Ramesh Singh Test: Economics - 1


25 Questions MCQ Test Economy Traditional for UPSC (Civil Services) Prelims | Ramesh Singh Test: Economics - 1


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QUESTION: 1

Consider the following statements
1. The word economics is derived from Latin words ‘Oikos” and ‘Nomos”.
2. British economist J.M.Keynes called economics a science of scarcity.
Which of the above given statements is/are incorrect? 

Solution:

Both given statements are incorrect.
Oikos and Nomos are Greek words.
British economist Lionel Robbins described economics as ‘the science of scarcity’.

QUESTION: 2

The concept of ‘invisible hand’ propagated by Adam Smith means

Solution:

The phrase invisible hand was introduced by Adam Smith in his book 'The Wealth of Nations'. He assumed that an economy can work well in a free market scenario where everyone will work for his/her own interest.
He explained that an economy will comparatively work and function well if the government will leave people alone to buy and sell freely among themselves. He suggested that if people were allowed to trade freely, self-interested traders present in the market would compete with each other, leading markets towards the positive output with the help of an invisible hand.
The unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically is the invisible hand.

QUESTION: 3

Which type of economy is also called ‘dual economy’?

Solution:

A dual economy refers to the existence of two distinct types of economic segments within an economy.
Mixed Economy = Market economy + Command economy. 

QUESTION: 4

The concept of ‘collective ownership ‘of means of production is associated with which of the following? ​

Solution:

Socialism is a system based on public ownership (also known as collective or common ownership) of the means of production. Those means include the machinery, tools, and factories used to produce goods that aim to directly satisfy human needs.
In communism, most property and economic resources are owned and controlled by the state /government. Under socialism, all citizens share equally in economic resources (Collective ownership)

QUESTION: 5

Which of the following is not a feature of capitalism?
1. Limited role of the government in economic activities.
2. Freedom of competition
3. Efficiency, innovation and creativity
4. Classless society

Solution:

Achieving a classless society is a feature of command economy. 

QUESTION: 6

Which economic system led to increase in inequality, class conflicts and economic depressions?

Solution:
QUESTION: 7

Identify the incorrect statement/s
1. Capitalism allows private property
2. Communism allows for free market
3. Capitalism, in theory, spreads wealth evenly
4. Communism encourages entrepreneurship 
Options:

Solution:

In communism all economic resources are publicly owned and controlled by the government. Individuals hold no personal property or assets. Communism does not encourage entrepreneurship.

QUESTION: 8

_________________ provides better and cheaper goods and services to consumers but often leads to exploitation of workers. ​

Solution:

In a market system, producers compete with each other by offering wider variety and better quality of goods and services, therefore consumers have more choice, and this may even lead to lower prices. Workers in a free market are compelled by their lack of ownership of the means of production to sell their labor power to capitalists for less than the full value of the goods they produce.

QUESTION: 9

The French word ‘Laissez faire’ means

Solution:

Laissez-faire is an economic theory from the 18th century that opposed any government intervention in business affairs. The driving principle behind laissez-faire, a French term that translates as "leave alone" or “hands off” is that the less the government is involved in the economy, the better off business will be—and by extension, society as a whole. Laissez-faire economics are a key part of free market capitalism.

QUESTION: 10

Vladimir Lenin was the leader of 

Solution:

The Bolsheviks believed that Russia was ready for socialism. Their leader, Vladimir Lenin was a revolutionary, who managed to organize a devoted and highly disciplined party. The Bolsheviks in 1919, succeeded in overthrowing the Czar rule and establishing Socialism in Russia. 

QUESTION: 11

Which of the following is not a characteristic of a command economy?  

Solution:

Goods and services in a command economy are produced based on what the government thinks is essential for the society and not on the basis of the choice and preference of the consumers.

QUESTION: 12

Inefficiency, lack of innovation and rigidness are the features of which economic system?

Solution:

Inefficiency, lack of innovation and creativity and rigidness are some of the disadvantages of Command economic system. Communist and socialist systems are the types of command economic system. 

QUESTION: 13

‘The general theory of Employment, Interest and Money’ written by J.M.Keynes was published in

Solution:
QUESTION: 14

Consider the following statements regarding the sectors of Indian economy. 
1. Agriculture provides direct employment to more than 50 % people of the country.
2. The service sector is the biggest contributor to India’s economy.
3. Manufacturing activities contribute more to Indian economy than the primary sector.
4. Mining comes under primary sector.
Which of the above given statements is/ are correct? 

