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Free CA Business Economics Practice Questions & Answers
501 exam-style Business Economics questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 241
Inadequate infrastructure constrains economic growth chiefly because it:
Select an option first.
Correct answer: A — Raises the cost of production and transport, and deters investment
Explanation: Unreliable power, congested roads and slow ports add cost and uncertainty to every business. Infrastructure investment also has strong CROWDING IN effects, raising the returns to private projects - which is why it occupies so large a place in public capital expenditure.
Question 242
The Consumer Price Index differs from the Wholesale Price Index in that the CPI measures price change:
Select an option first.
Correct answer: D — At the RETAIL level, for a basket of goods and services consumed by households
Explanation: The CPI reflects what households actually pay and includes services, so it is the measure relevant to the cost of living and to monetary policy targeting. The WPI covers bulk transactions at the wholesale stage and excludes services altogether.
Question 243
MSMEs are regarded as important to the Indian economy chiefly because they:
Select an option first.
Correct answer: A — Generate substantial EMPLOYMENT relative to the capital they employ
Explanation: Being labour-intensive, MSMEs create more jobs per rupee of capital than large industry, and they are geographically dispersed, which spreads industrial activity beyond the big cities. Their constraints are access to credit, technology and markets.
Question 244
The Planning Commission of India was replaced in 2015 by:
Select an option first.
Correct answer: B — NITI Aayog
Explanation: NITI Aayog functions as a policy think tank promoting cooperative federalism, in place of the Planning Commission's role of allocating resources through five-year plans. Distractor A is a constitutional body that recommends the sharing of tax revenues between the centre and the states - a quite different function.
Question 245
India is usually classified as a:
Select an option first.
Correct answer: C — Developing or emerging economy
Explanation: India combines a large and fast-growing economy with relatively low per capita income, a substantial agricultural workforce and persistent poverty and inequality - the standard profile of a developing or emerging economy. Total output and per capita output give very different pictures, which is why the classification rests on the latter.
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Question 246
The Indian economy is best described as:
Select an option first.
Correct answer: C — A mixed economy
Explanation: Public and private sectors coexist, with the price mechanism allocating most resources while the state directs strategic sectors, regulates markets and pursues social objectives. The balance between the two has shifted markedly towards the market since 1991, but the mixed character remains - which is what makes this the standard description.
Question 247
The White Revolution in India refers to the development of:
Select an option first.
Correct answer: B — The dairy and milk industry through cooperatives
Explanation: Operation Flood built a nationwide network of dairy cooperatives linking village producers to urban markets, making India the world's largest milk producer. It is cited as a model of cooperative organisation raising rural incomes without displacing small producers.
Question 248
Special Economic Zones are established mainly to:
Select an option first.
Correct answer: B — Promote exports and attract investment through a simplified regulatory and tax regime
Explanation: SEZs are treated as territory outside the customs area for trade purposes, with streamlined clearances and fiscal concessions. Criticisms concern the loss of revenue, the acquisition of agricultural land and the extent to which activity is genuinely additional rather than merely relocated.
Question 249
Since 1991, the most striking structural change in the Indian economy has been:
Select an option first.
Correct answer: D — The rising share of the SERVICES sector in national output
Explanation: Services now account for over half of gross value added, having grown faster than either agriculture or industry. What is unusual about India's path is that this shift occurred WITHOUT the intervening phase of large-scale manufacturing that most developing economies passed through.
Question 250
The primary, secondary and tertiary sectors of an economy refer respectively to:
Select an option first.
Correct answer: D — Agriculture, industry and services
Explanation: The primary sector extracts from nature, the secondary transforms materials into goods, and the tertiary provides services. In India the tertiary sector now contributes the largest share of output while the primary sector still employs the largest share of the WORKFORCE - a mismatch that defines much of the country's development problem.
Question 251
Sustainable development means development that:
Select an option first.
Correct answer: D — Meets present needs without compromising the ability of future generations to meet theirs
Explanation: The Brundtland formulation balances economic, social and environmental objectives. It is the reasoning behind Green GNP, which deducts resource depletion from measured income so that living off natural capital is not mistaken for genuine growth.
Question 252
The immediate trigger for India's 1991 economic reforms was:
Select an option first.
Correct answer: D — A balance of payments crisis, with foreign exchange reserves nearly exhausted
Explanation: Reserves had fallen to a few weeks of imports, forcing India to pledge gold and seek IMF assistance. The conditions attached, together with domestic conviction that the licence regime had failed, produced the liberalisation programme that followed.
Question 253
The economic reforms of 1991 in India are commonly summarised as:
Select an option first.
Correct answer: D — Liberalisation, privatisation and globalisation
Explanation: Liberalisation dismantled industrial licensing and freed prices; privatisation reduced the role of the public sector through disinvestment; globalisation opened the economy through lower tariffs and foreign investment. The immediate trigger was the balance of payments crisis of that year.
Question 254
The Green Revolution in India refers to:
Select an option first.
Correct answer: B — The sharp rise in foodgrain output through high-yielding varieties, irrigation and fertilisers
Explanation: Beginning in the late 1960s and concentrated in wheat in Punjab, Haryana and western Uttar Pradesh, it made India self-sufficient in foodgrains. Its criticisms are regional concentration, widened inequality and environmental strain from intensive water and chemical use.
Question 255
The New Industrial Policy of 1991 principally:
Select an option first.
Correct answer: C — ABOLISHED industrial licensing for most industries and reduced the areas reserved for the public sector
Explanation: The policy dismantled the licence regime, opened most sectors to private and foreign investment, and confined the public sector to a small list of strategic industries. It is the industrial component of the wider liberalisation programme of that year.
Question 256
The informal or unorganised sector in India is characterised by:
Select an option first.
