Q.1 Why does the government intervene in an economy?
To increase private profits
To correct market failures
To eliminate taxes
To prevent international trade
Explanation - Governments intervene to correct market failures such as monopolies, externalities, and public goods provision.
Correct answer is: To correct market failures
Q.2 Which of the following is considered a public good?
National defense
Mobile phones
Cars
Clothing
Explanation - Public goods are non-rivalrous and non-excludable, such as national defense.
Correct answer is: National defense
Q.3 Institutions in development economics primarily refer to:
Government buildings
Rules and norms of society
Political parties only
Schools and universities
Explanation - Institutions are the formal and informal rules that shape economic behavior and performance.
Correct answer is: Rules and norms of society
Q.4 Which institution ensures property rights are protected?
Judiciary
Executive
Central Bank
Trade unions
Explanation - The judiciary plays a critical role in protecting property rights through the legal system.
Correct answer is: Judiciary
Q.5 Market failure occurs when:
Markets allocate resources efficiently
Markets fail to allocate resources efficiently
There is no government intervention
Prices are determined by supply and demand
Explanation - Market failure refers to inefficient allocation of resources without government intervention.
Correct answer is: Markets fail to allocate resources efficiently
Q.6 Corruption in government institutions usually leads to:
Efficient allocation of resources
Higher economic growth
Misallocation of resources
Lower inequality
Explanation - Corruption diverts resources away from productive uses, reducing efficiency and fairness.
Correct answer is: Misallocation of resources
Q.7 Which policy is directly aimed at stabilizing the economy?
Monetary policy
Property rights
Trade liberalization
Cultural traditions
Explanation - Monetary policy controls money supply and interest rates to stabilize the economy.
Correct answer is: Monetary policy
Q.8 Development economics stresses the role of institutions because:
They directly produce goods
They shape incentives and behavior
They regulate international trade only
They replace private markets
Explanation - Institutions influence economic growth by shaping incentives, rights, and opportunities.
Correct answer is: They shape incentives and behavior
Q.9 Which government function addresses income inequality?
Redistribution through taxes
Printing money
Increasing exports
Reducing imports
Explanation - Governments reduce inequality by redistributing income through progressive taxation and welfare programs.
Correct answer is: Redistribution through taxes
Q.10 Why are property rights important for development?
They increase government revenue
They encourage investment
They eliminate all poverty
They reduce exports
Explanation - Secure property rights encourage individuals and businesses to invest, fostering economic growth.
Correct answer is: They encourage investment
Q.11 An example of a negative externality is:
Vaccination
Pollution
Education
Public parks
Explanation - Pollution harms third parties not involved in the economic transaction, making it a negative externality.
Correct answer is: Pollution
Q.12 What role does the central bank play?
Conducts elections
Controls money supply and inflation
Provides free education
Builds infrastructure
Explanation - The central bank regulates money supply, sets interest rates, and ensures monetary stability.
Correct answer is: Controls money supply and inflation
Q.13 Which of the following is a role of the government in development economics?
Setting cultural norms
Providing public goods
Creating private businesses
Eliminating demand and supply
Explanation - Governments provide public goods such as defense and infrastructure that markets underprovide.
Correct answer is: Providing public goods
Q.14 Inclusive institutions are those that:
Concentrate power in elites
Provide broad access to opportunities
Limit market activity
Discourage innovation
Explanation - Inclusive institutions distribute power widely and create opportunities for economic participation.
Correct answer is: Provide broad access to opportunities
Q.15 Why does government regulation exist in labor markets?
To maximize profits
To protect workers' rights
To increase unemployment
To limit education
Explanation - Labor regulations safeguard workers from exploitation and ensure fair wages and conditions.
Correct answer is: To protect workers' rights
Q.16 Weak institutions often result in:
Economic prosperity
Political stability
Low corruption
Economic stagnation
Explanation - Weak institutions hinder growth by failing to enforce rules, protect rights, or curb corruption.
Correct answer is: Economic stagnation
Q.17 What does fiscal policy involve?
Government spending and taxation
Money supply control
Judicial reforms
Property rights enforcement
Explanation - Fiscal policy uses spending and taxation to influence aggregate demand and development.
Correct answer is: Government spending and taxation
Q.18 Why do governments provide subsidies?
To discourage production
To encourage desirable activities
To increase inequality
To reduce employment
Explanation - Subsidies incentivize beneficial activities like renewable energy or education.
Correct answer is: To encourage desirable activities
Q.19 An example of an inclusive economic policy is:
Land reforms
Restricting education
Blocking competition
Granting monopolies
Explanation - Land reforms broaden access to resources, empowering more people economically.
Correct answer is: Land reforms
Q.20 Which institution controls monetary policy in most countries?
Parliament
Central Bank
Judiciary
Labor Unions
Explanation - The central bank independently manages monetary policy to maintain stability.
Correct answer is: Central Bank
Q.21 Why are independent institutions important?
They reduce accountability
They prevent misuse of power
They increase corruption
They promote elite capture
Explanation - Independent institutions safeguard fairness and prevent abuse of power.
Correct answer is: They prevent misuse of power
Q.22 Public goods are usually provided by governments because:
They generate high profits
Markets underprovide them
They reduce competition
They increase corruption
Explanation - Markets fail to provide public goods adequately due to free-rider problems, so governments intervene.
Correct answer is: Markets underprovide them
Q.23 Which of the following is a role of international institutions in development?
Providing global public goods
Replacing local governments
Eliminating cultural traditions
Imposing monopolies
Explanation - Institutions like the UN or World Bank contribute to development by providing global public goods and support.
Correct answer is: Providing global public goods
Q.24 Rule of law supports development by:
Weakening markets
Providing predictable enforcement of laws
Encouraging corruption
Eliminating property rights
Explanation - The rule of law ensures fair and predictable application of laws, vital for economic stability.
Correct answer is: Providing predictable enforcement of laws
Q.25 Government intervention is necessary in healthcare because:
It is always profitable
It involves externalities and equity concerns
It eliminates demand
It reduces social welfare
Explanation - Healthcare has positive externalities and equity issues, justifying government intervention.
Correct answer is: It involves externalities and equity concerns