Economics GK Quiz-21

1. Which among the following is
not the outcome of decrease in
prime lending rate ?
(1) to raise the bank loan
(2) decline in saving rate
(3) decline in productivity
(4) increased demand of consumer products
Answer:
1. (3) Prime rate or prime lending rate is a term applied
in many countries to a reference interest rate used
by banks. The term originally indicated the rate of
interest at which banks lent to favored customers,
i.e., those with high credibility. When these rates
are high, demand decreases and output falls to meet
the new lower demand. Less output requires fewer
worker, driving unemployment higher.


(SSC Section Officer (Audit)
Exam. year 1997)
2. The major aim of devaluation is
to :
(1) encourage imports
(2) encourage exports
(3) encourage both exports and
imports
(4) discourage both exports
and imports
Answer:
2. (2) Devaluation in modern monetary policy is a reduction in the value of a currency with respect to
those goods, services or other monetary units with
which that currency can be exchanged. ‘Devaluation’
means official lowering of the value of a country’s
currency within a fixed exchange rate system, by
which the monetary authority formally sets a new
fixed rate with respect to a foreign reference currency. There are two implications for a currency devaluation. First, devaluation makes a country’s exports
relatively less expensive for foreigners and second,
it makes foreign products relatively more expensive
for domestic consumers, discouraging imports. As a
result, this may help to reduce a country’s trade deficit.ECONOMICS
SGAE–636


(SSC Combined Graduate Level
Prelim Exam. 27.02.2000 (Second
Sitting)
3. What is USP in marketing field?
(1) Uninterrupted power supply
(2) Universal standards of production
(3) US Programme based
(4) Exclusive marketing features
Answer:
3. (*) The Unique Selling Proposition (a.k.a. Unique Selling Point, or USP) is a marketing concept that was
first proposed as a theory to understand a pattern
among successful advertising campaigns of the early
1940s. It states that such campaigns made unique
propositions to the customer and that this convinced
them to switch brands. The term was invented by
Rosser Reeves of Ted Bates & Company. Today the
term is used in other fields or just casually to refer
to any aspect of an object that differentiates it from
similar objects. The term USP has been largely replaced by the concept of a Positioning Statement.


(SSC Section Officer (Audit)
Exam. 09.09.2001)ECONOMICS
SGAE–586
4. When too much money is chasing too few goods, the
situation is
(1) deflation (2) inflation
(3) recession (4) stagflation
Answer:
4. (2) Demand-pull inflation is asserted to arise when
aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross
domestic product rises and unemployment falls, as
the economy moves along the Phillips curve. This is
commonly described as “too much money chasing
too few goods”. More accurately, it should be described as involving “too much money spent chasing
too few goods”, since only money that is spent on
goods and services can cause inflation.


(SSC Section Officer (Audit)
Exam. 09.09.2001)
5. Which of the following groups
suffer the most from inflation?
(1) Debtros
(2) Creditors
(3) Business class
(4) Holders of real assets
Answer:
5. (2) Inflation, or the general rise of price levels in an
economy, has many deleterious effects. It leaves the
economy as a whole poorer relative to pre-inflation
levels of wealth (individual and societal). Inflation
reduces the value of each unit of currency and thus
leaves the holder of that currency with lower purchasing power. Generally speaking, those who benefit from higher inflation are debtors and those who
suffer from it- creditors. If one has substantial debt,
each dollar one has to repay would be worth less
than when it was borrowed. In this way, one pays
back less in real terms than one had borrowed. Those
who may benefit from higher inflation are people with
significant debt.


(SSC CPO Sub-Inspector
Exam. 07.09.2003)
6. What is “narrow money” ?
(1) The sum of currency in circulation and the demand
deposits in banks
(2) The sum of MI money and
the time deposits
(3) The sum of currency in circulation with the public and
the cash reserves held by
banks
(4) The market value of the
stocks held by all the holders excluding the promoters
Answer:
6. (1) The four main monetary aggregates of measures
of money supply which reflect the state of the monetary sector are:- (i) M1 (Narrow money)= Currency
with the public + demand deposits of the public; (ii)
M
2 = M1 + Post Office Savings deposits; (iii) M3 (Broad
money)= M1 + time deposits of the public with banks;
and (iv) M4 = M3 + Total post office deposits. So ‘Narrow Money’ is simply a category of money supply
that includes all physical money like coins and currency along with demand deposits and other liquid
assets held by the central bank. This category of
money is considered to be the most readily available
for transactions and commerce.


