IASbaba ’60 Day Plan- Prelims Test 2016 ECONOMICS & CURRENT AFFAIRS [DAY 22]

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IASbaba ’60 Day Plan’ – Prelims Test 2016 [Day 22]

Q.1) Which of the following are correct w.r.t. Asset Reconstruction Companies?

1. It is set up to reconstruct or re-package assets to make them more saleable. The assets in question here are loans from banks, card companies, financial institutions etc.
2. The word “asset reconstruction” in India was used in Narsimham I report where it was envisaged for the setting up of a central Asset Reconstruction Fund with money contributed by the Central Government.
3. ARCs focus on NPAs and allow the banking system to act as “clean bank”.

Select the correct answer

a) 1 only

b) 2 only

c) 2 and 3 only

d) All of the above 

Q.2) Which of the following are correct about Monetary Policy?

1. The strategy to influence money supply and interest rates to affect output and inflation.
2. Balancing savings and investments is a major objective along with generating employment.
3. Exchange rate stabilization is achieved through monetary policy.
4. Monetary policy can be expansionary or contractionary depending on the status of the macroeconomic parameters.

Select the correct answer

a) 1 and 3 only

b) 1 and 4 only

c) 3 and 4 only

d) All of the above

Q.3) Consider the following statements about Cash Reserve Ratio:

1. It is the ratio of deposits which banks have to keep with RBI as savings account.
2. Banks get a fixed interest on CRR from RBI.
3. With increase in CRR the lending capacity of banks will increase.

Which of the above statements are correct?

a) 1 and 2

b) 2 and 3

c) 1 and 3

d) None of the above

Q.4) Which of the following is incorrect about Bank rate?

a) It is rate at which RBI lends long term to commercial banks.

b) It requires collateral security like in case of repo-reverse repo rate.

c) It is a penal rate and is aligned with MSF in 2011.

d) Lower bank rates can help to expand the economy, when unemployment is high, by lowering thecost of funds for borrowers.

Q.5) Consider the following about ready forward contracts.

1. It’s a transaction where 2 parties agree to sell and repurchase the same security.
2. Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
3. The difference between Repo and Reverse repo rate is always 100 basis points with the latter being lower.
4. The difference between Repo and MSF is always 100 basis points with the latter being higher.

Select the correct answer:

a) 1 and 3 only

b) 1 and 2 only

c) 2 and 3 only

d) 1, 3 and 4 only

Q.6) Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely. Which of the following is incorrect about MSF?

a) MSF is a penal rate as the repo limit is exhausted and also SLR limit is breached at times.

b) MSF operations also become necessary as the repo operations are limited to a specific period of the day.

c) Only scheduled commercial banks can use this route with government securities including SLR as collateral.

d) If banks do not have excess SLR it cannot borrow under MSF.

Q.7) Consider the following about SLR. Which of the following are correct?

1. The ratio of liquid assets to net demand and time liabilities (NDTL) that they should keep in designated liquid assets is called statutory liquidity ratio (SLR).
2. To control expansion of bank credit and ensure solvency of commercial banks is major objective.
3. Banks hold public sector bonds, current account balances with other banks and gold as SLR.
4. Banks can also hold multilateral bonds and foreign exchange as part of SLR

Select the correct answer:

a) 1 only

b) 1 and 2 only

c) 1, 2 and 3 only

d) All of the above.

Q.8) Consider the following about SLR and CRR.

1. SLR restricts the bank’s leverage in pumping more money into the economy while CRR is the portion of deposits that banks have to maintain within central bank.
2. CRR is allowed only in Cash and Government securities while SLR is allowed in multiple other designated forms.

Select the correct answer:

a) 1 only

b) 2 only

c) Both 1 and 2

d) None of the above

Q.9) Which of the following is incorrect about qualitative and quantitative methods used by RBI to control credit supply?

a) Qualitative method controls the manner of channelizing cash and credit in the economy.

b) Qualitative method restricts credit for certain section and expands for others depending on the erstwhile situation

c) Marginal requirement is increased for those business activities where the flow of credit is to be restricted and hence a quantitative method.

d) Under rationing of credit RBI fixes ceiling of credit setting a limit to the loans and advances that can be made to particular sector is a qualitative method.

Q.10) Consider the following about Market Stabilization scheme.

1. MSS (Market Stabilization Scheme) securities are issued with the objective of providing the RBI with a stock of securities with which it can intervene in the market for managing liquidity.
2. These securities are issued not to meet the government’s expenditure.
3. The amounts raised under the MSS will be held in a separate identifiable cash account titled the Market Stabilization Scheme Account (MSS Account) to be maintained and operated by the RBI.

