Basic Economic and Indian Economy: Social Development, Poverty and Inclusion: Prelims Questions and Solutions

 

 

India has experienced persistent and high food inflation in the recent past. What could be the reasons?(2011)

  1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
  2. As a consequence of increasing incomes, the consumption patterns of the% people have undergone a significant change.
  3. The food supply chain has structural constraints.

Which of the statements given above1 are correct?

(a.) 1 and 2 only

(b.) 2 and 3 only

(c.) 1 and 3 only

(d.) 1, 2 and 3

Solution (b)

 

In terms of economy, the visit by foreign nationals to witness the XIX Common Wealth Games in India amounted to(2011)

(a.) Export

(b.) Import

(c.) Production

(d.)Consumption

Solution (a)

 

Which one of the following statements appropriately describes the “fiscal stimulus”?(2011)

(a.) It is a massive investment by the Government in manufacturing sector to ensure the supply of goods to meet the demand surge caused by rapid economic growth

(b.) It is an intense affirmative action of the Government to boost economic activity in the country

(c.) It is Government’s intensive action on financial institutions to ensure disbursement of loans to agriculture and allied sectors to promote greater food production and contain food inflation

(d.) It is an extreme affirmative action by the Government to pursue its policy of financial inclusion

Solution (b)

 

Consider the following actions which the Government can take:

  1. Devaluing the domestic currency.
  2. Reduction in the export subsidy.
  3. Adopting suitable policies which attract greater FDI and more funds from FIIs.

Which of the above action/actions can help in reducing the current account deficit?

(a.) 1 and 2

(b.) 2 and 3

(c.) 3 only

(d.) 1 and 3

Solution (a)

 

A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?(2011)

(a.) It is the impact of drastic deficiency in supply due to failure of crops

(b.) It is the impact of the surge in demand due to rapid economic growth

(c.) It is the impact of the price levels of previous year on the calculation of inflation rate

(d.)None of the statements (a), (b) and (c) ‘given above is correct in this context

Solution (c)

 

 Why is the offering of “teaser loans” by commercial banks a cause of economic concern?(2011)

  1. The teaser loans are considered to be an aspect of sub-prime lending and banks may be exposed to the risk of defaulters in future.
  2. In India, the teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units.

Which of the statements given above is/are correct?

(a.) 1 only
(b.) 2 only
(c.) Both 1 and 2
(d.) Neither 1 nor 2

Solution (c)

 

In the context of Indian economy, consider the following statements :(2011)

  1. The growth rate of GDP has steadily increased in the last five years.
  2. The growth rate in per capita income has steadily increased in the last five years.

Which of the statements given above is/are correct?

(a.) 1 only

(b.) 2 only

(c.) Both 1 and 2

(d.) Neither 1 nor 2

Solution (b)

 

In India, which of the following have the highest share in the disbursement of credit to agriculture and allied activities?(2011)

(a.) Commercial Banks

(b.) Cooperative Banks

(c.) Regional Rural Banks

(d.) Microfinance Institutions

Solution (a)

Economic growth is usually coupled with (2011)

(a.) Deflation

(b.) Inflation

(c.) Stagflation

(d.) Hyperinflation

Solution (b)

 

The lowering of Bank Rate by the Reserve Bank of India leads to (2011)

(a.) More liquidity in the market

(b.) Less liquidity in the market

(c.) No change in the liquidity in the market

(d.) Mobilization of more deposits by commercial banks

Solution (a)

 

Which one of the following is not a feature of “Value Added Tax”? (2011)

(a.) It is a multi-point destination-based system of taxation

(b.) It is a tax levied on value addition at each stage of transaction in the production-distribution chain

(c.) It is a tax on the final consumption of goods or services and must ultimately be borne by the consumer

(d.) It is basically a subject of the Central Government and the State Governments are only a facilitator for its successful implementation

Solution (c)

 

A “closed economy” is an economy in which (2011)

(a.) the money supply is fully controlled

(b.) deficit financing takes place

(c.) only exports take place

(d.) neither exports nor imports take place

Solution (d)

Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which one of the following statements best represents an important difference between the two? (2011)

(a.) FII helps bring better management skills and technology, while FDI only brings in capital

