Economic Concepts and Theories MCQ Quiz - Objective Question with Answer for Economic Concepts and Theories - Download Free PDF

The correct answer is Adam Smith.

Key Points

• Adam Smith is known as the father of Modern Economics.
• His work explains the concepts of the mechanics of morality, markets, and capitalism within an industrialized society.
• Self-interest, competition, supply and demand, and the relationship of labour in a free market are described in his book Wealth of Nations. 

Additional Information

• P. C. Ray -
  • ​Prafulla Chandra Ray is Known as the “Father of Indian Chemistry”.
  • He was a well-known Indian scientist and teacher and one of the first “modern” Indian chemical researchers.
  • He discovered the stable compound mercurous nitrite in 1896.
  • He established Bengal Chemical and Pharmaceutical Works Ltd, India’s first pharmaceutical company in 1901.
• ​Karl Marx -
  • Karl Marx or Karl Heinrich Marx is a revolutionary, sociologist, and economist.
  • He wrote Das Kapital book.
  • His thoughts and beliefs are known as Marxism.
  • He argued that industrial society was based on capitalism.
  • Capitalists owned the capital invested in factories and the profit of capitalists was produced by workers.

Planning Commission

1. The Planning Commission was set up by a Resolution of the Government of India in March 1950 in pursuance of declared objectives of the Government to promote a rapid rise in the standard of living of the people by efficient exploitation of the resources of the country, increasing production and offering opportunities to all for employment in the service of the community.
2. The Planning Commission was charged with the responsibility of making assessments of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilization of resources and determining priorities.

• Jawaharlal Nehru was the first Chairman of the Planning Commission.
• The first Five-year Plan was launched in 1951 and two subsequent five-year plans were formulated until 1965 when there was a break because of the Indo-Pakistan Conflict. Two successive years of drought, devaluation of the currency, a general rise in prices, and erosion of resources disrupted the planning process and after three Annual Plans between 1966 and 1969, the fourth Five-year plan was started in 1969.
• The Eighth Plan could not take off in 1990 due to the fast-changing political situation at the Centre and the years 1990-91 and 1991-92 were treated as Annual Plans. The Eighth Plan was finally launched in 1992 after the initiation of structural adjustment policies.
• For the first eight Plans, the emphasis was on a growing public sector with massive investments in basic and heavy industries, but since the launch of the Ninth Plan in 1997, the emphasis on the public sector has become less pronounced and the current thinking on planning in the country, in general, is that it should increasingly be of an indicative nature.

NOTE- The Prime Minister is the Chairman of the Planning Commission, which works under the overall guidance of the National Development Council. The Deputy Chairman and the full-time members of the Commission, as a composite body, provide advice and guidance to the subject Divisions for the formulation of Five Year Plans, Annual Plans, State Plans, Monitoring Plan Programmes, Projects and Schemes.

The correct answer is Capitalist.

Key Points

• A capitalist economy refers to a system of economics in which private persons own and control all means of production for the sake of profit.
• A capitalist economy is a liberal economy.
• Capital assets, such as factories, mines, and railroads, can be privately owned and controlled in a capitalist economy, labour can be bought for money salaries, capital profits accrue to private owners, and prices allocate capital and labour between competing uses.
• In a Capitalist economy, the government's involvement is confined to management and control measures.
• The presence of open markets and the government's lack of involvement in corporate regulation are also characteristics of the capitalist economy.
• The origins of capitalism may be traced back to 18th century England, which was in the midst of the industrial revolution.
• Inequality in income is a result of capitalism.

Additional Information

• In a Socialist economy, the factors of production are all state-owned and all the factories, machinery, plants, capital, etc. are owned by a community in control of the State.
• A mixed economy is one that incorporates elements of both capitalism and socialism.
• The world economy, also known as the global economy, refers to the global economic system, which encompasses all economic activities carried out both within and between nations, such as production, consumption, economic management, work in general, the exchange of financial values, and the trade of goods and services.

The correct answer is To measure income inequality.

Key Points

• It measures the degree of income inequality in the country's population.
• Gini coefficient is also one of the indicators of economic development in the country.
• The value of the Gini Coefficient varies from 0 to 1.
• 0 means perfect equality everyone has the same income, and 1 means perfect inequality all the income is received by a single individual.
• Graphical Representation of the Gini Index (Lorenz curve)

Key Points

• A mixed economy is a system that incorporates elements of both capitalism and socialism.
• It allows the coexistence of private enterprises and public (government-owned) enterprises in economic activities.
• The government typically intervenes in areas like education, healthcare, and infrastructure while leaving other sectors for private players.
• Mixed economies aim to combine the efficiency of the private sector with the welfare orientation of the public sector.

