
As per the Supreme Court verdict in May 2022:
Options:
(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 union
and states
(d) The state legislatures can make rules only with the permission of central government
25.
Providing social sector services such as health and education is:
Options:
(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
26.
Who gave 'The Theory of Public Finance (1959)'?
Options:
(a) Adam Smith
(b) Richard Musgrave
(c) A.C. Pigou
(d) Alfred Marshall
27.
The stabilization function is concerned with the performance of the aggregate economy in
the term:
Options:
(a) Overall output & income
(b) General price level
(c) Balance of international payments
(d) All of these
28.
Which of the following is an example of an automatic stabilizer in the budget?
Options:
(a) Discretionary spending
(b) Progressive taxation
(c) Infrastructure investment
(d) Unemployment benefits
29.
Among the following canons of taxation, which one has been given by Adam Smith?
Options:
(a) Canon of Uniformity
(b) Canon of productivity
(c) Canon of diversity
(d) Canon of equity
30.
A chemical factory has full information regarding the risks of a product, but continues to
sell it. This is possible because of:
Options:
(a) Asymmetric information
(b) Moral hazard
(c) Free riding
(d) (a) and (b) above
31.
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:
Options:
(a) Free riding
(b) Moral hazard
(c) Poor upbringing
(d) Inefficiency
32.
Smoking in public is a case of:
Options:
(a) Negative consumption externality
(b) Negative production externality
(c) Internalising externality
(d) None of the above
33.
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 to internalizing an externality is to ensure that those who create the externalities
include them while making decisions
Of the above statements:
Options:
(a) I and III are correct
(b) I only is correct
(c) II only is correct
(d) I and III are correct
34.
Which of the following statements is false?
Options:
(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
35.
Which one of the following would you suggest for reducing negative externality?
Options:
(a) Production subsidies
(b) Excise duty
(c) Pigouvian taxes
(d) All of the above
36.
A Pigouvian subsidy:
Options:
(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 pricing and therefore not practical
(d) May help production to be socially optimal when positive externalities are present
37.
The argument for education subsidy is based on:
Options:
(a) Education is costly
(b) The ground that education is merit good
(c) Education creates positive externalities
(d) (b) and (c) above
38.
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:
Options:
(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
39.
Government failure occurs when:
Options:
(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
40.
Which of the following is an example of market failure?
Options:
(a) Externalities
(b) Low prices
(c) Excess supply
(d) Excludable and rival goods
41.
Which of the following is NOT a conclusion about market allocations of commodities
causing pollution externalities?
Options:
(a) The prices of products responsible for pollution are too high
(b) The output of the commodity is too large
(c) Recycling and reuse of the polluting substances are discouraged since release into the
environment is so inefficiently cheap
(d) Too much pollution is produced
42.
Public goods are characterized by:
Options:
(a) Excludability and rivalry
(b) Excludability and non-rivalry
(c) Non-excludability and rivalry
(d) Non-excludability and non-rivalry
43.
‘Retail Direct’ scheme is:
Options:
(a) Initiated by the Reserve Bank of India
(b) Facilitate investment in government securities by individual investors
(c) Direct sale of goods and services by government departments
(d) Both (a) and (b) are correct
44.
Non-debt capital receipts:
Options:
(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
45.
Which of the following is a capital receipt?
Options:
(a) Licence fee received
(b) Sale proceeds from disinvestment
(c) Assistance from Japan for COVID vaccine
(d) Dividend from a public sector enterprise
46.
Grants given by the central government to state governments is:
Options:
(a) A revenue expenditure as it is meant to meet the current expenditure of the states
(b) A revenue expenditure as it does neither create 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
47.
Short-term credit from the Reserve Bank to state governments to bridge temporary
mismatches in cash flows is known as:
Options:
(a) RBI credit to states
(b) Commercial credit of RBI
(c) Ways and Means Advances (WMA)
(d) Short term facility
48.
What was the main objective of the Fiscal Responsibility and Budget Management Act, of
2003?
Options:
(a) Achieve Fiscal Surplus
(b) Stop Money Laundering
(c) Eliminate Fiscal Deficit
(d) Eliminate Revenue Deficit
49.
Which of the following parameter consists of interest, dividend, fees and other receipts for
services of the government?
Options:
(a) Non-tax expenses
(b) Tax expenses
(c) Non-tax revenue
(d) Tax revenue
50.
While the government resorts to deliberate fiscal policy it may not attempt to manipulate:
Options:
(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 government
(d) The rate of interest prevailing in the economy
51.
Which of the following fiscal remedy would you advice when an economy is facing
recession?
Options:
(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 balanced the budget
(d) None of the above will work
52.
