Economic Systems, Sectors and Basic Concepts

Attempt the quiz above first, then review every question with its correct answer and a short explanation below.

1. Q1.India is generally described as a:

   • A.purely capitalist economy
   • B.mixed economy✓ Correct Answer
   • C.purely socialist economy
   • D.barter economy

   Explanation: India has both a large private sector and a significant public sector.

2. Q2.Agriculture, forestry and fishing belong to the:

   • A.secondary sector
   • B.primary sector✓ Correct Answer
   • C.tertiary sector
   • D.quaternary sector

   Explanation: The primary sector extracts natural resources directly from the land and water.

3. Q3.Banking, transport and education belong to the:

   • A.tertiary (services) sector✓ Correct Answer
   • B.primary sector
   • C.secondary sector
   • D.unorganised sector only

   Explanation: The tertiary sector provides services rather than goods.

4. Q4.In a capitalist economy, the means of production are mainly:

   • A.privately owned✓ Correct Answer
   • B.owned by the state
   • C.owned by village councils
   • D.owned by international bodies

   Explanation: Private individuals and firms own and run production for profit.

5. Q5.A general and sustained rise in the price level is called:

   • A.deflation
   • B.inflation✓ Correct Answer
   • C.stagnation
   • D.devaluation

   Explanation: Inflation reduces the purchasing power of money.

6. Q6.The system in which goods are directly exchanged for goods is called:

   • A.the credit system
   • B.the banking system
   • C.the barter system✓ Correct Answer
   • D.the gold standard

   Explanation: Barter does not use money as a medium of exchange.

7. Q7.Who is regarded as the father of modern economics?

   • A.John Maynard Keynes
   • B.Karl Marx
   • C.Alfred Marshall
   • D.Adam Smith✓ Correct Answer

   Explanation: Adam Smith wrote "The Wealth of Nations" (1776).

8. Q8.Opportunity cost is:

   • A.the money price of a good
   • B.the cost of production per unit
   • C.the value of the next best alternative given up✓ Correct Answer
   • D.the interest paid on a loan

   Explanation: Every choice forgoes something else; the best forgone option is the opportunity cost.

9. Q9.Macroeconomics deals with:

   • A.the decisions of a single household only
   • B.aggregates such as national income, employment and the price level✓ Correct Answer
   • C.the price of one commodity only
   • D.the profit of one firm only

   Explanation: Macroeconomics studies the economy as a whole; microeconomics studies individual units.

10. Q10.Stagflation is a situation of:

    • A.falling prices and rising output
    • B.high inflation together with stagnant growth and high unemployment✓ Correct Answer
    • C.low inflation and full employment
    • D.rising exports and falling imports

    Explanation: Stagflation combines stagnation and inflation, a puzzle for policymakers.

11. Q11.The main problem of the barter system is the lack of a:

    • A.written constitution
    • B.central bank
    • C.double coincidence of wants✓ Correct Answer
    • D.foreign trade

    Explanation: Each party must have what the other wants, which is rarely true.

12. Q12.A public good is characterised by being:

    • A.produced only by private firms
    • B.sold only to the rich
    • C.non-excludable and non-rival in consumption✓ Correct Answer
    • D.imported from abroad

    Explanation: National defence and street lighting benefit everyone and one person's use does not reduce another's.

13. Q13.The General Theory of Employment, Interest and Money (1936) was written by:

    • A.Adam Smith
    • B.David Ricardo
    • C.Milton Friedman
    • D.John Maynard Keynes✓ Correct Answer

    Explanation: Keynes argued that government spending can raise demand and employment during a slump.

14. Q14.A sustained fall in the general price level is called:

    • A.inflation
    • B.disinflation
    • C.stagflation
    • D.deflation✓ Correct Answer

    Explanation: Deflation is the opposite of inflation.

15. Q15.In a market economy, what to produce and for whom is decided mainly by the:

    • A.price mechanism✓ Correct Answer
    • B.central planning authority
    • C.army
    • D.judiciary

    Explanation: Prices signal demand and supply and guide producers and consumers.

16. Q16.In a centrally planned economy, the basic economic decisions are taken by the:

    • A.government or central planning authority✓ Correct Answer
    • B.individual consumers
    • C.stock exchanges
    • D.foreign investors

    Explanation: Output, prices and distribution are decided by the state.

17. Q17.Economics was defined in terms of scarcity as "a science which studies human behaviour as a relationship between ends and scarce means" by:

    • A.Lionel Robbins✓ Correct Answer
    • B.Alfred Marshall
    • C.Adam Smith
    • D.Paul Samuelson

    Explanation: Lionel Robbins gave this scarcity definition in 1932.

18. Q18.The terms "microeconomics" and "macroeconomics" were first used by:

    • A.J. M. Keynes
    • B.Alfred Marshall
    • C.Adam Smith
    • D.Ragnar Frisch✓ Correct Answer

    Explanation: Ragnar Frisch used the terms in 1933.

19. Q19.Which book by Alfred Marshall, published in 1890, laid the foundations of neoclassical economics?

    • A.The Wealth of Nations
    • B.Das Kapital
    • C.The General Theory
    • D.Principles of Economics✓ Correct Answer

    Explanation: Marshall's "Principles of Economics" popularised supply-demand analysis.

20. Q20.The ancient Indian text Arthashastra on statecraft and economic policy was written by:

    • A.Manu
    • B.Bhaskaracharya
    • C.Kautilya (Chanakya)✓ Correct Answer
    • D.Vatsyayana

    Explanation: Kautilya, adviser to Chandragupta Maurya, wrote the Arthashastra.