UPSC Prelims Mock Test – ECONOMY 6

Q1. Consider the following Pairs:

Types of Inflation Characteristics

1. Creeping Inflation: Slow and predictable
2. Galloping Inflation: Large and accelerating
3. Hyperinflation: Very high and running in Double or Triple digits

Which of the pairs given above is/are correctly matched?
(a) 1 only
(b) 1 and 3 only
(c) 3 only
(d) 1, 2 and 3

Answer – A

• Inflation may be classified into three broad categories. It depends upon the range of increase and its severity.
• Pair 1 is correctly matched: Creeping inflation is characterized as slow and predictable. Creeping inflation takes place in a longer period and the range of increase is usually in a ‘Single Digit’. Creeping inflation is a comparative term that puts it opposite to the faster and unpredictable inflation.
• Pair 2 is not correctly matched: Galloping Inflation is characterized by a Very High Inflation running in between of the Double-Digit or the Triple Digit.
• Pair 3 is not correctly matched: Hyperinflation is characteristics a Large and Accelerating which it might have Annual rates in millions or even Trillion in such Inflation is not only the range of the increase is Very High, but the increase takes place in a very short span of time, prices shoot up overnight

Q2. Which one of the following Countries became the first country to introduce the ‘GAFA’ tax in the world?

(a) Australia
(b) United States of America
(c) India
(d) France

Answer – D

• Option (d) is correct: The GAFA means Google, Apple, Facebook, and Amazon and a digital tax called GAFA tax is proposed to be imposed on these giant technology and internet companies. The main objective of the GAFA tax is that the global giants, with subsidiaries registered in countries with lower tax rates, pay taxes on the scale of their profits made in the serving country All around the world, especially in Europe, which is the largest market for these companies, talks were going on for imposition of a digital tax on technology and internet companies based in the United States.
• On March 21, 2018, the concept of a European tax to target the digital economy’s largest actors was proposed by the European Commission and for a bill was passed on July 11, 2019. Due to the use of vetoes by some members, the legislative procedure has been paralyzed. The axes on GAFA are imposed by France and other European countries at the national level. France became the first country to introduce the GAFA tax which includes a 3% flat rate directed at:
• Companies with digital revenues of more than €750 million worldwide and €25 million in France.
• Digital interface activities that connect customers and producers, retailers, or service providers, as well as advertising and the resale of personal data for advertising purposes.

Q3. Consider the following statements about the Tobin Tax:

1. It is a proposed tax on Long-term currency transactions in the Foreign Exchange market.
2. It is also referred to as the Robin Hood Tax.

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

Answer – B

• Statement 1 is not correct: In the Foreign Exchange market, Tobin Tax is a proposed tax on Short-term currency transactions. This tax is prepared to caution only speculative flows of hot money i.e., money that moves regularly between Financial Markets in search of high short-term interest rates. This is not directed against impacting long-term investments. The shorter the investment cycle (which means the time between buying and selling a currency), the higher the effective rate of tax. So, market-based incentives are provided to enlarge the term structure of investments.
• Statement 2 is correct: The revenue streams can be generated by the Tobin Tax for countries in which a lot of short-term currency movement happens. This tax is also called the Robin Hood Tax because many consider this as a method of taking small amounts of money from the people who are making large, short-term currency exchanges.

Q4. With reference to Tax Inversion, consider the following statements:

1. It is a situation of tax structure when a firm bases its headquarters in a low-tax
   country while keeping its material operations in high-tax countries.
2. Countries that have very low tax regimes for corporations are popularly known as the ‘Tax Havens’.

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

Answer – C

• Statement 1 is correct: Tax Inversion is a condition of tax structure that happens when a firm bases its headquarters in a low-tax country while keeping its material operations in the high-tax countries (generally their country of origin). The tax payment liabilities of firms are reduced using tax inversion
• Statement 2 is correct: Tax Inversion is legal and is a method of tax avoidance. This is done by the Multinational Corporations (MNCs) to reduce their tax liabilities. The countries that have very low tax regimes for corporations come out as very attractive locations for the headquarters of big corporations. These countries are called the ‘Tax Havens such as Bermuda, Virgin Islands, etc

Q5. Consider the following statements regarding the Tax systems:

1. The progressive Taxation method has increasing rates of tax for increasing value or volume on which the tax is being imposed.
2. The Regressive Taxation method has decreasing rates of tax for increasing value or volume on which the tax is being imposed.