While if governments compete with the private sector to borrow money for securing
resources for expansionary fiscal policy:
Options:
(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 the 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
53.
In order to influence spending on the goods and services in the short run, ________ is
directed at directly influencing interest rate.
Options:
(a) Fiscal policy
(b) Budgetary policy
(c) Monetary policy
(d) Economic policy
54.
Minimum assured price to the farmers to purchase their output by the government is
called:
Options:
(a) Market Price
(b) Equilibrium Price
(c) Support Price
(d) Ceiling Price
55.
Which of the following policy measures is typically used by central banks to manage the
business cycle?
Options:
(a) Fiscal policy
(b) Monetary policy
(c) Trade policy
(d) Industrial policy
56.
________ considered demand for money as an application of a more general theory of
demand for capital assets.
Options:
(a) Baumol
(b) James Tobin
(c) J. M. Keynes
(d) Milton Friedman
57.
The nominal demand for money rises if:
Options:
(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 – rise 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
58.
In modern fiat money systems, the value of money is primarily based on:
Options:
(a) Gold reserves
(b) Government authority and public trust
(c) Exchange rates
(d) Digital transactions
59.
According to Cambridge equation, the value of money depends upon:
Options:
(a) Demand for money
(b) Supply of money
(c) Demand for goods and services
(d) All of the above
60.
The quantity demanded of money rises:
Options:
(a) As the repo rate increases
(b) As the repo rate falls
(c) As the supply of money falls
(d) As the number of banks rises
61.
Which characteristic of money refers to its ability to hold value over time?
Options:
(a) Divisibility
(b) Durability
(c) Portability
(d) Store of value
62.
The size of the money multiplier is determined by:
Options:
(a) The currency ratio (c) of the public
(b) The required reserve ratio (r) at the central bank
(c) The excess reserve ratio (e) of commercial banks
(d) All the above
63.
________ tells us how much new money will be created by the banking system for a given
increase in the high-powered money.
Options:
(a) The currency ratio
(b) The excess reserve ratio (e)
(c) The credit multiplier
(d) The currency ratio (c)
64.
The money multiplier will be large:
Options:
(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
65.
The ratio that relates the change in the money supply to a given change in the monetary
base is called the:
Options:
(a) Required reserve ratio
(b) Money multiplier
(c) Deposit ratio
(d) Discount rate
66.
For a given level of the monetary base, an increase in the required reserve ratio will
denote:
Options:
(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
67.
For a given level of the monetary base, an increase in the currency ratio causes the money
multiplier to ________ and the money supply to ________.
Options:
(a) Decrease; increase
(b) Increase; decrease
(c) Decrease; decrease
(d) Increase; increase
68.
If commercial banks reduce their holdings of excess reserves:
Options:
(a) The monetary base increases
(b) The monetary base falls
(c) The money supply increases
(d) The money supply falls
69.
If the central bank conducts an open market purchase of government securities, what is
the likely impact on the money supply?
Options:
(a) Increase
(b) Decrease
(c) No change
(d) Variable, depending on other factors
70.
Which of the following is included in M2, a broader measure of money supply compared to
M1?
Options:
(a) Currency in circulation
(b) Savings deposits
(c) Demand deposits
(d) Travellers' checks
71.
If the reserve requirement is 20%, what is the potential maximum expansion of the money
supply when a new deposit of $1,000 is made?
Options:
(a) $5,000
(b) $2,000
(c) $1,000
(d) $500
72.
What will be the value of Credit Multiplier when the Required Reserve ratio is 50%?
Options:
(a) 4
(b) 2
(c) 3
(d) 1
73.
Money Supply is directly proportional to:
Options:
(a) Cash reserve ratio (r)
(b) Monetary base (H)
(c) Currency deposit ratio (k)
(d) Money Multiplier (m)
74.
Reserve money is supplied by:
Options:
(a) RBI
(b) Government
(c) Commercial banks
(d) World Bank
75.
Which of the following policy measures is typically used by central banks to manage the
business cycle?
Options:
(a) Fiscal policy
(b) Monetary policy
(c) Trade policy
(d) Industrial policy
76.
A central bank that wants to stabilize the economy in the short run should try to:
Options:
(a) Establish a clear inflation target and stick to it no matter what
(b) Affect aggregate supply through open market operations
(c) Affect aggregate demand through open market operations
(d) Concentrate only on long-run goals
77.
Inflation occurs whenever:
Options:
(a) Aggregate demand rises
(b) The price of any given commodity rises
(c) The average price of most goods and services rises
(d) The tax rate is lower than the government spending rate
78.