(SSC Section Officer (Commercial
Audit) Exam. 16.11.2003)
7. The main source of long-term
credit for a business unit is
(1) sale of stocks and bonds to
the public
(2) borrowing from banks
(3) loans from the Government
(4) deposits from the public
and financial institutions
Answer:
7. (1) Companies issue securities called stocks and bonds
to raise necessary capital which funds the company’s
daily operations and growth. Stock represents fractional ownership in the company. Investors may purchase preferred or common stock. Bonds represent
loans of the company to lenders called bondholders.
A company decides to sell stock when it needs longterm access to capital. Unlike bond loans, issuing stock
to owners called stockholders doesn’t require the company’s repayment of investor principal.


(SSC Section Officer (Commercial Audit)
Exam. 16.11.2003)
8. Devaluation of money means :
(1) decrease in the internal value of money
(2) decrease in the external
value of money
(3) decrease in both internal
and external value of money
(4) the government takes back
currency notes of any denominations
Answer:
8. (2) Devaluation refers to a decline in the value of a
currency in relation to another, usually brought about
by the actions of a central bank or monetary authority. Devaluation is sometimes used more generally to
describe any significant drop in a currency’s international exchange rate, although usually a decline
caused by market forces with no government intervention is termed a depreciation. Devaluations are
most often associated with developing countries that
don’t allow their currency prices to float freely on the
open market.


(SSC Section Officer (Audit)
Exam. 14.12.2003)
9. Bank rate is that rate on which–
(1) Any bank lends money to
an individual
(2) State Bank of India gives
loan to the rural banks
(3) Central Bank of Country
lends money to the commercial banks
(4) Rural bank gives loan to
cooperative societies
Answer:
9. (3) Bank rate, also referred to as the discount rate,
is the rate of interest which a central bank charges
on the loans and advances to a commercial bank.
Repo (Repurchase) rate is the rate at which the central bank lends short-term money to the banks against
securities. A reduction in the repo rate will help banks
to get money at a cheaper rate. The reverse repo
rate is the rate at which the banks park surplus
funds with reserve bank, while the repo rate is the
rate at which the banks borrow from the central bank.


(SSC Section Officer (Audit)
Exam. 14.12.2003)
10. Devaluation usually causes the
internal prices to :
(1) fall
(2) rise
(3) remain unchanged
(4) None of the above
Answer:
10. (3) Devaluation reduces the export price in term of
foreign currencies in the world market. As a result
the exports are increased so as to increase the revenue of the country. When the exports are increased
all efforts are made to increase the production of the
country. However, devaluation of currency is in relation to external currencies and external trade. It has
effects on a country’s international trade by alluring
traders. But, internal prices remain unaffected.


(SSC Combined Graduate Level
Prelim Exam. 08.02.2004 (First
Sitting)
11. Who are the creditors of a Corporation ?
(1) Bond holders
(2) Stock holders
(3) Both Bond and Stock holders
(4) Holders of preferred stock
Answer:
11. (3) A creditor is a party (e.g. person, organization,
company, or government) that has a claim to the services of a second party. It is a person or institution to
whom money is owed. The second party is frequently
called a debtor or borrower. An incorporated entity is
a separate legal entity that has been incorporated
through a legislative or registration process established
through legislation. Both bond holders and stock holders are creditors of a corporation.


(SSC CPO Sub- Inspector
Exam. 05.09.2004)
12. The ratio of a bank’s cash holdings to its total deposit liabilities is called the
(1) Variable Reserve Ratio
(2) Cash Reserve Ratio
(3) Statutory Liquidity Ratio
(4) Minimum Reserve Ratio
Answer:
12. (2) Cash Reserve Ratio (CRR) is the amount of funds
that the banks have to keep with the RBI. If the
central bank decides to increase the CRR, the available amount with the banks comes down. The RBI
uses the CRR to drain out excessive money from the
system.


