Economics is a very important subject for exams like UPSC, SSC, Railways, State PSCs, and other government job tests. It helps us learn how money, banks, currency, costs, and resources are used in real life. Many of these exams ask multiple-choice questions (MCQs) on these topics. To help you get better at them, we have made 40 simple and useful MCQs with answers. These cover topics like money supply, demonetisation, costs, and other key ideas in economics. Practicing these questions will help you understand the subject better and score well in your exams.
1. Under Keynes’s theory of demand for money, which motive refers to people holding money to carry out daily income and business transactions?
a) Precautionary motive
b) Speculative motive
c) Transaction motive
d) Reserve motive
Answer: c) Transaction motive
2. One of the biggest problems of the barter system was that both parties had to want what the other offered at the same time. This difficulty is known as what?
a) Deferred payment problem
b) Indivisibility problem
c) Lack of double coincidence of wants
d) Storage problem
Answer: c) Lack of double coincidence of wants
3. Demonetisation refers to the act of cancelling the legal tender status of a currency unit. In India, on 8th November 2016, which currency notes were stopped or banned from use?
a) ₹100 and ₹200
b) ₹50 and ₹100
c) ₹500 and ₹2000
d) ₹500 and ₹1000
Answer: d) ₹500 and ₹1000
4. Which of the following is NOT considered a primary function of money?
a) Medium of exchange
b) Unit of value
c) Standard of deferred payments
d) Measure of value
Answer: c) Standard of deferred payments
5. Which of these is a secondary use of money?
a) Medium of exchange
b) Unit of value
c) Store and transfer of value
d) Credit creation
Answer: c) Store and transfer of value
6. According to Fisher’s Quantity Theory of Money, expressed in his book “The Purchasing Power of Money” (1911), the equation of exchange is represented as which of the following?
a) MV = C + I
b) MV = Y – T
c) MV = PT
d) MV = PQ
Answer: c) MV = PT
7. Which of the following is considered a major social disadvantage or demerit of money in modern society?
a) It increases agricultural productivity
b) It leads to corruption, bribery, and instability in value systems
c) It ensures equal wealth distribution
d) It completely removes inequality
Answer: b) It leads to corruption, bribery, and instability in value systems
8. Fiat money is a type of money that is accepted by law as a medium of exchange even though it has no intrinsic value. Which of the following examples represents fiat money?
a) Gold ornaments
b) Legal tender notes and coins
c) Silver bars
d) Wheat
Answer: b) Legal tender notes and coins
9. Which of the following types of money has intrinsic value much lower than its face value, such as demand deposits and credit cards?
a) Commodity money
b) Metallic money
c) Credit money
d) Fiduciary money
Answer: c) Credit money
10. Money whose value is derived from the commodity from which it is made, such as gold, silver, or oil, is referred to as what?
a) Fiat money
b) Commodity money
c) Credit money
d) Fiduciary money
Answer: b) Commodity money
11. Coins made of metals like bronze, nickel, silver, and gold are classified under which type of money?
a) Fiat money
b) Metallic money
c) Fiduciary money
d) Reserve money
Answer: b) Metallic money
12. Which of the following refers to Reserve money?
a) Only digital money in circulation
b) Only currency notes with the central bank
c) Currency in circulation plus deposits of commercial banks with the central bank
d) Only coins issued by the Finance Ministry
Answer: c) Currency in circulation plus deposits of commercial banks with the central bank
13. Money that is accepted as a medium of exchange due to trust between payer and payee, such as cheques, is known as which of the following?
a) Fiat money
b) Fiduciary money
c) Commodity money
d) Metallic money
Answer: b) Fiduciary money
14. In January 1978, India demonetised which of the following denominations?
a) ₹500 and ₹200
b) ₹50 and ₹100
c) ₹200 and ₹2000
d) ₹1,000, ₹5,000, and ₹10,000 notes
Answer: d) ₹1,000, ₹5,000, and ₹10,000 notes
15. Which of these means the total amount of money with people at a certain time?
a) Velocity of money
b) Reserve ratio
c) Money supply
d) Fiduciary money
Answer: c) Money supply
16. The ₹500 Indian currency note has which of the following motifs printed on it?
a) Rani Ki Vav
b) Sanchi Stupa
c) Red Fort
d) Mangalyaan
Answer: c) Red Fort
17. Hot money refers to which of the following financial phenomena?
a) Long-term foreign investment in agriculture
b) Permanent foreign capital inflow
c) Short-term fund flows between countries to earn profit on interest rate differences
d) Investment in gold and silver
Answer: c) Short-term fund flows between countries to earn profit on interest rate differences
18. Vault cash held by commercial banks is considered which of the following?
a) Part of M1 money supply
b) Part of monetary base but NOT included in M1 supply
c) Always a liability of RBI
d) Only counted in broad money
Answer: b) Part of the monetary base but NOT included in M1 supply
19. The strongest, most liquid currency of the world that remains relatively stable in value is referred to as what?
a) Soft currency
b) Hard currency
c) Fiat currency
d) Digital currency
Answer: b) Hard currency
20. Which one above is not an example of fixed cost?
a) Rent
b) Insurance premiums
c) Salaries of permanent staff
d) Raw materials
Answer: d) Raw materials
21. When interest rates in an economy are lower/softer for a certain period, the currency is said to be in which of the following conditions?
a) Dear currency
b) Hard currency
c) Cheap currency
d) Digital currency
Answer: c) Cheap currency
22. Legal Tender Money is defined as which of the following?
a) Money that can be exchanged only in foreign markets
b) A coin or banknote that is legally accepted for repayment of debts and obligations
c) Only cheques and drafts accepted in banks
d) Only government securities and bonds
Answer: b) A coin or banknote that is legally accepted for repayment of debts and obligations
23. Which of the following measures of money supply in India is considered the most liquid form of money?
a) M2
b) M3
c) M4
d) M1
Answer: d) M1
24. In the classification of money supply, which of the following is included in M2?
a) M1 + Time deposits with commercial banks
b) M1 + Savings deposits with Post Office savings banks
c) M1 + Total deposits with foreign banks
d) M1 + Vault cash
Answer: b) M1 + Savings deposits with Post Office savings banks
25. The ratio of money supply to reserve money is known as what in monetary economics?
a) Velocity of money
b) Money multiplier
c) Expenditure multiplier
d) Credit ratio
Answer: b) Money multiplier