Additional Information

• Coexistence of Small and Large Industries: This refers to an economic system where small-scale industries (e.g., handicrafts, cottage industries) and large industries (e.g., multinational corporations, heavy industries) coexist. While this is a characteristic of a developing economy, it does not define a mixed economy.
• Coexistence of Agriculture and Industry: This refers to an economy where both agricultural and industrial sectors are important contributors to GDP. It is a structural feature of many economies but not a defining trait of a mixed economy.
• Coexistence of Domestic and Foreign Enterprises: This refers to an economic system where domestic businesses and foreign companies operate together. This is characteristic of an open economy but does not specifically define a mixed economy.

The correct answer is None of the above.

Key Points

• GDP:
  • GDP’s full form is Gross Domestic Product is evaluated regularly to account for changing production structure, relative prices, and better recording of economic activities.
  • Gross Domestic Product (GDP) is the total money value of final goods and services produced in the economic territories of a country in a given year. Hence, statement 1 is not correct.
  • Non-monetary goods and services (e.g. cooking by housewife) are not included in GDP calculation. Hence, statement 2 is not correct.
  • Economic transactions virtually include everything economic in the country. For e.g., if a stockbroker sells and purchases the same stock worth Rs. 1000 five times in a day, it does not increase the GDP of the country by Rs. 5000.
  • Economic transactions may also include buying and selling of bonds, FII inflows, and outflows, etc. Hence, statement 3 is not correct.
  • GDP includes the value of all goods and services produced within a country within a year.
• Source Link- https://ncert.nic.in/ncerts/l/leec102.pdf

The correct answer is Gross National Product.

Key Points

• Net National Product (NNP):
  • NNP is obtained by subtracting depreciation value (i.e. capital stock consumption) from GNP.
  • Net National Product (NNP) = Gross National Product − Depreciation.

Additional Information

• Gross Domestic Product (GDP):
  • It is the total money value of all final goods and services produced within the geographical boundaries of the country during a given period of time.
  • GDP = C + G + I
    • C = Consumption expenditure
    • G = Government expenditure
    • I = Investment expenditure
• Gross National Product (GNP):
  • It refers to the money value of the total output of production of final goods and services produced by the nationals of a country during a given period of time, generally a year.
• National Income (NI):
  • When NNP is calculated at factor cost (FC) it is called National Income.
  • The measure is calculated by deducting indirect taxes and adding subsidies in NNP at Market Price (MP).
  • In India, the Wholesale Price Index (WPI) is the weighted average price of 676 items with the base year 2011-12.

The correct answer is the Co-existence of the public and private sectors.

Key Points

• A mixed economy is an economy organized with some free-market elements and some socialistic elements, which lies on a continuum somewhere between pure capitalism and pure socialism.
  • It refers to a type of economy where the public and private sectors coexist.
  • Mixed economies typically maintain private ownership and control of most of the means of production, but often under government regulation.
  • Mixed economies socialize select industries that are deemed essential or that produce public goods.
  • The public sector works alongside the private sector but may compete for the same limited resources.
  • Mixed economic systems do not block the private sector from profit-seeking, but do regulate business and may nationalize industries that provide a public good.

Important Points

• India is a mixed economy.
• In fact, all known historical and modern economies fall somewhere on the continuum of mixed economies.

The correct answer is Decreases.

The value of money during inflation decreases.

Key Points

Inflation:

• Inflation is a persistent rise in the price levels of goods and services leading to a fall in the currency’s purchasing power.
• Causes of Inflation:
  • Printing too much money.
  • Increase in production cost.
  • Tax rises.
  • A decline in exchange rates.
  • War or other events causing instability.
  • Increase in money supply in the economy
• Measures to Control Inflation:
  • Increasing the bank interest rates.
  • Regulating fixed exchange rates of the domestic currency.
  • Controlling prices and wages.
  • Providing cost of living allowances to citizens.
  • Regulating black and speculative market.

The correct answer is Dadabhai Naoroji.

