UPSC Economy MCQ Set – 25 Important Questions for Prelims

Economy is a high-scoring yet concept-heavy area in UPSC Prelims. Questions are often statement-based and test clarity on inflation, banking, fiscal policy, monetary policy, external sector, budgeting, and economic indicators. Practising quality MCQs helps improve elimination skills, conceptual understanding, and confidence.

UPSC: Economy MCQ Set - 25 Questions (Prelims Pattern)

Below is a 25-question Economy MCQ Practice Set designed as per UPSC pattern, followed by an answer key and brief explanations.

Q1. Which of the following best describes Fiscal Deficit?

(a) Total expenditure minus total revenue receipts
(b) Total expenditure minus total receipts excluding borrowings
(c) Revenue expenditure minus revenue receipts
(d) Borrowings minus capital expenditure

Q2. Which institution controls Monetary Policy in India?

(a) Ministry of Finance
(b) RBI Governor individually
(c) Monetary Policy Committee
(d) NITI Aayog

Q3. Repo Rate is the rate at which:

(a) RBI lends to commercial banks
(b) Banks lend to RBI
(c) Banks lend to customers
(d) Government borrows from RBI

Q4. Which of the following is NOT a component of Current Account?

(a) Trade in goods
(b) Trade in services
(c) Foreign Direct Investment
(d) Remittances

Q5. Inflation measured at wholesale level is:

(a) CPI
(b) WPI
(c) GDP Deflator
(d) Core Inflation

Q6. Disinvestment refers to:

(a) Government reducing fiscal deficit
(b) Selling government stake in PSUs
(c) Increasing capital expenditure
(d) Increasing subsidies

Q7. Primary Deficit equals:

(a) Fiscal Deficit - Interest Payments
(b) Revenue Deficit - Capital Expenditure
(c) Fiscal Deficit + Interest Payments
(d) Revenue Deficit - Borrowings

Q8. Which body recommends tax devolution between Centre and States?

(a) GST Council
(b) Finance Commission
(c) RBI
(d) CAG

Q9. Stagflation refers to:

(a) High growth + low inflation
(b) High inflation + high growth
(c) High inflation + low growth
(d) Low inflation + low growth

Q10. Which of the following increases money supply?

(a) Increase in CRR
(b) Increase in Repo Rate
(c) Open Market Purchase of securities
(d) Increase in SLR

Q11-Q25: (Statement-Based)

Q11. With reference to GDP, consider:

GDP includes depreciation.

GDP excludes income from abroad.

Which is correct?
(a) 1 only
(b) 2 only
(c) Both
(d) None

Q12. With reference to FRBM Act:

It sets fiscal deficit targets.

It allows escape clause.
(a) 1 only
(b) 2 only
(c) Both
(d) None

Q13. Consider:

FDI involves long-term investment.

FPI is more volatile.
(a) 1 only
(b) 2 only
(c) Both
(d) None

Q14. Core inflation excludes:

(a) Food and fuel
(b) Services
(c) Housing
(d) Education

Q15. Capital Expenditure:

Creates assets.

Includes subsidies.
(a) 1 only
(b) 2 only
(c) Both
(d) None

Q16. Liquidity Adjustment Facility is related to:

(a) Fiscal policy
(b) Monetary policy
(c) Trade policy
(d) Industrial policy

Q17. Current Account Deficit increases when:

(a) Exports > Imports
(b) Imports > Exports
(c) Remittances increase
(d) Services surplus rises

Q18. MSP is announced for:

(a) All crops
(b) Selected crops
(c) Only cereals
(d) Only pulses

Q19. Base Effect impacts:

(a) GDP calculation
(b) Inflation calculation
(c) Taxation
(d) Exchange rate

Q20. Sovereign Gold Bonds reduce:

(a) Gold imports
(b) Forex reserves
(c) Capital account surplus
(d) Revenue deficit

Q21. Reverse Repo Rate is used to:

(a) Inject liquidity
(b) Absorb liquidity
(c) Increase inflation
(d) Finance deficit

Q22. GST is:

(a) Direct tax
(b) Indirect tax
(c) Corporate tax
(d) Income tax

Q23. External Commercial Borrowings are loans from:

(a) RBI
(b) Indian banks
(c) Foreign lenders
(d) State governments

Q24. Inclusive growth focuses on:

(a) GDP growth only
(b) Equitable distribution
(c) Fiscal consolidation
(d) Privatization

Q25. Purchasing Power Parity compares:

(a) Interest rates
(b) Exchange rates
(c) Inflation
(d) Trade deficit

Answer Key

Preparation Strategy

Revise basic concepts from NCERT + standard books.

Practice elimination in statement-based questions.

Link current affairs with static Economy.

Analyse mistakes and revise weak areas.

Conclusion

Economy MCQs demand clarity of definitions, interlinkages, and practical understanding of policy tools. Regular practice of 25-30 questions daily with revision of mistakes will significantly improve Prelims performance.