Over the past decade, the economy has been a recurring theme in the UPSC Prelims examination, reflecting the critical importance of economic issues in the contemporary global scenario. Questions ranged from macroeconomic indicators to policy frameworks, showcasing the multifaceted nature of economic challenges. The examination delved into topics such as GDP growth, fiscal deficit, inflation rates, and monetary policies, emphasizing the need for aspirants to possess a comprehensive understanding of economic principles. Additionally, questions explored the impact of global economic trends on India, underlining the interconnectedness of economies in the modern era. Policy initiatives like the Goods and Services Tax (GST) and demonetization were also scrutinized, highlighting the role of government interventions in shaping economic trajectories. The inclusion of economic questions in UPSC Prelims reinforces the idea that a well-rounded aspirant must not only be well-versed in political and social issues but also possess a nuanced understanding of economic dynamics to navigate the complexities of governance and policymaking.

2023

1. Consider the following statements:

Statement-I: Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempt from tax, but the dividend is taxable.

Statement-II: InvITs are recognized as borrowers under the ‘Securitization and Recon- struction of Financial Assets and Enforcement of Security Interest Act, 2002’.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct, and Statement- II is the correct explanation for Statement- I

(b) Both Statement-I and Statement-II are correct, and Statement- II is not the correct explanation for Statement-I. 

(c) Statement-I is correct, but Statement-II is incorrect 

(d) Statement-I is incorrect, but Statement-II is correct

Answer:  (d)

Interest income that InvIT gets from its underlying SPVs and passes on to unitholders is taxed. The dividends that InvIT pays also get taxed. Both interest and dividend are taxed per the income tax slab. This is applicable where the InvIT has opted for taxation under section 115BAA of the Act. Hence, statement 1 is not correct.

InvITs are recognized as borrowers under the SARFAESI Act 2002. The SARFAESI Act and the Recovery of Debts Act have been amended. Now, a pooled investment vehicle can be considered a borrower under these laws. This means that a debenture trustee for listed secured debt securities issued by an InvIT or REIT can use the protections and enforcement mechanisms under the SARFAESI Act. Hence, statement 2 is correct.

2. Consider the following statements: 

Statement – I In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes. 

Statement-II: Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement- II is the correct explanation for Statement- I

(b) Both Statement-I and Statement-II are correct and Statement- II is not the correct explanation for Statement-I. 

(c) Statement-I is correct but Statement-II is incorrect 

(d) Statement-I is incorrect but Statement-II is correct

Answer:  (a)

In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes to contain the post pandemic inflation. For Example, since May 2022, the Monetary Policy Committee (RBI) has gone for rate hikes many times. Hence, statement 1 is correct.

The central banks generally are mandated with the task of containing the rising prices of the commodities. Central banks use monetary policy to manage economic fluctuations and achieve price stability. Hence, statement 2 is correct and it provides correct explanation to statement 1.

3. Consider the following statements:

Statement-I: Carbon markets are likely to be one of the most widespread tools in the fight against climate change.

Statement-II: Carbon markets transfer resources from the private sector to the State. 

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement- II is the correct explanation for Statement- I

(b) Both Statement-I and Statement-II are correct and Statement- II is not the correct explanation for Statement-I. 

(c) Statement-I is correct but Statement-II is incorrect 

(d) Statement-I is incorrect but Statement-II is correct

Answer:  (b)

Carbon markets, also known as emissions trading systems or cap-and-trade programs, aim to reduce greenhouse gas emissions by creating a market for buying and selling carbon allowances or credits. Carbon markets, for years short of puff, have at last become one of the most widespread tools in the fight against climate change. By the end of 2021 more than 21% of the world’s emissions were covered by some form of carbon pricing, up from 15% in 2020. Hence, statement 1 is correct.

Carbon markets are designed to create a financial mechanism that encourages the reduction of greenhouse gas emissions. In carbon markets, companies and organisations can buy and sell emissions allowances or credits, which represent the right to emit a certain amount of greenhouse gases. While carbon markets can generate revenue for the government through the sale of emissions allowances, it is not accurate to say that they transfer resources solely from the private sector to the government. Hence, statement 2 is not correct.

4. Which one of the following activities of the Reserve Bank of India is considered to be part of ‘sterilization? 

(a) Conducting ‘Open Market Operations’

 (b) Oversight of settlement and payment systems 

 (c) Debt and cash management for the Central and State Governments

(d) Regulating the functions of Non- banking Financial Institutions

Answer:  (a)

Sterilization is an action taken by the Central Bank (such as RBI in India) to counterbalance the effects of foreign exchange interventions on domestic money supply and inflation. It is done to neutralize the impact of inflows or outflows of foreign exchange reserves on the domestic monetary system. Open Market Operations (OMOs) are one of the tools used by the RBI for sterilization. OMOs are the purchase or sale of government securities by the Central Bank in the open market in order to regulate the money supply in the economy. Hence, option (a) is correct.

5. Consider the following markets:

1. Government Bond Market

2. Call Money Market

3. Treasury Bill Market

4. Stock Market

How many of the above are included/ in capital markets?

(a) Only one

(b) Only two

(c) Only three

(d) All four

Answer:  (b)

• Government bond market is a part of the Capital Market. Hence, option 1 is correct.
• Call money rate is the rate at which short term funds are borrowed and lent in the money market. Hence, option 2 is not correct.
• Treasury bills are short-term debt securities issued by the government. Hence, option 3 is not correct.
• The Stock Market is a part of the Capital Market. Hence, option 4 is correct.

6. Which one of the following best describes the concept of ‘Small Farmer Large Field’?

Answer:  (b)

(a) Resettlement of a large number of people, uprooted from their countries due to war, by giving them large cultivable land which they cultivate collectively and share the produce

(b) Many marginal farmers in an area organize themselves into groups and synchronize and harmonize selected agricultural operations

(c) Many marginal farmers in an area together make a contract with a corporate body and surrender their land to the corporate body for a fixed term for which the corporate body makes a payment of agreed amount to the farmers

(d) A company extends loans, technical knowledge and material inputs to a number of small farmers in an area so that they produce the agricultural commodity required by the company manufacturing for its process and commercial production

“Small Farmers Large Field (SFLF)” is an agri model to overcome the disadvantages faced by millions of small and marginal farmers due to diseconomies of scale and lack of bargaining power in the supply chain. This model is participatory and flexible and allows small farmers to benefit from achieving economies of scale by organising themselves into groups and synchronising and harmonising selected operations. Hence, option (b) is correct.

7. Consider the following statements:

1. The Government of India provides Minimum Support Price for niger (Guizotia abyssinica) seeds.

2. Niger is cultivated as a Kharif crop.

3. Some tribal people in India use niger seed oil for cooking.

How many of the above statements are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

Answer:  (c)

• The government provides MSP for Niger Seeds. Hence, statement 1 is correct.
• Niger Seed is cultivated as Kharif crop. Hence, statement 2 is correct.
• The tribal population uses niger seed oil for cooking, the press cake post oil-extraction as livestock feed, and also consume the seeds as a condiment. Hence, statement 3 is correct.

8. Consider the investments in the following assets:

1. Brand recognition

2. Inventory

3. Intellectual property

4. Mailing list of clients

How many of the above are considered intangible investments?

(a) Only one

(b) Only two

(c) Only three

(d) All four

Answer:  (c)

The assets that cannot be touched are known as intangible assets. They are non-physical in nature and can be used for a year or more and the list includes brand value, goodwill, and intellectual property like trademarks, patents, and copyrights etc. A tangible asset is an asset that has physical substance. Examples include inventory, a building, rolling stock, manufacturing equipment or machinery, and office furniture. Hence, option (c) is correct.

9. In the context of finance, the term ‘beta’ refers to

1. the process of simultaneous buying and selling of an . asset from different platforms
2. an investment strategy of a portfolio manager to balance risk versus reward
3. a type of systemic risk that arises where perfect hedging is not possible
4. a numeric value that measures the fluctuations of a stock to changes in the overall stock market

Answer:  (d)

Beta is a measure of a stock’s historical volatility in comparison with that of a market index such as the S&P 500. Stocks with a beta above 1 tend to be more volatile than their index, while stocks with lower betas tend to be less volatile. Hence, option (d) is correct.

10. Consider the following statements:

1. The Self-Help Group (SHG) Programme was originally initiated by State Bank of India by providing microcredit to the financially deprived.
2. In an SHG, all members of a group take responsibility for a loan that an individual member takes.
3. The Regional Rural Banks and Scheduled Commercial Banks support SHGs.

How many of the above statements are correct?

1. Only one
2. Only two
3. All three
4. None

Answer:  (b)

In 1970, Ilaben Bhat, founder member of ‘SEWA’(Self Employed Women’s Association) in Ahmadabad, had developed a concept of ‘women and micro-finance’. The Annapurna Mahila Mandal’ in Maharashtra and ‘Working Women’s Forum’ in Tamilnadu and many National Bank for Agriculture and Rural Development (NABARD)-sponsored groups have followed the path laid down by ‘SEWA’. ‘SEWA’ is a trade union of poor, self-employed women workers. Hence, statement 1 is not correct.

In an SHG, all members are jointly responsible for the loans taken by individual members. Hence, statement 2 is correct.

Both the Regional Rural Banks and Scheduled Commercial Banks support SHGs. Hence, statement 3 is correct.

11. Consider the following heavy industries

1. Fertilizer plants.
2. Oil refineries
3. Steel plants
Green hydrogen is expected to play a significant role in decarbonizing how many of the above industries?
(a) Only one
(b) Only two
(c) All three
(d) None

Answer:  (c)

The primary focus for adoption of green hydrogen is likely to be oil refineries, fertilisers and chemical industry. oil refineries using grey hydrogen for desulphurisation, ammonia production for fertilisers and chemicals industry, and treatment of basic metals are the leading market opportunities for green hydrogen in the short-medium term. Oil refineries, fertiliser companies and steel producers are likely to be asked to meet a compulsory green hydrogen purchase obligation (GHPO) in a planned national move to green energy. Hence, option (c) is correct.

12. Consider the following statements :

Statement-I: India accounts for 3.2% of global export of goods.

Statement-II: Many local companies and some foreign companies operating in India have taken advantage of India’s ‘Production-linked Incentive’ scheme.

Which one of the following is correct in respect of the above statements?
(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
(c) Statement-I is correct but Statement-II is incorrect
(d) Statement-1 is incorrect but Statement-II is correct.

Answer:  (d)

According to the recent WTO’S Global Trade Outlook and Statistics report, India accounts for 1.8 % of global exports of goods. Hence, statement I is not correct.

The ‘Production Linked Initiative’ (PLI) scheme offers companies incentives on incremental sales from products manufactured in India. It aims to attract foreign companies to set up units in India while encouraging local companies to expand their manufacturing units, generate more employment, and reduce the country’s reliance on imports. Hence, statement II is correct.