(SSC Tax Assistant (Income Tax &
Central Excise) Exam. 05.12.2004)
13. Bank rate is the rate of interest:
(1) At which public borrows
money from Commercial
Banks
(2) At which public borrows
money from R.B.I.
(3) At which Commercial Banks
borrow money from R.B.I.
(4) At which Commercial Banks
borrow money from the
public
Answer:
13. (3) Bank Rate is the interest rate at which a nation’s
central bank lends money to domestic banks. Often
these loans are very short in duration. Managing the
bank rate is a preferred method by which central
banks can regulate the level of economic activity.
Regulation of the economy through management of
the money supply is referred to as monetary policy.


(SSC CPO Sub-Inspector
Exam. 26.05.2005)
14. Which of the following can be
used for checking inflation temporarily ?
(1) Increase in wages
(2) Decrease in money supply
(3) Decrease in taxes
(4) None of these
Answer:
14. (2) An open market operation (also known as OMO)
is an activity by a central bank to buy or sell government bonds on the open market. India’s Open Market Operation is much influenced by the fact that it
is a developing country and that the capital flows are
much different than those in the other developed
countries. Economists claim that an increase in money supply alone constitutes inflation. In India, the
Reserve Bank of India uses policy rates and reserve
ratios such as Cash Reserve Ratio (CRR) in controlling the money supply. Apart from the CRR, banks
are required to maintain liquid assets in the form of
gold, cash and approved securities. Higher liquidity
ratio forces commercial banks to maintain a largerECONOMICS
SGAE–637
proportion of their resources in liquid form and thus
reduces their capacity to grant loans and advances,
thus it is an anti-inflationary impact. A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved
securities.


(SSC Section Officer (Audit)
Exam. 05.06.2005)
15. A commercial bank law creates
credit only if it has
(1) Cash in the vault
(2) Excess reserves
(3) Permission of Reserve Bank
of India
(4) Cooperation of other banks
Answer:
15. (1) A commercial bank is a pro?t-seeking business
?rm, dealing in money and credit. It is a ?nancial
institution dealing in money in the sense that it accepts deposits of money from the public to keep them
in its custody for safety. So also, it deals in credit,
i.e., it creates credit by making advances out of the
funds received as the deposits to needy people. So it
creates credit from the cash deposits with it.


(SSC Section Officer (Audit)
Exam. 05.06.2005)
16. “Dear Money” means
(1) low rate of interest
(2) high rate of interest
(3) depression
(4) inflation
Answer:
16. (2) Dear Money, also known as tight money, is money
which has to be borrowed at a high interest rate, and
so restricts expenditure by companies. This situation
can be a result of a restricted money supply, causing
interest rates to be pushed up due to the forces of
supply and demand. Businesses may have a tough
time raising capital during a period of dear money.


(SSC Statistical Investigators
Grade–IV Exam. 31.07.2005)
17. “Legal Tender Money” refers to :
(1) Cheques
(2) Drafts
(3) Bill of exchange
(4) Currency notes
Answer:
17. (4) Legal tender is a medium of payment allowed by
law or recognized by a legal system to be valid for
meeting a financial obligation. Paper currency and
coins are common forms of legal tender in many countries. Legal tender money is a type of payment that
is protected by law. A legal tender, also known as
the forced tender, is a very secured and it is impossible to deny the legal tender while subsiding a debt
which is assigned in the same medium of exchange.
The term legal tender does not represent the money
itself; rather it is a kind of status which can be bestowed on certain types of money.


(SSC Statistical Investigators
Grade–IV Exam. 31.07.2005)
18. Gresham’s Law means
(1) Good money replaces bad
money in circulation
(2) Bad money replaces good
money in circulation
(3) Good money promotes bad
money in the system
(4) Bad money promotes good
money in the system
Answer:
18. (2) Gresham’s law is an economic principle that states:
“When a government compulsorily overvalues one
type of money and undervalues another, the undervalued money will leave the country or disappear from
circulation into hoards, while the overvalued money
will flood into circulation.” It is commonly stated as:
“Bad money drives out good.” More exactly, if coins
containing metal of different value have the same value as legal tender, the coins composed of the cheaper
metal will be used for payment, while those made of
more expensive metal will be hoarded or exported and
thus tend to disappear from circulation.


