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MCQs with Answers on Microeconomics
1. Assertion (A) 1 Money is a link between the present and the future.
Reason (R) : Money is a store of value.
(A) Both (A) and (R) are true and (R) is the correct explanation of (A).
(B) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(C) (A) is true and (R) is false.
(D) (A) is false and (R) is true.
2. Choose the correct answer:
The aggregate demand curve is downward sloping because of
(A) wealth effect and interest rate effect of a change in aggregate price level.
(B) only wealth effect of a change in aggregate price level.
(C) only interest rate effect of a change in aggregate price level.
(D) equal wealth effect and interest rate effect of a change in aggregate price level.
3. Consider the following statements:
(i) Absolute income hypothesis is associated with Keynes.
(ii) S = —20 + 0.4y and C = 20 + 0.6y yield the same investment multiplier.
(iii) Investment multiplier rises Whenever income tax is introduced in the system.
(iv) Bond price and interest rates are directly related.
Which of the statement (s) is/are correct?
(A) (i) alone
(B) (ii) and (iii)
(C) (iii) and (iv)
(D) (i) and (ii)
4. A ‘fair bet’ is one
(A) which increases expected income.
(B) which reduces expected income of the opponent.
(C) which leaves expected income unchanged.
(D) which ensures victory.
5. Choose the correct answer:
The short-run aggregate supply curve is upward sloping because
(A) nominal wages are sticky in the short run, i.e. higher aggregate price level leads to higher profit per unit of output and increased aggregate output in the short run.
(B) elasticity of wages with respect to price exceeds unity.
(C) elasticity of wages with respect to price is equal to unity.
(D) elasticity of demand with respect to price is equal to unity.
6. Markets in ‘State-contingent commodities’ refer to markets
(A) where goods are distinguished by their physical characteristics.
(B) Where goods are distinguished by the state of the world in which they will be consumed.
(C) Where goods are sold at the command of the government.
(D) both (A) and (B)
7. Choose the correct statement—
(A) In the vertical portion of LM curve, fiscal policy is highly effective while monetary policy is not effective.
(B) In the vertical portion of LM curve, fiscal policy is ineffective, while monetary policy is highly effective.
(C) In the horizonal portion of LM curve, fiscal policy and monetary policy both are effective.
(D) In the horizonal portion of LM curve, neither fiscal policy, nor monetary policy is effective.
8. When a linear consumption function shifts downwards parallelly, the investment multiplier will
(B) rise marginally.
(C) remain as before.
(D) become double.
9. The size of the money multiplier is larger in the Keynesian IS-LM model, if
(A) the more interest inelastic is the demand for money.
(B) the more interest elastic is the demand for investment goods.
(C) the less interest elastic is the demand for investment goods.
(D) the demand for investment goods is perfectly inelastic.
10. If a card is chosen from a standard pack of cards, what is the probability of getting a three or a seven?
11. By nature, Quota sampling, Judgement sampling and Convenience sampling are classified as
(A) random sampling.
(B) non-random sampling.
(C) direct sampling.
(D) indirect sampling.
12. Choose the correct answer:
The existence of multicollinearity for a linear regression model implies
(A) the disturbance terms of the model are correlated.
(B) there is significant correlation between the explanatory variables.
(C) there is significant correlation between the dependent and the independent variables.
(D) there is no significant correlation between the explanatory variables.
13. Choose the correct answer:
The existence of autocorrelation for a linear regression model implies
(A) the disturbance terms of the model are correlated over time.
(B) the explanatory variables of the model are correlated over time.
(C) there is correlation between dependent variable and the explanatory variables.
(D) there is correlation between the dependent variable and the explanatory variables over time.
14. Choose the correct answer:
In a linear regression model the Durbin-Watson test cannot be used if
(A) the model contains lagged values of the explanatory variables.
(B) the model contains more than one explanatory variable.
(C) the model contains the disturbance term.
(D) the model contains the lagged value of the current dependent variable.
15. Choose the correct answer:
For a simultaneous equation model, the reduced form of the model
(A) does not contain the current value of endogenous variable as explanatory variable
(B) does contain the current value of the endogenous variable as explanatory variable.
(C) does not contain lagged values of the current dependent variables as explanatory variables.
(D) does not contain lagged values of current exogenous variables as explanatory variables.