12. Consider the with reference to the India:

1. According to the ‘Micro, Small and Medium Enterprises Development (MSMED) Act, 2006’, the ‘medium enterprises’ are those with investments in plant and machinery between Rs 15 crore and Rs 25 crore.
2. All bank loans to the Micro, Small and Medium Enterprises qualify under the priority sector.

Which of the statements given above is/are correct?

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

Answer:  (b)

• As per the new definition and criterion of MSMEs which came into effect from 1st July, 2020.
  • The definition of Micro manufacturing and services units has been increased to Rs. 1 Crore of investment and Rs. 5 Crore of turnover.
  • The limit of small unit has been increased to Rs. 10 Crore of investment and Rs 50 Crore of turnover.
  • The limit for medium Enterprises has been changed to Rs. 50 Crore of investment and Rs. 250 Crore of turnover. Hence, statement 1 is not correct.
• In terms of Master Direction on ‘Priority Sector Lending (PSL) – Targets and Classification’ dated September 4, 2020, all bank loans to MSMEs conforming to the conditions prescribed therein qualify for classification under priority sector lending. Bank loans to Micro, Small and Medium Enterprises (for both manufacturing and service sectors) engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006, irrespective of loan limits, are eligible for classification under priority sector, w.e.f. March 1, 2018. Hence, statement 2 is correct.

13. With reference to Central Bank digital currencies, consider the following statements:

1. It is possible to make payments in a digital currency without using US dollar or SWIFT system.
2. A digital currency can be distributed with a condition programmed into it such as a time-frame for spending it.

Which of the statements given above is/are correct?

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

Answer:  (c)

Central Bank Digital Currency (CBDC) is a digital form of currency notes issued by a central bank. Here payments in a digital currency are without using the US dollar or SWIFT system. Hence, statement 1 is correct.

A CBDC is programmable to the point that the currency can be made to expire, thus forcing consumers to use it upto a certain date. Hence, statement 2 is correct.

2022

1. Consider the following statements

1. Gujarat has the largest solar park in India.
2. Kerala has a fully solar powered International Airport.
3. Goa has the largest floating solar photovoltaic project in India.

Which of the statements given below is/are correct?

(a) 1 and 2

(b) 2 only

(c) 1 and 3

(d) 3 only

Answer: (b)

Statement 1 is incorrect: Rajasthan tops the list of solar park installations in the country followed by Karnataka and then Andhra Pradesh. Bhadla Solar Park in Rajasthan, with a capacity of 2245 MW, is the world’s largest solar park. 

Statement 2 is correct: Cochin International Airport, India’s first airport built under a public-private-partnership (PPP) model, becomes the first airport in the world that operates completely on solar power. This plant is the first Megawatt scale installation of a Solar PV system in the State of Kerala.

Statement 3 is incorrect: Andhra Pradesh is now home to India’s largest floating solar power plant. State-run NTPC started operations at India’s largest floating solar PV project at its Simhadri thermal station in Visakhapatnam.

2.Consider the following statements :

1. Tight monetary policy of US Federal Reserve could lead to capital flight.
2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs).
3. Devaluation of domestic currency decreases the currency risk associated with ECBs.

Which of the statements given above are correct ?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (a)

Tight monetary policy implies the Central Bank (or authority in charge of Monetary Policy) is seeking to reduce the demand for money and limit the pace of economic expansion. Central banks engage in tight monetary policy when an economy is accelerating too quickly or inflation is rising too fast and usually involves increasing interest rates.

Statement 1 is correct: Tight monetary policy of US Federal Reserve means hiking the federal funds rate–the rate at which banks lend to each other–increases borrowing rates and slows lending. Rate increases make borrowing less attractive as interest payments increase. It affects all types of borrowing including personal loans, mortgages, and interest rates on credit cards.  Central Banks enact monetary policy to keep inflation, unemployment, and economic growth stable and positive. When the economy overheats central banks raise interest rates and take other contractionary measures to slow things down – this can discourage investment and depress asset prices. Thus, tight monetary policy of the US Federal Reserve could lead to capital flight by the investors.

Statement 2 is correct: The sudden stops and reversal of capital flows will lead to depreciation pressures on emerging market currencies like rupee. When foreign investors invest in equities, bonds and other financial assets in EMEs, they measure financial returns in the US dollar and other foreign currencies.   Capital flight can drive up the interest costs as there is reduced money supply in the system. Thus, it would lead to increase in the interest cost of firms that have external commercial borrowings.

Statement 3 is incorrect: Devaluation of domestic currency does not affect the External Commercial Borrowings as it is denominated in the foreign currency and not in the domestic currency.

3. Consider the following statements:

1. In India, credit rating agencies are regulated by Reserve Bank of India.
2. The rating agency popularly known as ICRA is a public limited company.
3. Brickwork Ratings is an Indian credit rating agency.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (b)

Statement 1 is incorrect: Credit Rating Agencies form an essential part of the financial markets. They are regulated by SEBI and not by RBI under the powers derived from the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999. The SEBI (Credit Rating Agencies) Regulations, 1999  provide for eligibility criteria for registration of credit rating agencies, monitoring and review of ratings, requirements for a proper rating process, avoidance of conflict of interest and inspection of rating agencies by SEBI, amongst other things.  

Statement 2 is correct: ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited) was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency with its shares listed on the Bombay Stock Exchange and the National Stock Exchange.

Statement 3 is correct: Brickwork Ratings (BWR) is a SEBI registered Indian Credit Rating Agency. It has also been accredited by RBI offers rating services on Bank Loans, NCD, Commercial Paper, Fixed deposits, Securitized paper, Security receipts etc. Brickwork Ratings has Canara Bank, a leading Public Sector Bank, as its promoter and strategic partner.

4. With reference to the ‘Banks Board Bureau (BBB), which of the following statements are correct?

1. The Governor of RBI is the Chairman of BBB.
2. BBB recommends for the selection of heads for Public Sector Banks.
3. BBB helps the Public Sector Banks in developing strategies and capital raising plans.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (b)

Banks Board Bureau is a self-governing autonomous body of the Central Government. Central Government notified the amendment to the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1980 providing the legal framework for composition and functions of the Banks Board Bureau on March 23, 2016. The Bureau accordingly started functioning from April 01, 2016 as an autonomous recommendatory body.

Statement 1 is incorrect: Banks Board Bureau comprises the Chairman, three ex-officio members i.e Secretary, Department of Public Enterprises, Secretary of the Department of Financial Services and Deputy Governor of the Reserve Bank of India, and five expert members, two of which are from the private sector. The Chairman is selected by the central government and RBI governor does not head it.

Statement 2 and 3 are correct: Banks Board Bureau recommends for the selection of head for Public Sector Banks and other key personnel if required. It also develops strategies for raising capital and improving performance of PSBs.

Additional Information:

The functions of the Bureau outlined in the Section 7(C) of the Scheme and in subsequent amendments as per orders of Appointment Committee of the Cabinet are :-

1)To recommend the selection and appointment of Board of Directors in Mandated Institutions (Whole Time Directors and Chairman). Hence statement 2 is correct.

2)To advise the Central Government on matters relating to appointments, confirmation or extension of tenure and termination of services of the Directors of mandated

3)To advise the Central Government on the desired management structure of mandated institutions, at the level of Board of Directors and senior

4)To advise the Central Government on a suitable performance appraisal system for mandated

5)To build a data bank containing data relating to the performance of mandated institutions and its

6)To advise the Central Government on the formulation and enforcement of a code of conduct and ethics for managerial personnel in mandated

7)To advise the Central Government on evolving suitable training and development programs for managerial personnel.

8)To help the banks in terms of developing business strategies and capital raising Hence statement 3 is correct.

9)Any other work assigned by the Government in consultation with Reserve Bank of India.

5. With reference to Convertible Bonds, consider the following statements:

1. As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of interest.
2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices.

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)

A convertible bond is a fixed-income corporate debt security that yields interest payments, but can be converted into a predetermined number of common stock or equity shares. It offers investors a type of hybrid security that has features of a bond, such as interest payments, while also having the option to own the underlying stock.

Statement 1 is correct: Issuing convertible bonds can help companies minimize negative investor sentiment that would surround equity issuance. Further, issuing convertible bonds can also help provide investors with some security in the event of default. A convertible bond protects investors’ principal on the downside, but allows them to participate in the upside should the underlying company succeed.   Convertible bonds tend to offer a lower coupon rate or rate of return in exchange for the value of the option to convert the bond into common stock. Investors will generally accept a lower coupon rate on a convertible bond, compared with the coupon rate on an otherwise identical regular bond, because of its conversion feature. This enables the issuer to save on interest expenses, which can be substantial in the case of a large bond issue.

Statement 2 is correct: The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices as equity prices can differ widely from the given interest and the difference in that can be used as a hedge for the inflation. As indexation will ensure that prices are adjusted with inflation over a period of time. With the help of indexation, bondholders will be able to lower their long- term capital gains (as their investment will be adjusted with inflation) even when converting bonds into equity, which brings down their taxable income.  

6. In India, which one of the following is responsible for maintaining price stability by controlling inflation?

(a) Department of Consumer Affairs

(b) Expenditure Management Commission

(c) Financial Stability and Development Council

(d) Reserve Bank of India

Answer: (d)

OPtion (d) is correct: Reserve Bank of India is India’s central bank has key function to keep check on the inflation by use of monetary policy in forms of qualitative and quantitative measures. Reserve Bank of India is responsible for maintaining price stability and controlling inflation. It is the responsibility of MPC in India, but RBI itself plays a large role in MPC and also carries out task of monetary policy committee.

7. With reference to Non-Fungible Tokens (NFTs), consider the following statements :

1. They enable the digital representation of physical assets.
2. They are unique cryptographic tokens that exist on a blockchain.
3. They can be traded or exchanged at equivalency and therefore can be used as a medium of commercial transactions.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only 

(d) 1, 2 and 3

Answer: (a)

Non–fungible tokens (NFTs) are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other.

Statement 1 is correct. NFTs typically contain references to digital files such as photos, videos, and audio. Because NFTs are uniquely identifiable, they differ from cryptocurrencies, which are fungible. The market value of an NFT is associated with the digital file it references. Anything that can be converted into a digital form can be an NFT. Everything from your drawings, photos, videos, GIF, music, in-game items, selfies, and even a tweet can be turned into an NFT, which can then be traded online using cryptocurrency.

Statement 2 is correct. Non-fungible tokens (NFTs) are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. NFTs can also function to represent individuals’ identities, property rights, and more.

Statement 3 is incorrect. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can serve as a medium for commercial transactions.

Additional Information:

The distinct construction of each NFT has the potential for several use cases. For example, they are an ideal vehicle to digitally represent physical assets like real estate and artwork. Because they are based on blockchains, NFTs can also work to remove intermediaries and connect artists with audiences or for identity management. NFTs can remove intermediaries, simplify transactions, and create new markets.

8. With reference to the Indian economy, consider the following statements:

1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.

2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.

3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.