(b.) FII helps in increasing capital availability in general, while FDI only targets specific sectors

(c.) FDI flows only into the secondary market, while FII targets primary market

(d.) FII is considered to be more stable than FDI

Solution (b)

 

Microfinance is the provision of financial services to people of low-income groups. This includes both the consumers and the self-employed. The service/services rendered under micro-finance is/are: (2011)

  1. Credit facilities
  2. Savings facilities
  3. Insurance facilities
  4. Fund Transfer facilities

Select the correct answer using the codes given below the lists:

(a.) 1 only

(b.) 1 and 4 only

(c.) 2 and 3 only

(d.) 1, 2, 3 and 4

Solution (d)

 

Which of the following can aid in furthering the Government’s objective of inclusive growth? (2011)

  1. Promoting Self-Help Groups
  2. Promoting Micro, Small and Medium Enterprises
  3. Implementing the Right to Education Act

Select the correct answer using the codes given below:

(a.) 1 only

(b.) 1 and 2 only

(c.) 2 and 3 only

(d.) 1, 2 and 3

Solution (d)

 

Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)? (2011)

  1. The Government intends to use the revenue earned-from the disinvestment mainly to pay back the external debt.
  2. The Government no longer intends to retain the management control of the CPSEs.

Which of the statements given above is/are correct?

 (a.) I only

(b.) 2 only

(c.) Both 1 and 2

(d.) Neither 1 nor 2

Solution (d)

 

2012 UPSC Prelims Questions and Solutions

 

The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the following? (2012)

  1. Other banks retain their deposits with the RBI.
  2. The RBI lends funds to the commercial banks in times of need.
  3. The RBI advises the commercial banks on monetary matters.

Select the correct answer using the codes given below :

(a) 2 and 3 only

(b) 1 and 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

Solution (d)

 

Under which of the following circumstances may ‘capital gains’ arise? (2012)

  1. When there is an increase in the sales of a product
  2. When there is a. natural increase in the value of the property owned
  3. When you purchase a painting and there is a growth in its value due to increase in its popularity

Select the correct answer using the codes given below :

(a) 1 only

(b) 2 and 3 only

(c) 2 only

(d) 1, 2 and 3

Solution (b)

 

Which of the following measures would result in an increase in the money supply in the economy? (2012)

  1. Purchase of government securities from the public by the Central Bank
  2. Deposit of currency in commercial banks by the public
  3. Borrowing by the government from the Central Bank
  4. Sale of government securities to the public by the Central Bank

Select the correct answer using the codes given below :

(a) 1 only

(b) 2 and 4 only

(c) 1 and 3

(d) 2, 3 and 4

Solution (c)

 

Which of the following would include Foreign Direct Investment in India? (2012)

  1. Subsidiaries of companies in India
  2. Majority foreign equity holding in Indian companies
  3. Companies exclusively financed by foreign companies
  4. Portfolio investment

Select the correct answer using the codes given below :

(a) 1, 2, 3 and 4

(b) 2 and 4 only

(c) 1 and 3 only

(d) 1, 2 and 3 only

Solution (d)

 

Consider the following statements: (2012)

The price of any currency in international market is decided by the

  1. World Bank
  2. demand for goods/services provided by the country concerned
  3. stability of the government of the concerned country
  4. economic potential of the country in question

Which of the statements given above are correct?

(a) 1, 2, 3 and 4

(b) 2 and 3 only

(c) 3 and 4 only

(d) 1 and 4 only

Solution (b)

 

The basic aim of Lead Bank Scheme is that: (2012)

(a) big banks should try to open offices in each district

(b) there should be stiff competition among the various nationalized banks

(c) individual banks should adopt particular districts for intensive development

(d) all the banks should make intensive efforts to mobilize deposits

Solution (c)

 

In India, in the overall Index of Industrial Production, the Indices of Eight Core Industries have a combined weight of 37-90%. Which of the following are among those Eight Core Industries? (2012)

  1. Cement
  2. Fertilizers
  3. Natural gas
  4. Refinery products
  5. Textiles

Select the correct answer using the codes given below :

(a) 1 and 5 only

(b) 2, 3 and 4 only

(c) 1, 2, 3 and 4 only

(d) 1, 2, 3, 4 and 5

Solution (c)

 

The balance of payments of a country is a systematic record of (2012)

 (a) all import and transactions of a during a given period normally a year

(b) goods exported from a country during a year

(c) economic transaction between the government of one country to another

(d) capital movements from one country to another

Solution (a)

 

The Reserve Bank of India regulates the commercial banks in matters of (2013) 

  1. liquidity of assets
  2. branch expansion
  3. merger of banks
  4. winding-up of banks

Select the correct answer using the codes given below.

