MCQs on Economics -7

1. There are four phases of a business cycle. Identify the correct sequence of the occurrence of these phases:
(A) Recovery, Recession, Expansion, Depression
(B) Recovery, Expansion, Depression, Recession
(C) Depression, Expansion, Recession, Recovery
(D) Recovery, Expansion, Recession, Depression

2. The production of ‘finished steel’ in India, since independence, has increased over
(A) 10 times
(B) 20 times
(C) 30 times
(D) 50 times

3. The concept of ‘Effective Revenue Deficit’ has been used for the first time in the Union Budget for
(A) 2009 – 10
(B) 2010 – 11
(C) 2011 – 12
(D) 2008 – 09

4. Which tax is likely to contribute maximum to the Central Government tax revenue during the year 2011 – 12?
(A) Central Excise Duty
(B) Customs Duties
(C) Income Tax
(D) Corporate Tax

5. Gross fiscal deficit of the State Governments is financed by
I. Market Borrowings
II. Printing of Currency
III. Loans from the Central Government
IV. External Borrowings

Find the correct answer from the given code:
(A) I, II and III are correct.
(B) II, III and IV are correct.
(C) I and III are correct.
(D) II and IV are correct.

6. Match the items of List – I with the items of List – II from the given code:
List – I                                                                                               List – II
i. Canons of Taxation                                                              1. U.K. Hicks
ii. Canons of Public Expenditure                                            2. Adam Smith
iii. Effective incidence of Tax                                                3. Findlay Shirras
iv. Benefits received approach of Public Expenditure           4. Erik Lindahl
       i ii iii iv
(A) 2 3 1 4
(B) 1 2 3 4
(C) 2 3 4 1
(D) 4 1 2 3

7. Assertion (A): During the financial year 2011-12, the Central Government is not likely to achieve the target of raising Rs. 40,000 crores through disinvestment policy.
Reason (R): Policy of increased public borrowings to bridge the fiscal gap is justified.
In the context of the above two statements, which one is correct from the given?
(A) Both (A) and (R) are correct and (R) is the correct explanation of (A).
(B) Both (A) and (R) are correct but (R) is not the correct explanation of (A).
(C) (A) is correct but (R) is incorrect.
(D) (R) is correct but (A) is incorrect.

8. Arrange the following Reports in chronological order from the given codes:
I. Direct taxes Enquiry Committee Final Report
II. Final Report on Rationalizing and Simplification of the Tax Structure
III. Indian Tax Reforms-Report of a Survey
IV. Taxation Enquiry Commission
(A) IV, III, II, I
(B) I, II, III, IV
(C) III, I, IV, II
(D) II, III, I, IV

9. The most important characteristics of a federation is
(A) Center’s Supremacy over States
(B) Non-correspondence between the functions and resources of the Center and State Governments.
(C) Perfect match between the functions and resources of the Central and State Governments.
(D) None of the above

10. In the equation C = C0 + C1 Yd, where C is planned consumption expenditure, Yd is disposable income, C0 is intercept or autonomous consumption (value of C when disposable income is zero), and C1 is marginal propensity to consume; which of the following is the endogenous variable?
(A) C0
(B) C1
(C) C1 Yd
(D) None of the above

11. Which of the following statement is false?
(A) In dynamic multiplier, there is lagged relationship between consumption and disposable income.
(B) The dynamic multiplier process can be presented as a decreasing geometric series of change in income in the following period.
(C) A major portion of the multiplier effect is realized in fewer periods when the marginal propensity to consume is smaller.
(D) A major portion of the multiplier effect is realized in fewer periods when the marginal propensity to consume is larger.

12. According to which of the following hypotheses, consumption is irreversible?
(A) Absolute Income Hypothesis
(B) Relative Income Hypothesis
(C) Permanent Income Hypothesis
(D) Life Cycle Hypothesis

13. Which of the following models of business cycle generates constrained cycles?
(A) Samuelson’s model
(B) Hick’s model
(C) Kaldor’s model
(D) All of the above

14. Which of the following is not an assumption of Harrod’s model of growth?
(A) The desired capital output ratio is constant.
(B) Savings are a constant proportion of real income in the economy.
(C) The labour force grows at some exogenously determined constant exponential rate.
(D) Factor prices are flexible in the long run.

15. Match the statements given in Group – A with their propounders in Group – B:
Group – A (Statements)                                                                      Group – B (Propounders)
i. Velocity of money is a stable function of its determinants.            1. Keynesians
ii. Velocity of money is an unstable function of its determinants.     2. Monetarists
iii. Velocity of money is a constant, and does not depend on income and interest rate. 3. Classicals

Choose the correct code:
       i ii iii
(A) 2 3 1
(B) 1 2 3
(C) 2 1 3
(D) 3 2 1



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