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Irving Fisher's equation of exchange, which forms the basis of the Quantity Theory of Money, is expressed as MV = ___.
- PT
- Coase
- 1992
- Paper Gold
Answer: PT
In Fisher's equation, M is the money supply, V is the velocity of money, P is the general price level, and T is the volume of transactions (or real output). It posits that assuming V and T are constant in the short run, any increase in the money supply (M) directly leads to a proportional increase in inflation (P).
The narrowest measure of money supply in India, M1, includes Currency with the public, Demand Deposits, and ___ Deposits with the RBI.
- two
- Other
- TRIMs (or Trade-Related Investment Measures)
- Net Factor Income from Abroad (NFIA)
Answer: Other
M1 is the most liquid measure of money supply, comprising coins and currency notes held by the public, net demand deposits held by commercial banks, and 'Other Deposits' (like foreign central bank or IMF deposits) held with the RBI. It represents the money immediately available for transactions.
The ___ Curve hypothesizes an inverted-U shaped relationship between income inequality and economic development.
- Lewis
- trust (or confidence / faith)
- Engel's
- Kuznets
Answer: Kuznets
Simon Kuznets theorized that as an economy develops from agrarian to industrial, inequality initially rises as people move to higher-paying urban jobs. However, as the economy matures and welfare mechanisms, education, and democratization spread, inequality eventually decreases.
The ___ model of economic development describes the transition of an economy from a traditional, agrarian sector with surplus labor to a modern, industrial capitalist sector.
- Lewis
- C2 (or Comprehensive)
- frictional
- isoquant
Answer: Lewis
W. Arthur Lewis proposed the dual-sector model, explaining how developing economies can grow by transferring 'surplus' or disguisedly unemployed labor from the subsistence agricultural sector to the higher-productivity industrial sector, keeping wages low and profits high for reinvestment.
In national income accounting, GFCF stands for Gross Fixed ___ Formation, which is a key measure of investment in an economy.
- Green
- 2011-12
- Capital
- Current
Answer: Capital
GFCF represents the net increase in physical assets (like machinery, buildings, and infrastructure) within the economy during a specific period, minus depreciation. It is a crucial component of GDP and a primary indicator of a nation's investment climate and future productive capacity.
Among the eight core industries, ___ holds the highest weightage in the Index of Industrial Production (IIP).
- Refinery Products
- social
- 1998
- substitutes
Answer: Refinery Products
Petroleum refinery products hold the highest weight (approximately 28%) among the core industries, followed by electricity and steel. This reflects the critical dependence of the Indian economy and transportation sector on refined petroleum products.
When a monopolist charges a different price for every single unit sold to every individual consumer based on their exact willingness to pay, it is called ___ degree price discrimination.
- InvITs (or Infrastructure Investment Trusts)
- quantitative
- first
- balance (or sum to zero)
Answer: first
First-degree (or perfect) price discrimination allows the monopolist to capture the entire consumer surplus, converting it into producer surplus. While theoretically efficient, it is practically impossible to implement because it requires perfect knowledge of every consumer's reservation price.
The ___ Theorem states that if property rights are well-defined and transaction costs are low, private parties can bargain to solve the problem of externalities without government intervention.
- Coase
- NaBFID (or National Bank for Financing Infrastructure and Development)
- IDRCL (or India Debt Resolution Company Ltd)
- technological
Answer: Coase
Ronald Coase argued that the initial allocation of property rights doesn't matter for efficiency, as long as rights are clear and parties can negotiate costlessly. They will naturally trade rights until the externality is internalized at the socially optimal level.
A tax imposed by the government to correct a negative externality, such as pollution from a factory, is called a ___ tax.
- Pigouvian
- health and education
- notice
- interest
Answer: Pigouvian
Named after economist Arthur Pigou, a Pigouvian tax is levied on any market activity that generates negative externalities (costs borne by third parties). The tax aims to internalize the externality, aligning the private cost of production with the true social cost.
Goods that are both non-rivalrous in consumption and non-excludable are classified as ___ goods.
- public
- Refinery Products
- Okun's
- short
Answer: public
Public goods, like national defense or street lighting, can be consumed by one person without reducing availability to others (non-rival), and no one can be effectively excluded from using them (non-excludable). Because private markets cannot easily charge users, these goods are typically provided by the government.
Under the WTO Agreement on Agriculture, subsidies that cause no or minimal trade distortion and are kept in the '___ Box' are permitted without any limits.