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

Answer – C

• Statement 1 is correct: Progressive taxation is characterized by rising tax rates as the value or volume of the taxed item increases. This system imposes a lower tax on those who earn less and a larger tax on those who earn more. It is thought to unintentionally prevent individuals from obtaining more money in order to maintain low growth and development. The impoverished are rewarded under this technique, while the wealthy are penalized.
• Statement 2 is correct: Regressive taxation is the polar opposite of progressive taxation, which uses lower tax rates to increase the value or volume on which the tax is imposed. Such taxes do not have any permanent or specialized sectors. Some sectors may be subjected to regressive taxation as a kind of promotion. For example, to encourage the growth and development of small-scale industries, India used to impose a regressive excise charge on their outputs, with the burden of tax dropping as the volume of output increased.

Q6. With reference to the ‘National Skills Qualification Framework (NSQF)’, which of the statements given below is/are correct?

1. Under NSQF, a learner can acquire the certification for competency only through
   formal learning.
2. An outcome expected from the implementation of NSQF is the mobility between vocational and general education.

Select the correct answer using the code give below:
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer – B

• An outcome expected from the implementation of NSQF is the mobility between vocational and general education. This is the main aim national skill quality framework.

Q7. Regarding ‘Atal Pension Yojana’, which of the following statements is/are correct?

1. It is a minimum-guaranteed pension scheme mainly targeted at unorganized sector workers.
2. Only one member of a family can join the scheme.
3. The same amount of pension is guaranteed for the spouse for life after the subscriber’s
   death.

Select the correct answer using the code given below.
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer – C

• In Atal Pension Yojana, for every contribution made to the pension fund, The Central government would also co-contribute 50% of the total contribution or Rs. 1,000 per annum, whichever is lower, to each eligible subscriber account, for a period of 5 years.

Q8. Which one of the following is the purpose of ‘UDAY’, a scheme of the Government?

(a) Providing technical and financial assistance to start-up entrepreneurs in the field of renewable sources of energy
(b) Providing electricity to every household in the countries by 2018
(c) Replacing the coal-based power plants with natural gas, nuclear, solar, wind and tidal power plants over a period of time
(d) Providing for financial turnaround and revival of power distribution companies

Answer – D

• The scheme was launched in November 2015 for the financial restructuring of the state DISCOMs which were hit by over 4.5 lakh crore loans.

Q9. With reference to ‘Pradhan Mantri Fasal Bima Yojana’, consider the following statements:

1. Under this scheme, farmers will have to pay a uniform premium of two percent for any crop they cultivate for any reason of the year.
2. This scheme covers post-harvest losses arising out of cyclones and unseasonal rains.

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

Answer – B

• Pradhan Mantri Fasal Bima Yojana’ covers post-harvest losses arising out of cyclones and unseasonal rains. The Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched on 13th January 2016 to help decrease the burden of premiums on farmers who take loans for their cultivation and will also safeguard them against inclement weather.
• There will be a uniform premium of only 2% to be paid by farmers for all Kharif crops and 1.5% for all Rabi crops. In the case of annual commercial and horticultural crops, the premium to be paid will be only 5%. So1is wrong.

Q10. With reference to Participatory Notes (PNotes), consider the following statements:

1. P-notes are issued by foreign portfolio investors (FPIs) registered with SEBI to overseas investors who are not registered as FPIs in India.
2. P-Notes are Offshore Derivative Investments (ODIs) with equity shares or debt securities as underlying assets.
3. P-notes provide liquidity to the investors as they can transfer the ownership by endorsement and delivery.