When the Central Bank intends to expand the credit, it should:
Options:
(a) Raise the margin requirements
(b) Raise the variable reserve ratio
(c) Lower the bank rate
(d) Purchase government securities in the open market
79.
Which of the following is not an instrument of selective credit control?
Options:
(a) Margin requirements
(b) Open market operation
(c) Credit rationing
(d) None of the above
80.
Which among the following is called the rate of interest charged by RBI for lending money
to various commercial banks by rediscounting of the bills in India?
Options:
(a) Bank rate
(b) Discount window
(c) Marginal Standing Facility
(d) Overnight rate
81.
According to the theory of comparative advantage:
Options:
(a) Trade is a zero-sum game so that the net change in wealth or benefits among the participants
is zero
(b) Trade is not a zero-sum game so that 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 depends upon factor endowment and utilization
82.
Given the number of labour hours to produce wheat and rice in two countries and that
these countries specialise and engage in trade at a relative price of 1:1, what will be the gain
of country X?
Labour cost (hours) for production of one unit:
Country Wheat Rice
X 10 20
Y 20 10
Options:
(a) 20 labour hours
(b) 10 labour hours
(c) 30 labour hours
(d) Does not gain anything
83.
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 production of one unit:
Item India Bangladesh
Tables 3 8
Mats 2 1
Options:
(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
84.
Comparative advantage refers to:
Options:
(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 which uses minimum of the abundant factor
(d) (a) and (b) above
85.
Ricardo explained the law of comparative advantage on the basis of:
Options:
(a) Opportunity costs
(b) The law of diminishing returns
(c) Economies of scale
(d) The labour theory of value
86.
Theory of Mercantilism propagates:
Options:
(a) Encourage exports and imports
(b) Encourage exports and discourage imports
(c) Discourage exports and imports
(d) Discourage exports and encourage imports
87.
Which of the following is a zero-sum game?
Options:
(a) Prisoners dilemma
(b) Competition for market share
(c) Pricing strategy
(d) None of the above is correct
88.
Comparative advantage is determined by:
Options:
(a) The amount of resources needed to produce a good
(b) The money cost of producing any good
(c) The opportunity cost of producing any good
(d) Absolute advantage and production possibilities combined
89.
Which of the following is not one of the features of New Trade Theory by Paul Krugman?
Options:
(a) Countries which trade in similar goods are natural trade partners
(b) It is based on labour theory of value
(c) Network effect as means of engaging in international trade
(d) It focuses more on economies of scale
90.
Money cost is considered by:
Options:
(a) Modern theory of trade
(b) Comparative cost advantage
(c) New Trade theory
(d) None of these
91.
First mover advantage theory is related to:
Options:
(a) Absolute advantage theory
(b) Comparative cost advantage theory
(c) New trade theory
(d) None of these
92.
Globalization indicates rapid ________ between countries:
Options:
(a) Competition
(b) Investment
(c) Integration
(d) None of these
93.
What is the purpose of a voluntary export restraint (VER)?
Options:
(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
94.
Which trade policy tool is designed to directly support domestic producers by reducing the
cost of exporting goods?
Options:
(a) Export subsidy
(b) Import quota
(c) Voluntary export restraint
(d) Export tariff
95.
The process of selling of the products at a price less than the going price in the market is
known as:
Options:
(a) Quota
(b) Tariff
(c) Subsidies
(d) Dumping
96.
A lump sum tax per unit on imports is known as:
Options:
(a) A specific tariff
(b) An effective tariff
(c) An effective quota
(d) A specific quota
97.
Central Government can impose the safeguard duty if it is satisfied that:
Options:
(a) Any article is imported into India in increased quantities
(b) Such increased importation is causing or threatening to cause serious injury to domestic
industry
(c) Either A or B
(d) Both A & B
98.
Countervailing duty shall not be levied unless it is determined that:
Options:
(a) The subsidy relates to export performance
(b) The subsidy relates to the use of domestic goods over imported goods in the export article
(c) The subsidy has been conferred on a limited number of persons engaged in the manufacture,
production, or export of articles
(d) All the above
99.
What is a Global Depository Receipt?
Options:
(a) It is a receipt issued by multinational banks on deposit of money
(b) It is a receipt issued by stock exchange to bank clearing mechanism
(c) It is a receipt issued by an overseas bank in lieu of shares of a domestic company
(d) It is a receipt issued by stock exchange on investment by foreign portfolio investor
100.
Which of the following statements is/are correct regarding FDI under automatic route?
a. FDI in India under the automatic route does not require prior approval either by the
Government of India or the Reserve Bank of India.
b. Investors are only required to notify the concerned regional office of the RBI before receipt of
inward remittances and file required documents with that office before the issue of shares to
foreign investors.
Options:
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