- Okun's
- Green
- inflation
- employment elasticity (or labor market)
Answer: Green
The WTO categorizes agricultural subsidies into Amber (trade-distorting, subject to limits), Blue (production-limiting programs), and Green boxes. Green Box subsidies include government funding for research, pest control, and direct income support decoupled from production, which are fully permitted.
The largest component of India's Foreign Exchange Reserves is ___.
- quantitative
- health and education
- inflation
- Foreign Currency Assets (FCA)
Answer: Foreign Currency Assets (FCA)
India's forex reserves comprise Foreign Currency Assets, Gold, Special Drawing Rights (SDRs), and the Reserve Tranche Position (RTP) with the IMF. The FCA, which includes investments in US Treasuries and other sovereign bonds, constitutes the vast majority (over 85%) of the total reserves.
The ___ Curve illustrates the theoretical relationship between rates of taxation and the resulting levels of the government's tax revenue, suggesting an optimal tax rate.
- Laffer
- TRIMs (or Trade-Related Investment Measures)
- John Maynard Keynes
- Nominal
Answer: Laffer
The Laffer Curve posits that increasing tax rates beyond a certain point will actually decrease total tax revenue due to disincentives to work, tax evasion, and capital flight. It is frequently cited in debates regarding supply-side economics and tax cuts.
The economic condition characterized by stagnant economic growth, high unemployment, and simultaneously high inflation is known as ___.
- stagflation
- drives out
- National Income
- rivalrous (or unregulated common)
Answer: stagflation
Stagflation is a portmanteau of stagnation and inflation. It presents a severe dilemma for policymakers because traditional monetary tools used to curb inflation (like raising interest rates) will further depress growth and worsen unemployment.
The current base year for calculating the Wholesale Price Index (WPI) in India is ___.
- 2011-12
- TRIMs (or Trade-Related Investment Measures)
- open market borrowings (or debt / bonds)
- Current
Answer: 2011-12
The Office of the Economic Adviser (OEA) compiles the WPI, which tracks price changes in the wholesale market for a basket of 697 items. The base year was updated from 2004-05 to 2011-12 to align it with the base year of the Consumer Price Index (CPI) and GDP series.
The phenomenon where the current year's inflation rate appears artificially high or low simply due to the unusually high or low base prices of the previous year is known as the ___ effect.
- open market borrowings (or debt / bonds)
- multiplier
- OPHI
- base
Answer: base
The base effect is a statistical artifact that occurs when comparing year-on-year inflation data. If prices spiked abnormally in the previous year, the current year's inflation will mathematically look lower even if absolute prices are still rising steadily.
According to the recommendations of the 15th Finance Commission, the vertical devolution (states' share) in the divisible pool of central taxes is kept at ___%.
- 41
- NDTL
- low (or zero / no)
- Countercyclical
Answer: 41
The 15th Finance Commission, chaired by N.K. Singh, recommended a 41% share for the states. This is 1% lower than the 42% recommended by the 14th FC, with the adjustment made to account for the creation of the new Union Territories of Jammu & Kashmir and Ladakh.
The Goods and Services Tax (GST) Council, which makes recommendations on GST rates and thresholds, is constituted under Article ___ of the Constitution.
- dividend (or window of opportunity)
- 279A
- quantitative
- final
Answer: 279A
Article 279A empowers the President to constitute the GST Council, a federal forum comprising the Union Finance Minister (as Chairperson) and state finance ministers. It ensures cooperative federalism by requiring a 3/4th majority for decisions, balancing central and state interests.
Article ___ of the Indian Constitution mandates that the President shall cause to be laid before Parliament the 'Annual Financial Statement', commonly known as the Union Budget.
- PT
- short
- 112
- rivalrous (or unregulated common)
Answer: 112
Article 112 forms the constitutional basis of the Union Budget, requiring the government to present a detailed statement of its estimated receipts and expenditures for the upcoming financial year. It distinguishes between revenue and capital accounts to ensure fiscal transparency.
The market that deals in long-term funds and securities with a maturity period of more than one year is called the ___ market.
- dumping
- NPCI (or National Payments Corporation of India)
- drives out
- capital
Answer: capital
The capital market facilitates the flow of long-term savings into productive investments, comprising both the primary market (new issues) and the secondary market (stock exchanges). It is essential for funding corporate expansion and infrastructure development.