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Economy Practice Set 09

Authored practice, not a verbatim PYQ. 25 CAPF-level economy MCQs (hardest) with answer key and one-line explanations, span across the external sector, capital markets, international institutions and key indicators.

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PaperPaper ISubjectEconomy

Authored practice, not a verbatim PYQ. Twenty-five single-correct MCQs in CAPF Paper I objective style, weighted towards the external sector, trade and the balance of payments, capital markets and SEBI, international economic institutions, and key economic indicators and reports. Attempt closed-book, then check the key. For year-sensitive figures, verify the latest.

Questions

Q1The "Balance of Payments" records a country's:
  1. ADomestic budget only
  2. BEconomic transactions with the rest of the world over a period
  3. CStock market index
  4. DInflation rate
Q2A "current account deficit" arises when:
  1. AExports exceed imports of goods and services
  2. BImports and other current outflows exceed inflows
  3. CThe budget is balanced
  4. DForeign reserves rise automatically
Q3"Foreign Direct Investment" (FDI) differs from "Foreign Portfolio Investment" (FPI) because FDI:
  1. AIs short-term and volatile
  2. BInvolves a lasting interest and management control in an enterprise
  3. CIs investment only in shares for quick gains
  4. DCannot exceed FPI
Q4A "depreciation" of the rupee means that the rupee:
  1. ABuys more foreign currency
  2. BBuys less foreign currency (its value falls)
  3. CIs withdrawn from circulation
  4. DBecomes legal tender abroad
Q5"Foreign exchange reserves" of India are held and managed mainly by the:
  1. ASEBI
  2. BReserve Bank of India
  3. CFinance Commission
  4. DNITI Aayog
Q6A "trade deficit" occurs when a country's:
  1. AMerchandise imports exceed its merchandise exports
  2. BExports exceed imports
  3. CBudget is in surplus
  4. DReserves are zero
Q7"Tariffs" are best described as:
  1. ATaxes on imports (or exports)
  2. BSubsidies to farmers
  3. CBank interest rates
  4. DStock dividends
Q8A "non-tariff barrier" to trade could be:
  1. AAn import duty
  2. BQuotas, standards or licensing requirements that restrict imports
  3. CAn export subsidy
  4. DA tax cut
Q9The capital market regulator in India is:
  1. AThe RBI
  2. BSEBI
  3. CIRDAI
  4. DNABARD
Q10The "primary market" is where:
  1. AExisting securities are traded among investors
  2. BNew securities are issued for the first time (such as through an IPO)
  3. CForeign currency is exchanged
  4. DCommodities are auctioned
Q11The "secondary market" refers to:
  1. AThe market for new issues
  2. BThe market where previously issued securities are bought and sold
  3. CThe foreign exchange market
  4. DThe money market only
Q12A "blue chip" stock is generally one of a:
  1. ANewly listed risky firm
  2. BLarge, financially sound and well-established company
  3. CBankrupt company
  4. DGovernment bond
Q13"Sensex" and "Nifty" are:
  1. ACurrencies
  2. BStock market indices
  3. CTax rates
  4. DBanking ratios
Q14A "mutual fund" pools money from investors to:
  1. ALend to the government only
  2. BInvest in a diversified portfolio of securities managed professionally
  3. CPrint currency
  4. DBuild roads
Q15The "International Monetary Fund" (IMF) primarily:
  1. AProvides long-term project loans for infrastructure
  2. BPromotes monetary cooperation and provides support for balance-of-payments problems
  3. CRegulates world trade
  4. DSets oil prices
Q16The "World Bank" is best known for:
  1. AShort-term currency support
  2. BLong-term development finance and project lending
  3. CTrade dispute settlement
  4. DSetting interest rates worldwide
Q17The "World Trade Organization" (WTO) deals chiefly with:
  1. ARules of international trade and dispute settlement
  2. BMonetary policy
  3. CClimate funding
  4. DRefugee resettlement
Q18"Special Drawing Rights" (SDRs) are an international reserve asset created by the:
  1. AWTO
  2. BIMF
  3. CWorld Bank
  4. DUnited Nations Security Council
Q19The "Human Development Index" (HDI), published by the UNDP, combines:
  1. AIncome, education and life expectancy
  2. BOnly per capita income
  3. COnly literacy
  4. DMilitary strength
Q20The "Gini coefficient" measures:
  1. AInflation
  2. BIncome or wealth inequality
  3. CForeign reserves
  4. DThe fiscal deficit
Q21The "Economic Survey" of India is presented:
  1. AEvery five years
  2. BAnnually, usually just before the Union Budget
  3. COnce a decade
  4. DOnly during emergencies
Q22The "Consumer Price Index" (CPI) is used to measure:
  1. AStock prices
  2. BRetail inflation faced by consumers
  3. CThe exchange rate
  4. DGDP growth
Q23The "Wholesale Price Index" (WPI) measures price changes at the level of:
  1. ARetail shops
  2. BWholesale or bulk transactions
  3. CStock exchanges
  4. DForeign trade only
Q24"Devaluation" differs from "depreciation" in that devaluation is:
  1. AA market-driven fall in a floating currency
  2. BA deliberate official reduction of a currency's value under a fixed or managed regime
  3. CThe same as appreciation
  4. DAn increase in reserves
Q25Which of the following best captures India's external-sector strategy in recent decades?
  1. AComplete closure to trade and capital
  2. BGradual integration with the world economy through trade liberalisation, calibrated capital flows and reserve management
  3. CA fixed exchange rate with no reserves
  4. DReliance on barter trade

Answer key

Reveal the answer key and full worked solutions
Q Answer Why
1 (b) The balance of payments records all external transactions over a period.
2 (b) A current account deficit means current outflows exceed inflows.
3 (b) FDI involves a lasting interest and management control.
4 (b) Rupee depreciation means it buys less foreign currency.
5 (b) The RBI holds and manages India's forex reserves.
6 (a) A trade deficit is merchandise imports exceeding exports.
7 (a) Tariffs are taxes on imports or exports.
8 (b) Non-tariff barriers include quotas, standards and licensing.
9 (b) SEBI regulates the capital market.
10 (b) The primary market is where new securities are first issued.
11 (b) The secondary market trades previously issued securities.
12 (b) A blue chip is a large, sound, well-established company.
13 (b) Sensex and Nifty are stock market indices.
14 (b) A mutual fund invests pooled money in a managed diversified portfolio.
15 (b) The IMF promotes monetary cooperation and aids balance-of-payments needs.
16 (b) The World Bank provides long-term development finance.
17 (a) The WTO frames trade rules and settles disputes.
18 (b) SDRs are an IMF-created reserve asset.
19 (a) HDI combines income, education and life expectancy.
20 (b) The Gini coefficient measures inequality.
21 (b) The Economic Survey is presented annually before the Budget.
22 (b) CPI measures retail inflation faced by consumers.
23 (b) WPI measures price changes at the wholesale level.
24 (b) Devaluation is a deliberate official cut under a fixed or managed regime.
25 (b) India has gradually integrated through trade liberalisation and calibrated flows.

Cross-references

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