30 Essentials MCQs to Economics and Trade for Nepal Rastra Bank (NRB) Exams

This collection of practice questions serves as a vital resource for candidates preparing for NRB Officer levels and other competitive exams, offering a rigorous deep dive into the dual pillars of core economic theory and the specific realities of the Nepalese economy. By bridging the gap between classical macroeconomic models—such as the IS-LM framework, Heckscher-Ohlin trade theory, and the Quantity Theory of Money—and the localized dynamics of Nepal’s fixed peg exchange rate, remittance-driven GDP, and WTO/BIMSTEC integration, these MCQs provide a holistic preparation tool. The set meticulously covers critical topics, including fiscal indicators, the nuances of the Balance of Payments (BOP), and the technicalities of monetary multipliers, ensuring that learners not only memorize facts but also understand the structural underpinnings of Nepal’s trade imbalances and industrial policy.

1) Microeconomics primarily studies individual economic units such as households and firms, with major emphasis on:

a) Aggregate output

b) National income

c) Unemployment

d) Price determination

 

2) In the Nepalese economy, which component contributes more than 25% of GDP and plays a major role in poverty reduction?

a) Export earnings

b) Foreign direct investment

c) Remittances

d) Tourism receipts

 

3) The Balance of Payments (BOP) records all economic transactions between residents and non-residents and consists mainly of:

a) Capital account only

b) Current and capital/financial accounts

c) Reserve account only

d) Monetary account

 

4) The macroeconomic model that determines equilibrium interest rate and output through the interaction of goods and money markets is:

a) IS-LM model

b) AD-AS model

c) Phillips curve

d) Solow growth model

 

5) Nepal's persistent trade imbalance is mainly characterized by a high:

a) Services surplus

b) Capital surplus

c) Trade surplus

d) Trade deficit

 

6) The equation MV = PT represents which theory of money?

a) Keynesian theory

b) Quantity theory of money

c) Liquidity preference theory

d) Endogenous money theory

 

7) The theory explaining that countries benefit from trade even if one is less efficient in all goods was proposed by:

a) Adam Smith

b) Heckscher and Ohlin

c) David Ricardo

d) Paul Samuelson

 

8) Public debt in Nepal broadly consists of:

a) Private borrowing only

b) Domestic and external debt

c) Equity financing

d) Treasury bills only

 

9) Intra-regional trade among SAARC countries is approximately:

a) 15-20%

b) Below 5%

c) Around 10%

d) Above 25%

 

10) Nepal Rastra Bank follows an inflation target close to:

a) 10%

b) 4 %

c) 6.5 %

d) 8%

 

11) The Production Possibility Frontier (PPF) is generally concave due to:

a) Increasing opportunity cost

b) Constant opportunity cost

c) Decreasing returns

d) Linear technology

 

12) Nepal's Industrial Policy emphasizes employment generation through:

a) Mining sector

b) Defense industries

c) Heavy industries

d) Agriculture modernization and SMES

 

13) Nepal's exchange rate regime is best described as:

a) Crawling peg

b) Floating

c) Fixed peg with Indian Rupee

d) Managed float basket

 

14) In the Keynesian consumption function C = a + bYd, the marginal propensity to consume (b) is:

a) Greater than 1

b) Less than 1

c) Equal to 1

d) Equal to 0

 

15) Nepal became a member of the World Trade Organization (WTO) in:

a) 23 April 2004

b) 23 April 1989

c) 14 July 2004

c) 14 July 1989

 

16) GDP calculated as C+I+G+(X-M) represents the:

a) Production method

b) Value-added method

c) Income method

d) Expenditure method

 

17) Foreign aid finances approximately what proportion of Nepal's development budget?

a) Around 5%

b) 20-30%

c) About 50%

d) Less than 10%

 

18) The downward slope of the demand curve due to income and substitution effects is explained in:

a) Hicksian analysis

b) Slutsky approach

c) Frisch model

d) Marshallian analysis

 

19) Nepal's fiscal framework emphasizes control of:

a) Budget surplus

b) Revenue deficit

c) Primary surplus

d) Monetized deficit

 

20) According to the Heckscher-Ohlin model, Nepal is more likely to export goods intensive in:

a) Labor

b) Capital

c) Technology

d) Land

 

21) If the reserve ratio is 6 percent, the simple money multiplier is approximately:

a) 1.667

b) 10

c) 16.67

d) 6

 

