Economics · General Awareness

Economics Concepts and Theories

1,657 Questions

Review fundamental and advanced economics concepts through this structured question bank. The topics include macroeconomics, fiscal policy, international trade theories, and economic regulation. These questions are ideal for candidates preparing for civil services and other administrative competitive examinations.

Macroeconomics fundamentalsInternational trade theoriesFiscal policy debatesEconomic regulationLabor theory of value

Economics Concepts and Theories Questions

Multiple choice national income identity for open economy open economy macroeconomics determination of income and employment economics

The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the _____________.

  1. income multiplier

  2. output multiplier

  3. employment multiplier

  4. money supply multiplier
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The output multiplier represents the ratio of the change in equilibrium output to the change in autonomous expenditure. It measures how much total output increases for a given increase in spending.

Multiple choice national income identity for open economy open economy macroeconomics determination of income and employment economics

The ____________, states, that if all the individuals in the economy increase the proportion of income they save, the total value of savings in the economy will
not increase, rather it would decrease or remain unchanged.

  1. paradox of savings

  2. paradox of income function

  3. paradox of thrift

  4. none of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The paradox of thrift is a concept in Keynesian economics which states that while individual saving is a virtue, if everyone tries to save more during a recession, aggregate demand falls, leading to lower income and ultimately lower total savings.

Multiple choice national income identity for open economy open economy macroeconomics determination of income and employment economics

The critical elements of macro-economic environment are:
I. Economic system
II. Economic legislation
III. Economic Planning
IV. Economic Policy Statements
Of these:

  1. I and II are correct

  2. II and IV are correct

  3. I, II and III are correct

  4. All are correct
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

For an economy to run smoothly and maintain order, there has to be an economic system that is governed by legislation, and constant planning  is undertaken in order to add new and review existing policies to further develop the economy.  

Multiple choice national income identity for open economy open economy macroeconomics determination of income and employment economics

The level of income and employment in an economy is determined by the effective demand.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to Keynesian theory, the level of output and employment in an economy is determined by the total amount of spending, known as effective demand, which is the point where aggregate demand equals aggregate supply.

Multiple choice business economics and quantitative methods public economics components of budget and budgetary procedure government budget and taxation government budget and economy

Capital expenditure is majorly of developmental nature.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Capital expenditure are all those expenditure of the government that either creates an asset for the government or reduce the liability of the government. For example - Expenditure on land and building, purchase of shares etc. Therefore, these expenditure are usually development as it contributes to the social and economic welfare of the country. 

Multiple choice business organisation and correspondence commerce and modern civilization history of commerce in india hindrances of commerce historical background of commerce in the sub-continent

Marginal utility theory was originated by _____________.

  1. Keynes

  2. Marshall

  3. Mayo

  4. Maslow
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Alfred Marshall is widely credited with formalizing the marginal utility theory in his work, Principles of Economics, which became a cornerstone of neoclassical economics.

Multiple choice social science index number value and price important index numbers price rise/inflation

Consumer price index is also known as ____.

  1. cost of living index

  2. cost of consumption index

  3. IIP

  4. none of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Consumer Price Index is widely used as a measure of inflation and is often referred to as the cost of living index because it tracks the price changes of goods and services that households consume.

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

Study of how the consumer decides, given his income and many alternative goods to choose from, what to buy when he knows the prices is called study of __________.

  1. consumption

  2. production

  3. distribution

  4. none of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The theory of consumption is studied through the indifference map.
The consumption function is created on the basis of the wants of the consumers (and plotted as an indifference curve) and the budget line represents the ability to pay and depends on the consumers' income. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

Consumption function is the functional relationship between ______ and  ______.

  1. Consumption, Aggregate demand

  2. Consumption, National Income

  3. Aggregate Demand, Aggregate Supply

  4. National Income, Private Income
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Consumption function refers to the standard equation of consumption which defines the relationship between consumption and income where consumption value can be derived at each level with the use of income value. 

C= c+ bY where c=autonomous consumption, b= marginal propensity to consume, and Y= income. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

If saving function of an economy is given as: S = - 40 + 0.4 M, then MPC is ___________________.

  1. 1

  2. 0.4

  3. 0.8

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Saving function is S= s + M(1-b) where s=autonomous savings, (1-b)= marginal propensity to save, and M= income. Comparing it to S=−40+0.4(M), MPS= 0.4.


We know that, 

MPS + MPC = 1 

=> MPC = 1 - MPS 

=> MPC = 1 - 0.4 

=> MPC = 0.6 


Therefore, MPC is 0.6. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

Which among the following is the other term used for 'saving function'?

  1. Income function

  2. Propensity to save

  3. Reverse consumption propensity

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Savings function refers to the standard equation of savings which defines the relationship between savings and income where savings value can be derived at each level with the use of income value. 

S= s + Y(1-b) where s=autonomous savings, (1-b)= marginal propensity to save, and Y= income.

It defines the propensity to save in the economy at every level of income. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

Saving is a function of ___________.

  1. income

  2. aggregate demand

  3. export

  4. income inequality
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Savings refers to the proportion which is not utilized at present and is saved for future. It is a function of income where,

Saving function is S= s + Y(1-b) where s=autonomous savings, (1-b)= marginal propensity to save, and Y= income. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

The distance between the line of consumption and the income curve after the intersection of both the curves is termed as __________.

  1. investment

  2. savings

  3. dissavings

  4. none of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Savings refers to the amount of the income which is not spend on the consumption of the commodities. It is the distance between the consumption curve and the income curve after the intersection. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

According to Keynes, consumption function is only affected by objective factors.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

False. 

According to Keynes, Consumption function refers to the standard equation of consumption which defines the relationship between consumption and income where consumption value can be derived at each level with the use of income value. It is affected by both objective and subjective factors.