🧩 Chapter 4: Economic Analysis — Mock Questions

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Q1. GDP represents the:

A. Total value of goods and services produced within a country
B. Total income received by the government
C. Revenue earned by all listed companies
D. Country’s total exports

✅ Answer: A
Explanation: GDP measures the total output within national boundaries.

Q2. Real GDP differs from nominal GDP because real GDP:

A. Excludes services
B. Is adjusted for inflation
C. Reflects only manufacturing output
D. Includes black market goods

✅ Answer: B
Explanation: Real GDP accounts for price level changes.

Q3. High CPI inflation generally leads to:

A. Higher purchasing power
B. Lower cost of living
C. Reduced value of money
D. Lower interest rates

✅ Answer: C
Explanation: Rising prices reduce the purchasing power of money.

Q4. Fiscal policy refers to government decisions related to:

A. Money supply and interest rates
B. Taxation and government spending
C. Foreign exchange reserves
D. Stock market regulations

✅ Answer: B
Explanation: Fiscal policy = budget policy (tax + expenditure).

Q5. Who formulates monetary policy in India?

A. Ministry of Finance
B. NITI Aayog
C. Reserve Bank of India
D. SEBI

✅ Answer: C
Explanation: RBI controls money supply, interest rates, and liquidity.

Q6. Increase in repo rate by RBI typically leads to:

A. Cheaper borrowing
B. Increase in inflation
C. Higher lending rates in banks
D. More liquidity in the economy

✅ Answer: C
Explanation: Banks borrow at higher cost → lending becomes expensive → slows inflation.

Q7. A recession is typically indicated by:

A. Rapid GDP growth
B. Two consecutive quarters of negative GDP growth
C. Rising stock markets
D. High corporate profits

✅ Answer: B
Explanation: Two negative quarters = technical recession.

Q8. Which of the following is a leading economic indicator?

A. Unemployment rate
B. Corporate earnings
C. Stock market performance
D. GDP data

✅ Answer: C
Explanation: Stock market reacts in advance — leading indicator.

Q9. High fiscal deficit generally indicates:

A. Government revenue > expenditure
B. Government expenditure > revenue
C. Balanced government budget
D. No government borrowing

✅ Answer: B
Explanation: Fiscal deficit means government spends more than it earns.

Q10. A fall in the value of Indian Rupee against USD is called:

A. Appreciation
B. Depreciation
C. Revaluation
D. Inflation

✅ Answer: B
Explanation: Depreciation = currency loses value relative to another.

Q11. Which sector contributes highest to India’s GDP?

A. Agriculture
B. Manufacturing
C. Services
D. Construction

✅ Answer: C
Explanation: The services sector is the largest contributor.

Q12. Which policy tool reduces inflation?

A. Lower CRR
B. Higher government spending
C. Increasing repo rate
D. Currency printing

✅ Answer: C
Explanation: Higher repo → costlier loans → controls demand → moderates inflation.

Q13. FDI stands for:

A. Foreign Domestic Investment
B. Foreign Direct Investment
C. Fiscal Development Index
D. Fixed Deposit Income

✅ Answer: B
Explanation: FDI = direct investment by foreign entity into business in another country.

Q14. Which of the following is a lagging indicator?

A. Stock market indices
B. Housing permits
C. Corporate profits
D. New orders in manufacturing

✅ Answer: C
Explanation: Profits reflect past performance → lagging.

Q15. The Purchasing Power Parity (PPP) theory suggests currencies adjust based on:

A. Interest rates
B. Stock market performance
C. Inflation differentials between countries
D. Foreign exchange reserves

✅ Answer: C
Explanation: PPP says exchange rates move to equalize purchasing power across countries.

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