22) Which product group constitutes a significant portion of Nepal's merchandise exports?

a) Petroleum products

b) Readymade garments

c) Heavy machinery

d) Gold

 

23) An oligopolistic market is characterized by:

a) Perfect competition

b) Interdependence among firms

c) Single seller

d) Single buyer

 

24) Nepal's terms of trade for primary commodities have generally been:

a) Improving

b) Stable

c) Neutral

d) Deteriorating

 

25) The Phillips Curve shows an inverse relationship between:

a) Growth and inflation

b) Inflation and unemployment

c) Output and prices

d) Wages and productivity

 

26) Export-oriented industrial clusters promoted by Nepal include those related to:

a) Steel

b) Automobiles

c) Cement

d) Herbs and medicinal plants

 

27) A current account deficit is generally financed through:

a) Trade surplus

b) Capital inflows and reserve use

c) Autonomous transfers

d) Import compression only

 

28) When price elasticity of demand is greater than one, demand is:

a) Inelastic

b) Unitary

c) Perfectly inelastic

d) Elastic

 

29) Nepal is a member of which regional cooperation forum focused on trade and energy?

a) ASEAN

b) EU

c) BIMSTEC

d) NAFTA

 

30) In the Solow growth model, long-run equilibrium occurs at the:

a) Break-even point

b) Steady state

c) Transitional phase

d) Harrod-Domar equilibrium

Answer Key with Brief Explanation:

Q.N.	Answer	Brief Explanation
1	d	Microeconomics analyzes specific units (households/firms) to see how prices are set in markets.
2	c	Remittances from workers abroad are the largest source of foreign exchange and a major GDP contributor.
3	b	The Balance of Payments tracks trade in goods/services (Current) and assets/loans (Capital).
4	a	The IS-LM model finds the point where the goods market and money market are both in equilibrium.
5	d	Nepal suffers from a chronic trade deficit because its imports vastly outweigh its merchandise exports.
6	b	Fisher's Equation (MV = PT) relates the total money supply to the price level of transactions.
7	c	David Ricardo's theory suggests specialization based on relative efficiency (comparative advantage).
8	b	Public debt is the sum of money the government borrows from inside the country and from abroad.
9	b	Regional trade within SAARC remains low (under 5%) due to political barriers and high transit costs.
10	c	The NRB sets an annual inflation target (often around 6.5%) to maintain price stability.
11	a	The PPF is concave because as you produce more of one good, you give up more of the other (Increasing Opportunity Cost).
12	d	Nepal’s policy focuses on small-scale industries and farming to boost rural employment.
13	c	Nepal maintains a fixed exchange rate (peg) specifically with the Indian Rupee (1.6:1).
14	b	The MPC is less than 1 because people generally do not spend 100% of an extra dollar of income.
15	a	Nepal officially joined the World Trade Organization on April 23, 2004.
16	d	The Expenditure Method calculates GDP by summing Consumption, Investment, Govt Spending, and Net Exports.
17	b	A significant portion (20-30%) of development projects are funded via external grants and loans.
18	a	J.R. Hicks used indifference curves to distinguish between substitution and income effects.
19	d	A monetized deficit occurs when the government borrows from the central bank, increasing the money supply.
20	a	Nepal has an abundance of labor relative to capital, making labor-intensive exports more likely.
21	c	Calculated as 1 / (Reserve Ratio) = (1/0.06) = 100 / 6 = 16.666... or roughly 16.67.
22	b	Readymade garments have historically been a top-tier manufactured export for Nepal.
23	b	In an oligopoly, the pricing or output decisions of one firm significantly impact its few rivals.
24	d	Terms of trade deteriorate when the prices of a country's exports fall relative to the prices of its imports.
25	b	The Phillips Curve illustrates the short-run trade-off between inflation and the unemployment rate.
26	d	Nepal promotes high-value, low-volume clusters like medicinal herbs for international markets.
27	b	If a country has a current account deficit, it must borrow capital or use foreign reserves to balance it.
28	d	Elastic demand means consumers are highly sensitive to price changes (percentage change in Q > percentage change in P).
29	c	BIMSTEC is the regional group that focuses specifically on technical and economic cooperation in the Bay of Bengal.
30	b	The steady state is the long-run equilibrium where the capital-to-labor ratio remains constant.