"Economic Concepts & National Income" — Practice

Question 1

Gross Domestic Product (GDP) measures the total value of final goods and services produced:
(a) within a country's domestic territory, regardless of ownership (b) by a country's citizens, regardless of location (c) only by government-owned enterprises (d) only in the agricultural sector

Accepted Answer

(a) within a country's domestic territory, regardless of ownership.

GNP, by contrast, measures output attributable to a country's own residents regardless of where in the world that production occurs.

Question 2

If a country's GDP is ₹50 lakh crore and its Net Factor Income from Abroad is −₹1 lakh crore, its GNP is:
(a) ₹49 lakh crore (b) ₹51 lakh crore (c) ₹50 lakh crore (d) ₹1 lakh crore

Accepted Answer

(a) ₹49 lakh crore.

GNP = GDP + NFIA = 50 + (−1) = 49 lakh crore; a negative NFIA means the country pays out more factor income abroad than it receives.

Question 3

If GNP is ₹80 lakh crore and depreciation is ₹6 lakh crore, Net National Product (NNP) is:
(a) ₹74 lakh crore (b) ₹86 lakh crore (c) ₹80 lakh crore (d) ₹6 lakh crore

Accepted Answer

(a) ₹74 lakh crore.

NNP = GNP − Depreciation = 80 − 6 = 74 lakh crore; 'net' measures always subtract depreciation (capital consumed) from the corresponding 'gross' measure.

Question 4

The GDP Deflator is calculated as:
(a) (Nominal GDP / Real GDP) × 100 (b) (Real GDP / Nominal GDP) × 100 (c) Nominal GDP − Real GDP (d) Nominal GDP × Real GDP

Accepted Answer

(a) (Nominal GDP / Real GDP) × 100.

This measures the overall price level across the entire economy, broader in scope than the CPI, which tracks only a fixed consumer basket.

Question 5

In India, which sector contributes the largest share of GDP, and which employs the largest share of the workforce?
(a) Services contributes most to GDP; Agriculture employs the most workers (b) Agriculture contributes most to GDP; Services employs the most workers (c) Industry contributes most to GDP and employs the most workers (d) Agriculture contributes most to both GDP and employment

Accepted Answer

(a) Services contributes most to GDP; Agriculture employs the most workers.

This divergence reflects relatively low agricultural productivity per worker compared to the services sector — one of the most frequently tested facts about India's economic structure.

Question 6

Mining and fishing belong to which sector of the economy?
(a) Primary sector (b) Secondary sector (c) Tertiary sector (d) Quaternary sector

Accepted Answer

(a) Primary sector.

The primary (agriculture) sector includes activities that extract raw materials directly from nature; manufacturing belongs to the secondary sector, and services like banking and IT belong to the tertiary sector.

Question 7

Economic development, compared to economic growth, is:
(a) a broader qualitative concept including growth plus improvements in living standards, health and education (b) a purely quantitative measure of GDP increase (c) identical in meaning to economic growth (d) measured only by per capita income

Accepted Answer

(a) a broader qualitative concept including growth plus improvements in living standards, health and education.

Growth is necessary but not sufficient for development — a country can show strong GDP growth while development indicators lag behind.

Question 8

The Human Development Index (HDI), published by the UNDP, combines which three dimensions?
(a) life expectancy, education, and per capita income (b) GDP, inflation, and unemployment (c) literacy, urbanisation, and industrial output (d) fiscal deficit, trade balance, and forex reserves

Accepted Answer

(a) life expectancy, education, and per capita income.

This composite index provides a broader measure of development than GDP or income alone.

Question 9

Inflation refers to:
(a) a sustained, general rise in the price level of an economy over time (b) a sustained fall in the general price level (c) a temporary spike in a single commodity's price (d) an increase in the money supply only

Accepted Answer

(a) a sustained, general rise in the price level of an economy over time.

This is equivalent to a fall in the purchasing power of money, and is chiefly measured via the CPI and WPI.

Question 10

Disinflation refers to:
(a) a reduction in the rate of inflation, with prices still rising but more slowly (b) an actual fall in the general price level (c) a rise in unemployment only (d) the same phenomenon as deflation

Accepted Answer

(a) a reduction in the rate of inflation, with prices still rising but more slowly.

This is distinct from deflation, where prices are actually falling — a frequently tested distinction between decelerating price rise and actual price decline.

Question 11

Stagflation refers to the simultaneous occurrence of:
(a) high inflation and high unemployment/low growth (b) high inflation and low unemployment (c) low inflation and high growth (d) deflation and high growth

Accepted Answer

(a) high inflation and high unemployment/low growth.

This defies the standard inverse inflation-unemployment relationship suggested by the traditional Phillips Curve, making it an unusual and difficult-to-manage economic condition.

Question 12

For its inflation-targeting monetary policy framework, the RBI specifically uses:
(a) CPI (Consumer Price Index) (b) WPI (Wholesale Price Index) (c) GDP Deflator (d) Sensex/Nifty index

Accepted Answer

(a) CPI (Consumer Price Index).

CPI tracks the price of a fixed basket of goods/services typically consumed by households, while WPI tracks prices at the wholesale/producer level — RBI's mandate specifically targets CPI.

Question 13

Disguised unemployment, particularly relevant to Indian agriculture, refers to a situation where:
(a) more workers are engaged in an activity than needed, so removing some wouldn't reduce total output (b) workers are actively searching for jobs but cannot find any (c) workers are temporarily unemployed while switching jobs (d) unemployment rises during an economic recession

Accepted Answer

(a) more workers are engaged in an activity than needed, so removing some wouldn't reduce total output.

This is a hidden form of unemployment, distinct from open unemployment, where someone is actively seeking work but unable to find any.

Question 14

Unemployment that rises during economic downturns and falls during economic booms is called:
(a) cyclical unemployment (b) structural unemployment (c) frictional unemployment (d) disguised unemployment

Accepted Answer

(a) cyclical unemployment.

This is tied directly to the business cycle, distinct from structural unemployment (skill-job mismatch) and frictional unemployment (short-term transitional job-switching).

Question 15

Per capita income, calculated as National Income divided by total population, is limited as a living-standards measure because it:
(a) says nothing about the distribution of income across the population (b) always equals GDP exactly (c) cannot be calculated for any developing country (d) automatically accounts for inflation

Accepted Answer

(a) says nothing about the distribution of income across the population.

A country can have a high per capita income alongside severe inequality, since this average figure doesn't reveal how income is actually distributed among citizens.

Practice — "Economic Concepts & National Income"

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