Which of the statements given above is/are correct?
(a) 1 and 3 only
(b) 2 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer – D

• Option (d) is correct: A participatory note, commonly known as a P-note, is an instrument issued by a registered foreign institutional investor (FII) to an overseas investor who wishes to invest in Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI).
• P-Notes are Offshore Derivative Investments (ODIs) with equity shares or debt securities as underlying assets. They provide liquidity to the investors as they can transfer the ownership by endorsement and delivery.
• While the FIIs have to report all such investments each quarter to SEBI, they need not disclose the identity of the actual investors. SEBI permitted foreign institutional investors to register and participate in the Indian stock market in 1992. These notes are a unique Indian invention started in 2000 by SEBI to enable foreign corporations and high net-worth investors enter the Indian market without having to go through the process of registering as Foreign Institutional Investors (FII). P-notes include securities and financial assets held by investors in another country.
• One of the main features of the P-notes is that they conceal the investor’s identity. While one reason for using P-Notes is to keep the investor’s name anonymous, some investors have used the instrument to save on transaction costs also. Such investors look for derivative solutions to gain exposure in individual or a basket of, stocks in the relevant market. Sometimes, investors enter the Indian markets in a small way using P-Notes, and when their positions become larger, they find it advantageous to shift over to a full-fledged FII structure.

Q11. With reference to ‘Initiative for Nutritional Security through Intensive Millets Promotion’, which of the following statements is/are correct?

1. This initiative aims to demonstrate the improved production and post-harvest technologies and to demonstrate value addition techniques, in an integrated manner, with a cluster approach.
2. Poor, small, marginal and tribal farmers have a larger stake in this scheme.
3. An important objective of the scheme is to encourage farmers of commercial crops to shift to millet cultivation by offering them free kits of critical inputs of nutrients and micro irrigation
   equipment.

Select the correct answer using the code given below.
(a) 1 only
(b) 2 and 3 only
(c) 1 and 2 only
(d) 1, 2 and 3

Answer – C

• The Central government launched the Initiative for Nutritional Security through Intensive Millet Promotion (INSIMP) in 2011-12 to promote millets as nutri-cereals. The scheme aims to demonstrate the improved production and post-harvest technologies in an integrated manner with a visible impact to catalyze increased production of millets in the country. Besides increasing the production of millets, the Scheme through processing and value-addition techniques is expected to generate consumer demand for millet-based food products. However, 3 is wrong, as it is not an important and inclusive objective of the scheme.

Q12. What is/are the purpose/purposes of ‘District Mineral Foundations’ in India?

1. Promoting mineral exploration activities in mineral-rich districts
2. Protecting the interests of the persons affected by mining operations
3. Authorizing State Governments to issue licenses for mineral exploration

Select the correct answer using the code given below.
(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer- B

• District Mineral Foundations are statutory bodies in India established by the State Governments by notification. Each District Mineral Foundation is established by the State Governments by notification as a trust or non-profit body in the mining operation-affected districts. The objective of District Mineral Foundation is to work for the interest of the benefit of the persons and areas affected mining-related operations in such manner as may be prescribed by the State Government
• The Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) will be implemented by the DMFs of the respective districts using the funds accruing to the DMF.

Q13. What is/are the purpose/purposes of the Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?

1. To bring the idle gold lying with Indian households into the economy.
2. To promote FDI in the gold and jewellery sector To reduce India’s dependence on gold imports

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer – C

• The government of India has launched the Sovereign gold bond (SGB) scheme as an alternate investment form to physical gold. Investors will get returns based on the prevailing gold price. Since this is a bond, it can be held in demat or physical paper form. The objective of introducing the modifications in the schemes is to make the existing schemes more effective and to broaden the ambit of the existing schemes from merely mobilizing gold held by households and institutions in the country to put this gold into productive use. The long-term objective which is sought through this arrangement is to reduce the country’s reliance on the import of gold to meet domestic demand. Hence 3 is wrong as FDI in gold increases the prices of Gold and hence anti to the govt purpose.

