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Explore popular questions from MicroMacro Economics for UPSC. This collection covers MicroMacro Economics previous year UPSC questions hand picked by experienced teachers.

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Q 1. Devaluation usually causes the internal price to

A

Fall

B

Rise

Remain unchanged

D

None of these

Explanation

Devaluation is a deliberate downward adjustment to the value of a country’s currency, relative to another currency, a group of currencies. Since it is relative to other currency so the internal price remains unchanged. It causes a country’s exports to become less expensive and imports more expensive. Devaluation is a monetary policy tool used by countries that have a fixed exchange rate or semi-fixed exchange rate. It is often confused with Depreciation and is the opposite of revaluation.

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Q 2. The price at which the Government purchase foodgrains for maintaining the public distribution system and for building up buffer stocks are known as

A

Minimum support prices

Procurement prices

C

issue prices

D

Coiling prices

Explanation

The price at which the Government purchases foodgrains for maintaining the public distribution system and for building up buffer stocks are known as procurement prices. Minimum support price: It is a form of market Intervention by Govt, of India to insure agricultural producers against any sharp fall in farm price. M.S.P. were announced by Govt of India. Issue price: It is the price at which shares are offered to retail investors in the IPO issue.

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Q 3. Which one of the following agencies of Indian Government implements the price support scheme (PSS)?

A

FCI

NAFED

C

Agriculture pricing agency of India

D

None of the above

Explanation

In Order to help the farmers in getting remunerative prices for their produce with a view to encourage higher investment and as also to increase production and productivity of a commodity, the government declares Minimum Support Price (MSPs) for 25 notified agricultural commodities for each Kharif & Rabi crop season. National Agricultural Cooperative Marketing Federation of India Ltd (NAFED) is one of the Central Nodal Agencies which implements PSS.

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Q 4. Who recommends the MSP and issue prices?

A

Ministry of agriculture

B

Planning commission

Commission for Agricultural Costs and Prices

D

NABARD

Explanation

CACP was set up in 1985 and recommends for MSP, issue prices as well as procurement prices.

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Q 5. With reference to India, consider the following statements:
1. The Wholesale Price Index (WPI) in India is available on a monthly basis only.
2. As compared to Consumer Price Index for Industrial Workers (CPIIW), the WPI gives less weight to food articles.
Which of the statements given above is/are correct?

A

1 only

2 only

C

Both 1 and 2

D

Neither 1 nor 2

Explanation

Alter the Abhijit Sen committee's proposals in 2004-05. the government had approved the proposal to release or wholesale price-based inflation data on a monthly basis, instead of every week. The base year was changed to 2004-05 from 1993-94. However, data on primary and fuel items was continued to release on a weekly basis. Consumer Price Index food group has a weight of 39.1 percent as compared to the combined weight of 24.4 percent (food articles and manufactured food products) in wholesale Price Index food basket.

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Q 6. Which of the following statements is true about supply-side economics?

A

The main change made by the tax laws of 1981 and 1986 was to increase marginal tax rates in order to balance the budget

The Laffer Curve says that, if marginal tax rates fall, tax revenues will rise, and the budget deficit will decrease

C

If the tax laws of 1981 and 1986 had had their intended effect, consumption would have risen, causing an increase in both real GDP and in the price level

D

All of these

Explanation

The Laffer Curve says that, if marginal tax rates fall, tax revenues will rise, and the budget deficit will decrease. Supply-side economics is a macro-economic theory that gives economic growth can be most effectively created by investing in capital and by lowering barriers on the production of goods and services.

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Q 7. What is meant by ‘Public Good'?

A

A commodity produced by the Government

A commodity whose benefits are indivisibly spread among the entire community

C

A Government scheme that benefits the poor households

D

Any commodity that is very popular among general public

Explanation

Public good means a commodity or service which is given without profit to everyone in society by government or any organization.

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Q 8. In view of the fact that kerosene is an inferior good in India, what is/are its implication(s)?
1. As households get richer, they consume less kerosene.
2. Over time there is a decline in quality of kerosene.
3. Government needs to stop subsidies on kerosene.
Select the correct answer using the code given below.

1 only

B

1 and 2 only

C

2 and 3 only

D

1, 2 and 3

Explanation

Generally, Kerosene is used as fuel by the poor, as they get prosperity, they use little of this fuel.

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Q 9. The income elasticity of demand for inferior goods is

A

less than one

less than zero

C

equal to one

D

greater than one

Explanation

Inferior goods have a negative (less than 0) income elasticity of demand meaning that demand falls as income rises.

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Q 10. Which of the following statements is/are true?
1. If increase in demand and supply are of equal magnitude, the price will remain unchanged, but the equilibrium quantity will increase.
2. If increase in demand is of greater magnitude than increase in supply, both equilibrium price and equilibrium quantity will increase.
3. If increase in supply is of greater magnitude than increase in demand, equilibrium price will fall but equilibrium quantity will increase.
Select the correct answer using the code given below :

A

only 1

B

1 and 2 only

C

2 and 3 only

1, 2 and 3

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Q 11. Which of the following statements are correct?
1. When marginal revenue is positive, total revenue increases with increase in output.
2. When marginal revenue is zero, total revenue is maximum.
3. When marginal revenue becomes negative, total revenue falls with increase in output.
Select the correct answer using the code given below:

A

1 and 2 only

B

2 and 3 only

C

1 and 3 only

1, 2 and 3

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Q 12. An exceptional demand curve is one that slopes

A

downward to the right

upward to the right

C

horizontally

D

upward to the left

Explanation

When the curve slopes downwards from left to right; higher prices reduce the quantity demanded.