Which of the above statements are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (c)

Statement 1 is correct: Nominal Effective Exchange Rate (NEER) is a measure of the value of a currency against a weighted average of several foreign currencies. The nominal exchange rate is the amount of domestic currency needed to purchase foreign currency. If a domestic currency increases against a basket of other currencies inside a floating exchange rate regime, NEER is said to appreciate. If the domestic currency falls against the basket, the NEER depreciates. An increase in NEER indicates an appreciation of the local currency against the weighted basket of currencies of its trading partners.

Statement 2 is Incorrect: Real Effective Exchange Rate (REER) is the real effective exchange rate (a measure of the value of a currency against a weighted average of several foreign currencies) divided by a price deflator or index of costs. In simple words, a nation’s nominal effective exchange rate (NEER), adjusted for inflation in the home country, equals its real effective exchange rate (REER). An increase in REER implies that exports become more expensive and imports become cheaper; therefore, an increase indicates a loss in trade competitiveness.

Statement 3 is correct: REER is the NEER after factoring in relative inflation (consumer price-based index) using some measure of relative prices or costs; changes in the REER thus take into account both nominal exchange rate changes and the inflation differential vis-à-vis trading partners. Soaring inflation will impact REER, which, in turn, would inevitably push up the cost of merchandise and affect competitiveness of Indian exports. Thus, if inflation is in an increasing trend in domestic nation relative to inflation in other countries, there is likely to cause an increasing divergence between NEER and REER.

9. With reference to the Indian economy, consider the following statements: 

1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities. 
2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market. 
3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars. 

Which of the statements given above are correct? 

(a) 1 and 2 only 

(b) 2 and 3 only 

(c) 1 and 3 only 

(d) 1, 2 and 3 

Answer: (b) 

Statement 1 is incorrect: If the inflation is too high, Reserve Bank of India (RBI) is likely to reduce the money supply in the economy to control inflation. Thus, RBI sells the government securities so as to suck the excess of money supply from the economy and to control the inflation.

Statement 2 is correct: The Reserve Bank of India intervenes in the currency market to support the rupee as a weak domestic unit can increase a country’s import bill. There are a variety of methods by which RBI intervenes. It can intervene directly in the currency market by buying and selling dollars. If RBI wishes to prop up rupee value, then it can sell dollar and when it needs to bring down rupee value, it can buy dollars.

Statement 3 is correct: When the US raises its domestic interest rates, this tends to make India less attractive for the currency trade. As a result, some of the money may be expected to move out of the Indian markets and flow back to the US, therefore decreasing the value of India’s currency against the US dollar. Thus, if interest rates in the USA or European Union were to fall, the value of rupee against the dollar increases and that is likely to induce RBI to buy dollars.

Additional Information:

A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more). In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.

10. With reference to the India economy, what are the advantages of “Inflation-Indexed Bonds (IIBs)”?

1. Government can reduce the coupon rates on its borrowing by way of IIBs.

2. IIGs provide protection to the investors from uncertainty regarding inflation.

3. The interest received as well as capital gains on IIBs are not taxable.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (a)

Statement 1 is correct: As IIBs are G-Sec, they can be tradable in the secondary market like other G-Secs. G-Secs helps the Government to reduce the coupon rates on its borrowing. Like other G-Secs, coupon on IIBs would be paid on half yearly basis. Fixed coupon rate would be paid on the adjusted principal.Since these bonds provide no risk of capital loss, they can offer a lesser rate of interest (coupon) as interest is directly proportional to risk.

Statement 2 is correct: These instruments protect savings from inflation. It has been decided by the RBI to consider WPI for inflation protection in IIBs.Inflation-indexed bonds provide protection to investors from uncertainty regarding inflation.

Statement 3 is incorrect:  Extant tax provisions will be applicable on interest payment and capital gains on IIBs. There will be no special tax treatment for these bonds.Interest and inflation compensation both are taxable.

Additional Information:

Inflation-Indexed Bonds

• Inflation Indexed Bonds (IIB) provide a continuous return to investors regardless of the amount of inflation in the economy.
• The real coupon interest rate on IIBs is fixed, but the nominal principal value is adjusted for inflation.
• Adjusted principal = [(inflation index at a given point of time) divided by (inflation index at the time of deposit) multiplied by (principal amount)]
• Interest being paid = [Adjusted principal multiplied by coupon rate]
• On the modified principal value, periodic coupon payments will be issued. In this way, both the principal and the coupon payment will be protected from inflation.
• When the bond matures, the adjusted principal or face value, whichever is greater, will be paid.
• IIBs are classified as government securities (G-Sec) and hence qualify for repo transactions, as well as SLR status (i.e., they are eligible to be kept as part of Statutory Liquidity Ratio requirements of banks).

11. With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct?

1. They can sell their own goods in addition to offering their platforms as market-places.

2. The degree to which they can own big sellers on their platforms is limited.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: (b)

After Walmart’s $16bn purchase of Flipkart in 2018, the rules for foreign-owned e-commerce firms were tightened further, with unexpected severity. Two restrictions predominate.

Statement 1 is incorrect: First, foreign firms are prevented from holding inventory or selling their own goods, which both Amazon and Walmart do in other markets. They can offer their platforms only as “marketplaces” for other buyers and sellers.FDI policy in E-Commerce permits foreign direct investment in the market place model of e-commerce to the extent of 100%  under the automatic route, however, FDI (foreign owned e-commerce firms) is not permitted in inventory based model (owning products and selling them directly to buyers) of e-commerce.

Statement 2 is correct: Second, the degree to which they can own big sellers on their platforms is limited, to prevent those sellers acting covertly on their behalf. The FDI policy further states that E-commerce entity providing a marketplace will not exercise ownership or control over the inventory i.e. goods purported to be sold. Such an ownership or control over the inventory will render the business into inventory-based model. Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies.

Source: Economist

11. Which of the following activities constitute real sector in the economy?

1. Farmers harvesting their crops

2. Textile mills converting raw cotton into fabrics

3. A commercial bank lending money to a trading company

4. A corporate body issuing Rupee Denominated Bonds overseas

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2, 3 and 4 only

(c) 1, 3 and 4 only

(d) 1, 2, 3 and 4

Answer: (a)

Options 1 and 2 are correct: The real sector of an economy is the key section as activities of this sector persuade economic output and is represented by those economic segments that are essential for the progress of GDP of the economy. For instance, farmers harvesting their crops or textile mills converting raw cotton into fabrics ensure an increase of economic output and in turn progress of GDP. The sector is crucial for the sustainability of the economy because of its productive capability to meet nations’ aggregate demand.

Options 3 and 4 are incorrect: The financial sector is a section of the economy made up of firms and institutions that provide financial services to commercial and retail customers. The financial sector generates a good portion of its revenue from loans and mortgages. This sector comprises a broad range of industries including banks, investment companies, insurance companies, and real estate firms. Thus, a commercial bank lending money to a trading company or a corporate body issuing rupee denominated bonds overseas constitutes financial sector activities and not real sector activities.

12. Which one of the following situations best reflects “Indirect Transfers” often talked about in media recently with reference to India?

(a) An Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investment

(b) A foreign company investing in India and paying taxes to the country of its base on the profits arising out of its investment

(c) An Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to India

(d) A foreign company transfers shares and such shares derive their substantial value from assets located in India

Answer: (d)

Option (d) is correct: Indirect transfers: Its provisions deal with the taxation of transactions wherein even though the transfer of shares took place overseas, the underlying assets were in India.The amendments made in the ITA in 2012 clarified that if a company is registered or incorporated outside India, its shares will be deemed to be or have always been situated in India if they derive their value substantially from the assets located in India. As a result, the persons who sold such shares of foreign companies before the enactment of the Act (i.e., May 28, 2012) also became liable to pay tax on the income earned from such sale.

13. With reference to the expenditure made by an organization or a company, which of the following statements is/are correct?

1. Acquiring new technology is capital expenditure.

2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: (a)

Statement 1 is correct: Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.CapEx is often used to undertake new projects or investments by a company. Costs to upgrade or purchase software, investing in new technology and computer equipment, are considered part of Capital expenditure. As they are often employed to improve operational efficiency, increase revenue in the long term, or make improvements to the existing assets of a company.

Statement 2 is incorrect: When a company borrows money to be paid back at a future date with interest it is known as debt financing.  Repayment of loan is an example of capital expenditure. Equity financing is the process of raising capital through the sale of shares. It is an example of non-debt capital receipts. Capital receipts are receipts that create liabilities or reduce financial assets. They also refer to incoming cash flows. For example, reliance can choose debt financing, which entails selling fixed income products, such as bonds, bills, or notes, to investors to obtain the capital needed to grow and expand its operations. Both debt financing and equity financing are considered as part of capital receipts for the company, as capital receipts are receipts that create liabilities or reduce financial assets. Funds from these would be used by the company for capital expenditure such as to grow or expand its operations.

14. With reference to the Indian economy, consider the following statements:

1. A share of the household financial savings goes towards government borrowings.

2. Dated securities issued at market-related rates in auctions form a large component of internal debt.

Which of the above statements 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: Gross financial savings of households include monies saved in banks, provident funds, pension schemes, shares, insurance and in the form of currency, among other categories. These savings form the pool of domestic finance for investments which are crucial to job creation, and are currently critical as they will be crucial in deciding the pace of economic revival.

Deposits with banks are the single largest form of households’ financial assets, followed by insurance funds, mutual funds and currency. Therefore, any adverse movement in the household savings will have a significant bearing on banks, insurance companies and mutual/provident funds, who, in turn, are key investors in government securities.

Statement 2 is correct: Internal debt constitutes over 93 per cent of the overall public debt. Internal loans that make up for the bulk of public debt are further divided into two broad categories – marketable and non-marketable debt.

 The sources of public debt are dated government securities (G-Secs), treasury bills, external assistance, and short-term borrowings.

2021

1. The money multiplier in an economy increases with which one of the following?

1. Increase in the cash Reserve Ration in the banks
2. Increase in the Statutory Liquidity Ratio in the banks
3. Increase in the banking habit of the people
4. Increase in the population of the country

Answer: (c)

Option (c) is correct: The multiplier effect is an economic term, referring to the proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of capital in effect. It measures the impact that a change in economic activity—like investment or spending—will have on the total economic output of something.  The money created by the Federal Reserve is the monetary base, also known as high-powered money. Banks create money by making loans. A bank loans or invests its excess reserves to earn more interest.  A one-dollar increase in the monetary base causes the money supply to increase by more than one dollar.

Increase in the Cash Reserve Ratio in the banks, increase in the Statutory Liquidity Ratio in the banks and increase in the population of the country will not increase money multiplier.

2. With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?

1. Expansionary policies
2. Fiscal stimulus
3. Inflation-indexing wages
4. Higher purchasing power
5. Rising interest rates

Select the correct answer using the code given below.

