Input subsidies (like fertilizer subsidies) are a part of –
(A) Capital expenditure
(B) Revenue expenditure
(C) Public debt
(D) Transfer payments only
Answer: (B)

The law of diminishing marginal utility implies –
(A) Total utility always decreases
(B) Marginal utility of consumption decreases as more is consumed
(C) Price increases with utility
(D) Consumption always decreases
Answer: (B)

Sustainable fiscal deficit means –
(A) One that finances only revenue expenditure
(B) One that can be maintained without future debt stress
(C) Equal to tax-GDP ratio
(D) Funded by printing money
Answer: (B)

The Broad Money (M3) includes –
(A) Currency + demand deposits
(B) M1 + time deposits
(C) Only savings
(D) Treasury bonds
Answer: (B)

The effective demand curve intersects –
(A) Aggregate demand and supply curve
(B) Marginal utility curve
(C) IS-LM curve
(D) Supply curve horizontally
Answer: (A)

Trade liberalization usually leads to –
(A) Increased protection
(B) Reduced competition
(C) Greater market efficiency
(D) More state monopolies
Answer: (C)

The GDP deflator is a measure of –
(A) Core inflation
(B) Ratio of nominal to real GDP
(C) Wholesale inflation
(D) Fiscal surplus
Answer: (B)

The paradox of thrift suggests –
(A) More saving always increases output
(B) Excess saving can reduce demand and output
(C) Saving equals investment
(D) Inflation rises with saving
Answer: (B)

Factor cost differs from market price by –
(A) Subtracting depreciation
(B) Subtracting net indirect taxes
(C) Subtracting trade deficit
(D) Adding fiscal deficit
Answer: (B)

Natural rate of interest is –
(A) Fixed rate
(B) Rate compatible with full employment and stable inflation
(C) Repo rate
(D) Prime lending rate
Answer: (B)

IS curve becomes steeper when –
(A) Investment is highly sensitive to interest rate
(B) Investment is insensitive to interest rate
(C) Savings are unstable
(D) Taxes rise
Answer: (B)

Pigou’s Real Balance Effect shows –
(A) Real wealth decreases with inflation
(B) Saving is income-inelastic
(C) Consumption increases with real balances
(D) Money is neutral
Answer: (C)

The Heckscher-Ohlin model predicts that countries export goods –
(A) That require intensive use of abundant factors
(B) With low production
(C) With high inflation
(D) Based on technology only
Answer: (A)

A deflationary gap results when –
(A) AD < AS at full employment
(B) Prices rise
(C) Consumption exceeds income
(D) Exports increase
Answer: (A)

Phillips curve breaks down in long run due to –
(A) Rational expectations
(B) Sticky prices
(C) Wage controls
(D) Trade unions
Answer: (A)

The LM curve becomes horizontal when –
(A) Investment is zero
(B) Interest rate reaches liquidity trap level
(C) Inflation is high
(D) Tax rate is fixed
Answer: (B)

Price mechanism fails under –
(A) Perfect information
(B) Externalities and public goods
(C) Free entry
(D) Rational consumers
Answer: (B)

A positive externality leads to –
(A) Overproduction
(B) Underconsumption
(C) Overconsumption
(D) Underproduction
Answer: (D)

Social cost is –
(A) Private cost – external cost
(B) Private cost + external cost
(C) Only private cost
(D) Equal to marginal cost
Answer: (B)

Intermediate goods are –
(A) Counted in GDP
(B) Used for final consumption
(C) Used for resale or further processing
(D) Final capital goods
Answer: (C)

The base year for CPI inflation in India (latest) is –
(A) 2004–05
(B) 2010
(C) 2011–12
(D) 2012
Answer: (C)

The Kaldor-Hicks criterion is satisfied when –
(A) No one is worse off
(B) Gains exceed losses and losers could be compensated
(C) Utility increases equally
(D) Equal income distribution
Answer: (B)

Revenue neutral tax reform is designed to –
(A) Eliminate fiscal deficit
(B) Maintain total tax revenue post-reform
(C) Shift burden to consumers
(D) Promote inequality
Answer: (B)

Capital intensive technique implies –
(A) High labor use
(B) Low capital use
(C) High capital per unit output
(D) No technology use
Answer: (C)