(SSC Section Officer (Commercial
Audit) Exam. 25.09.2005)
19. Bull and bear are related to
which commercial activity ?
(1) Banking
(2) E-commerce
(3) International trade
(4) Stock market
Answer:
19. (4) Both the terms are related to stock market. Investors who take a bull approach purchase securities under the assumption that they can be sold later
at a higher price. A “bear” is considered to be the
opposite of a bull. Bear investors believe that the
value of a specific security or an industry is likely to
decline in the future.


(SSC Section Officer (Commercial
Audit) Exam. 25.09.2005)
20. The share broker who sells
shares in the apprehension of
falling prices of shares is called
(1) Bull (2) Dog
(3) Bear (4) Stag
Answer:
20. (3) A bear market is a market condition in which the
prices of securities are falling, and widespread pessimism causes the negative sentiment to be selfsustaining. As investors anticipate losses in a bear
market and selling continues, pessimism only grows.
Bear investors believe that the value of a specific security or an industry is likely to decline in the
future.Bears attempt to profit from a decline in prices. Bears are generally pessimistic about the state of
a given market.


(SSC Section Officer (Commercial
Audit) Exam. 25.09.2005)
21. Devaluation makes import
(1) Competitive (2) Inelastic
(3) Cheaper (4) Dearer
Answer:
21. (4) Devaluation makes import expensive and discourages it, while the export of a country that devalues
becomes cheaper and thereby induces trade partners to import more goods from her. Nations that
produce industrial goods on a large scale stand to
benefit from devaluation.


(SSC Section Officer (Commercial
Audit) Exam. 25.09.2005)ECONOMICS
SGAE–587
22. Gresham’s law is related to
(1) Consumption and demand
(2) Supply and demand
(3) Circulation of money
(4) Deficit financing
Answer:
22. (3) Gresham’s law is an observation in economics
that “bad money drives out good.” More exactly, if
coins containing metal of different value have the
same value as legal tender, the coins composed of
the cheaper metal will be used for payment, while
those made of more expensive metal will be hoarded
or exported and thus tend to disappear from circulation. Sir Thomas Gresham, financial agent of Queen
Elizabeth I, was not the first to recognize this monetary principle, but his elucidation of it in 1558 prompted the economist H.D. Macleod to suggest the term
Gresham’s law in the 19th century.


(SSC Tax Assistant (Income Tax &
Central Excise) Exam. 11.12.2005)
23. The outcome of ‘devaluation of
currency’ is
(1) increased export and improvement in balance of
payment
(2) increased export and foreign reserve deficiency
(3) increased import and improvement in balance of
payment
(4) increased export and import
Answer:
23. (1) Devaluation is a reduction in the exchange value
of a country’s monetary unit in terms of gold, silver,
or foreign currency. By decreasing the price of the
home country’s exports abroad and increasing the
price of imports in the home country, devaluation
encourages the home country’s export sales and discourages expenditures on imports, thus improving
its balance of payments.


(SSC Tax Assistant (Income Tax &
Central Excise Exam. 12.11.2006)
24. ‘Gresham’s Law’ in Economics
relates to
(1) supply and demand
(2) circulation of currency
(3) consumption of supply
(4) distribution of goods and
services
Answer:
24. (2) Gresham’s law is an economic principle that
states: “When a government compulsorily overvalues one type of money and undervalues another,
the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.” It is commonly stated as: “Bad money drives out good.”


(SSC Section Officer (Commercial
Audit Exam. 26.11.2006 (Second
Sitting)
25. How will a reduction in ‘Bank
Rate’ affect the availability of
credit ?
(1) Credit will increase
(2) Credit will not increase
(3) Credit will decrease
(4) None of these
Answer:
25. (1) Bank rate, also referred to as the discount rate,
is the rate of interest which a central bank charges
on the loans and advances to a commercial bank.
Whenever the banks have any shortage of funds they
can borrow it from the central bank. Repo (Repurchase) rate is the rate at which the central bank lends
short-term money to the banks against securities. A
reduction in the repo rate will help banks to get money
at a cheaper rate. When the repo rate increases borrowing from the central bank becomes more expensive. It is more applicable when there is a liquidity
crunch in the market.