1. 1, 2 and 4 only
2. 3, 4 and 5 only
3. 1, 2, 3 and 5 only
4. 1, 2, 3, 4 and 5

Answer: (a)

Option (a) is correct:

 Demand Pull Inflation- This type of inflation is caused by increase in demand and when the demand in the economy outgrows the supply in the economy. This kind of inflation can be described by “too much money chasing too few goods”. 

Expansionary policies: When the government spends more freely, money in the market is increased. It leads to increase demand for the goods and fuels demand-pull inflation. 

Fiscal Stimulus: It also increases the money in the market leads to increase demand for the goods and fuels demand-pull inflation 

Higher Purchasing Power: When consumers earn higher income, they feel confident and spend more. This leads to more demand and fuels Demand-pull inflation 

Inflation-indexing wages and rising interest rates do not increase or cause demand-pull inflation.

3. With reference to India, consider the following statements :

1. Retail investors through demat account can invest in ‘Treasury Bills’ and ‘Government of India Debt Bonds’ in primary market.
2. The ‘Negotiated Dealing System-Order Matching’ is a government securities trading platform of the Reserve Bank of India.
3. The ‘Central Depository Services Ltd’. is jointly promoted by the Reserved Bank of India and the Bombay Stock Exchange.

Which of the statements given above is/are correct?

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

Answer: (b)

Statement 1 is correct: The RBI has allowed retail investors with online access to the government securities market – both primary and secondary – directly through the Reserve Bank. The facility of buying government securities directly through RBI is called RBI Retail Direct. Under it, retail investors can open and maintain a Retail Direct Gilt (RDG) account with the RBI through the dedicated online portal. The account can be opened singly or jointly with another retail investor. Gilt account is opened by the bank for individuals who wish to invest in government securities and treasury bills. Banks in effect maintain a Demat account for these instruments in the name of the individuals.

Statement 2 is correct: The Negotiated Dealing System Order Matching is an electronic trading platform operated by the Reserve Bank of India to facilitate the issuing and exchange of government securities and other types of money market instruments.  

Statement 3 is incorrect: CDSL is promoted by BSE which later divested its stakes among nationalized banks.

Additional Information:

Bonds: Bonds are units of corporate debt issued by companies and securitized as tradeable assets. A bond is referred to as a fixed-income instrument since bonds traditionally paid a fixed interest rate (coupon) to debtholders.

4. In India, the central bank’s function as the ‘lender of last resort’ usually refers to which of the following?

1. Lending to trade and industry bodies when they fail to borrow from other sources
2. Providing liquidity to the banks having a temporary crisis
3. Lending to governments to finance budgetary deficits

Select the correct answer using the code given below.

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

Answer: (b)

Option (b) is correct: A lender of last resort is an institution, usually a country’s central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse.  

The lender of last resort functions to protect individuals who have deposited funds and to prevent customers from withdrawing out of panic from banks with temporary limited liquidity. Commercial banks usually try not to borrow from the lender of last resort because such action indicates that the bank is experiencing a financial crisis.

Additional Info:

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India. The functions of the Reserve Bank can be categorised as follows: 

• Monetary policy 
• Regulation and supervision of the banking and non -banking financial institutions, including credit information companies 
• Regulation of money, forex and government securities markets as also certain financial derivatives 
• Debt and cash management for Central and State Governments 
• Management of foreign exchange reserves 
• Foreign exchange management —current and capital account management 
• Banker to banks 
• Banker to the Central and State Governments 
• Oversight of the payment and settlement systems 
• Currency management 
• Developmental role 
• Research and statistics 

As a Banker to Banks, the Reserve Bank also acts as the ‘lender of the last resort’. It can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank. The Reserve Bank extends this facility to protect the interest of the depositors of the bank and to prevent possible failure of the bank, which in turn may also affect other banks and institutions and can have an adverse impact on financial stability and thus on the economy.

5. Consider the following statements:

1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in public interest.
3. The Governor of the RBI draws his power from the RBI Act.

Which of the above statements are correct?

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

Answer: (c)

Statement 1 is correct: RBI Governor and Deputy Governors are appointed by the Central Government. According to Section 8(1)(a) of the Reserve Bank of India Act, 1934, provides that there shall be one Governor and not more than four Deputy Governors to be appointed by the central government on the central board of RBI. 

Statement 2 is incorrect: RBI Act, 1934- The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest. Constitution of India does not provide any provision for Central Government the right to issue directions to the RBI in Public interest. 

Statement 3 is correct: According to RBI Act, the Governor shall have powers of general superintendence and direction of the affairs and the business of the RBI. He/she may exercise all powers and do all acts and things which may be exercised or done by the RBI.

6. With reference to casual workers employed in India, consider the following statements:

1. All casual workers are entitled for Employees Provident Fund coverage.
2. All casual workers are entitled for regular working hours and overtime payment.
3. The government can by a notification specify that an establishment or industry shall pay wages only through its bank account.

Which of the above statements are correct?

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

Answer: (d)

Statement 1 is correct:  An employer cannot differentiate between contractual and permanent employees; the Supreme Court has ruled that casual workers are also entitled to social security benefits under the Employees’ Provident Funds and Miscellaneous Provisions Act.
“As per Section 2(f) of the EPF Act, the definition of an employee is an inclusive definition, and is widely worded to include any person engaged either directly or indirectly in connection with the work of an establishment, and is paid wages,” a bench of SC said.  

Statement 2 is correct: Employees in India are entitled for regular working hours and overtime payment according to Minimum Wages Rules, 1950. Casual workers  have all those rights that are enjoyed by regular workers, since the definition of employee includes casual labour as per Supreme Court guidelines.  

Statement 3 is correct: The Payment of Wages (Amendment) Act 2017 provides that the Government may specify that the employer of any industrial or other establishment shall pay wages to every employee only by cheque or by crediting the wages in his bank account“.  

Additional Info: 

A casual worker is a worker on a temporary employment contract with generally limited entitlements to benefits and little or no security of employment. The main attribute is the absence of a continuing relationship of any stability with an employer, which could lead to their not being considered ‘employees’ at all.   

7. Which among the following steps is most likely to be taken at the time of an economic recession?

1. Cut in tax rates accompanied by increase in interest rate
2. Increase in expenditure on public projects
3. Increase in tax rates accompanied by reduction of interest rate
4. Reduction of expenditure on public projects

Answer: (b)

Option (b) is correct: Recession is a situation which is characterized by negative growth rate of GDP in two successive quarters. Some of the indicators of a recession include slowdown in the economy, fall in investments, fall in the output of the economy etc.

In Economic Recession, the Government can:

• Decrease interest rate to make more room for borrowing
• Increase Government Spending
• Cut Tax rates to increase spending capacity of people

Private investors are incapable of making massive investments on the various infrastructural projects like road-bridge-dam construction, power plants, transport and communications, etc. It is imperative that the government undertakes such projects. Greater the public expenditure, higher is the level of economic development.    

8. Consider the following statements:

Other things remaining unchanged, market demand for a good might increase if

1. Price of its substitute increases
2. Price of its complement increases
3. The good is an inferior good and income of the consumers increases
4. Its price falls

Which of the above statements are correct?

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

Answer: (a)

Option (a) is correct:

The main influences on buying plans that change demand are:

• Prices of related goods
• Income
• Expectations
• Number of buyers
• Preferences

The following are the relations between the demand and price of the products, with changing economic conditions: 

• The demand for a good increase, if the price of one of its substitutes rises. The demand for a good decrease, if the price of one of its substitutes falls. 
• The demand for a good increase, if the price of one of its complement’s falls. For example, ice cream and fudge sauce. 
• The demand for an inferior good decrease if income increases. The demand for a normal good increase if income increases. 
• If the Price of the good falls, then its demand increases.

Additional Information:

1. Law of Demand– Law of Demand states that other things being equal, there is a negative relation between demand for a commodity and its price. In other words, when price of the commodity increases, demand for it falls and when price of the commodity decreases, demand for it rises, other factors remaining the same.  
2.  Thus, a consumer’s demand for a normal good moves in the same direction as the income of the consumer. However, there are some goods the demands for which move in the opposite direction of the income of the consumer. Such goods are called Inferior Goods. Examples of inferior goods include low quality food items like coarse cereals.. 
3. Goods which are consumed together are called complementary goods. Examples of goods which are complement to each other include tea and sugar, shoes and socks, pen and ink, etc. In contrast to complements, goods like tea and coffee are not consumed together. In fact, they are substitutes goods for each other.

9. With reference to urban cooperative banks in India consider the following statements:

1. They are supervised and regulated by local boards set up by the state governments
2. They can issue equity shares and preference shares.
3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.

Which of the statements given above is/are correct?

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

Answer: (b) 

Statement 1 is not correct: The recent Banking Regulation (Amendment) Act 2020 enables the RBI to get all the powers, including those hitherto exclusively with the registrar of cooperative societies. However, powers of registrar continue to be with him but the powers of RBI override those of registrar.

Statement 2 is correct: UCBs are permitted to raise equity share capital, preference shares and debt instruments. The UCBs, it said, could raise share capital by issue of equity to persons within their area of operation enrolled as members and also through additional equity shares to the existing members.

 Statement 3 is correct: The applicability of banking laws to cooperatives societies since March 1, 1966 ushered in ‘duality of control’ over UCBs between the Registrar of Cooperative Societies/Central Registrar of Cooperative Societies and the Reserve Bank of India.  Banking related functions (viz. licensing, area of operations, interest rates etc.) were to be governed by RBI and registration, management, audit and liquidation, etc. governed by State Governments as per the provisions of respective State Acts. So the control of the RBI was partial and it shared the control with the registrar of cooperative societies of States, giving rise to the much-discussed dual control and the difficulties it posed to the central bank.

10. Indian Government Bond Yields are influenced by which of the following?

1. Actions of the United States Federal Reserve
2. Actions of the Reserve Bank of India
3. Inflation and short-term interest rates

Select the correct answer using the code given below.

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

Answer: (d)

Statement 1 is correct: Bond yield is the return an investor gets on that bond or on a particular government security. It depends on the price of the bond which is impacted by its demand. The major factors affecting the yield is the monetary policy of the Reserve Bank of India, especially the course of interest rates, the fiscal position of the government and its borrowing programme, global markets, economy, and inflation. Actions of the United States federal reserve can impact the investments flowing in India. The investments by foreign players in government securities can be effected by this. This will lead to change in demand of government securities and thereby impacting its yield.

Statement 2 is correct: Actions of Reserve bank determine the liquidity and also the cost of funds available in the economy through its various inflation management tools. The cost of funds will directly impact the demand of government securities in the market and thereby influencing its yield. 

Statement 3 is correct: Inflation and short-term rates determine the purchasing capacity of the people in the economy. Therefore, this also has impact on the demand and price of the government -securities thereby influencing the yield.

11. Consider the following:

1. Foreign currency convertible bonds.
2. Foreign institutional investment with certain conditions
3. Global depository receipts
4. Non-resident external deposits

Which of the above can be included in Foreign Direct Investments?