16. For a simultaneous equation system, which of the following statement is incorrect?
(A) If an equation is exactly identified then ILS and 2SLS would give the same result.
(B) ILS can he applied to an over identified equation.
(C) 2SLS can be applied to an over identified equation.
(D) ILS cannot be applied to an over identified system.
17. Choose the correct answer:
White noise process is a random process of random variable
(A) that are uncorrelated, have mean Zero and finite variance.
(B) that are correlated, have mean zero and finite variance.
(C) that are uncorrelated, have constant non-zero mean and finite variance.
(D) that are correlated, have constant non zero mean and ﬁnite variance.
18. Choose the correct answer:
Heckscher-Ohlin model shows how differences in factor endowment determine comparative advantage: goods differ in factor intensity and
(A) countries tend to export goods that are intensive in the factors they have in abundance.
(B) countries tend to import goods that are intensive in the factors they have in abundance.
(C) countries tend to consume goods that are intensive in the factors they have in abundance.
(D) countries tend to produce goods that are intensive in the factors they have in abundance.
19. Stolper-Samuelson theorem establishes a relation between
(A) prices of factors and relative factor awards.
(B) relative prices of output and relative factor rewards.
(C) relative prices of output and absolute factor rewards.
(D) prices of factors and factor rewards.
20. When a country exports a product at a price below its cost of production, then it is said to be
(A) Price skimming
(D) Excessive invoicing
21. Most favoured nation clause means
(A) some nations should be given more favour.
(B) advantage granted by one member country of (WTO) to another member country must be granted to all other member countries of WTO.
(C) some countries are listed as most favoured members and they get some special treatment.
(D) All the above.
22. Trade creation refers to a situation where
(A) imposition of trade barriers between members of the trading bloc enables various products to be pruchased at lower prices, thereby stimulating intra-regional trade.
(B) removal of trade barriers between members of the trading bloc enables various products to be purchased at lower prices stimulating intra-regional trade.
(C) removal of trade barriers between members of the trading bloc enables various products to be purchased at higher prices thereby stimulating intra-regional trade.
(D) imposition of trade barriers between members of the trading bloc enables various products to be purchased at lower prices, thereby dampening intra-regional trade.
23. According to equal sacrifice principle, total sacrifice of people in payment of tax is minimised under
(A) equal proportional sacrifice.
(B) equal absolute sacrifice.
(C) equal relative sacrifice.
(D) equal marginal sacrifice.
24. Which of the following is not a test of heteroscedasticity?
(A) Gleszer test
(B) White’s test
(C) Breusch-Pagan test
(D) Breusch-Godfrey test
25. Fiscal Deficit means-
(A) Public expenditure debts from sources other than RBI.
(B) Public capital expenditure surplus of revenue account.
(C) Government expenditure revenue receipts.
(D) Public expenditure tax and non-tax revenue receipts.
26. Lindahl tax is a form of taxation in which
(A) individuals pay for public goods according to their marginal benefits.
(B) individuals pay for private goods according to their marginal benefits.
(C) individuals pay for public goods according to their willingness to pay.
(D) individuals pay for public goods according to their average utility.
27. In which of the following tax, the burden cannot be shifted by the taxpayer to others?
(A) Sales Tax
(B) Excise duty
(C) Customs duty
(D) Inheritance tax
28. Which of the following is not a quasi-public good?
(i) National defence
(ii) An automobile
(iv) Fire protection
Select the correct code:
(A) only (ii)
(B) (ii) and (iv) both
(C) (ii), (iii) and (iv)
(D) only (iii)
29. An external benefit is most likely to arise when
(A) firms are able to reduce their costs of production by undertaking research and development.
(B) a reduction in the tax on profits increases the amount of money firms have available for investment.
(C) the government subsidizes commuter rail services in order to reduce road congestion
(D) a firm is able to dispose off Waste products into rivers free of charge.
30. In the presence of a stagnant economy a government should
(A) spend more, tax less and/or pursue a contractionary monetary policy.
(B) spend less. tax less and/or pursue an expansionary monetary policy.
(C) spend more, tax less and/or pursue an expansionary monetary policy.
(D) tax more, spend less and/or pursue an expansionary monetary policy.
31. Under IPO method
(A) shares of public sector undertakings are sold to retail investors and institutions.
(B) shares of private sector undertakings are sold to retail investors and institutions.
(C) shares of retail undertakings are sold to public sector units.
