1. Which of the following is the best description of an economy?
a) System of laws for taxation and trade
b) Institutional mechanism for allocation of resources
c) Framework of banks and stock markets
d) Set of policies governing government revenue and expenditure
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Answer: b) Institutional mechanism for allocation of resources Explanation:
An economy is best described as an institutional mechanism that facilitates the allocation of scarce resources to meet the needs and wants of society. It encompasses production, distribution, exchange, and consumption of goods and services. While legal systems, banks, and policies are part of it, the core essence lies in resource allocation among competing demands.
2. In which of the following types of economy do private individuals have no role in decision making?
a) Mixed Economy
b) Capitalist Economy
c) Socialist Economy
d) Open Economy
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Answer: c) Socialist Economy Explanation:
In a socialist economy, also called a command economy, the government controls all means of production and resource allocation. Private ownership is minimal or non-existent. Economic decisions—what, how, and for whom to produce—are made by the central planning authority, unlike in capitalist or mixed economies where private players participate.
3. Which of the following is not a feature of a capitalist economy?
a) Private property rights
b) Market-driven pricing
c) State ownership of means of production
d) Profit motive
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Answer: c) State ownership of means of production Explanation: Capitalist economies are based on private ownership of factors of production. Prices are determined by the market, and decisions are guided by profit motives. In contrast, state ownership is a feature of socialist economies, not capitalist ones.
4. In a mixed economy like India, which sectors coexist?
a) Primary and secondary
b) Private and cooperative
c) Private and public
d) Public and international
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Answer: c) Private and public Explanation:
India follows a mixed economic model, where both private enterprises and government-run public sector undertakings (PSUs) operate in various sectors. The government intervenes to ensure social justice, redistribution of wealth, and economic regulation, while allowing market forces to guide growth.
5. The term ‘Commanding Heights’ in Indian economic context refers to:
a) Ownership of military assets
b) State control over vital sectors
c) Dominance in global trade
d) Taxation control by Centre
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Answer: b) State control over vital sectors Explanation:
The term ‘Commanding Heights’ was used during India’s planned economic era to refer to sectors like steel, coal, transport, and power, which were kept under state control for strategic and welfare purposes. These sectors were seen as too important to be left to market forces.
6. Which of the following statements correctly defines the concept of economic problem?
a) Unlimited resources and unlimited wants
b) Limited wants and limited resources
c) Unlimited wants and limited resources
d) Balanced wants and resources
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Answer: c) Unlimited wants and limited resources Explanation:
The fundamental economic problem arises because human wants are unlimited, while resources are scarce. This scarcity forces individuals and societies to make choices regarding allocation and prioritization of resources.
7. What is the role of the government in a capitalist economy?
a) Full control over all economic activity
b) Ownership of all enterprises
c) Regulatory role and protection of property rights
d) Centralized planning and decision-making
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Answer: c) Regulatory role and protection of property rights Explanation:
In capitalist economies, the government’s role is primarily to regulate markets, enforce contracts, and protect private property rights. It ensures that markets operate fairly, but does not centrally plan or own production.
8. Which of the following is not a feature of Indian Economy?
a) Predominantly agrarian
b) High level of urbanization
c) Mixed economy structure
d) Demographic dividend
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Answer: b) High level of urbanization Explanation:
India is still largely rural, with around 65–70% of the population living in villages, as per various estimates. Though urbanization is growing, India cannot yet be considered a highly urbanized economy. The other options are definitive features of India’s current economic state.
9. Which of the following is the primary focus of ‘microeconomics’?
a) National income
b) Inflation
c) Price determination in individual markets
d) Fiscal deficit
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Answer: c) Price determination in individual markets Explanation: Microeconomics deals with the behavior of individual consumers and firms and focuses on price determination, demand-supply mechanisms, and resource allocation at the unit level. The other options fall under macroeconomics.
10. Macroeconomics deals with which of the following?
a) Household demand
b) Firm-level production
c) Economy-wide aggregates like GDP
d) Agricultural crop pricing
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Answer: c) Economy-wide aggregates like GDP Explanation: Macroeconomics studies the economy as a whole and examines aggregate indicators like GDP, inflation, employment, fiscal and monetary policy, and economic growth. It contrasts with microeconomics, which is narrower in scope.