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

Answer: (a)

Statements 1, 2 and 3 are correct:

‘Foreign Currency Convertible Bond’ (FCCB) is a bond issued under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993, as amended from time to time.   

Automatic Route for Issue of Foreign Currency Convertible Bonds (FCCBs) is allowed.  

Foreign Portfolio Investment is any investment made by a person resident outside India in capital instruments where such investment is (a) less than 10 percent of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company or (b) less than 10 percent of the paid up value of each series of capital instruments of a listed Indian company.  It is the percentage which defines whether it is direct or institutional investment.  

Foreign investment in Indian securities has been made possible through the purchase of Global Depository Receipts, Foreign Currency Convertible Bonds and Foreign Currency Bonds issued by Indian issuers which are listed, traded and settled overseas.  

Statement 4 is incorrect: A Non-Resident External (NRE) account is a rupee dominated account opened by an NRI to facilitate deposit of foreign currency earnings. It is not an FDI.

Additional Information:

In Capital Account of Balance of Payment, we can classify into Investment, Borrowings and External Assistance. Investment includes Equity flow in the economy. Foreign Currency Convertible Bonds (FCCB), Foreign Institutional Investment with certain conditions (subject to the overall limit of 24%), and Global Depository Receipts (GDR) are the instruments for the foreign investment in India. Non-Resident external deposits are a ‘debt creating’ flow in balance of payments accounts and therefore, not part of Foreign Direct investments. FII made above 10 percent of the post issue paid-up equity capital will be considered as FDI. But Once an FDI always an FDI.

12. Consider the following statements:

The effect of devaluation of a currency is that it necessarily

1. Improves the competitiveness of the domestic exports in the foreign markets
2. Increases the foreign value of domestic currency
3. Improves the trade balance

Which of the above statement is/are correct?

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

Answer: (a)

Statement 1 is correct: A key effect of devaluation is that it makes the domestic currency cheaper relative to other currencies. There are two implications of a devaluation. First, devaluation makes the country’s exports relatively less expensive for foreigners. Second, the devaluation makes foreign products relatively more expensive for domestic consumers, thus discouraging imports. This may help to increase the country’s exports and decrease imports, and may therefore help to reduce the current account deficit.

Statement 2 and 3 are incorrect: Devaluation of a currency decreases the foreign value of domestic currency.  

Additional Info:

Appreciation Vs Depreciation

• In a floating exchange rate system, market forces (based on demand and supply of a currency) determine the value of a currency.
• Currency Appreciation: It is an increase in the value of one currency in relation to another currency.
  • Currencies appreciate against each other for a variety of reasons, including government policy, interest rates, trade balances and business cycles.
  • Currency appreciation discourages a country’s export activity as its products and services become costlier to buy.
• Depreciation Vs Devaluation:
  • If the value of the Indian Rupee is weakened through administrative action, it is devaluation.
• While the process is different for depreciation and devaluation, there is no difference in terms of impact.
• India used to follow the administered or fixed rate of exchange until 1993, when it moved to a market-determined process or floating exchange rate.
• China still adheres to the former.

13. Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?

1. Diversion of resources to the purchase of real estate and investment in luxury housing
2. Investment in unproductive activities and purchase of precious stones, jewelley, gold, etc.
3. Large donations to political parties and growth of regionalism
4. Loss of revenue to the state exchequer due to tax evasion

Answer: (d)

Option (d) is correct: Black money includes all funds earned through illegal activity and otherwise legal income that is not recorded for tax purposes. Black money proceeds are usually received in cash from underground economic activity and, as such, are not taxed. Government has taken a number of measures to bring back the black money stashed abroad ‘The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’.

14. Which one of the following is likely to be the most inflationary in its effects?

1. Repayment of public debt
2. Borrowing from the public to finance a budget deficit
3. Borrowing from the banks to finance a budget deficit
4. Creation of new money to finance a budget deficit

Answer: (d)

Option (d) is correct: Deficit financing means generating funds to finance the deficit which results from excess of expenditure over revenue. The gap being covered by borrowing from the public by the sale of bonds or by printing new money. Deficit financing is inherently inflationary. Since deficit financing raises aggregate expenditure and, hence, increases aggregate demand, the danger of inflation looms large. Printing new currency notes increases the flow of money in the economy. This leads to increase in inflationary pressures which leads to rise of prices of goods and services in the country. And since inflation is revealed with a lag, it is often too late before governments realise, they have over-borrowed. Higher inflation and higher government debt provide grounds for macroeconomic instability.

2020

1. If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India?

1. Not depending on the short-term foreign borrowings
2. Opening up to more foreign banks
3. Maintaining full capital account convertibility

Select the correct answer using the code give below:

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

Answer: (a)

Global financial crisis refers to extreme stress in global financial markets and banking systems. A fast- changing global environment demands organizations to have both financial stability and liquidity.

Option (a) is correct: Foreign debt is money borrowed by a government, corporation or private household from another country’s government or private lenders. Total foreign debt can be a combination of short-term and long-term liabilities. In comparison to long term foreign debts, short term foreign debts are more volatile and can cause liquidity crunch in the times of global crisis. Therefore, not depending on short-term foreign borrowings can certainly give some immunity to India in times of global crisis.

2. If you withdraw Rs. 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be

1. to reduce it by Rs. 1,00,000
2. to increase it by Rs. 1,00,000
3. to increase it by more than Rs. 1,00,000
4. to leave it unchanged

Answer: (d)

The total stock of money in circulation among the public at a particular point of time is called money supply. It needs to be noted that total stock of money is different from total supply of money. The most common measure of liquidity to estimate aggregate money supply includes currency and demand deposits both, hence changing the form of money from demand deposit to currency will change the form, in which the money is held but not the aggregate money supply and hence leave it unchanged.

Additional Info:

There are three main sources of money supply in the economy which are:

• The Reserve Bank of India: It has the sole authority to issue paper currency of all denominations.
• Commercial Banks: Commercial banks create credit as per the demand deposits.
• Government: It produces or mints coins of all denominations. However, these are issued for circulation only through the Reserve Bank in terms of the RBI Act.

3. “Gold Tranche” (Reserve Tranche) refers to

1. a loan system of the World Bank
2. one of the operations of a Central Bank
3. a credit system granted by WTO to its members
4. a credit system granted by IMF to its members

Answer: (d)

Option (d) is correct: A reserve tranche is a portion of the required quota of currency each member country must provide to the International Monetary Fund (IMF) that can be utilized for its own purposes—without a service fee or economic reform conditions. It is a credit system granted by the IMF to its members.

   Additional Information:

• Initially, member nations’ reserve tranches are 25% of their quota, but this position can change according to any lending that the IMF does with its holdings of the member’s currency.
• The reserve tranches that countries hold with the IMF are considered their facilities of first resort, meaning they will tap into them before seeking a formal credit tranche that charges interest.

4. In India, which of the following can be considered as public investment in agriculture?

1. Fixing Minimum Support Price for agricultural produce of all crops.
2. Computerization of Primary Agricultural Credit Societies.
3. Social Capital development.
4. Free Electricity supply to farmers.
5. Waiver of agricultural loans by the banking system.
6. Setting up of cold storage facilities by the government.

Select the correct answer using the code given below:

1. 1, 2 and 5 only
2. 1, 3, 4 and 5 only
3. 2, 3 and 6 only 
4. 1, 2 ,3, 4, 5 and 6

Answer: (c)

Public investment is the investment made by the government in sectors and assets that are expected to provide facilities to the general public.

Statement 1 is not correct: Fixing the MSP for agricultural produce of all crops does not add to national capital stock or lead to higher productivity.

Statement 2 and 6 are correct: Computerization of Primary Agricultural Credit Societies will enhance productivity in the agricultural sector, as there will be easy and timely access of credit. Similar will be the impact of setting up cold storage facilities.

Statement 3 is correct: Building social capital for smallholders can also positively impact the adoption of new technologies such as the use of improved seeds, soil and water conservation practices, and ‎agroforestry.  

Statement 4 is not correct: Free electricity to farmers has, apart from financial stress on the state, resulted in excessive use of water, encouragement of installation of more pump sets and depleting groundwater table.

Statement 5 is not correct: Waiver of agricultural loans is not investment as it affects the health of the banking sector.

5.What is the importance of the term “Interest Coverage Ratio” of a firm in India?

1. It helps in understanding the present risk of a firm that a bank is going to give loan to.
2. It helps in evaluating the emerging risk of a firm that a bank is going to give loan to.
3. The higher a borrowing firm’s level of Interest Coverage Ratio, the worse is its ability to service its debt.

Select the correct answer using the code given below:

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

Answer: (a)

Interest Coverage Ratio is an indicator of a company’s ability to pay interest out of its current earnings. It is expressed as the number of times that the interest can be covered from its current earnings.

Statement 1 is correct: It can help in understanding the present risk, as a firm with a low-interest coverage ratio just may not have enough earnings in order to meet the annual interest obligations. 

Statement 2 is correct: ICR is commonly used by lenders, creditors, and investors to determine the company riskiness relative to its current debt or for future borrowing.

Statement 3 is not correct: The higher the interest coverage ratio the better. The lower the ratio, the more the company is burdened by debt expense. When a company’s interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable.

6.Which of the following factors/policies were affecting the price of rice in India in the recent past?

1. Minimum Support Price
2. Government’s trading
3. Government’s stockpiling
4. Consumer subsidies

Select the correct answer using the code given below:

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

Answer: (d)

Statement 1 is correct: Minimum Support Price (MSP) is the price at which the government purchases crops from the farmers. MSP increases the overall price of rice in the market as the traders have to buy near MSP value otherwise farmers have the option to sell to government appointed agencies at MSP. 

Statement 2 is correct: Government in India typically buys more than a third of the country’s rice output at a fixed price, which has a direct impact on price of rice.  

Statement 3 is correct: Government’s stockpiling is done to offload the stock when market prices soar, providing cheap rice to consumers and stocking when prices fall ensuring remunerative prices to farmers.

Statement 4 is correct: A subsidy means the government pays part of the cost. It can be provided both to the producer as well as the consumer. In India, subsidized food grains are distributed through TPDS which impacts the price of food grains sold through Fair Price Shops.

7.Consider the following statements:

1. The value of Indo-Sri Lanka trade has consistently increased in the last decade.
2. “Textile and Textile articles” constitute an important item of trade between India and Bangladesh.
3. In the last five years, Nepal has been the largest trading partner of India in South Asia. Which of the statements given above is/are correct?

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

Answer: (b)

Statement 1 is not correct: As per data from the Department of Commerce, Indo- Sri Lanka bilateral trade value for a decade (2007 to 2016) was 3.0, 3.4, 2.1, 3.8, 5.2, 4.5, 5.3, 7.0, 6.3, 4.8 (in billion USD). It reflects continuous fluctuation in the trend of trade value.

Statement 2 is correct: “Textile and Textile articles” such as, import of readymade garments from Bangladesh and export of fabric from India constitute an important link item in Indo-Bangladesh trade.

