ISC 103 Examination

Islamic Economic System

Total Points: 100

Duration: 120 minutes

Instructions: Answer all questions carefully. The exam will be graded automatically based on keyword detection.

Section 1: Define the Following Terms

Total: 20 points (4 points each)

Q1 What is the definition of Islamic Economy?
📚 Model Answer:
Islamic Economy refers to the knowledge of practical religious legislations through detailed proofs that regulate earning, spending, and investing money according to Islamic principles and Shariah law. It encompasses the study of how economic activities should be conducted in accordance with Islamic values and teachings.
Q2 Define "Zakat" and explain its significance in Islam.
📚 Model Answer:
Zakat is the allocated amount in the wealth of certain individuals for a specific group of people at a certain time. It is the third pillar of Islam and a religious obligation. Zakat is customarily 2.5% (or 1/40) of a Muslim's total disposable wealth after necessities. It serves as a means of purification and is distributed to eight categories of recipients as outlined in the Quran (Surah At-Tawbah 9:60): the poor, the needy, administrators of Zakat, those whose hearts are to be reconciled, freeing captives, debtors, in the cause of Allah, and stranded travelers.
Q3 What is meant by "Utility" in economic terms?
📚 Model Answer:
Utility is the ability or power of a good or service to satisfy a specific human need. It represents the inherent capacity of an economic product to fulfill wants. For example, the utility of a book is its inherent power to satisfy the desire for knowledge, and the utility of a car is its inherent power to satisfy the desire to travel quickly from one place to another.
Q4 Define "Commodity" and list its conditions in Islamic economics.
📚 Model Answer:
A commodity is a tangible economic product that has a physical form. In Islamic economics, a commodity must meet four conditions: (1) It must be beneficial - providing utility to users, (2) It must be relatively rare - not infinitely available, (3) It must be tradable - able to be exchanged among society members, and (4) It must be permissible (Halal) according to Islamic law - this condition is unique to Islamic economics and takes precedence over the other conditions.
Q5 What is "Jizya" and who was required to pay it?
📚 Model Answer:
Jizya is a per capita yearly tax historically levied by Islamic states on certain non-Muslim subjects (dhimmi) living under Islamic law. It was paid in exchange for protection from outside aggression, exemption from military service, and the right to practice their faith with communal autonomy. Jizya was primarily required from free, sane, adult males among the dhimmi community (Jews, Christians, and others). Exempted from paying were women, children, the elderly, the poor, the handicapped, slaves, monks, and hermits.

Section 2: List the Following

Total: 15 points (5 points each)

Q6 List the THREE characteristics of Islamic Economy.
📚 Model Answer:
1. Dual Property - Realizing a balance between individual interest and community interest when no contradiction exists between them
2. Restricted Economic Liberty - Finding legitimate regulations in earning and spending money within Islamic guidelines
3. Social Solidarity - The obligation of fulfilling Zakat, charities, and benevolences
Q7 List FOUR disadvantages of the Capitalist Economy.
📚 Model Answer:
1. Imbalance in wealth distribution - Wealth becomes concentrated among few individuals
2. Occurrence of crises and unemployment - Economic instability and job insecurity
3. Merchandise monopoly - Large corporations controlling markets
4. Absolute freedom in earning and expenditure - Lack of moral constraints on economic activities
Q8 List the FIVE categories mentioned in the Hadith about what a person will be asked about on the Day of Judgment.
📚 Model Answer:
1. Life - How did he consume/spend it
2. Knowledge - What did he do with it
3. Wealth - How did he earn it and how did he dispose of it
4. Body - How did he wear it out
5. Time/Youth - How was it spent

Section 3: True or False

Total: 15 points (3 points each)

Q9 Zakat is the fourth pillar of Islam.
📚 Correct Answer: False
Zakat is the third pillar of Islam, not the fourth. The five pillars in order are: (1) Shahada (Declaration of Faith), (2) Salat (Prayer), (3) Zakat (Alms), (4) Sawm (Fasting during Ramadan), and (5) Hajj (Pilgrimage to Mecca).
Q10 In Islamic economy, money belongs to Allah and people are merely trustees.
📚 Correct Answer: True
This is one of the fundamental principles of Islamic economics. Allah says in the Quran: "Spend out of that in which He has made you successors" - indicating that humans are trustees (khalifah/successors) of wealth that ultimately belongs to Allah. This creates accountability for how wealth is earned and spent.
Q11 Capitalism focuses on balancing individual and community interests equally.
📚 Correct Answer: False
Capitalism prioritizes individual interest above community interest. It assumes that public interest is automatically realized through the achievement of individual interests. This is in contrast to Islamic economics, which explicitly balances both individual and community interests through the principle of dual property.
Q12 The concept of wealth includes both goods and services.
📚 Correct Answer: False
The concept of wealth does NOT include services. Wealth refers only to the sum of productive and consumable economic assets (tangible goods) that exist at a given moment. Services are intangible and are treated separately in economic analysis.
Q13 Omar Ibn Al-Khattab was the first to establish the state treasury (Beit Al-Mal).
📚 Correct Answer: True
Omar Ibn Al-Khattab established the state treasury (Beit Al-Mal) during his caliphate. This was necessary because the Islamic state had expanded significantly, revenues had increased, and there was need for organized financial management. During the Prophet's era and Abu Bakr's time, revenues were distributed immediately without need for a formal treasury.

