Indian Economy — UPSC Prelims practice questions

Question 1

Disguised unemployment exists when: (A) Workers are paid very high wages for scarce skills (B) The marginal productivity of some workers is close to zero (C) Every worker is fully employed at market wages (D) Only seasonal migration takes place

Accepted Answer

(B) The marginal productivity of some workers is close to zero — Correct. In disguised unemployment, more workers are engaged than necessary, so removing some may not reduce output.

Question 2

What happens to measured GDP when the base year for GDP calculation is updated to a more recent year? (A) GDP always increases in the new series (B) GDP always decreases in the new series (C) The absolute GDP levels change due to updated weights and methodology, but the direction of change is not predetermined (D) Only the GDP growth rate changes; absolute GDP remains the same

Accepted Answer

(C) The absolute GDP levels change due to updated weights and methodology, but the direction of change is not predetermined — Correct. When the base year is updated, the sector weights, data sources, and methodologies are all revised to reflect the current economic structure. This can increase or decrease measured GDP depending on how the economy has changed. In India's 2011-12 revision, GDP increased partly because newer data sources (MCA-21) captured previously unmeasured corporate activity, and sector weights were updated.

Question 3

In the context of derivatives trading, 'margin money' refers to: (A) A deposit required to cover potential losses and ensure contract performance (B) The profit earned by a broker from every transaction (C) A tax levied by the government on derivatives trading (D) The face value of the derivative contract itself

Accepted Answer

(A) A deposit required to cover potential losses and ensure contract performance — Correct. Margin money is a security deposit that traders must maintain with the exchange or clearing house to cover potential losses.

Question 4

Consider the following pairs:
Economic concept : Definition
1. Boom : Rapid expansion of output, employment, and trade
2. Recession : Sustained period of declining GDP for two or more consecutive quarters
3. Depression : Severe and prolonged downturn with massive unemployment
4. Stagflation : High economic growth with low inflation
How many of the above pairs are correctly matched? (A) Only one pair (B) Only two pairs (C) Only three pairs (D) All four pairs

Accepted Answer

(C) Only three pairs — Correct. Pairs 1 (Boom), 2 (Recession), and 3 (Depression) are correctly matched. Pair 4 is incorrect: stagflation refers to a combination of stagnant economic growth (or recession) with high inflation and high unemployment — it is the opposite of what is stated.

Question 5

Which of the following best captures the difference between the Planning Commission and NITI Aayog? (A) Both are constitutional bodies with identical powers (B) Planning Commission allocated plan funds, whereas NITI Aayog serves primarily as a policy think tank (C) NITI Aayog approves State budgets directly (D) Planning Commission functioned mainly as a banking regulator

Accepted Answer

(B) Planning Commission allocated plan funds, whereas NITI Aayog serves primarily as a policy think tank — Correct. The Planning Commission had resource-allocation and centralized plan roles, while NITI Aayog is designed as a cooperative federal policy institution without such allocation powers.

Indian Economy — UPSC Prelims MCQs

Chapters in Indian Economy

Sample Indian Economy questions

Practise all of Indian Economy

Indian Economy — UPSC Prelims MCQs

Chapters in Indian Economy

Sample Indian Economy questions

Practise all of Indian Economy