Inverted duty structure means –
(A) Import duties are higher than domestic duties
(B) Final goods taxed less than inputs
(C) Export subsidies exceed imports
(D) Duties are negative
Answer: (B)

Indifference curve is convex to the origin because of –
(A) Rising MRS
(B) Diminishing marginal rate of substitution
(C) Increasing returns
(D) Constant cost
Answer: (B)

Opportunity cost is –
(A) Net profit
(B) Next best alternative foregone
(C) Market price
(D) Transaction cost
Answer: (B)

Tax buoyancy reflects –
(A) Tax as % of imports
(B) Growth rate of tax revenue relative to GDP growth
(C) Revenue deficit
(D) Black money
Answer: (B)

Disposable income =
(A) National income – taxes + transfers
(B) Personal income – direct taxes
(C) GDP – depreciation
(D) GNP – subsidies
Answer: (B)

Net Indirect Taxes (NIT) =
(A) Indirect taxes + subsidies
(B) Indirect taxes – subsidies
(C) Direct taxes – subsidies
(D) Corporate tax
Answer: (B)

Bond yield rises when –
(A) Bond price increases
(B) Bond price falls
(C) Interest rate falls
(D) Maturity reduces
Answer: (B)

Transaction motive for holding money is directly proportional to –
(A) Investment
(B) Taxation
(C) Income
(D) Interest
Answer: (C)

LM curve shifts with changes in –
(A) Consumption
(B) Money supply
(C) Fiscal deficit
(D) Wage level
Answer: (B)

Monetary policy can reduce inflation by –
(A) Cutting spending
(B) Raising interest rate
(C) Reducing taxes
(D) Increasing wages
Answer: (B)

A direct tax includes –
(A) Customs duty
(B) GST
(C) Excise
(D) Income tax
Answer: (D)

The ability to pay principle justifies –
(A) Indirect taxation
(B) Proportional taxes
(C) Progressive taxation
(D) Regressive taxation
Answer: (C)

GNP at market prices =
(A) GDP + Net factor income from abroad
(B) GDP – depreciation
(C) NNP – fiscal deficit
(D) GDP – inflation
Answer: (A)

Economic rent arises due to –
(A) Perfect competition
(B) Surplus over transfer earnings
(C) Minimum wage
(D) Subsidy
Answer: (B)

Backward-bending labor supply curve shows –
(A) Wages and labor supplied always rise
(B) At higher wages, labor supplied may fall
(C) Labor supply is fixed
(D) Demand drives wage
Answer: (B)

Crowding-in effect means –
(A) Private investment decreases with public spending
(B) Private investment increases with public investment
(C) Government spending displaces exports
(D) Taxes reduce consumption
Answer: (B)

Productive efficiency is achieved when –
(A) Marginal utility is maximized
(B) Output is produced at lowest cost
(C) Prices are equal
(D) Demand equals supply
Answer: (B)

Economic growth is best measured by –
(A) Inflation
(B) Per capita real GDP
(C) Tax-GDP ratio
(D) Investment level
Answer: (B)

Underdeveloped economies typically exhibit –
(A) High income
(B) Low per capita income and productivity
(C) High HDI
(D) Stable inflation
Answer: (B)

The subsistence wage theory was proposed by –
(A) Ricardo
(B) Keynes
(C) Adam Smith
(D) Malthus
Answer: (A)

Engel curve for inferior goods slopes –
(A) Upward
(B) Backward
(C) Downward after a point
(D) Horizontal
Answer: (C)

Speculative motive for holding money is based on –
(A) Wage rate
(B) Income level
(C) Expected changes in interest rates
(D) Tax rate
Answer: (C)

GDP per capita (PPP) adjusts for –
(A) Exchange rate
(B) Cost of living and inflation
(C) Only tax burden
(D) Domestic output
Answer: (B)

A vertical supply curve indicates –
(A) Perfectly elastic supply
(B) Perfectly inelastic supply
(C) Infinite supply
(D) Unit elasticity
Answer: (B)

Government final consumption expenditure includes –
(A) Interest payments
(B) Wages and salaries to public servants
(C) Capital grants
(D) Repayment of loans
Answer: (B)

Infant industry argument supports –
(A) Deregulation
(B) Protectionism for emerging sectors
(C) Free trade
(D) High tariffs on exports
Answer: (B)