Economy MCQs for Prelims – 30th June 2025

Welcome to today’s curated set of MCQs from the Economy segments, specially aligned with the evolving trend of the UPSC Civil Services Preliminary Examination. These questions are not just a quiz, but a resource designed to familiarize you with the exact nature of questions asked in Prelims — where static concepts are tested through a current affairs lens.

Each question below is framed using recent developments in the news and backed by clear, concise explanations to help you link dynamic events with foundational knowledge. Topics covered today include: bypolls, removal of a judge, and more...

Use this as a daily revision tool to refine your understanding, build context, and learn how UPSC frames conceptual questions from contemporary issues.

 Click Here to read the Current Affairs Total (CAT) Magazine for January 2025- April 2025.

 

Question 1: Consider the following statements about Recession and Growth Recession:

1. A recession refers to a decline in economic activity lasting more than two consecutive quarters, while a growth recession refers to a period of slow economic growth that is not accompanied by a fall in output.
2. Both recession and growth recession are characterized by rising unemployment rates.
3. In a growth recession, GDP continues to grow, but the growth rate is insufficient to prevent a rise in unemployment.

Which of the statements given above is/are correct?

1. 1 and 2 only
2. 2 and 3 only
3. 1 and 3 only
4. 1, 2, and 3

Answer: d

Explanation:

Statement 1 is correct: A recession is typically defined as a fall in GDP for two or more consecutive quarters. A growth recession refers to a situation where the economy grows (i.e., GDP increases), but the pace of growth is too slow to generate enough jobs or reduce unemployment, hence economic output does not fall, but the effects feel like a recession.

Statement 2 is correct: In both scenarios, businesses experience lower demand and may cut jobs or reduce hiring, leading to a rise in unemployment.

Statement 3 is correct: This is the defining feature of a growth recession—GDP increases, but not fast enough to absorb new entrants into the workforce or to maintain employment levels.

 

Question 2: Consider the following statements about Nominal GDP:

1. Nominal GDP values the production of goods and services at current prices.
2. Nominal GDP is always less than Real GDP.
3. Nominal GDP does not account for inflation.
4. Nominal GDP is used to compare different quarters of output within the same year.

How many of the above statements are correct?

1. Only one
2. Only two
3. Only three
4. All of the above

Answer: C

Explanation:

Statement 1 is correct: Nominal GDP values the production of goods and services at current prices.

Statement 2 is incorrect: Nominal GDP is not always less than Real GDP.

• When there is inflation, Nominal GDP > Real GDP.
• When there is deflation, Nominal GDP < Real GDP.
  So, the relationship depends on the price level changes over time.

Statement 3 is correct: Nominal GDP is calculated using current prices and does not adjust for inflation. That’s why Real GDP is used when inflation needs to be accounted for.

Statement 4 is correct: Nominal GDP is used to compare different quarters of output within the same year.

 

Question 3: Consider the following statements:

Statement-I: In India, the current account deficit is often offset by capital account surpluses, keeping the overall Balance of Payments (BoP) stable.

Statement-II: The capital account primarily records the export and import of goods and services.

Which one of the following is correct in respect of the above statements?

1. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
2. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
3. Statement I is correct, but Statement II is incorrect
4. Statement I is incorrect, but Statement II is correct

Answer: c

Explanation:

Statement-I is correct: India has typically run a current account deficit (CAD), which is balanced by inflows on the capital account — like FDI, FPI, ECB (External Commercial Borrowing), and NRI deposits.

Statement II is incorrect: The capital account does not deal with export/import of goods/services. That’s the current account. Capital account records foreign investment flows, external borrowing, and asset transfers.

 

Question 4: Consider the following statements regarding the Direct Tax Code (DTC) in India:

Statement-1: The Direct Tax Code, 2010, proposed to abolish the dividend distribution tax and introduce a new inheritance tax.

Statement-2: The Direct Tax Code aims to simplify and consolidate the direct tax laws in India, replacing the Income Tax Act of 1961.

Which one of the following is correct in respect of the above statements?

1. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
2. Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
3. Statement-I is correct but Statement-II is incorrect
4. Statement-I is incorrect but Statement-II is correct

Answer: d

Explanation:

Statement-I incorrect: The 2010 DTC proposed abolishing the dividend distribution tax. However, it did not propose a new inheritance tax.

Statement-II correct: The DTC's primary goal is to simplify and consolidate direct tax laws by replacing the existing Income Tax Act of 1961.

 

Question 5: Consider the following types of unemployment:

1. Cyclical Unemployment occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work.
2. Frictional Unemployment happens when workers move between jobs, careers, or locations.
3. Structural Unemployment results from industrial reorganization, typically due to technological change, rather than fluctuations in supply or demand.
4. Seasonal Unemployment occurs when people are unemployed at certain times of the year because they work in industries where they are not needed all year round.

How many of the above are recognized types of unemployment?

1. Only one
2. Only two
3. Only three
4. All four

Answer: d

Explanation:

Statement 1 is correct: Cyclical Unemployment is related to the business cycle, where unemployment rises during economic recessions and falls when the economy improves.

Statement 2 is correct: Frictional Unemployment is a natural form of unemployment that occurs even in a healthy economy. It is temporary and occurs when people are transitioning between jobs or entering the labor force for the first time.

Statement 3 is correct: Structural Unemployment is caused by shifts in the economy that create a mismatch between the skills that workers have and the skills needed by employers.

Statement 4 is correct: Seasonal Unemployment affects industries that are seasonal in nature, such as agriculture, tourism, and retail.