Select the correct answer

a) 1 only

b) 2 only

c) 1 and 3 only

d) All of the above

Q.11) Consider the following about fixed and floating interest rates.

1. A floating interest rate is an interest rate that is allowed to move up and down with the rest of the market or along with an index but linked to an underlying benchmark rate.
2. A fixed interest rate is an interest rate on a liability, such as a loan or mortgage, that remains fixed either for the entire term of the loan or for part of this term.

Select the correct answer:

a) 1 only

b) 2 only

c) Both 1 and 2

d) None of the above

Q.12) The Reserve Bank of India (RBI) constituted and Expert Committee to Revise and Strengthen the Monetary Policy Framework under the Chairmanship of Dr. Urjit R.Patel. Consider the following.

1. It has suggested that the apex bank should adopt the new CPI (consumer price index) as the measure of the nominal anchor for policy communication.
2. The committee asked the Central Government to ensure that the fiscal deficit as a ratio to GDP (gross domestic product) is brought down to 3.0 per cent by 2016-17.
3. The Patel panel felt that the monetary policy decision-making should be vested with a monetary policy committee (MPC) which has participation of both government and RBI.
4. The FSLRC under Justice (retd) B N Srikrishna had also suggested for the formation of an MPC.

Select the correct answer:

a) 1 and 2 only

b) 1 and 3 only

c) 1, 2 and 3 only

d) 1, 2 and 4 only

Q.13) What is common for all the following?

1. S S Tarapore Committee of 2006
2. Percy Mistry Committee on 2007
3. Jahangir Aziz working group of 2008
4. Raghuram Rajan Committee of 2009
5. Justice B N Srikrishna’s FSLRC of 2013

Select the correct answer.

a) Capital and Current account convertibility.

b) Poverty alleviation

c) Public Debt management Agency

d) Categorisation of states for discretionary grants.

Q.14) Which of the following is incorrect about Public Debt Management Agency the government intends to set up?

a) Public Debt Management Agency (PDMA) is a specialized independent agency that manages the internal and external liabilities of the Central Government in a holistic manner and advises on such matters in return for a fee.

b) PDMA is considered to be set up with the objectiveof “maximising the cost of raising and servicing public debt over the long-term within an acceptable level of risk at all times, under the general superintendence of the central government”.

c) An autonomous PDMA can be the catalyst for wider institutional reform, including building a government securities market, and bring in transparency about public debt.

d) Genesis of the thinking on an independent debt management office is traced back to the Committee on Capital Account Convertibility (1997) and the Review Group of Standing Committee on International Financial Standards & Codes (2004).

Q.15) Which of the following is not correctly matched?

a) Lakadwala – Poverty estimation

b) Justice R V Eshwar – Taxation

c) Kirit Parikh – Disinvestment

d) Urjit patel – Monetary Policy 

Q.16) Consider the following about Phillips Curve.

1. The Phillips curve represents the relationship between the rate of inflationand the unemployment rate.
2. Phillips found a consistent inverse relationship: when unemployment was high, wages increased slowly; when unemployment was low, wages rose rapidly.
3. It showed the rate of wage inflation that would result if a particular level of unemployment persisted for some time.
4. Price stability has a trade-off against unemployment and some level of inflation could be considered desirable in order to minimize unemployment, is the core argument.

Select the correct answer:

a) 1 and 2 only

b) 1 and 4 only

c) 2, 3 and 4 only

d) 1, 2, 3 and 4 only

Q.17) Consider the following.

1. Deflation is used to describe instances when the inflation rate has reduced marginally over the short term
2. Disinflation is a general decline in prices, often caused by a reduction in the supply of money or credit.

Select the correct answer:

a) 1 only

b) 2 only

c) Both 1 and 2

d) None of the above

Q.18) If deflation is general decline in prices caused by a reduction in the supply of money  then which of the following is not the possible consequence of the same?

a) Demand from businesses and consumers to buy products falls

b) Employment growth rate stabilizes and is upward in trend

c) Debt servicing becomes more expensive

d) Governments can resort to tax cuts to boost demand from consumers and businesses

Q.19) Consider the following about inflation.

1. When the government doesn’t attempt to curb price rise allowing the free market mechanism to function it is said to be open inflation.
2. When international bodies interrupts a price rise in a country through price control measures and subsidies it is said to be internationally controlled inflation.

Select the correct answer:

a) 1 only

b) 2 only

c) Both 1 and 2

d) None of the above 

Q.20) Suppressed inflation adversely affects the economy. What are the probable consequences?

1. When the distribution of commodities is controlled, the prices of uncontrolled commodities rise very high.
2. Suppressed inflation reduces the incentive to work because people do not get the commodities which they want to have.
3. Suppressed inflation leads to black marketing, corruption, hoarding and profiteering. It invites extra­legal powers of control.