(SSC Section Officer (Commercial
Audit Exam. 26.11.2006
(Second Sitting)
26. Inflation occurs when aggregate
supply is
(1) more than aggregate demand
(2) less than aggregate demand
(3) equal to aggregate demand
(4) None of these
Answer:
26. (2) If the supply is less than the demand, the price
will increase. Inflation, the persistent increase in the
average price level, can be caused by an increase in
aggregate demand or a decrease in aggregate supply. This suggests two basics sources, causes, or
types of inflation—demand-pull inflation and cost-push
inflation. In general, prices increase as a result of
market shortages, which occur when quantity demanded exceeds quantity supplied. Market shortages can be created by either increases in demand or
decreases in supply. Translating this to the macroeconomy suggests that inflation occurs when aggregate demand exceeds aggregate supply.


(SSC Section Officer (Commercial
Audit Exam. 26.11.2006
(Second Sitting)
27. Bank deposits that can be withdrawn without notice are called
(1) account payee deposits
(2) fixed deposits
(3) variable deposits
(4) demand deposits
Answer:
27. (4) Demand deposits are funds held in an account
from which deposited funds can be withdrawn at
any time without any advance notice to the depository institution. Demand deposits can be “demanded”ECONOMICS
SGAE–638
by an account holder at any time. Many checking
and savings accounts today are demand deposits and
are accessible by the account holder through a variety of banking options, including teller, ATM and online
banking. In contrast, a term deposit is a type of account which cannot be accessed for a predetermined
period (typically the loan’s term).


(SSC Section Officer (Audit)
Exam. 10.12.2006)
28. What does ECS in banking
transactions stand for ?
(1) Excess Credit Supervisor
(2) Extra Cash Status
(3) Exchange Clearing Standard
(4) lectronic Clearing Service
Answer:
28. (4) Electronic Clearing Service is a mode of electronic funds transfer from one bank account to another
bank account using the services of a Clearing House.
This is normally for bulk transfers from one account
to many accounts or vice-versa. This can be used
both for making payments like distribution of dividend, interest, salary, pension, etc. by institutions
or for collection of amounts for purposes such as
payments to utility companies like telephone, electricity, or charges such as house tax, water tax, etc
or for loan installments of financial institutions/banks
or regular investments of persons.


(SSC Combined Graduate Level
Prelim Exam. 04.02.2007 (Frist Sitting)
29. Foreign currency which has a
tendency of quick migration is
called
(1) Scarce currency
(2) Soft currency
(3) Gold currency
(4) Hot currency
Answer:
29. (4) Hot money or currency is a term that is most
commonly used in financial markets to refer to the
flow of funds (or capital) from one country to another
in order to earn a short-term profit on interest rate
differences and/or anticipated exchange rate shifts.
These speculative capital flows are called “hot money” because they can move very quickly in and out of
markets, potentially leading to market instability.


(SSC Section Officer (Commercial
Audit) Exam. 30.09.2007
(Second Sitting)
30. Bank Rate refers to the interest rate at which
(1) Commercial banks receive
deposits from the public
(2) Central bank gives loans to
Commercial banks
(3) Government loans are floated
(4) Commercial banks grant
loans to their customers
Answer:
30. (2) Bank rate is the interest rate at which a nation’s
central bank lends money to domestic banks. Often
these loans are very short in duration.


(SSC Section Officer (Commercial
Audit) Exam. 30.09.2007
(Second Sitting)
31. Cheap money means
(1) Low rates of interest
(2) Low level of saving
(3) Low level of income
(4) Low level of standard of living
Answer:
31. (1) Cheap money is a loan or credit with a low interest
rate, or the setting of low interest rates by a central
bank like the Federal Reserve. Cheap money is good
for borrowers, but bad for investors, who will see the
same low interest rates on investments like savings
accounts, money market funds, CDs and bonds.
Cheap money can have detrimental economic consequences as borrowers take on excessive leverage.