(D) shares of private sector are sold to public sector.
32. Which of the following is not related to the concept of financial inclusion?
(A) Extension of financial services to unbanked areas.
(B) Reaching out to the people who are still deprived of banking services.
(C) Provide access to useful and affordable financial products and services that meet the people’s needs.
(D) Enhance the profitability of the financial institutions.
33. The banks are required to maintain a certain ratio between their cash in hand and total assets, which is called
(A) Central Liquidity Reserve
(B) Statutory Liquidity Ratio
(C) Statutory Bank Ratio
(D) Central Bank Reserve
34. Fictional Unemployment is defined as
(A) having no jobs when Workers are willing to work.
(B) short term movement of workers between jobs.
(C) having no jobs due to changing seasons in agriculture.
(D) unemployment due to business cycles.
35. Stagflation represents a situation where
(A) rate of growth is faster than the rate of rise in prices.
(B) rate of economic growth is slower than the rate of rise in prices.
(C) economic growth is indifferent to changes in prices.
(D) both national income and prices are declining.
36. According to the Capability Approach to development
(A) human beings are means to an end and the end is income generation.
(B) income is a means to an end in human welfare.
(C) human beings and income are both means and the end is utility maximization.
(D) higher price leads to rise in income and entitlement to reach the goal.
37. Who among the following advocated the “Basic Needs Approach” (BNA) to development?
(A) A. K. Sen
(B) D. Romer
(C) S. Kuznets
(D) Paul Streeten
38. Who among the following developed the Theory of Circular Causation?
(A) G. Myrdal
(B) R. Nurkse
(C) J. Robinson
(D) J. R. Hicks
39. Which of the following variables are used to measure the fertility rate of a population?
(i) Women in the reproductive age group 15-49.
(ii) Females in the total population.
(iii) Number of children below 15 years of age.
(iv) Number of girls below fifteen years of age.
(A) (i) and (ii)
(B) (i) and (iii)
(C) (i) and (iv)
(D) (ii) and (iv)
40. Perfectly elastic supplies of labour play a crucial role in
(A) Malthus’ model of growth.
(B) Kuznets’ model of growth.
(C) The Prebisch hypothesis.
(D) Lewis model of growth.
41. The ‘Technological Dualism’ in underdeveloped countries could be broken through
(A) a gradualist approach of development.
(B) family planning.
(C) planning for increased productivity in rural sector.
(D) focusing on IT sector.
42. The Rostow’s model postulates that economic growth occurs in five basic stages of development. Which among the following is not one of those stages?
(A) Traditional society
(B) The Pre-conditions to take-off
(C) Entrepreneurial growth
(D) High mass consumption
43. “Knife-edge” instability in Harrod Model arises due to the fact that
(A) savings ratio, output capital ratio and natural rate of growth are determined by three distinct factors.
(B) savings ratio and output capital ratio are determined by the same factor, but mutual rate of growth is determined by a different set of factors.
(C) entrepreneurs contribute to the constancy of savings ratio but not to the population growth.
(D) all the savings ratio, output capital ratio and natural rate of growth are jointly determined.
44. Choose the correct statement:
Considering two inputs capital and labour. Solow residual which is taken as a measure of the rate of technical progress refers to
(A) growth in output which cannot be explained by growth in capital and labour.
(B) growth in output which cannot be explained by growth in labour only.
(C) growth in output which cannot be explained by growth in capital only.
(D) growth in output which cannot be explained by growth in demand.
45. Indicate the correct statement:
In case of Sweezy duopoly model
(A) the discontinuity in MR curves does not depend on elasticity of demand curves.
(B) demand curves are Iso-elastic.
(C) increasing difference between elasticity of demand curves raises the discontinuity in MR curves.
(D) MR curve is discontinuous because of consumption rigidity.
46. Answer which one is most appropriate:
Sustainable economic development depends upon
(A) investment in both natural and man-made capital but not on savings.
(B) both savings and investment with maintenance of a minimum level of critical natural resources.
(C) savings and investment Without any regard to the maintenance of natural capital.
(D) neither savings, nor investment but only maintenance of natural resources.
47. According to Prof. Sen
(A) Labour intensive technology should he employed for maximising production while capital intensive technology should be employed in case of maximising investment.
(B) A labour surplus country should employ labour intensive technology.