Correct answer: A — Small units, low capital, absence of formal contracts and limited social security
Explanation: The great majority of India's workforce is engaged in it, which limits the reach of labour legislation and of social protection, and makes the sector hard to measure. Extending formalisation is a persistent policy objective for both welfare and revenue reasons.
Question 257
The poverty line in India is defined with reference to:
Select an option first.
Correct answer: B — A minimum level of consumption expenditure needed to meet basic requirements
Explanation: The line has traditionally been anchored to a calorie norm converted into a monetary expenditure, differing between rural and urban areas. Those below it are counted as poor. The measure is criticised for treating poverty as a single line and ignoring health, education and other deprivations.
Question 258
Unemployment in which more people are engaged in a job than are actually needed, so that the marginal product of the extra workers is nearly zero, is called:
Select an option first.
Correct answer: D — Disguised unemployment
Explanation: Disguised unemployment is characteristic of Indian agriculture, where family members work on a holding that could be cultivated by fewer. It is invisible because the people appear employed, yet withdrawing them would not reduce output - which is precisely what marks it out.
Question 259
Seasonal unemployment is particularly associated with:
Select an option first.
Correct answer: A — AGRICULTURE, where work is available only during sowing and harvesting
Explanation: Between agricultural operations, rural workers may find little to do, which is distinct from DISGUISED unemployment, where people appear occupied but add nothing to output. Both are chronic features of the rural economy and call for different remedies.
Question 260
The theory of ABSOLUTE advantage was propounded by:
Select an option first.
Correct answer: A — Adam Smith
Explanation: Smith argued that a country should specialise where it can produce more cheaply in absolute terms and trade for the rest. The theory could not explain trade where one country is more efficient at everything, and it was Ricardo's theory of COMPARATIVE advantage that filled that gap.
Question 261
Which of the following is an argument advanced FOR protection?
Select an option first.
Correct answer: C — Safeguarding infant industries, national defence and correcting a balance of payments deficit
Explanation: Other arguments include anti-dumping action, revenue for the exchequer and preserving employment in declining industries. Economists generally accept the infant industry and defence arguments in principle while warning that protection, once granted, is politically difficult to withdraw.
Question 262
The Ricardian theory of comparative advantage assumes:
Select an option first.
Correct answer: A — Two countries, two goods, labour as the only factor, and no transport costs
Explanation: The model is deliberately austere: labour theory of value, constant costs, perfect competition, free trade and immobile factors between countries. The conclusion survives relaxation of most of these, but the assumptions are examinable in their own right as the limitations of the theory.
Question 263
Accommodating transactions in the balance of payments are those undertaken:
Select an option first.
Correct answer: B — To FINANCE the imbalance arising from autonomous transactions
Explanation: Autonomous items - trade and investment - occur because they are worth doing in themselves. Accommodating items, chiefly official reserve movements and borrowing, are the balancing entries that make the accounts add up. A deficit means autonomous receipts fell short of autonomous payments.
Question 264
In the accounting sense, the balance of payments:
Select an option first.
Correct answer: D — Always balances, since every debit has a corresponding credit
Explanation: Being a double entry record, total debits must equal total credits, with any residual absorbed by the errors and omissions entry. A DISEQUILIBRIUM in the balance of payments therefore refers to an imbalance in a particular account - typically the current account - not to the overall statement.
Question 265
The balance of trade records:
Select an option first.
Correct answer: D — Trade in visible goods only
Explanation: The balance of trade covers merchandise - visible exports and imports - alone. Adding services, income and current transfers gives the CURRENT ACCOUNT, and adding capital and financial flows gives the balance of payments. A country may run a trade deficit yet a current account surplus if its services earnings are large enough.
Question 266
The fundamental basis of international trade is:
Select an option first.
Correct answer: D — Differences in COMPARATIVE COSTS of producing goods
Explanation: Trade arises because relative costs differ, allowing each country to specialise where its opportunity cost is lower. If the cost ratios were identical everywhere there would be nothing to gain, however large the absolute differences in efficiency.
Question 267
Which of the following can cause a persistent balance of payments deficit?
Select an option first.
Correct answer: D — Structural weaknesses, high inflation at home, and heavy import dependence
Explanation: Cyclical, structural and secular causes are distinguished. Domestic inflation makes exports dear and imports cheap; dependence on imported oil or capital goods raises the import bill regardless of the exchange rate. A persistent deficit drains reserves and must eventually be corrected.
Question 268
Country A needs 10 hours for cloth and 20 for wine; Country B needs 20 hours for cloth and 30 for wine. It follows that:
Select an option first.
Correct answer: A — A should specialise in cloth and B in wine, since A's opportunity cost of cloth is lower
Explanation: A's opportunity cost of one cloth is half a wine (10/20); B's is two-thirds of a wine (20/30). A is therefore the cheaper cloth producer in RELATIVE terms, and B the cheaper wine producer. Absolute advantage in both goods does not prevent gainful trade - which is Ricardo's central insight.
Question 269
Full CAPITAL account convertibility means that a currency can be freely converted for:
Select an option first.
Correct answer: B — Investment and capital transactions, not merely trade
Explanation: India adopted current account convertibility in 1994 but has moved only cautiously on the capital account, since free capital movement exposes an economy to sudden reversals of short-term flows. The distinction between the two forms of convertibility is directly examinable.
Question 270
Which of the following measures would help correct a balance of payments deficit?
Select an option first.
Correct answer: B — Devaluation, import restrictions and measures to control domestic inflation
Explanation: Devaluation makes exports cheaper abroad and imports dearer at home; import controls act directly; curbing inflation restores competitiveness. Revaluation would worsen the deficit, which is why distractor A is the reverse of the required policy.
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