(SSC CPO Sub-Inspector
Exam. 16.12.2007)
32. When too much money is chasing too few goods, the situation is
(1) Deflation (2) Inflation
(3) Recession (4) Stagflation
Answer:
32. (2) Inflation occurs when too much money is chasing
too few goods. The prevailing view in mainstream
economics is that inflation is caused by the interaction of the supply of money with output and interest
rates. In general, mainstream economists divide into
two camps: those who believe that monetary effects
dominate all others in setting the rate of inflation, or
broadly speaking, monetarists, and those who believe that the interaction of money, interest and output dominate over other effects, or broadly speaking
Keynesians. Other theories, such as those of the
Austrian school of economics, believe that inflation
of the general price level and of specific prices is a
result from an increase in the supply of money by
central banking authorities.


(SSC CPO Sub-Inspector
Exam. 16.12.2007)
33. The process of curing inflation
by reducing money supply is
called
(1) Cost-push inflation
(2) Demand-pull inflation
(3) Disinflation
(4) Reflation
Answer:
33. (3) Disinflation is a decrease in the rate of inflation –
a slowdown in the rate of increase of the general
price level of goods and services in a nation’s gross
domestic product over time. It is the opposite of reflation. Disinflation occurs when the increase in the
“consumer price level” slows down from the previous period when the prices were rising. Disinflation
is the reduction in the general price level in the economy but for a very short period of time. Disinflation
takes place only when an economy is suffering from
recession.


(SSC Section Officer (Audit)
Exam. 06.01.2008)
34. Long-term funds in the capital
market can be raised either by
borrowing from certain institutions or through
(1) issue of note
(2) taking loan from Government
(3) issue of securities
(4) taking loan from foreign institutions
Answer:
34. (3) Capital markets provide for the buying and selling of long term debt or equity backed securities.
When they work well, the capital markets channel
the wealth of savers to those who can put it to long
term productive use, such as companies or governments making long term investments. Capital Markets allow businesses to raise long-term funds by
providing a market for securities, both through debt
and equity. Capital Markets offer a whole range of
sometimes complicated products which allow businesses and banks not just to raise capital but also to
‘hedge’ (protect) against risks.


(SSC Section Officer (Audit)
Exam. 06.01.2008)
35. Which one of the following is a
developmental expenditure?
(1) Irrigation expenditure
(2) Civil administration
(3) Debt services
(4) Grant–in–aid
Answer:
35. (1) Public expenditure whether plans or non-plan or
capital or revenue is classified into developmental
and non-developmental expenditure. The expenditure
which is incurred on activities directly related to economic development is called developmental expenditure. Hence, expenditure incurred on education,
health care, scientific research; infrastructure and
so on is developmental expenditure. Expenditure incurred on general essential services required for
normal running of the government is termed as nondevelopmental expenditure. Therefore, expendi-ture
incurred on services relating to general administration, police, defense, judiciary etc. is non-developmental expenditure.


(SSC CPO Sub-Inspector
Exam. 09.11.2008)
36. Green banking means
(1) development of forestry by
banks
(2) financing of environmental
friendly projects by banks
(3) financing of irrigation
projects by banks
(4) None of the above
Answer:
36. (2) Green banking is like a normal bank, which considers all the social and environmental/ecological
factors with an aim to protect the environment and
conserve natural resources.It is also called as an ethical bank or a sustainable bank. They are controlled
by the same authorities but with an additional agenda toward taking care of the Earth’s environment/
habitats/resources.


(SSC CPO Sub-Inspector
Exam. 09.11.2008)
37. Which one of the following
statements is correct ?
(1) Good money drives bad
money out of circulation
(2) Bad money drives good
money out of circulation
(3) Good and bad money cannot circulate together
(4) Cannot say
Answer:
37. (2) One of the most famous axioms in economics is
“bad money drives out good.” This rule has generally
been attributed to Sir Thomas Gresham (1519–1579),
an English financier who advised King Edward VI
and Queen Elizabeth I with regard to financial matters, and it is popularly known as Gresham’s Law.
The key prerequisite is that there must be two forms
of money or currency (with the same face value) in
circulation simultaneously. The acceptance of both
currencies at the same face value is required by legal tender laws enacted by the government. One of
the currencies is artificially overvalued, and the other currency is artificially undervalued. In such situations, the bad money (the artificially overvalued one)
tends to drive the good money (the artificially undervalued one) out of circulation. In other words, people
spend the bad money and hoard the good money.