Section 4: Multiple Choice Questions

Total: 30 points (3 points each)

Q14 What percentage is typically required for Zakat on wealth?
📚 Correct Answer: B) 2.5%
Zakat on wealth is customarily 2.5% (or 1/40) of a Muslim's total disposable income after fulfilling necessities for themselves and their dependents.
Q15 Which of the following is NOT a characteristic of Islamic Economy?
📚 Correct Answer: D) Absolute economic freedom
Absolute economic freedom is NOT a characteristic of Islamic Economy. Instead, Islamic economy features restricted economic liberty - economic freedom within legitimate Islamic regulations. The three characteristics are: dual property, restricted economic liberty, and social solidarity.
Q16 How many categories of Zakat recipients are mentioned in the Quran?
📚 Correct Answer: D) 8
The Quran (Surah At-Tawbah 9:60) identifies 8 categories of Zakat recipients: (1) the poor, (2) the needy, (3) Zakat administrators, (4) those whose hearts are to be reconciled, (5) freeing captives, (6) debtors, (7) in the cause of Allah, and (8) stranded travelers.
Q17 Which economic system believes that wealth and production means belong to the entire community?
📚 Correct Answer: B) Socialism
Socialism is the economic system based on the idea that wealth and production means are property of the whole community. Individuals have no rights to them and only receive rewards allocated by the government for their services.
Q18 What does "Fay'" refer to in Islamic economics?
📚 Correct Answer: B) Money from non-Muslims without fighting
Fay' is money that returns to Muslims from non-Muslims without fighting, or what they agreed upon in peace treaties, or what is returned to them from their own money. It is spent for the benefits of Muslims.
Q19 Which Caliph fought people who refused to pay Zakat?
📚 Correct Answer: B) Abu Bakr
Abu Bakr Al-Siddiq fought those who refused to pay Zakat after the death of Prophet Muhammad ﷺ. This demonstrated that Zakat is a mandatory obligation in Islam, not optional, and refusing to pay it is a serious offense.
Q20 What fraction of spoils of war goes to the state according to Islamic law?
📚 Correct Answer: C) One-fifth
Spoils of war are divided into five parts. Four-fifths are shared among the army (mujahidin) who fought, and one-fifth goes to the state to be spent for the welfare of Muslims, as mentioned in the Quran (8:41).
Q21 Which of the following is a disadvantage of Socialism?
📚 Correct Answer: C) Fighting human instinct of ownership
One of the main disadvantages of socialism is that it fights the natural human instinct of ownership. Other disadvantages include treating humans like machines (which demolishes productivity motives) and often resulting in poverty. Options A, B, and D are disadvantages of capitalism, not socialism.
Q22 What is the Arabic word from which "Economy" is linguistically derived?
📚 Correct Answer: A) قصد (Qasd)
Linguistically, "Economy" in Arabic comes from the word قصد (Qasd), which means the straightness of the road and the rationing of something. It represents a balance between extravagance (immoderacy) and excessive frugality (scrimping).
Q23 Which is NOT a condition for a commodity in Islamic economics?
📚 Correct Answer: C) Must be expensive
"Must be expensive" is NOT a condition for a commodity. The four conditions are: (1) beneficial, (2) relatively rare, (3) tradable among society members, and (4) permissible (Halal) according to Islamic law. Price is not a determining factor for whether something qualifies as a commodity.

Section 5: Fill in the Blanks

Total: 20 points (2 points each)

Q24

The three aspects of Islamic Economics are: Ideological, , and .

📚 Correct Answer:
Theoretical/Analytical and Applied (Economic Policy)
Q25

Zakat was decided in the year of Hijra, after fasting the month of Ramadan.

📚 Correct Answer:
Second (2)
Q26

is the portion of income that is not spent; it is the portion remaining after consumption.

📚 Correct Answer:
Saving
Q27

The state budget represents the government's activity, obtaining resources and spending them to fulfill public needs.

📚 Correct Answer:
Financial (or Economic)
Q28

In capitalism, the person is considered the sole of the money he earns.

📚 Correct Answer:
Owner
Q29

is a yearly tax levied on non-Muslim subjects living under Islamic law in exchange for protection.

📚 Correct Answer:
Jizya (or Jizyah)
Q30

The three rules of public expenditure in Islam are: Beneficial Use, Economic Use, and .

📚 Correct Answer:
Authorization
Q31

Consumer goods are divided into consumer goods and consumer goods.

📚 Correct Answer:
Durable and Single-use (or one-time)
Q32

is the creation of new tangible capital, represented by productive capacity.

📚 Correct Answer:
Investment
Q33

Waqf is an charitable endowment under Islamic law with no intention of reclamation.

📚 Correct Answer:
Inalienable (or permanent/perpetual)