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Economy Practice Set 06

Authored practice, not a verbatim PYQ. 25 mixed-difficulty CAPF-level economy MCQs with answer key and one-line explanations, full-syllabus revision span.

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At a glance
PaperPaper ISubjectEconomy

Authored practice, not a verbatim PYQ. Twenty-five single-correct MCQs in CAPF Paper I objective style, a mixed full-syllabus revision set drawing across money, fiscal policy, taxation, trade, schemes and concepts. Attempt closed-book, then check the key. For year-sensitive figures, verify the latest.

Questions

Q1"Demonetisation" of November 2016 withdrew the legal tender status of which notes?
  1. A100 and 50 rupee notes
  2. B500 and 1000 rupee notes
  3. C10 and 20 rupee notes
  4. D2000 rupee notes only
Q2The "Gross Value Added" (GVA) differs from GDP because GVA:
  1. AIncludes net taxes on products
  2. BExcludes net product taxes and subsidies
  3. CCounts only agriculture
  4. DIs always larger than GDP
Q3A "regressive tax" is one where the tax burden:
  1. ARises with income
  2. BFalls proportionally more heavily on lower incomes
  3. CIs the same absolute amount for all
  4. DApplies only to companies
Q4Which one of the following is an example of a "merit good"?
  1. ACigarettes
  2. BEducation and basic healthcare
  3. CLuxury cars
  4. DAlcohol
Q5"Crowding out" refers to a situation where:
  1. AHeavy government borrowing reduces funds available for private investment
  2. BBanks fail
  3. CExports collapse
  4. DInflation falls to zero
Q6The "tax-to-GDP ratio" measures:
  1. ATotal tax revenue as a share of GDP
  2. BThe number of taxpayers
  3. CInflation
  4. DThe exchange rate
Q7GST is a tax on:
  1. AIncome
  2. BThe supply of goods and services (a value-added consumption tax)
  3. CProperty only
  4. DAgricultural land
Q8Under GST, the body that decides rates and rules is the:
  1. ARBI
  2. BGST Council
  3. CSEBI
  4. DFinance Commission
Q9The "CGST" and "SGST" components of GST refer to taxes levied by the:
  1. ACentre and the State respectively on intra-state supply
  2. BTwo states
  3. CCentre alone
  4. DForeign governments
Q10"Stagflation" is a situation of:
  1. AHigh growth and low inflation
  2. BStagnant growth combined with high inflation
  3. CDeflation and high growth
  4. DFull employment with zero inflation
Q11The "primary deficit" equals:
  1. AFiscal deficit minus interest payments
  2. BRevenue deficit plus interest
  3. CTotal receipts minus expenditure
  4. DImports minus exports
Q12Subsidies in the budget are classified as:
  1. ACapital expenditure
  2. BRevenue expenditure
  3. CBorrowings
  4. DTax revenue
Q13"Inflation indexed bonds" are designed to protect investors from:
  1. ACurrency devaluation
  2. BErosion of returns due to inflation
  3. CStock market crashes
  4. DBank failure
Q14The "current account" of the balance of payments includes:
  1. ATrade in goods and services, income and transfers
  2. BOnly foreign loans
  3. COnly FDI
  4. DOnly government borrowing
Q15"Hot money" refers to:
  1. ALong-term FDI
  2. BShort-term, volatile capital flows that can exit quickly
  3. CCounterfeit currency
  4. DGovernment bonds
Q16A "progressive tax" structure means:
  1. AHigher income is taxed at a higher rate
  2. BEveryone pays the same rate
  3. CLower income pays higher rates
  4. DNo income tax exists
Q17The "fiscal consolidation" path aims to:
  1. AReduce the fiscal deficit and debt over time
  2. BIncrease government borrowing
  3. CRaise subsidies
  4. DDevalue the rupee
Q18"Monetisation of deficit" means:
  1. AThe central bank financing the government deficit by creating money
  2. BSelling public assets
  3. CRaising taxes
  4. DBorrowing abroad
Q19Which of the following is a "non-tax revenue" for the government?
  1. AIncome tax
  2. BDividends from public sector units and interest receipts
  3. CGST
  4. DCustoms duty
Q20"Capital expenditure" in the budget includes:
  1. ASalaries and pensions
  2. BSpending that creates assets, such as roads and infrastructure
  3. CInterest payments
  4. DSubsidies
Q21The "twin deficits" of an economy usually refer to the:
  1. AFiscal deficit and current account deficit
  2. BRevenue and capital deficits
  3. CTrade and budget surpluses
  4. DBank and corporate losses
Q22A "cess" levied by the government is:
  1. AA tax on a tax for a specific purpose
  2. BA type of subsidy
  3. CA bank charge
  4. DA foreign loan
Q23"Disinflation" means:
  1. AA fall in the general price level (negative inflation)
  2. BA slowing of the rate of inflation
  3. CA rise in inflation
  4. DCurrency devaluation
Q24"Deflation" is best described as:
  1. AA sustained fall in the general price level
  2. BA rise in prices
  3. CA constant price level
  4. DCurrency appreciation
Q25Which of the following best describes a "mixed economy" like India's?
  1. AOnly private enterprise
  2. BCoexistence of public and private sectors with government regulation
  3. CFully state-controlled
  4. DNo government role

Answer key

Reveal the answer key and full worked solutions
Q Answer Why
1 (b) Demonetisation (November 2016) withdrew 500 and 1000 rupee notes.
2 (b) GVA excludes net product taxes and subsidies; GDP equals GVA plus net product taxes.
3 (b) A regressive tax burdens lower incomes proportionally more.
4 (b) Education and basic healthcare are merit goods the state encourages.
5 (a) Crowding out is when public borrowing squeezes private investment funds.
6 (a) The tax-to-GDP ratio is total tax revenue divided by GDP.
7 (b) GST is a value-added tax on the supply of goods and services.
8 (b) The GST Council decides rates and rules.
9 (a) CGST and SGST are levied by the Centre and State on intra-state supply.
10 (b) Stagflation combines stagnant growth with high inflation.
11 (a) Primary deficit equals fiscal deficit minus interest payments.
12 (b) Subsidies are revenue (not asset-creating) expenditure.
13 (b) Inflation-indexed bonds protect real returns from inflation.
14 (a) The current account covers goods, services, income and transfers.
15 (b) Hot money is short-term, volatile capital that can flee quickly.
16 (a) A progressive tax raises the rate as income rises.
17 (a) Fiscal consolidation reduces deficit and debt over time.
18 (a) Deficit monetisation is the central bank creating money to fund the deficit.
19 (b) Dividends and interest receipts are non-tax revenue.
20 (b) Capital expenditure creates assets like infrastructure.
21 (a) Twin deficits refer to the fiscal and current account deficits.
22 (a) A cess is an earmarked tax, often levied on top of another tax.
23 (b) Disinflation is a slowing of the inflation rate, not falling prices.
24 (a) Deflation is a sustained fall in the general price level.
25 (b) A mixed economy combines public and private sectors under regulation.

Cross-references

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