Q14. Pradhan Mantri MUDRA Yojana is aimed at

(a) bringing small entrepreneurs into a formal financial system
(b) providing loans to poor farmers for cultivating particular crops
(c) providing pensions to old and destitute persons
(d) funding the voluntary organizations involved in the promotion of skill development and employment generation

Answer – A

• Micro Units Development & Refinance Agency Ltd (MUDRA) was set up by the Government of India (GoI). MUDRA was initially formed as a wholly owned subsidiary of the Small Industries Development bank of India (SIDBI) with 100% capital being contributed by it. Presently, the authorized capital of MUDRA is 1000 crores and the paid-up capital is 750 crore, fully subscribed by SIDBI. More capital is expected to enhance the functioning of MUDRA.

Q15. Consider the following statements:

1. The Accelerated Irrigation Benefits Programme was launched during 1996- 97 to provide loan assistance to poor farmers.
2. The Command Area Development Programme was launched in 1974-75 for the development of water-use efficiency.

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

Answer – B

• Accelerated Irrigation Benefits Programme: The Union Government launched the Accelerated Irrigation Benefits Programme (AIBP) in 1996- 97 to provide financial assistance to States, with the objective of expediting the completion of ongoing Major/Medium including Extension, Renovation and Modernization (ERM) irrigation projects and Surface Minor Irrigation schemes. Command Area Development Programme: The Centrally sponsored Command Area Development (CAD) The programme was launched in 1974-75 with the main objectives of improving the utilization of created irrigation potential and optimizing agriculture production and productivity from irrigated agriculture through a multi-disciplinary team under an Area Development Authority.

Q16. The economic cost of food grains to the Food Corporation of India is the Minimum Support Price and bonus (if any) paid to the farmers plus

(a) transportation cost only

(b) interest cost only

(c) procurement incidentals and distribution cost

(d) procurement incidentals and charges for godowns

Answer – C

• The economic cost of foodgrains consists of three components: Pooled cost of grains, which is the weighted MSP of the stock of foodgrains available with FCI, procurement incidentals, and cost of distribution.

Q17. Among the agricultural commodities imported by India, which one of the following accounts for the highest imports in terms of value in the last five years?

(a) Spices
(b) Fresh fruits
(c) Pulses
(d) Vegetable oils

Answer – D

• From the data released by the Commerce Ministry: Import in ? Cr. 2017 2018 Vegetable Oil 5432.96 5103.64 Pulses 1357.44 976.37 Fruits & vegetables 1329.03 1309.25 Export data of spices is given but import data is not given, which points out that we are importing either NIL/ negligible amount of spices.

Q18. As per the NSSO 70th Round “Situation Assessment Survey of Agricultural Households”, consider the following statements:

1. Rajasthan has the highest percentage share of agricultural households among its rural households.
2. Out of the total agricultural households in the country, a little over 60 per cent belong to OBCs.
3. In Kerala, a little over 60 percent of agricultural households reported to have received maximum income from sources other than agricultural activities.

Which of the statements given above is/are correct?
(a) 2 and 3 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer – C

• According to the web report on the said website, 45% of households belong to OBC, by elimination, we’ve correct answer (C).

Q19. Consider the following:

1. Areca nut
2. Barley
3. Coffee
4. Finger millet
5. Groundnut
6. Sesamum
7. Turmeric

The Cabinet Committee on Economic Affairs has announced the Minimum Support Price for which of the above?

(a) 1, 2, 3 and 7 only

(b) 2, 4, 5 and 6 only

(c) 1, 3, 4, 5 and 6 only

(d) 1, 2, 3, 4, 5, 6 and 7

Answer – B

• The government announces MSP on 23 crops. These include seven cereal crops (paddy, wheat, jawar, bajra, maize, ragi and barley), five pulse crops (gram, tur, moong, urad and lentil), seven oilseeds (groundnut, sunflower seed, soybean, rapeseed, mustard, safflower, nigerseed and sesamum), copra (dried coconut), cotton, raw jute and sugarcane. · So, Coffee is not in the list, 3 is wrong, by elimination, we get correct.

Q20. The Financial Stability Report has been released by which of the following institutions?

