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

According to a monetary theory demand for cash for transactions is inversely related to the rate of interest. Who propounded this theory?

  1. Keynes

  2. Marshall

  3. Malthus

  4. Baumol -Tobin
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Baumol-Tobin model (1950s) explains the transaction demand for money and its inverse relationship with interest rates. When interest rates rise, holding cash becomes more expensive (opportunity cost), so people hold less cash for transactions. Keynes discussed money demand but didn't formalize this specific inventory-theoretic approach; Marshall focused on Cambridge cash-balance theory.

Multiple choice

According to the quantity theory, the quantity of money determines the

  1. interest rate

  2. level of real output

  3. price level

  4. level of employment
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The quantity theory of money (MV = PQ) states that the quantity of money (M) determines the price level (P) in the economy, assuming velocity (V) and real output (Q) remain stable. It does not directly determine interest rates, real output levels, or employment levels - those are influenced by other factors.

Multiple choice

Match the following:

 
Group - I Group - II
1. Partial Equilibrium Approach (i) Vanek
2. General Equilibrium Approach (ii) J. Bhagwati
3. The Theory of Economic Integration (iii) Viner
4. Customs Union and Welfare Improvement (iv) B. Balassa

  1. 1 - (ii), 2 - (iii), 3 - (iv), 4 - (i)

  2. 1 - (ii), 2 - (iv), 3 - (iii), 4 - (i)

  3. 1 - (i), 2 - (iii), 3 - (iv), 4 - (ii)

  4. 1 - (iii), 2 - (i), 3 - (iv), 4 - (ii)

  5. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

These are correctly matched.

Multiple choice

Match the following:

 
Group - I Group - II
1. Economic theory and western economic integration (i) C. P. Kindleberger
2. Economies of scale and customs union (ii) D. Salvatore
3. Theory and problems of integrational economics (iii) W. M. Corden
4. International money (iv) T. Scitovsky

  1. 1 - (ii), 2 - (iii), 3 - (iv), 4 - (i)

  2. 1 - (ii), 2 - (iv), 3 - (iii), 4 - (i)

  3. 1 - (iv), 2 - (i), 3 - (ii), 4 - (iii)

  4. 1 - (iii), 2 - (i), 3 - (iv), 4 - (ii)

  5. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

These are correctly matched.  Economic theory and western economic integration were propounded by T. Scitovsky.  Economies of scale and customs union theory was developed by W. M. Corden. Theory and problems of integrational economics was developed by D. Salvatore. International money relates with C. P. Kindleberger.

Multiple choice

Gresham's law is related to

  1. Consumption and demand

  2. Supply and demand

  3. Circulation of money

  4. Deficit financing
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Gresham's Law states that 'bad money drives out good' - when two forms of money with the same face value but different intrinsic values circulate together, people hoard the valuable money and spend the debased money. This is about circulation dynamics, not consumption or supply-demand.

Multiple choice

In a laissez-faire economy,

  1. The customers take all the decisions regarding production of all the commodities

  2. The Government does not interfere in the free functioning of demand and supply forces in the market.

  3. The private sector takes all the decisions for price-determination of various commodities produced

  4. The Government controls the allocation of all the factors of production.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Laissez-faire is an economic philosophy advocating minimal government interference in market transactions. The term translates to 'let do' in French, meaning allowing demand and supply forces to operate freely without regulation. This contrasts with planned economies where governments control production and pricing decisions.

Multiple choice

According to Polanyi, what is the central principle of Trobriand economy?

  1. Reciprocity

  2. Redistribution

  3. Market exchange

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

Polanyi studied Trobriand Islanders and identified reciprocity (gift-giving with obligation to return) as their central economic principle. Redistribution involves collection and redistribution by a central authority (chief, state), while market exchange involves price-based trading. Trobriand economy relied primarily on reciprocal gift exchange, not markets or redistribution.

Multiple choice

_______ is defined as an economic resource, a group, a subject of study and a process.

  1. Business

  2. Administration

  3. Management

  4. Organisation
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Management is the correct answer as it fits all four definitions mentioned - it's considered an economic resource (human capital), it can be viewed as a group (managerial team), it's a subject of academic study, and it's a process (POC: planning, organizing, commanding, controlling). Business (A) is too narrow, Administration (B) is a subset, and Organisation (D) is the structure, not the dynamic process.

Multiple choice

Studies on jajmani system address to which of the following? 1. Type of relationships and reimbursement. 2. Relative magnitude of traditional economic interaction. 3. Kind of ecological unit appropriate for a study of economic interaction. Select the correct answer using the code given below:

  1. 1, 2 and 3

  2. 1 and 2 only

  3. 1 and 3 only

  4. 2 and 3 only
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Studies on the jajmani system typically encompass the nature of economic exchange, the social relationships involved, and the ecological context of the village unit.

Multiple choice

Gresham' s Law in economics is related to

  1. supply and consumption

  2. supply and demand

  3. distribution of goods

  4. circulation of currency
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Gresham's Law is an economic principle stating that 'bad money drives out good'. It relates to the circulation of currency when two forms of commodity money are in circulation.