(SSC CPO Sub-Inspector
Exam. 09.11.2008)
38. Devaluation of currency leads to
(1) expansion of export trade
(2) contraction of import trade
(3) expansion of import substitution
(4) All of the above
Answer:
38. (4) Devaluation in modern monetary policy is a reduction in the value of a currency with respect to
those goods, services or other monetary units with
which that currency can be exchanged. There are
two implications for currency devaluation. First, devaluation makes a country’s exports relatively less
expensive for foreigners and second, it makes foreign products relatively more expensive for domestic
consumers, discouraging imports. As a result, this
may help to reduce a country’s trade deficit. ImportECONOMICS
SGAE–639
substitution means promotion of export to replace
imports. It is also fallout of devaluation.


(SSC Section Officer (Audit)
Exam. 30.11.2008)
39. Full convertibility of a rupeee
means
(1) purchase of foreign exchange for rupees freely
(2) payment for imports in
terms of ruppes
(3) repayment of loans in terms
of rupees
(4) determination of rate of exchange between rupee and
foreign currencies freely by
the market forces of demand and supply
Answer:
39. (4) The full convertibility of the Indian currency means
that the rupee would be made freely exchangeable
into other currencies and vice versa. The rupee was
made partially convertible in 1994. Currently, it can
be changed freely into foreign currency for business
and trade expenses but not freely for activities like
acquiring overseas assets. Full converted of the currency means the local currency can be exchanged to
foreign currency without any governmental con-trol.
Presently, the issue of capital account con-vertibility
is in the discussion stage.


(SSC Tax Assistant (Income Tax &
Central Excise) Exam. 29.03.2009)ECONOMICS
SGAE–588
40. The term stagflation refers to a
situation where
(1) growth has no relation with
the change in prices
(2) rate of growth and prices
both are decreasing
(3) rate of growth in faster than
the rate of price increase
(4) rate of growth is slower
than the rate of price increase
Answer:
40. (4) In economics, stagflation is a situation in which
the inflation rate is high, the economic growth rate
slows down, and unemployment remains steadily
high. Stagflation occurs when the economy isn’t growing but prices are, which is not a good situation for a
country to be in. This happened to a great extent
during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., stagnation increased the inflationary effects.


(SSC Tax Assistant (Income
Tax & Central Excise)
Exam. 29.03.2009)
41. During periods of inflation, tax
rates should
(1) increase
(2) decrease
(3) remain constant
(4) fluctuate
Answer:
41. (1) In economics, inflation is a rise in the general
level of prices of goods and services in an economy
over a period of time. In other words, inflation means
continuously decrease in the value of money due to
excess supply of money in the market. There are two
types of inflation demand pull and cost push inflation.
Causes behind inflation are reduced taxes, rate decrease in saving, increase in supply of goods, increase
in the number of producers in the market. To control
inflation there should be an increase in the tax rate
and increase in the interest rate.


(SSC Combined Graduate Level
Tier-I Exam. 16.05.2010
(Second Sitting)
42. Cheap Money means
(1) Low Rate of Interest
(2) Low level of Savings
(3) Low level Income
(4) Excess of Black Money
Answer:
42. (1) ‘Cheap Money’ is a loan or credit with a low interest
rate, or the setting of low interest rates by a central
bank like the Federal Reserve. Cheap money is good
for borrowers, but bad for investors, who will see the
same low interest rates on investments like savings
accounts, money market funds, CDs and bonds.


(SSC CPO Sub-Inspector
Exam. 12.12.2010 (Paper-1)
43. When there is an official change
in the exchange rate of domestic currency, then it is called :
(1) Appreciation (2) Depreciation
(3) Revaluation (4) Deflation
Answer:
43. (3) Revaluation is a calculated adjustment to a country’s official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates
to the price of gold to a foreign currency. In a fixed
exchange rate regime, only a decision by a country’s
government (i.e. central bank) can alter the official
value of the currency. It is opposite of devaluation.