Statement 3 is not correct: According to the data, in 2016-17, Bangladesh is India’s largest trading partner in South Asia, followed by Nepal, Sri Lanka, Pakistan, Bhutan, Afghanistan and Maldives. The level of Indian exports also follows the same order.

8.Under the Kisan Credit Card Scheme, short-term credit support is given to farmers for which of the following purposes?

1. Working capital for maintenance of farm assets
2. Purchase of combine harvesters, tractors and mini trucks
3. Consumption requirements of farm households
4. Post-harvest expenses
5. Construction of family house and setting up of village cold storage facility Select the correct answer using the code given below:

1. 1, 2 and 5 only
2. 1, 3 and 4 only
3. 2, 3, 4 and 5 only
4. 1, 2, 3 and 4

Answer: (b)

Option (b) is correct: The Kisan Credit Card scheme introduced in 1998   is a Government of India scheme which provides farmers with timely access to credit. The scheme was launched with the aim of providing short-term formal credit to farmers and was created by NABARD (National Bank for Agriculture and Rural Development). The scheme was further extended in the year 2004 for the investment credit requirement of farmers viz allied and non-farm activities. The Kisan Credit Card Scheme is implemented by Commercial Banks, RRBs, Small Finance Banks and Cooperatives. The KCC scheme was introduced to ensure that the credit requirements for farmers in the agriculture, fisheries and animal husbandry sector were being met.

Kisan Credit Card is provided with the following objectives:

• The short-term credit requirements for cultivation of crops
• Post-harvest expenses
• Produce marketing loan
• Consumption requirements of farmer household
• Working capital for maintenance of farm assets and activities allied to agriculture, like dairy animals, inland fishery, etc.
• Investment credit requirement for agriculture and allied activities like pumpsets, sprayers, dairy animals, etc.

9.Consider the following statements:

1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates. 

Which of the statements given above is/are correct?

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

Answer: (a)

Statement 1 is correct: Weightage of items in CPI is based on average household expenditure taken from consumer expenditure surveys. The weightage of food in CPI is far higher (approx. 46%) than in WPI (approx. 24%). A significant proportion of WPI items basket represents manufacturing inputs and intermediate goods like minerals, basic metals, machinery etc.  

Statement 2 is correct: CPI captures the changes in price levels of both goods and services. However, WPI only captures changes in goods and not in services.

Statement 3 is not correct: In April 2014, the RBI adopted the CPI or retail inflation as a key measure of inflation to set the monetary and credit policy.

Additional Information:

Wholesale Price Index (WPI) is a measure of the average change in the prices of goods in the wholesale market or at the wholesale level. It is published by the Office of Economic Adviser, Ministry of Commerce and Industry.

Consumer Price Index (CPI) is the measure of changes in the price level of a basket of consumer goods and services bought by households. There are four types of CPI based on items basket:

1. CPI for Industrial Workers (IW)
2. CPI for Agricultural Labourer (AL)
3. CPI for Rural Labourer (RL)
4. CPI (Rural/Urban/Combined)

Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. Fourth is compiled by the Central Statistical Organisation (CSO) in the Ministry of Statistics and Programme Implementation.

10.Consider the following statements

1. In the case of all cereals, pulses and oilseeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.
2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.

Which of the statements given above is/are correct?

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

Answer: (d)

The Minimum Support Price (MSP) is the rate at which the government buys grains from farmers. The MSP is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP). The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations.

Statement 1 is not correct: Under the new PM-AASHA scheme, the existing Price Support Scheme (PSS) will continue for pulses, with Central agencies including the NAFED and the Food Corporation of India, physically procuring the produce whenever the market rates fall below MSP, up to a maximum limit of 25% of the total harvest.

Statement 2 is not correct: While the proposals based on input costs vary from state to state, the MSP is fixed to avoid price inequity. When the market prices dip to a level that is below the MSP, the government agencies buy over the produce in order to protect the farmers. Thus, market prices can rise above MSP.

11.With reference to the Indian Economy, consider the following statements:

1. ’Commercial Paper’ is a short term unsecured promissory note.
2. ‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation.
3. ‘Call Money’ is a short-term finance used for interbank transactions.
4. ‘Zero-Coupon Bonds’ are the interest-bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.

Which of the statements given above is/are correct?

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

Answer: (c)

Statement 1 is correct: Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note and held in a dematerialized form through any of the depositories approved by and registered with SEBI.

Statement 2 is not correct: Certificate of Deposits are fixed income financial instruments generally issued by commercial banks to individuals/ other lenders.

Statement 3 is correct: Call money is a short-term, interest-paying loan from 1 to 14 days made by a financial institution to another financial institution.

Statement 4 is not correct: Zero-Coupon Bond (Also known as Pure Discount Bond or Accrual Bond) refers to those bonds which are issued at a discount to its par value and makes no periodic interest payment (non-interest bearing), unlike a normal coupon-bearing bond. Zero Coupon Bonds are not interest bearing instead they are issued at deep discounts and redeemable at par on a future date.

12.With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

1. It is the investment through capital instruments essentially in a listed company.
2. It is largely non-debt creating capital flow.
3. It is the investment which involves debt-servicing.
4. It is the instrument made by foreign institutional investors in the Government securities.

Answer: (b)

Option (a) is not correct:  Foreign Direct Investment (FDI) is the investment through capital instruments by a person resident outside India in:

• An unlisted Indian company; or
• 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.

Option (b) is correct and (c) is not correct:  The capital invested in India via FDI is non debt creating and not allowed to serve debt.

Option (d) is not correct:  An investment is called Foreign Portfolio Investment, if the investment made by a person (or institutional investors) resident outside India in capital instruments is:

• less than 10% of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company, or
• less than 10% of the paid-up value of each series of capital instruments of a listed Indian company.

13.With reference to the international trade of India at present, which of the following statements is/are correct?

1. India’s merchandise exports are less than its merchandise imports.
2. India’s imports of iron and steel, chemicals, fertilizers and machinery have decreased in recent years.
3. India’s exports of services are more than its imports of services.
4. India suffers from an overall trade/current account deficit.

Select the correct answer using the code given below:

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

Answer: (d)

Statement 1 is correct: The merchandise trade deficit of India stood at $161 billion in 2019-20 as merchandise exports are less than merchandise imports.

Statement 2 is not correct: As per the Economic Survey 2020, India’s imports of iron and steel have decreased but imports of chemicals, fertilizers and machinery have increased.

Statement 3 is correct: India’s exports of services are more than the imports. As of April-August 2020-21, the service exports are estimated at USD 84.47 billion as compared to the estimated service imports of USD 49.56 billion.

Statement 4 is correct: Trade deficit is a situation when the exports of goods is less than its imports whereas the current account deficit is a situation when the overall trade in goods and services is on the negative side (i.e., country imported more than it exported). As of now, India’s exports of goods are less than its imports but the exports of services are more than its imports. Moreover, the overall trade balance is negative because of high trade deficit. Therefore, India suffers from an overall trade/current account deficit.  

14. The term ‘West Texas Intermediate’, sometimes found in news, refers to a grade of

1. Crude oil
2. Bullion
3. Rare earth elements
4. Uranium

Answer: (a)

Option (a) is correct: West Texas intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. WTI is described as light crude oil because of its relatively low density, and sweet because of its low sulfur content. It is sourced from US oil fields, primarily in Texas, Louisiana, and North Dakota.

Additional Information:

Crude oil mainly comes under two different grades or benchmarks (reference price for buyers and sellers), namely, Brent Crude and West Texas Intermediate (WTI).

Brent Crude: It is the most popular traded grade, produced in the Brent oil fields and other sites in the North Sea. It is the benchmark for African, European and Middle Eastern crude oils. This grade dictates nearly two-thirds of the world’s crude oil production.

WTI: It is the benchmark for crude oil for the United States. It, however, continues to be the main benchmark oil consumed in the United States.

15. In the context of the Indian economy, non-financial debt includes which of the following?

1. Housing loans owned by household
2. Amounts outstanding on credit cards
3. Treasury Bills

Select the correct answer using the code given below:

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

Answer: (d)

Option (d) is correct: Debts are contractual obligations to repay monetary loans, often with related interest expenses. Non-financial debt consists of credit instruments issued by governmental entities, households and businesses that are not included in the financial sector.It includes industrial or commercial loans, Treasury bills and credit card balances.They share most of the same characteristics with financial debt, except the issuers are non-financial.

16.With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct?

1. Quantitative restrictions on imports by foreign investors are prohibited.
2. They apply to investment measures related to trade in both goods and services.
3. They are not concerned with the regulation of foreign investment.

Select the correct answer using the code given below:

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

Answer: (c)

Statement 1 is correct: Under the Agreement on Trade-Related Investment Measures (TRIMS) of the World Trade Organization (WTO), commonly known as the TRIMS Agreement (negotiated during the Uruguay Round 1986-1994), WTO members have agreed not to apply certain investment measures that discriminate against foreign goods that restrict or distort trade (national treatment under GATT Article III) or leads to quantitative restrictions (Article XI), both of which violate basic WTO principles.

Statement 2 is not correct: TRIMS is concerned with trade in goods. It does not apply to trade in services.

Statement 3 is correct: The Agreement is not concerned with the regulation of foreign investment. The disciplines of the TRIMS Agreement focus on investment measures that infringe GATT Articles III and XI. In other words, it focusses on investment measures that discriminate between imported and exported products.

17.If the RBI decides to adopt an expansionist monetary policy, which of the following it would not do?

1. Cut and optimize the Statutory Liquidity Ratio
2. Increase the Marginal Standing Facility Rate
3. Cut the Bank Rate and Repo Rate

Select the correct answer using the code given below:

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

Answer: (b)

Under an expansionary monetary policy, the RBI seeks to increase the money supply in the economy.

Statement 1 is not correct: Statutory Liquidity Ratio (SLR) is a monetary policy tool that the Reserve Bank of India (RBI) uses to assess the liquidity at the banks’ disposal. It is the minimum percentage of deposits that a commercial bank has to maintain in the form of cash, gold or other securities.  . Reducing SLR leaves more liquidity with banks, which in turn can fuel growth and demand in the economy.

Statement 2 is correct: Marginal standing facility (MSF) is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely.  Increasing the Marginal Standing Facility Rate will make borrowings by the banks more expensive and thus, the higher interest rates would be passed on to the borrowers of the banks making credit more expensive in the economy and discouraging loan activities and reducing the money supply. 

Statement 3 is not correct: Cutting the Bank Rate and Repo Rate will make borrowing by the banks   cheaper, the benefit of which would then be passed on to the borrowers taking loans from banks thus providing cheaper credit which will result in more borrowing and thus increased money supply.

Additional Information: 

Bank Rate is the interest rate which the RBI charges on its long-term lending.

