MCQs on “The Impact of Demonetization on the Indian Economy” for Civil Services Examination

1. What was the primary reason for the demonetization policy implemented in India on November 8, 2016?

a) Boosting foreign investments
b) Promoting digital literacy
c) Curbing black money and counterfeit currency
d) Increasing agricultural productivity

Answer: c) Curbing black money and counterfeit currency

2. Which denominations of currency notes were demonetized during the 2016 demonetization in India?

a) ₹500 and ₹1000
b) ₹100 and ₹500
c) ₹2000 and ₹1000
d) ₹500 and ₹2000

Answer: a) ₹500 and ₹1000

3. What percentage of the total currency in circulation was affected by demonetization in 2016?

a) 50%
b) 86%
c) 75%
d) 60%

Answer: b) 86%

4. Which sector was most directly affected by the sudden cash shortage due to demonetization?

a) Agriculture
b) Real Estate
c) Information Technology
d) Tourism

Answer: b) Real Estate

5. What was the immediate effect of demonetization on India’s Gross Domestic Product (GDP) growth?

a) An increase in GDP
b) GDP remained unaffected
c) A temporary decline in GDP
d) A long-term decline in GDP

Answer: c) A temporary decline in GDP

6. Which of the following was a key objective of demonetization?

a) Reducing interest rates
b) Encouraging a cashless economy
c) Increasing inflation
d) Decreasing tax collections

Answer: b) Encouraging a cashless economy

7. Which organization was responsible for recommending demonetization to the government in India?

a) Reserve Bank of India (RBI)
b) NITI Aayog
c) Ministry of Finance
d) Securities and Exchange Board of India (SEBI)

Answer: a) Reserve Bank of India (RBI)

8. How did demonetization affect small-scale businesses in the unorganized sector?

a) Increased revenue due to higher digital payments
b) Faced a liquidity crisis due to cash shortage
c) Grew faster due to government subsidies
d) Remained unaffected by the policy

Answer: b) Faced a liquidity crisis due to cash shortage

9. What was the immediate effect of demonetization on the stock market in India?

a) Significant rise in stock prices
b) No effect on the stock market
c) Volatility and decline in stock prices
d) All-time high market capitalization

Answer: c) Volatility and decline in stock prices

10. Which tax reform was announced shortly after demonetization to further curb tax evasion?

a) Goods and Services Tax (GST)
b) Corporate Tax Reduction
c) Direct Benefit Transfer (DBT)
d) Agricultural Income Tax

Answer: a) Goods and Services Tax (GST)

11. Demonetization aimed at increasing the formalization of which type of economy?

a) Agricultural economy
b) Informal economy
c) Green economy
d) Knowledge economy

Answer: b) Informal economy

12. How did demonetization influence digital payment systems in India?

a) Decline in usage of digital payments
b) Growth in digital payment platforms
c) No significant impact on digital payments
d) Ban on mobile wallet companies

Answer: b) Growth in digital payment platforms

13. Which of the following sectors experienced a decline in consumer spending immediately after demonetization?

a) Retail and consumer goods
b) Technology and software
c) Defense and aerospace
d) Healthcare and pharmaceuticals

Answer: a) Retail and consumer goods

14. What was the long-term effect of demonetization on tax compliance in India?

a) Increased tax evasion
b) Improved tax compliance and widening of the tax base
c) No change in tax collections
d) Decreased number of taxpayers

Answer: b) Improved tax compliance and widening of the tax base

15. How did demonetization impact India’s real estate market?

a) Prices increased due to cash inflows
b) Stagnation and decline in property prices
c) No impact on the real estate market
d) Introduction of property taxes

Answer: b) Stagnation and decline in property prices

16. Which Indian state faced a significant impact on its agricultural sector due to the cash crunch following demonetization?

a) Gujarat
b) Maharashtra
c) Uttar Pradesh
d) Tamil Nadu

Answer: c) Uttar Pradesh

17. Which of the following did demonetization aim to reduce?

a) Foreign investments
b) Black money circulation
c) Agricultural subsidies
d) Foreign exchange reserves

Answer: b) Black money circulation

18. What was one of the significant unintended consequences of demonetization?

a) Creation of more informal jobs
b) Increase in poverty levels
c) Unemployment and financial instability in certain sectors
d) Rise in agricultural exports

Answer: c) Unemployment and financial instability in certain sectors

19. Which international organization appreciated India’s demonetization for addressing corruption and black money?

a) World Bank
b) United Nations
c) International Monetary Fund (IMF)
d) European Union

Answer: c) International Monetary Fund (IMF)

20. What was the result of demonetization in terms of counterfeit currency?

a) Significant decrease in counterfeit currency
b) Increase in counterfeit currency circulation
c) No change in counterfeit currency levels
d) Ban on all currency transactions

Answer: a) Significant decrease in counterfeit currency

21. Which major Indian sector was most resistant to the adoption of digital payment systems post-demonetization?

a) Manufacturing
b) Agriculture
c) Education
d) Hospitality

Answer: b) Agriculture

22. What percentage of demonetized currency was eventually returned to the banking system, according to RBI’s report?

a) 50%
b) 86%
c) 99%
d) 70%

Answer: c) 99%

23. Which of the following financial tools saw significant growth due to demonetization?

a) Credit card usage
b) Mobile wallets and UPI
c) Cash transactions
d) Traditional banking

Answer: b) Mobile wallets and UPI

24. What was the initial withdrawal limit imposed on individuals after the demonetization announcement?

a) ₹1000 per day
b) ₹2000 per week
c) ₹10,000 per month
d) ₹24,000 per week

Answer: d) ₹24,000 per week

25. Demonetization was a key part of which broader government initiative?

a) Make in India
b) Digital India
c) Swachh Bharat Abhiyan
d) Financial Inclusion Program

Answer: b) Digital India

26. Which major Indian holiday season was adversely impacted due to demonetization in 2016?

a) Diwali
b) Holi
c) Durga Puja
d) Christmas

Answer: a) Diwali

27. Which sector of the economy saw an increase in non-performing assets (NPAs) due to the liquidity crunch post-demonetization?

a) Retail
b) Banking
c) Healthcare
d) Real Estate

Answer: b) Banking

28. Demonetization promoted the introduction of which key banking reform?

a) Jan Dhan Yojana
b) Financial Technology Regulatory Authority
c) Bankruptcy Law
d) Banking Ombudsman Scheme

Answer: a) Jan Dhan Yojana

29. What was the long-term effect of demonetization on inflation?

a) Hyperinflation
b) Short-term deflation followed by stable inflation
c) Deflation
d) Long-term inflation increase

Answer: b) Short-term deflation followed by stable inflation

30. Which of the following was an unintended consequence of demonetization?

a) Increase in counterfeit currency
b) Decrease in rural wages
c) Boost in foreign investments
d) Growth in small-scale industries

Answer: b) Decrease in rural wages

These MCQs provide a comprehensive overview of the impact of demonetization on the Indian economy, covering a wide range of areas from GDP to sectoral effects and digital payment transformations.