(a) World Economic Forum
(b) Reserve Bank of India
(c) New Development Bank
(d) International Monetary Fund

Answer – B

• Option (b) is correct: Reserve Bank released the 24th issue of the Financial Stability Report (FSR), a bi-annual report that reflects risks to financial stability and the resilience of the financial system.
• Following are the highlights of the report: Global Economy: The global economic recovery has been losing momentum in the second half of 2021 in the face of resurfacing COVID-19 infections, the new variant Omicron, supply disruptions and bottlenecks, shifts in monetary policy stances across advanced and emerging economies.
• Domestic Economy: On the domestic front, progress in vaccination has enabled the recovery to regain traction after the debilitating second wave of the pandemic. Notwithstanding signs of slowing pace more recently, the corporate sector is gaining strength and bank credit growth is improving.
• Risk assessment: All broad categories of risk global; macroeconomic; financial market; institutional; and general – were perceived as ‘medium’ in magnitude but risks arising on account of global and financial markets were rated higher than the rest. Commodity prices, domestic inflation, equity price volatility, asset quality deterioration, credit growth and cyber disruptions were rated as the major risks. (Refer to table for key parameters.)
• MSME Sector: Credit to the MSME segment slowed down (y-o-y) by the end of September 2021 vis-a-vis March 2021. Emerging signs of stress in micro, small and medium enterprises (MSME) as also in the micro finance segment call for close monitoring of these portfolios going forward. The Global Financial Stability report is released by the International Monetary Fund.

Q21. In India, markets in agricultural products are regulated under the

(a) Essential Commodities Act, 1955
(b) Agricultural Produce Market Committee Act enacted by States
(c) Agricultural Produce (Grading and Marking) Act, 1937
(d) Food Products Order, 1956 and Meat and Food Products Order, 1973

Answer – B

• Agricultural Produce Market Committee Acts of respective states are responsible for markets in agricultural products.

Q22. The Fair and Remunerative Price (FRP) of sugarcane is approved by the

(a) Cabinet Committee on Economic Affairs.
(b) Commission for Agricultural Costs and Prices.
(c) Directorate of Marketing and Inspection, Ministry of Agriculture
(d) Agricultural Produce Market Committee

Answer – A

• The Fair and Remunerative Price FRP of sugarcane is approved by the Cabinet Committee on Economic Affairs

Q23. Which one of the following best describes the main objective of the ‘Seed Village Concept’?

(a) Encouraging the farmers to use their own farm seeds and discouraging them to buy the seeds from others

(b) Involving the farmers for training in quality seed production and thereby making available quality seeds to others at the appropriate time and affordable cost

(c) Earmarking some villages exclusively for the production of certified seeds

(d) Identifying the entrepreneurs in villages and providing them with technology and finance to set up seed companies

Answer – B

• The seed village concept is to promote the quality seed production of foundation and certified seed classes. The area which is suitable for raising a particular crop will be selected, and raised with a single variety of a kind. Suitable area for seed production will be identified by the Scientists. The foundation/ certified seeds or University seeds will be supplied by the University through Krishi Vigyan Kendras (KVKs) and Research Stations at 50% subsidy cost to the identified farmers in the area. The farmers will use these quality seeds and take up their own seed production in a small rea (1 acre) for their own use. The crops are Rice, Pulses and Oilseeds.

Q24. Which of the following grants/grant direct credit assistance to rural households?

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

Answer – C

• Land development banks started financing long-term loan for more significant rural development activities like rural and cottage industries, rural artisans etc. The main purpose of RRB’s is to mobilize financial resources from rural / semi-urban areas and grant loans and advances mostly to small and marginal farmers, agricultural labourers and rural artisans.

Q25. Consider the following statements:

1. The Union Government fixes the Statutory Minimum Price of sugarcane for each
   sugar season.
2. Sugar and sugarcane are Essential Commodities Act.

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

Answer – C

• The statutory minimum price of sugar for every season is a policy provision while sugar and sugar came falls within the Essential Commodities Act.

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