(C) Labour intensive technology should he adopted for putting an end to disguised unemployment.
(D) Developing countries should always adopt labour intensive technology.
48. Which of the following is a measure of market performance?
(A) Product discrimination
(B) H.H. index
(C) Concentration ratio
(D) Rate of return
49. ‘Warm glow‘ refers to a situation faced while asking respondents about their willingness to pay for an environmental service; this implies
(A) the question makes the respondent feel warm.
(B) that the respondents state high willingness to pay regardless of the impact of such statement. just to experience the joy of being treated as a person valuing environment.
(C) that the respondents state high willingness to pay so that others are compelled to pay that price.
(D) that the respondents state low willingness to pay to protect themselves from paying high prices.
50. Which of the following statements is not true?
(A) Contingent valuation method is applied in a hypothetical market situation.
(B) To estimate the value of environmental quality with hedonic pricing, actual price in which houses a.re sold is required.
(C) Multicollinearity may be encountered in contingent valuation method.
(D) Starting point bias is associated with contingent valuation method.
51. Which of the following is not related to the Travel Cost method?
(A) Zonal approach
(B) Individual approach
(C) Utility approach
(D) Random utility approach
52. Go through the following statements:
(i) In case of negative externality socially optimum output of a commodity must be lower than the private optimum output.
(ii) Coase’s theorem states that a costless negotiation can bring about a solution to externality.
Choose the correct explanation given below.
(A) (i) is correct but (ii) is incorrect.
(B) (i) is correct and statement (ii) is applicable to (i).
(C) (ii) is correct but it has no connection with (i)
(D) (ii) is correct but (i) is not always correct.
53. Which one of the following is an example of market failure?
(A) Prices do not reflect the full social costs of production.
(B) Prices rise so that consumers cannot afford to buy all the goods that they used to purchase.
(C) Demand falls so that firms have to make workers redundant.
(D) A firm goes out of business because it cannot find a market for its products.
54. As per the sectoral distribution of national income in India, the percentage share of agriculture is
(A) 70-80 per cent
(B) 40-5O per cent
(C) 50-60 per cent
(D) less than 20 per cent
55. The Minimum Support Price (MSP) for food grains was introduced in India in the year
56. Which of the following is a function of NABARD?
(i) Monitoring flow of ground level credit to agriculture.
(ii) Credit planning and monitoring.
(iii) Formulation of operational guidelines for rural financial institutions.
Choose the correct code:
(A) only (i) is correct.
(B) (i) and (ii) are correct but (iii) is incorrect.
(C) all (i), (ii) and (iii) are correct.
(D) (ii) is correct and others are incorrect.
57. Which of the following statements is not true about the National Food Security Act 2013?
(A) It is also known as the Right to Food Act.
(B) It was notified in September 2013.
(C) It ensures enhanced production of food grains.
(D) It ensures food and nutritional security in human life cycle approach.
58. Consider the following statements about the idea of ‘inclusive growth’:
(i) The idea of ‘inclusive growth’ entered into the domain of planning with the eleventh plan.
(ii) This is not only about economics but also about ‘social’ inclusion.
(iii) The main idea behind inclusive growth is to include SCs, STs, OBCs, minorities and women in the country’s development process.
(iv) The 3rd Generation of Economic Reforms runs parallel to the idea of inclusive growth.
Select the correct statement using the code below:
(A) (i), (ii) and (iii)
(B) (ii), (iii) and (iv)
(C) (i), (iii) and (iv)
(D) (i), (ii), (iii) and (iv)
59. Which of the following are the causes of low productivity in Indian agriculture?
(i) Rural industrialisation
(ii) Land ceilings
(iii) Sub-division and fragmentation of land holdings
(iv) Rainfed areas
(A) (i) and (iii)
(B) (iii) and (iv)
(C) (i), (iii) and (iv)
(D) (ii) and (iv)
60. Food based security acts by Government of India involve the following three schemes; Choose the correct option from below:
(A) PDS, ICDS and MDM
(B) MDM, MGNREGS and NRLM
(C) ICDS, PDS and IRDP
(D) PMRY, RLEGP and PDS
61. The Goods and Services Taxes aimed at integrating
(A) indirect taxes of Centre and the states.
(B) direct taxes of Centre and the states.
(C) direct taxes of the Centre and indirect taxes of the states.
(D) indirect taxes of the Centre and direct taxes of Centre.