18.With reference to the Indian Economy after the 1991 economic liberalization, consider the following statements:

1. Worker productivity (rupees per worker at 2004-05 prices) increased in urban areas while it decreased in rural areas.
2. The percentage share of rural areas in the workforce steadily increased.
3. In rural areas, the growth in the non-farm economy increased.
4. The growth rate in rural employment decreased. Which of the statements given above is/are correct?

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

Answer: (b)

Statement 1 is not correct: Worker productivity has comparatively increased both in the urban as well as the rural areas. As per the 2017 report of NITI Aayog, in rural areas worker productivity was Rs. 37,273 per worker in 2004-05 and it increased to Rs. 1,01,755 per worker in 2011-12. While, in urban areas it increased from Rs. 1,20,419 per worker in 2004-05 to Rs. 2,82,515 per worker in 2011-12. 

Statement 2 is not correct: The rural share in the total workforce declined steadily from 76.1% in 1999-2000 to 70.9% in 2011-12.

Statement 3 is correct: The share of the manufacturing and service sector has increased in the Rural NDP, taking the place of the decline in the share of contribution of the agricultural sector in the Rural NDP.

Statement 4 is correct: Rural employment showed 2.16% annual growth rate during the pre-reform period, which decelerated in the post-reform period to 1.45% and turned negative (–0.28%) in the period of economic acceleration.

19. Consider the following statements:

1. In terms of short-term credit delivery to the agriculture sector, District Central Cooperative Banks (DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks.
2. One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies.

Which of the statements given above is/are correct?

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

Answer: (b)

Statement 1 is not correct: According to a report of the RBI, in 2016-17, scheduled commercial banks contributed the major share (78- 80%) in agricultural and allied credit. Cooperative institutions also play a significant role in extending agricultural credit and the share of all cooperative banks/institutions (i.e. SCBs, DCCBs and PACSs put together) constituted 15-16%. The RRBs contributed the remaining 5% of the agricultural credit.  

Statement 2 is correct: The role of the DCCBs is to give financial assistance to the primary co- operative societies affiliated to it in the district. One of these societies is Primary Agricultural Credit Societies. Hence, one of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies.

 Additional Information:

•  Cooperative bank is an institution established on the cooperative basis and dealing in ordinary banking business.
• In rural India, there exists a 3-tier rural cooperative structure.
  
  • Tier-I: It includes state cooperative banks (StCBs) at the state level;
  • Tier-II: It includes central cooperative banks (CCBs) at the district level; and
  • Tier- III: It includes primary agricultural credit societies (PACSs).

20.In India, under cyber insurances for individuals, which of the following benefits are generally covered, in addition to payment for the loss of funds and other benefits?

1. Cost of restoration of the computer system in case of malware disrupting access to one’s computer.
2. Cost of a new computer if some miscreant wilfully damages it, if proved so.
3. Cost of hiring a specialized consultant to minimize the loss in case of cyber extortion.
4. Cost of defence in the court of law if any third-party files a suit. Select the correct answer using the code given below:

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

Answer: (b)

Option (b) is correct: Cyber Insurance is designed to guard businesses from the potential   effects of cyber-attacks. It helps an organisation mitigate risk exposure by offsetting costs, after a cyber-attack/breach has happened. In simple terms, cyber insurance is designed to cover the fees, expenses and legal costs associated with cyber breaches.

  Coverage includes:

• Response to breach events (notification, call centre service, breach resolution, mitigation services, public relation and crisis management).
• Investigation & fines including lawyers, professional fees, administration cost etc.
• Expenses such as forensic, IT audit, crisis management, legal costs.
• Privacy & data liability
• Loss of personal identifiable information.
• Loss of corporate confidential info.
• Network liability such as DDoS Attacks.
• Multimedia covers including copyright issues.
• Business Interpretation
• Income loss, business interruption cost, system damage and restoration cost, any extra expenses.
• Cyber theft
• Fund transfer frauds
• E-theft loss
• E-communication loss
• Cyber extortion

2019

1. With reference to land reforms in independent India, which one of the following statements is correct?

1. The ceiling laws were aimed at family holdings and not individual holdings.
2. The major aim of land reforms was providing agricultural land to all the landless.
3. It resulted in cultivation of cash crops as a predominant form of cultivation.
4. Land reforms permitted no exemptions to the ceiling limits.

Answer: (b)

Option (b) is correct: The Land reform constitutes the most important measures to improve the economic con­dition of agricultural tenants. The Land reforms program in post-Independence India has evolved through different phases and these includes Abolition of Intermediaries, Tenancy reforms, Consolidation of holdings and determination of holdings per family, imposition of ceilings with fewer exemptions, and to distribute surplus land among landless peoples.  

2. In a given year in India, official poverty lines are higher in some States than in others because:

1. poverty rates vary from State to State.
2. price levels vary from State to State.
3. Gross State Product varies from State to State.
4. quality of public distribution varies from State.

Answer: (b)

Option (b) is correct: The Poverty line is the cut off value in Rupees that a person must earn in a month to be classified as being above the poverty line. The poverty line estimates are last based upon the recommendations of the Suresh Tendulkar Committee 2011. A standard basket consisting of the minimum decent requirement of Food, Education, Health, Electricity and Transport is converted in the terms of expenditure based on the prevailing price levels. As the commodity basket remains same throughout but the prices of this basket vary from state to state, hence there are differences in the official poverty line amongst states.

3. Among the following, which one is the largest exporter of rice in the world in the last five years?

1. China
2. India
3. Myanmar
4. Vietnam

Answer: (b)

Option (b) is correct: India has been the world’s top rice exporter since the beginning of this decade. India emerged the world’s largest rice exporter in 2011-12, displacing Thailand from its leadership position.

4. Consider the following statements:

1. Coal sector was nationalized by the Government of India under Indira Gandhi.
2. Now, coal blocks are allocated on lottery basis.
3. Till recently, India imported coal to meet the shortages of domestic supply, but now India is self-sufficient in coal production.

Which of the statements given above is/are correct?

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

Answer: (a)

Statement 1 is correct: Coal sector was nationalized in two phases under Indira Gandhi Government in 1972. The Coal Mines (Nationalisation) Act, 1973 was enacted during the Prime Ministership of Indira Gandhi.

Statement 2 is not correct: Presently, coal blocks are allocated through auctions and not on lottery basis.

Statement 3 is not correct: The coal sector is the monopolistic sector in India. India holds 5th biggest coal reserves in the world but due to incapacity of coal production by monopolistic firms, it imports coals to meet the shortages of domestic supply. But still the country is not self-sufficient in coal production.

Additional Information:

Recently, the Government of India allowed Commercial extraction of coal by the private sector to boost investment in the sector and to make India self-reliant for meeting its coal demand.

5. Consider the following statements:

1. The United Nations Convention against Corruption (UNCAC) has a ‘Protocol against the Smuggling of Migrants by Land, Sea and Air’.
2. The UNCAC is the ever-first legally binding global anti-corruption instrument.
3. A highlight of the United Nations Convention against Transnational Organized Crime (UNTOC) is the inclusion of a specific chapter aimed at returning assets to their rightful owners from whom they had been taken illicitly.
4. The United Nations Office on Drugs and Crime (UNODC) is mandated by its member States to assist in the implementation of both UNCAC and UNTOC.

Which of the statements given above are correct?

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

Answer: (c)

Statement 1 is not correct: The United Nations Convention against Corruption (UNCAC) only covers five main areas: preventive measures, criminalization and law enforcement, international cooperation, asset recovery, and technical assistance and information exchange. This convention does not cover the aspect of Smuggling of Migrants by Land, Sea and Air’.

Statement 2 is correct: The United Nations Convention Against Corruption (UNCAC) is the only legally binding universal anti-corruption instrument. The Convention covers many different forms of corruption, such as bribery, trading in influence, abuse of functions, and various acts of corruption in the private sector.

Statement 3 is not correct: The General Assembly adopted the United Nations Convention against Transnational Organized Crime and two of its supplementary Protocols namely: The Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children and the Protocol against the Smuggling of Migrants by Land, Air and Sea. This convention does not cover the aspect of asset return to rightful owners.

Statement 4 is correct: The United Nations Office on Drugs and Crime (UNODC) is mandated by its Member States to assist in the implementation of both Conventions, such as UNCAC and UNTOC, along with the UN Drug Conventions of 1961, 1971 and 1988 underpin all the operational work of UNODC.

6. Consider the following statements:

As per the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018

1. If rules for fixed-term employment are implemented, it becomes easier for the firms/companies to lay off workers.
2. No notice of termination of employment shall be necessary in the case of temporary workman.

Which of the statements given above is/are correct?

1. 1 only
2. 2 only

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

Answer: (c)

Statement 1 is correct: The government has notified fixed term employment for all sectors through an amendment to the Industrial Employment (Standing Orders) Central Rules, 1946. Fixed-term employment for all sectors will make it easier for companies to hire-and-fire workers along with reducing the role of middlemen.

Statement 2 is correct: As the Amendment provides that subject to the provisions of the Industrial Disputes Act, 1947, no notice of termination of employment shall be necessary in the case of temporary workmen whether monthly rated, weekly rated or piece rated and probationers or badli workmen.

Additional Information:

Recently, the Ministry of Labour and Employment notified fixed term employment for all sectors through an amendment to the Industrial Employment (Standing Orders) Central Rules, 1946. Under the rules, a fixed term employment workman is engaged on the basis of a written contract of employment for a fixed period.

7. The Service Area Approach was implemented under the purview of:

1. Integrated Rural Development Programme
2. Lead Bank Scheme
3. Mahatma Gandhi National Rural Employment Guarantee Scheme
4. National Skill Development Mission

Answer: (b)

Option (b) is correct: The Service Area Approach (SAA) was introduced in April 1989 as a part of the Lead Bank Scheme for planned and orderly development of rural and semi-urban areas. It was applicable to all scheduled commercial banks including Regional Rural Banks. Under SAA, each bank branch in a rural or semi-urban area was designated to serve an area of 15 to 25 villages and the branch was responsible for meeting the needs of bank credit in its service area. The primary objective of SAA was to increase productive lending and forge effective linkages between bank credit, production, productivity and increase in income levels.

8. Consider the following statements:

1. Most of India’s external debt is owed by governmental entities.
2. All of India’s external debt is denominated in US dollars.

Which of the statements given above is/are correct?

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

Answer: (d)

External debt refers to the money borrowed from a source outside the country which has to be paid back in the currency from which it is borrowed.

Statement 1 is not correct: Commercial Borrowings continue to be the largest component of India’s external Debt followed by NRI deposit and short-term credit.

Statement 2 is not correct: US dollar denominated debt remained the largest component of India’s external debt, with a share of 53.9 percent at end-June 2020, followed by the Indian rupee (31.6 per cent), yen (5.7 per cent), SDR (4.5 per cent) and the euro (3.5 per cent).

Additional Info:

Government is also eligible to raise loans from abroad. The interest rate on foreign loans is linked to LIBOR (London Interbank Offer Rate) and the actual rate will be LIBOR plus applicable spread, depending upon the credit rating of the borrower.