Solution:

In FY 2019-2020, 42.39 % Indians were employed in agriculture and allied activities. Service sector contributed 57.8 % to Indian GDP. The manufacturing activities contributed 15.4 % to Indian economy which is more than 13.9 % contributed by primary sector Mining and quarrying are included in the secondary sector in India.

QUESTION: 15

Consider the following statements about GDP at market cost
1. GDP at market cost will increase if the government increases indirect taxes on goods and services.
2. GDP at market cost will increase if the government decreases indirect taxes on goods and services.
3. GDP at market cost will be constant irrespective of changes in indirect tax rates. 
Identify the correct answer from the options given below:

Solution:

GDP at Market cost = Factor cost + indirect taxes – Subsidies.
If the factor cost of product ‘xyz’ is Rs 200 and indirect taxes is Rs 20 and subsidy given by the government to reduce its price is Rs 10, than .The market cost of ‘xyz’ will be 200 + 20 – 10 = 210 Rs. 
So, GDP at market increases if indirect taxes increase. 

QUESTION: 16

____________is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year and expressed in base-year prices.

Solution:

Real GDP is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year (expressed in base-year prices) and are often referred to as "constant-price," "inflation-corrected" GDP. 

QUESTION: 17

GDP deflator divides

Solution:

The GDP deflator, also called implicit price deflator, is a measure of inflation. GDP price deflator measures the difference between real GDP and nominal GDP.
The formula to find the GDP deflator = (nominal GDP ÷ real GDP) x 100

QUESTION: 18

Which of the following is regarded as the National Income of India?

Solution:

Net national product (NNP) at factor cost is considered as the National income of India. 
GNP- depreciation at factor cost is nothing but NNP at factor cost and NNP -indirect taxes + subsidies = NNP at factor cost. Hence, both a) and b) are correct. 

QUESTION: 19

Which statements about Gross Domestic Product (GDP) are /are correct?
1. GDP is the total value of all final goods and services that are sold in a given year.
2. In GDP estimates, the value of intermediary goods is not included at all.
3. GDP is a quantitative concept.
4. GDP measures growth but not progress.
Select the correct answer from the options given below: 

Solution:

GDP is the total value of all goods and services produced in a country in a given year irrespective of them being sold or not. 
The value of intermediary goods is included in the total value of final goods. They are counted separately to avoid double counting. GDP is a measure of growth and not progress: GDP indicates growth that is quantitative. Qualitative aspects such as development, progress and well being are not taken in to account.

QUESTION: 20

The ministry which is responsible for GDP estimation is

Solution:

The GDP estimation in India is undertaken by the Central Statistics office or CSO. The Central Statistics Office (CSO) is a governmental agency under the Ministry of Statistics and Programme Implementation.

QUESTION: 21

When the value of depreciation is ______ from Gross Domestic Product (GDP), we get Net Domestic Product.

Solution:

NDP = GDP – Depreciation 

QUESTION: 22

The NDP of a country will always be,

Solution:

NDP of an economy has to be always lower than its GDP for the same year, since there is no way to cut the depreciation to zero.

QUESTION: 23

Consider the following:
1. Depreciation is the reduction in the value of capital assets due to wear and tear. 
2. Different capital assets have different depreciation rates.
3. Depreciation rates of similar capital assets are same in different countries.
Which of the above given statements is/are correct? 

Solution:

Every asset undergoes depreciation. Government (Ministry of commerce and industry) announces the rates by which assets depreciate. Different rate of depreciation is set by different countries depending on their geography, climate, economic conditions etc. 

QUESTION: 24

Which of the following is/are not included in the GDP? 
1. Pensions
2. Scholarships
3. Subsidies
4. Remittances
Select the correct answer from the options given below:

Solution:

Transfer payments such as pensions, scholarships, subsidies etc are excluded from GDP calculations because there is no production of any goods or services in exchange of such payments. Remittances (Money sent home from emigrants working abroad) are also not included in the GDP. This is because, in GDP estimations, only those goods and services produced within a country are included. 

QUESTION: 25

If the factor cost of a product is Rs 500, indirect tax on it is Rs 50 and subsidy given by the government is Rs 15, than what is the market cost of that product?

Solution:

Market cost = factor cost + indirect taxes - subsides. Therefore, 500 + 50 – 15 = 535.