(SSC Combined Graduate Level
Tier-I Exam. 19.06.2011
(First Sitting)
44. Inflation redistributes income
and wealth in favour of :
(1) Pensioners (2) Poor
(3) Middle class(4) Rich
Answer:
44. (4) A group of economists including Keynes is of the
opinion that inflation, in one form or the other, is a
factor which helps economic growth. Usually, it is
argued that inflation tends to redistribute income and
wealth. The redistributive effect of inflation is always
in favour of profit-earning class, that is to say, it
redistributes income always from the wage-recipient
class towards the profit-recipient class in the community. As a result, the saving ratio will increase
because the marginal propensity to save of the profit
earners is generally high as against the high marginal propensity to consume of the wage- earners because of their near-subsistence level of income.


(SSC Combined Graduate Level
Tier-I Exam. 26.06.2011
(First Sitting)
45. Which one of the following is
not a function of the central
bank in an economy ?
(1) Dealing with foreign exchange
(2) Controlling monetary policy
(3) Controlling government
spending
(4) Acting as a banker’s bank
Answer:
45. (3) A central bank, reserve bank, or monetary authority is a public institution that manages a state’s
currency, money supply, and interest rates. Central
banks also usually oversee the commercial banking
system of their respective countries. In contrast to a
commercial bank, a central bank possesses a monopoly on increasing the nation’s monetary base, and
usually also prints the national currency, which usually serves as the nation’s legal tender. The primary
function of a central bank is to manage the nation’s
money supply (monetary policy), through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis. Central banks usually
also have supervisory powers, intended to prevent
bank runs and to reduce the risk that commercial
banks and other financial institutions engage in reckless or fraudulent behavior.


(SSC CPO(SI, ASI & Intelligence
Officer) Exam. 28.08.2011 (Paper-1)
46. In a period of inflation and price
rise the supply of money remains
(1) the same
(2) increases
(3) decreases
(4) increases or decreases proportionately.
Answer:
46. (2) Money supply is the total amount of monetary
assets available in an economy at a specific time.
The relation between money and prices is historically
associated with the quantity theory of money. There
is strong empirical evidence of a direct relation
between long-term price inflation and money-supply
growth, at least for rapid increases in the amount of
money in the economy.


(SSC Combined Matric Level (PRE)
Exam. 24.10.1999 (Ist Sitting)
47. Under flexible exchange rate
system, the exchange rate is determined by
(1) the Central Bank of the
country
(2) the forces of demand and
supply in the foreign exchange market
(3) the price of gold
(4) the purchasing power of
currencies
Answer:
47. (2) A floating exchange rate is a type of exchange rate
regime wherein a currency's value is allowed to
fluctuate according to the foreign exchange market.
It refers to a country's exchange rate regime where
its currency is set by the foreign-exchange market
through supply and demand for that particular
currency relative to other currencies.


(SSC Combined Matric Level
(PRE) Exam. 27.05.2001
(IInd Sitting) (East Zone)
48. Bank rate is the rate of interest
(1) at which public borrows
money from Commercial
Bank
(2) at which public borrows
money from RBI
(3) at which Commerical Banks
borrow money from RBI
(4) at which Commerical Banks
borrow money from public
Answer:
48. (3) Bank Rate is the interest rate at which a nation's
central bank lends money to domestic banks.
Managing the bank rate is a preferred method by
which central banks can regulate the level of economic
activity.


(SSC Combined Matric Level
(PRE) Exam. 27.05.2001
(IInd Sitting) (East Zone)
49. A currency having a falling exchange rate due to continuing
balance of payments deficit is
called a
(1) Soft currency
(2) Hard currency
(3) Scarce currency
(4) Surplus currency
Answer:
49. (1) Soft currency is a currency with a value that fluctuates as a result of the country's political or economic
uncertainty which may be due to balance of payments
problem. Currencies from most developing countries
are considered to be soft currencies. Often, governments from these developing countries will set unrealistically high exchange rates, pegging their currencies to a currency such as the U.S. dollar


(SSC Combined Matric Level (PRE)
Exam. 05.05.2002 (Ist Sitting)
(Eastern Zone, Guwahati)
50. A speculator who enters into a
purchase transaction with a
view to sell in the near future
when the price would have risen is called a
(1) Bear (2) Bull
(3) Bison (4) Boar
Answer:
50. (2) Investors who take a bull approach purchase securities under the assumption that they can be sold
later at a higher price. A "bear" is considered to be
the opposite of a bull. Bear investors believe that the
value of a specific security or an industry is likely to
decline in the future.


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