(a) 1 and 4 only

(b) 2, 3 and 4 only

(c) 1, 2 and 3 only

(d) 1, 2, 3 and 4

Solution (d)

 

An increase in the Bank Rate generally indicates that the: (2013)

(a) market rate of interest is likely to fall

(b) Central Bank is no longer making loans to commercial banks

(c) Central Bank is following an easy money policy

(d) Central Bank is following a tight money policy

Solution (d)

 

In India, deficit financing is used for raising resources for (2013)

(a) economic development

(b) redemption of public debt

(c) adjusting the balance of  payments

(d) reducing the foreign debt

Solution (a)

 

Which of the following constitute Capital Account? (2013)

  1. Foreign Loans
  2. Foreign Direct Investment
  3. Private Remittances
  4. Portfolio Investment

Select the correct answer using the codes given below.

(a) 1, 2 and 3

(b) 1, 2 and 4

(c) 2, 3 and 4

(d) 1, 3 and 4

Solution (b)

 

Consider the following statements : (2013)

  1. Inflation benefits the debtors.
  2. Inflation benefits the bond-holders.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Solution (a)

 

Disguised unemployment generally means (2013)

(a) large number of people remain unemployed

(b) alternative employment is not available

(c) marginal productivity of labour is zero

(d) productivity of workers is low

Solution (c)

 

Consider the following liquid assets: (2013)

1.Demand deposits with the banks

2.Time deposits with the banks

3.Savings deposits with the banks

4.Currency

 

The correct sequence of these decreasing order of Liquidity is

(a) 1-4-3-2

(b) 4-3-2-1

(c) 2-3-1-4

(d) 4-1-3-2

Solution (d)

 

In the context of Indian economy,Open Market Operations’ refers to: (2013)

(a) borrowing by scheduled banks from the RBI

(b) lending by commercial banks to industry and trade

(c) purchase and sale of government securities by the RBI

(d) None of the above

Solution (c)

 

Priority Sector Lending by banks in India constitutes the lending to: (2013)

(a) agriculture

(b) micro and small enterprises

(c) weaker sections

(d) All of the above

Solution (d)

 

A rise in general level of prices may be caused by: (2013)

  1. an increase in the money supply
  2. a decrease in the aggregate level of output
  3. an increase in the effective demand

Select the correct answer using the codes given below.

(a) 1 only

(b) 1 and 2 only

(c) 2 and 3 only

(d) 1, 2 and 3

Solution (d)

 

Which one of the following groups of items is included in India’s foreign-exchange reserves? (2013)

(a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries

(b) Foreign-currency assets, gold holdings of the RBI and SDRs

(c) Foreign-currency assets, loans from the World Bank and SDRs

(d) Foreign-currency assets, gold holdings of the RBI and loans from the World Bank

Solution (b)

 

Which one of the following is likely to be the most inflationary in its effect? (2013)

(a) Repayment of public debt

(b) Borrowing from the public to finance a budget deficit

(c) Borrowing from banks to finance a budget deficit

(d) Creating new money to finance a budget deficit

Solution (d)

 

Supply of money remaining the same when there is an increase in demand for money, there will be: (2013)

(a) a fall in the level of prices

(b) an increase in the rate of interest

(c) a decrease in the rate of interest

(d) an increase in the level of income and employment

Solution (b)

 

Economic growth in country X will necessarily have to occur if (2013)

(a) there is technical progress in the world economy

(b) there is population growth in X

(c) there is capital formation in X

(d) the volume of trade grows in the world economy

Solution (c)

 

The national income of a country for a given period is equal to the: (2013)

(a) total value of goods and services produced by the nationals

(b) sum of total consumption and investment expenditure

(c) sum of personal income of all individuals

(d) money value of final goods and services produced

Solution (a)