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Q 13. Rise in the price of a commodity means

A

rise in the value of currency only

fall in the value of currency only

C

rise in the value of commodity only

D

fall in the value of currency and rise in the value of commodity

Explanation

When the price level rises, each unit of currency buys fewer goods and services. So rise in the price of a commodity means fall in the value of currency only.

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Q 14. A closed economy is an economy in which

A

the money supply is fully controlled

B

deficit financing takes place

C

only exports take place

neither exports nor imports takes place Difficulty: Easy, covered in NCERT / NIOS.

Explanation

A closed economy has no trade activity with outside economies. A closed economy is self-sufficient, which means no imports come into the country and no exports leave the country. The purpose of a closed economy is to provide domestic consumers with everything they need from within the country’s borders.

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Q 15. Despite being a high saving economy, capital formation may not result in significant increase in output due to

A

weak administrative machinery

B

illiteracy

C

high population density

high capital-output ratio

Explanation

Capital Output Ratio (ICOR) measures the percentage increase in capital formation required obtaining a percentage increase in GDP. Entrepreneurs, by investing their own savings and informally mobilizing the savings of their friends and relatives contribute to the process of capital formation. These informal funding supplements the funds made available by the formal means of raising resources from banks, financial institutions, and capital markets. So, “D” is the fitting option- if capital to output ratio is high then capital formation may not result in a significant increase in the output.

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Q 16. Which one of the following is not an assumption in the law of demand?

A

There are no changes in the taste and preferences of consumers.

B

Income of consumers remains constant.

Consumers are affected by demonstration effect.

D

There are no changes in the price of substitute goods.

Explanation

The law of demand is applicable with the following assumptions.
(1) No change in price of related commodities.
(2) No change in income of the consumer.
(3) No change in taste and preferences, customs, habit and fashion of the consumer.
(4) No change in the size of the population.
(5) No expectation regarding a future change in price.

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Q 17. Which one of the following statements is not correct.

A

When total utility is maximum, marginal utility is zero.

B

When total utility is decreasing marginal utility is negative

C

When total utility is increasing, marginal utility is positive.

When total utility is maximum, marginal and average utlity are equal to each other.

Explanation

When total utility is maximum, marginal utility is zero and it is not equal to average utility.

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Q 18. When some goods or productive factors are completely fixed in amount, regardless of price, the supply curve is

horizontal

B

downward sloping to the right

C

vertical

D

upward sloping to the right

Explanation

Some goods or productive factors are completely fixed in amount, regardless of price. There is only one Mona Lisa by da Vinci. Nature’s original endowment of land can be taken as fixed in amount. In this case, the supply curve is always horizontal.

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Q 19. Who among the following has suggested migration to accrual accounting system from cash-based accounting system in India?

A

I.V. Reddy

B

D.N. Ghosh

C

R.H. Patil

C. Rangarajan

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Q 20. Which one of the following terms is used in Economics to denote a technique for avoiding a risk by making a counteracting transaction?

A

Dumping

Hedging

C

Discounting

D

Deflating

Explanation

Hedging is used in limiting or offsetting the probability of loss from fluctuations in the prices of commodities, currencies or securities.

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Q 21. {tex}\mathrm{Statement \ I}{/tex} : There has been a sharp decline in savings rate in Indian economy between 2007-2008 to 2015-2016.
{tex}\mathrm{Statement \ II}{/tex}: There has been a fall in household and public savings.

Both the statements are individually true and Statement II is the correct explanation of Statement I

B

Both the statements are individually true but Statement II is not the correct explanation of Statement I

C

Statement I is true but statement II is false

D

Statement I is false but Statement II is true

Explanation

There has been a sharp decline in the savings rate in the Indian economy between 2007-2008 to 2015-2016. The household savings rate could remain stagnant or even decline as financial liabilities increase with greater retail credit penetration.

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Q 22. The process of curing inflation by reducing money supply is called

A

Cost-push inflation

B

Down-pull inflation/Demand pull inflation

Disinflation

D

Reflation

Explanation

The process of curing inflation by reducing money supply is called disinflation. Disinflation is a decrease in the rate of inflation - a slowdown in the rate of increase of the price level of goods and services in GDP. Cost pull inflation - It is caused by an increase in prices of inputs like Labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of Goods. Demand-pull inflation - It is asserted to rise when Aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real GDP rises and unemployment falls.

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Q 23. The term stagflation refers to a situation where

A

growth has no relation with the change in price

B

rate of growth and prices both are decreasing

C

rate of growth is faster than the rate of price increase

rate of growth is slower than the rate of price increase

Explanation

Stagflation occurs when the economy isn’t growing but prices are increasing, which is not a good situation for a country' to be in. Stagflation - Persistant high inflation combined with high unemployment and stagnant demand in a country’s economy.

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Q 24. During period of inflation, rates should

Increase

B

Decrease

C

Remain constant

D

Fluctuate

Explanation

During inflation interest rates should increase so that the investor invests more in lieu of higher interest-earning thus money supply reduce which can reduce inflation. Similarly higher interest rates means credit becomes costly so that again supply of money reduces which helps in curbing inflation.

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Q 25. In the paralance of economy/commerce, what is the ‘Gilt-edged market'?

A

Gold and Silver market

B

Industrial securities market

Market of safe securities

D

Market of software technology products

Explanation

In the parlance of economy. Gilt-edged market is called market of safe securities. “Gilt-edged” denotes high-grade securities, consequently carrying low yields.