• Dadabhai Naoroji, fondly called the Grand Old Man of India, was the pioneer in this field.
  • He prepared the first estimates of National income in 1876.
  • He estimated the national income by first estimating the value of agricultural production and then adding a certain percentage as non-agricultural production.
• Key Points
• The first person to adopt a scientific procedure in estimating national income was Dr.V.K.R.V.Rao In 1931.
  • He divided the Indian economy into two parts.
  • He used the Product method to calculate national income in the agricultural sector and the income method to calculate national income in the corporate sector. Finally, net income earned from abroad was added to obtain national income.
• The first official attempt was made by Prof.P.C.Mahalnobis.
• The Government of India appointed the “National Income Committee” in 1949 under the chairmanship of Prof P C Mahalanobis, and other members were Prof D R Gadgil and Dr V K R V Rao.
• The first report of the committee was presented in 1951 according to which India’s national income for the year 1948-49 was Rs 8,710 crores and per capita income was Rs 225/-.

Additional Information

• Since 1955 the national income estimates are being prepared by the “Central Statistical Organisation” [CSO].
• It is divided into three sectors:-
  • ​Primary sectors including agriculture, forestry, mining, and quarrying.
  • Secondary sector including manufacturing, power generation, gas, and water supply.
  • Tertiary sector including transport, communication and trade, banking, insurance, public administration, defense, and external trade.

The correct answer is Estate duty.

Key Points

The citizens of India cannot shy away from paying taxes. The Government of India imposes two types of taxes on its citizens – direct and indirect taxes.

• Direct tax is charged on income, salary or profits of an individual or corporates. In the case of direct tax, the burden can’t be shifted by the taxpayer to someone else. These are largely taxes on income or wealth. Income-tax, corporation tax, estate duty,  property tax, inheritance tax and gift tax are examples of direct tax.
• Indirect tax is a levy where the incidence and impact of taxation do not fall on the same entity. The burden of tax can be shifted by the taxpayer to someone else. Indirect tax has the effect to raising prices of products on which they are imposed. Customs duty, import duty, central excise, service tax and value-added tax are examples of indirect tax. Excise duties on fuel, liquor, and cigarette taxes are all considered examples of indirect taxes.

NOTE- 

Sales taxes can be direct or indirect. If they are imposed only on the final supply to a consumer, they are direct. If they are imposed as value-added taxes along the production process, then they are indirect.

What is GST?
GST, or goods and services tax, is an indirect tax. The Goods and Services Tax Act was passed by Parliament on March 29, 2017. It is levied on the supply of goods and services. This law has replaced many indirect taxes that previously existed in India.

The correct answer is "Salaries of government employees".

Key Points

• Revenue expenditures include things like employee salaries, interest payments on debt from the past, subsidies, pensions, etc. that neither increase assets nor decrease liabilities.
• Profits from sales are used to pay for them.
• According to a general definition, a revenue expenditure is any outlay that has no net impact on liabilities or assets.

Additional Information

• Revenue expenditures include things like salaries, wages, pensions, subsidies, and interest payments.
• In order to cover its operating needs, the government incurs income expenses.
• Every year, the Indian government releases a budget that includes both a revenue budget and a capital budget, as well as the total number of revenue expenditures.

The correct answer is stagflation.

Key Points

• An economy that is suffering both rising inflation and stagnant economic output is said to be in stagflation.
• Stagflation was initially identified in the 1970s when an oil shock caused high unemployment and rapid inflation in many industrialised nations.
• Slow economic development and relatively high unemployment, sometimes known as economic stagnation, are the hallmarks of stagflation, which is also characterised by rising prices (i.e., inflation).
• An alternative definition of stagflation is a time when there is both inflation and a fall in the GDP. 

Important Points

• A needed return's inflation risk compensation is represented by the inflation premium component.
• The difference between the actual gross domestic product (GDP) at the present and the GDP that would be present if an economy were experiencing full employment is known as the inflationary gap, a macroeconomic concept.
• Policies to boost the economy and fight deflation are referred to as reflation. 

Correct answer Pat Mullins.

Key Points

The correct answer is service sector.

Key Points

• 60% of Indian GDP is contributed by the service sector.
• India's services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.
• The services sector is not only the dominant sector in India’s GDP but has also attracted significant foreign investment, has contributed significantly to export, and has provided large-scale employment.
• The current growth of the service sector in India is based mainly on labor market arbitrage.
• Moving forward, India can no longer rely on ‘low cost’ for ‘low value added’ services. Therefore, the solutions that address the following:
  • Boosting the manufacturing sector with both direct and indirect spin-off benefits for the growth of the service sector in India.
  • Moving up the value chain, especially in the IT/ ITeS sector.
  • Broad - basing the Indian Services offering platform into sectors beyond the traditional IT/ ITeS by identifying the global demand for such services, and meeting these demands based on the natural competencies and comparative advantages.