Q.1 What is stagflation in an economy?
High inflation with high growth
High inflation with high unemployment
Low inflation with low growth
Low inflation with high employment
Explanation - Stagflation is a situation where the economy experiences high inflation and high unemployment simultaneously, leading to stagnation.
Correct answer is: High inflation with high unemployment
Q.2 Which policy tool is used by the central bank to control money supply?
Fiscal policy
Monetary policy
Trade policy
Industrial policy
Explanation - Monetary policy, conducted by the central bank, controls the supply of money in the economy through tools like repo rate, CRR, and open market operations.
Correct answer is: Monetary policy
Q.3 What is the main objective of supply-side policies?
Increase government spending
Increase aggregate supply
Reduce exports
Control inflation only
Explanation - Supply-side policies aim to enhance productive capacity and efficiency in the economy, thereby increasing aggregate supply.
Correct answer is: Increase aggregate supply
Q.4 Which of the following is an example of automatic stabilizer in fiscal policy?
Government stimulus package
Progressive income tax
Reduction in interest rates
Export subsidies
Explanation - Automatic stabilizers, like progressive taxes or unemployment benefits, adjust government spending and taxes automatically with economic conditions to stabilize the economy.
Correct answer is: Progressive income tax
Q.5 Which contemporary issue is characterized by rapid increase in housing and commodity prices?
Deflation
Inflation
Recession
Stagflation
Explanation - Inflation refers to a general rise in prices of goods and services over time, reducing the purchasing power of money.
Correct answer is: Inflation
Q.6 What is the main goal of quantitative easing?
Reduce taxes
Increase money supply
Control inflation
Reduce budget deficit
Explanation - Quantitative easing is a monetary policy tool where the central bank buys financial assets to inject liquidity into the economy and encourage lending and investment.
Correct answer is: Increase money supply
Q.7 Which of the following is a potential negative effect of excessive public debt?
Increased economic growth
Crowding out private investment
Reduced taxes
Higher employment
Explanation - Excessive public debt can lead to higher interest rates, making borrowing costly for private investors and reducing private investment.
Correct answer is: Crowding out private investment
Q.8 Globalization primarily affects an economy through:
Isolating domestic markets
Promoting international trade and investment
Reducing competition
Limiting technological exchange
Explanation - Globalization enhances economic integration by increasing trade, foreign direct investment, and technological exchange across countries.
Correct answer is: Promoting international trade and investment
Q.9 Which economic indicator is most used to measure overall economic growth?
Consumer Price Index (CPI)
Gross Domestic Product (GDP)
Unemployment Rate
Balance of Payments
Explanation - GDP measures the total value of all goods and services produced in a country and is the primary indicator of economic growth.
Correct answer is: Gross Domestic Product (GDP)
Q.10 Which policy is effective in combating demand-pull inflation?
Expansionary fiscal policy
Contractionary fiscal policy
Monetary easing
Subsidizing exports
Explanation - Contractionary fiscal policy, by reducing government spending or increasing taxes, decreases aggregate demand, thus controlling demand-pull inflation.
Correct answer is: Contractionary fiscal policy
Q.11 Which contemporary issue refers to the unequal distribution of income and wealth?
Inflation
Income inequality
Fiscal deficit
Balance of trade
Explanation - Income inequality occurs when wealth and income are distributed unevenly among the population, leading to social and economic challenges.
Correct answer is: Income inequality
Q.12 Which of the following is a supply-side policy to reduce unemployment?
Lowering interest rates
Providing job training programs
Increasing government spending
Reducing taxes on consumption
Explanation - Job training programs enhance skills, increase employability, and help reduce structural unemployment, a supply-side issue.
Correct answer is: Providing job training programs
Q.13 What is the effect of deflation on consumers?
Encourages spending
Discourages spending
Reduces the value of money
Increases wages
Explanation - During deflation, falling prices may cause consumers to delay purchases, expecting prices to drop further, which can slow economic growth.
Correct answer is: Discourages spending
Q.14 Which contemporary macroeconomic challenge is caused by excessive government borrowing?
Inflation
Fiscal deficit
Trade surplus
Technological lag
Explanation - A fiscal deficit occurs when government expenditure exceeds its revenue, often financed by borrowing, affecting economic stability.
Correct answer is: Fiscal deficit
Q.15 Which international organization focuses on monetary cooperation and financial stability?
World Bank
International Monetary Fund (IMF)
World Trade Organization (WTO)
United Nations (UN)
Explanation - The IMF provides financial support, monitors global economies, and advises countries on monetary and fiscal policies to ensure stability.
Correct answer is: International Monetary Fund (IMF)
Q.16 Which type of unemployment arises due to technological changes in production?
Cyclical unemployment
Frictional unemployment
Structural unemployment
Seasonal unemployment
Explanation - Structural unemployment occurs when changes in technology or industry reduce the demand for certain skills, leaving workers unemployed.
Correct answer is: Structural unemployment
Q.17 Which contemporary issue involves fluctuations in global oil prices affecting domestic economies?
Trade liberalization
Commodity price volatility
Inflation targeting
Monetary easing
Explanation - Commodity price volatility, especially in oil, affects production costs, inflation, and balance of payments in domestic economies.
Correct answer is: Commodity price volatility
Q.18 Which of the following is a counter-cyclical fiscal policy?
Reducing government spending during a recession
Increasing taxes during a recession
Increasing government spending during a recession
Reducing subsidies during a recession
Explanation - Counter-cyclical fiscal policies aim to stabilize the economy by increasing spending or reducing taxes during recessions and vice versa during booms.
Correct answer is: Increasing government spending during a recession
Q.19 Which contemporary macroeconomic issue is worsened by high levels of corruption?
Income inequality
Monetary policy effectiveness
Fiscal deficit
All of the above
Explanation - Corruption reduces policy effectiveness, worsens fiscal management, and can exacerbate income inequality, negatively impacting economic development.
Correct answer is: All of the above
Q.20 Which policy tool directly affects interest rates in an economy?
Fiscal policy
Monetary policy
Trade policy
Industrial policy
Explanation - Monetary policy tools, such as repo rate and reverse repo rate, directly influence the borrowing and lending rates in the economy.
Correct answer is: Monetary policy
Q.21 Which contemporary issue involves the risk of banks failing and affecting the financial system?
Financial instability
Trade deficit
Unemployment
Inflation
Explanation - Financial instability occurs when banks or financial institutions face crises, threatening the stability of the overall economy.
Correct answer is: Financial instability
Q.22 Which is a major objective of inflation targeting by central banks?
Promote deflation
Control price stability
Increase public debt
Reduce exports
Explanation - Inflation targeting helps maintain stable prices by setting an explicit inflation rate goal, improving economic predictability.
Correct answer is: Control price stability
Q.23 Which contemporary issue involves the effect of climate change on economic growth?
Environmental economics
Financial markets
Trade liberalization
Monetary policy
Explanation - Environmental economics studies the economic impact of environmental changes, policies, and climate-related risks on growth and development.
Correct answer is: Environmental economics
Q.24 Which of the following is a global contemporary economic concern?
Sustainable development
Income inequality
Climate change
All of the above
Explanation - Global economic concerns include sustainable growth, equitable income distribution, and environmental challenges affecting countries worldwide.
Correct answer is: All of the above
Q.25 Which policy aims to attract foreign investment by improving business conditions?
Protectionist trade policy
Liberalization and deregulation
Tight monetary policy
High taxation policy
Explanation - Economic liberalization and deregulation reduce barriers, simplify rules, and make a country more attractive for foreign investment.
Correct answer is: Liberalization and deregulation