 

Which of the following grants/ grant direct credit assistance to rural households? (2013)

  1. Regional Rural Banks
  2. National Bank for Agriculture and Rural Development
  3. Land Development Banks

Select the correct answer using the codes given below:

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

Solution (c)

 

 The terms ‘Marginal Standing Facility Rate’ and ‘Net Demand and Time Liabilities’, sometimes appearing in news, are used in relation to (2014)

  1. banking operations
  2. communication networking
  3. military strategies
  4. supply and demand of agricultural products

Solution (a)

 

What is/are the facility/facilities the beneficiaries can get from the services of Business Correspondent (Bank Saathi) in branchless areas?(2014)

  1. It enables the beneficiaries to draw their subsidies and social security benefits in their villages.
  2. It enables the beneficiaries in the rural areas to make deposits and withdrawals.

Select the correct answer using the code given below.

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2

Solution (c)

 

If the interest rate is decreased in an economy, it will (2014) 

  1. decrease the consumption expenditure in the economy
  2. increase the tax collection of the Government
  3. increase the investment expenditure in the economy
  4. increase the total savings in the economy

Solution (3)

 

In the context of Indian economy which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’?

  1. To enable the Central Bank to control the amount of advances the banks can create
  2. To make the people’s deposits with banks safe and liquid
  3. To prevent the commercial banks from making excessive profits
  4. To force the banks to have sufficient vault cash to meet their day-to-day requirements

Select the correct answer using the code given below.

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

Solution (b)

 

If the interest rate is decreased in an economy, it will

  1. decrease the consumption expenditure in the economy
  2. increase the tax collection of the Government
  3. increase the investment expenditure in the economy
  4. increase the total savings in the economy

Solution (c)

 

With reference to Union Budget, which of the following is/are covered under Non-Plan Expenditure?

  1. Defense -expenditure
  2. Interest payments
  3. Salaries and pensions
  4. Subsidies

Select the correct answer using the code given below.

  1. 1 only
  2. 2 and 3 only
  3. 1, 2, 3 and 4
  4. None

Solution (c)

 

The sales tax you pay while purchasing a toothpaste is a

  1. tax imposed by the Central Government.
  2. tax imposed by the Central Government but collected by the State Government
  3. tax imposed by the State Government but collected by the Central Government
  4. tax imposed and collected by the State Government

Solution (d)

 

The main objective of the 12th Five-Year Plan is

  1. inclusive growth and poverty reductions
  2. inclusive and sustainable growth
  3. sustainable and inclusive growth to reduce unemployment
  4. Faster, sustainable and more inclusive growth.

Solution (d)

 

 What does venture capital mean?

  1. A short-term capital provided to industries
  2. A long-term start-up capital provided to new entrepreneurs
  3. Funds provided to industries at times of incurring losses
  4. Funds provided for replacement and renovation of industries

Solution (b)

 

With reference to Balance of Payments, which of the following constitutes/constitute the Current Account?

  1. Balance of trade
  2. Foreign assets
  3. Balance of invisibles
  4. Special Drawing Right

Select the correct answer using the code given below.

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

Solution (c)

 

Which of the following organizations brings out the publication known as ‘World Economic Outlook’?

  1. The International Monetary Fund
  2. The United Nations Development Programme
  3. The World Economic Forum
  4. The World Bank

Solution (a)

 

Demographics:

 

India is regarded as a country with “Demographic Dividend”. This is due to: (2011)

(a.) Its high population in the age group below 15 years

(b.) Its high population in the age group of 15-64 years

(c.) Its high population in the age group above 65 years

(d.) Its high total population

Solution (b)

 

Consider the following specific stages of demographic transition associated with economic development : (2012)

  1. Low birthrate with low death rate
  2. High birthrate with high death rate
  3. High birthrate with low death rate

Select the correct order of the above stages using the codes given below :

(a) 1, 2, 3

(b) 2, 1, 3

(c) 2, 3, 1

(d) 3, 2, 1

Solution (c)

 

To obtain full benefits of demographic dividend, what should India do? (2013) 

(a) Promoting skill development

(b) Introducing more social security schemes

(c) Reducing infant mortality rate

(d) Privatization of higher education

Solution (a)

 

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