Select the correct answer:

a) 1 and 2 only

b) 1 and 3 only

c) 2 and 3 only

d) 1, 2 and 3 only

Q.21) The “Nairobi Package” was adopted at the WTO’s Tenth Ministerial Conference, held in Nairobi, Kenya. It contains a series of Ministerial Decisions on 

1. Special Safeguard Mechanism for Developed Countries
2. Issues of Least Developed Countries
3. Export Competition
4. Export of Cotton, Pulses and Rice and its by products
5. Public Stockholdings

Select the correct code

a) 1, 2, 3 and 5

b) 2, 3, 4 and 5

c) 1, 2, 3 and 4

d) 2, 3 and 5

Q.22) Consider the following statements regarding “Channapatana handcraft”

1. Channapatana toys are special type of wooden toys
2. They are protected by GI tag
3. Channapatana handcraft can be traced back to the reign of Tipu Sultan
4. It flourished with the assistance of Persian Art form

Select the correct code

a) 1, 2 , 3 and 4

b) Only 1

c) 1, 3 and 4

d) 1, 2 and 3

Q.23) In a major boost to the sustainable development of the Eastern Ghats, with special focus on its fragile environment, the United Nations University has sanctioned one more Regional Centre of Expertise (RCE) to India. What are the RCEs in India?

1. RCE-Srinagar, working on western Himalayas
2. RCE-Guwahati on Eastern Himalayas
3. RCE-Gujarat on wetland ecosystems
4. RCE-TERI (Mumbai) on Youth empowerment and energy
5. RCE-Kodagu on traditional knowledge and tribal communities of Western Ghats.
6. RCE-Tirupati will work on Eastern Ghats, coastal communities, marine ecosystem, biodiversity and sustainable development.

Select the correct code

a) 1, 2, 3, 4 and 6

b) 1, 2, 5 and 6

c) 2, 4 and 6

d) 1, 3, 4 and 5

Q.24) Consider the following with respect to Ganges River Dolphin

1. Ganges river dolphin is the national aquatic animal of India
2. Ganges river dolphin is Vulnerable as per IUCN red list
3. Vikramshila Gangetic dolphin sanctuary is the only protected area for the endangered Gangetic dolphins in Asia

Select the correct answer using the codes given below

a) 1 and 2 only

b) 2 and 3 only

c) 1 and 3 only

d) All 

Q.25) Consider the following lakes

1. Lake Erie
2. Huron
3. Michigen
4. Ontario
5. Superior

Arrange the above lakes from West to East

a) 53124

b) 53134

c) 53214

d) 53241 

Q.26) Consider the following countries

1. Liechtenstein
2. Norway
3. Switzerland

Which of the above is a Non EU country?

a) 1 and 2 only

b) 2 and 3 only

c) 3 only

d) All

Q.27) Consider the following statement with respect to SHILP SAMPADA

1. The objective of this scheme is to upgrade the technical and entrepreneurial skill of Backward Classes by way of providing training and financial assistance
2. The maximum loan limit under this scheme is Rs.1 Lakh.
3. The scheme is spearheaded by Ministry of Social justice and empowerment

Select the correct answer

a) 1 and 2 only

b) 2 and 3 only

c) 1 and 3 only

d) All

Q.28) Which of the following properties of light is observed in the phenomena of Rainbow Formation?

1. Dispersion
2. Refraction
3. Total internal reflection
4. Reflection

Select the correct answer using the options given below

a) 1,2,3 only

b) 2,3,4 only

c) 3 only

d) All of these

Q.29) According to RBI guidelines, Basel III norms are to be implemented by all banks till 2019. Consider the following statements:

1. Capital to Risk weighted Assets Ratio(CRAR) is the percentage of bank’s risk weighted credit exposures.
2. RBI has fixed CRAR as 9%.
3. Capital Adequacy Ratio(CAR) is expressed as CRAR.
4. Higher the CAR, higher is the risk.

Which of the above statements are correct?

a) 1,2 and 3

b) 2,3 and 4

c) 1,3 and 4

d) All of the above

Q.30) Consider the following statements:

1. When Repo Rate increases, borrowing from RBI becomes more expensive.
2. Increase in Reverse Repo decreases the liquidity in the market.
3. Reverse Repo is fixed .5 percent points more than Repo.

Which of the above statements are correct?

a) 1 and 2

b) 2 and 3

c) 1 and 3

d) All of the above

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P.S- Attempt these questions within 20 minutes with full honesty and write your results in the comment box. Next day, come back and check your result. You can also discuss the important concepts and issues, in case of doubts (among peers)

All the best

IASbaba