9. Which of the following is not included in the assets of a commercial bank in India?

1. Advances
2. Deposits
3. Investments
4. Money at call and short notice

Answer: (b)

Option (b) is correct: Liabilities are the obligations that are rising out of previous transactions, which is payable by the enterprise or the government through the assets possessed by the enterprise.

The deposit itself is a liability owed by the bank to the depositor. Bank deposits refer to this liability rather than to the actual funds that have been deposit. While assets are things that a firm owns or what a firm can claim from others. For banks, Advances, Investments and Money at call and short notice serve as its Assets.

10. In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?

1. The foreign currency earnings of India’s IT sector.
2. Increasing the government expenditure.
3. Remittances from Indians abroad.

Select the correct answer using the code given below:

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

Answer: (b)

Statement 1 is correct: Foreign currency earnings of India’s IT sector will lead to the increase in supply of foreign currencies, and this further increases the forex reserves. Therefore, more supply and less demand for foreign currency relative to Indian rupee helps in reducing the risk of currency crisis.

Statement 2 is not correct: Increasing government Expenditure will have no effect on the the value of currency. Currency crisis can be reduced by manipulating the demand and supply of currency in the foreign exchange market. 

Statement 3 is correct: Remittance is the sum of money (in foreign currency), sent from abroad or overseas to the home country. Remittance is the major source of cash inflow into any country. With the inflow of foreign currency, forex reserves again increased which further reduces currency crisis. India is the largest remittance receiving country in the world.

Additional Information:

A currency crisis is brought on by a decline in the value of a country’s currency. This decline in value negatively affects an economy by creating instabilities in exchange rates, meaning that one unit of a certain currency no longer buys as much as it used to in another currency.

11. Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?

1. Certificate of Deposit
2. Commercial Paper
3. Promissory Note
4. Participatory Note

Answer: (d)

Option (d) is correct:P-Notes or Participatory Notes are Overseas Derivative Instruments that have Indian stocks as their underlying assets. They allow foreign investors to buy stocks listed on Indian exchanges without being registered. The underlying Indian security instrument may be equity, debt, derivatives or may even be an index.

Additional Info:

• Certificate of Deposits: It is a negotiable money market instrument and issued in dematerialized form or as a usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period.
• Commercial Paper: It is an unsecured money market instrument issued in the form of a promissory note.
• Promissory Note: It is a financial instrument in which one party (the issuer) promises to pay the second party (the payee) a determined sum of money at a fixed or future date on demand of the payee.

12. With reference to India’s Five-Year Plans, which of the following statements is/are correct?

1. From the Second Five-Year Plan, there was a determined thrust towards substitution of basic and capital good industries.
2. The Fourth Five-Year Plan adopted the objective of correcting the earlier trend of increased concentration of wealth and economic power.
3. In the Fifth Five-Year Plan, for the first time, the financial sector was included as an integral part of the Plan.

Select the correct answer using the code given below:

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

Answer: (a)

Statement 1 is correct: The stated objective of the Second five-year plan was rapid industrialisation with particular emphasis on the development of basic and heavy industries – aimed at establishing the Socialistic Pattern of Society.

Statement 2 is correct: The Fourth Five-Year Plan getting its inspiration from the Directive Principles of State Policy sought to move further on setting up the society on Socialistic Patterns in which it adopted means to prevent concentration of wealth and economic power.

Statement 3 is not correct: Fifth five-year plan aims at removal of poverty and achievement of self-reliance. The Eighth five-year plan focused on financial sector reforms.

13. What was the purpose of Inter-Creditor Agreement signed by Indian banks and financial institutions recently?

1. To lessen the Government of India’s perennial burden of fiscal deficit and current account deficit.
2. To support the infrastructure projects of Central and State Governments.
3. To act as independent regulator in case of applications for loans of Rs 50 crore or more.
4. To aim at faster resolution of stressed assets of Rs 50 crore or more which are under consortium lending.

Answer: (d)

Option (d) is correct:An Inter-Creditor Agreement (ICA) is an agreement between one or more creditors (lenders), who have shared interests in a particular borrower. The inter-creditor agreement is aimed at the resolution of loan accounts with a size of ₹50 crore and above that are under the control of a group of lenders. It is part of the “Sashakt” plan approved by the government to address the problem of resolving bad loans. The Intercreditor Agreement, a recommendation of the Sunil Mehta committee, aims to deal with bad loans as an attempt to speed up the Resolution of stressed Assets.

Additional Info:

For loans ranging from 50 crores to 500 crores, it was recommended that a Bank Led Resolution Approach (BLRA) should be followed, wherein the financial institutions involved in consortium lending will enter into inter-creditor agreements to authorize the Lead bank to implement a resolution plan for the bad loans.

14. The Chairmen of public sector banks are selected by the:

1. Banks Board Bureau
2. Reserve Bank of India
3. Union Ministry of Finance
4. Management of concerned bank

Answer: (a)

Option (a) is correct: Bank Board Bureau is responsible for selection and appointment of Board of Directors in Public Sector Banks and Financial Institutions.

Additional Information:

Banks Board Bureau is an autonomous body, created with an objective to empower the boards of the public sector banks set up on the recommendations of the P J Nayak Committee. Its main functions are:

Selection and appointment of Board of Directors in PSBs and FIs (Whole-time Directors and Non-Executive Chairman).

• Advise the Government on matters relating to appointments, confirmation or extension of tenure and termination of services of the Board of Directors.
• To help banks in terms of developing business strategies and capital raising plans etc.
• To build a data bank containing data relating to the performance of PSBs/FIs and its officers.
• To advise the Government on the desired structure at the Board level, and, for senior management personnel, for each PSB and Financial Institution (FI).

15. Consider the following statements:

1. Petroleum and Natural Gas Regulatory Board (PNGRB) is the first regulatory body set up by the Government of India.
2. One of the tasks of PNGRB is to ensure competitive markets for gas.
3. Appeals against the decisions of PNGRB go before the Appellate Tribunals for Electricity.

Which one of the statements given above is correct?

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

Answer: (b)

Statement 1 is not correct: The Petroleum and Natural Gas Regulatory Board (PNGRB) was established under the Petroleum and Natural Gas Regulatory Board Act, 2006. It is not the first regulatory body of the Government of India. Forward Market Commission was the first regulatory body setup in 1953 under the Forward Contracts (Regulation) Act, 1952. Later, it was merged with the Securities and Exchange Board of India (SEBI).

Statement 2 is correct: The Act provides for the establishment of Petroleum and Natural Gas Regulatory Board to protect the interests of consumers and entities engaged in specified activities relating to petroleum, petroleum products and natural gas and to promote competitive markets and for matters connected therewith or incidental thereto.

Statement 3 is correct: Subject to the provisions of the Act, the appeals against the decisions of the Board go before the Appellate Tribunal established under Section 110 of the Electricity Act, 2003. The said Appellate Tribunal shall exercise the jurisdiction, powers and authority conferred on it by or under this Act.

16. Which one of the following is not a sub-index of the World Bank’s ‘Ease of Doing Business Index’?

1. Maintenance of law and order
2. Paying taxes
3. Registering property
4. Dealing with construction permits

Answer: (a)

Option (a) is correct:Sub Index of Ease of Doing Business Index comprises starting a business, getting a location (labour market regulation, construction permits, getting electricity, registering property), accessing finance (getting credit, protecting minority investor), dealing with day-to-day operation (paying taxes, enforcing contracts). 

Maintenance of law and order is not a sub-index of the World Bank’s Ease of Doing Business Index.

17. In India, ‘extended producer responsibility’ was introduced as an important feature in which of the following?

1. The Bio -medical Waste (Management and Handling) Rules, 1998
2. The Recycled Plastic (Manufacturing and Usage) Rules, 1999
3. The e -Waste (Management and Handling) Rules, 2011
4. The Food Safety and Standard Regulations, 2011

Answer: (c)

Option (c) is correct:In India, ‘extended producer responsibility’ was introduced as an important feature in the e -Waste (Management and Handling) Rules, 2011. Extended producer responsibility is a practice and a policy approach in which producers take responsibility for management of the disposal of products they produce once those products are designated as no longer useful by consumers.

Collection mechanism-based approach has been adopted, which includes collection centers, collection points, take back systems etc for collection of e-waste by producers under Extended Producer Responsibility.

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

1. Transportation cost only
2. Interest cost only
3. Procurement incidentals and distribution cost
4. Procurement incidentals and charges for godowns

Answer: (c)

Option (c) is correct:The economic cost of foodgrains consists of three components, namely the MSP including central bonus, if applicable, as the price paid to farmers, procurement incidentals, and the cost of distribution.

19. Consider the following statements:

1. Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries.
2. In terms of PPP dollars, India is the sixth largest economy in the world.

Which of the statements given above is/are correct?

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

Answer: (a)

The basis for Purchasing Power Parity (PPP) is the “law of one price”.

Statement 1 is correct: PPPs measure the total amount of goods and services that a single unit of a country’s currency can buy in another country. The PPP between countries A and B measures the amount of country A’s currency required to purchase a basket of goods and services in country A as compared to the amount of country B’s currency to purchase a similar basket of goods and services in country B.

Statement 2 is not correct: In terms of PPP dollars, India is the third largest economy in the world. (Fourth largest if the European Union is also considered as a common economic space for ranking purposes).

20. 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?

1. Spices
2. Fresh fruits
3. Pulses
4. Vegetable oils

Answer: (d)

Option (d) is correct: The import of vegetable oils in India is highest in last five years due to a cut in duty as mandatory under the Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA) signed in October 2010 with South East Asian countries.

Additional Info:

Vegetable Oil imports have been a cause for concern, as the country depends on imports for meeting roughly 60% of its domestic demand. Out of these imports Palm Oil, particularly constitutes the largest amount of imports which is primarily sourced from Malaysia and Indonesia. Various initiatives like Oil Palm Area expansion under Rastriya Krishi Vikas Yojana, increasing the MSP for oilseeds etc. are being implemented by the government to boost domestic supply of vegetable oils.

21. Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?

1. Curbing imports of non-essential goods and promoting exports.
2. Encouraging Indian borrowers to issue rupee denominated Masala Bonds.
3. Easing conditions relating to external commercial borrowing.
4. Following an expansionary monetary policy.

Answer: (d)

Option (a) is not correct: Curbing imports of non-essential goods will lessen the demand for dollars and promoting export will help in increasing the flow of dollars into the country – helping control rupee depreciation.

Option (b) is not correct: The Masala bond is directly pegged to the Indian Currency. If Indian borrowers issues more rupee denominated Masala bonds, this would increase liquidity in the market or increase in the rupee stock against few currencies in the market and this would help in supporting the rupee.

Option (c) is not correct: ECB is a type of loan in foreign currencies made by non-resident lenders. Thus, easing conditions of ECB’s helps in receiving more loans in foreign currencies that would in increase of forex inflow leading to rupee appreciation.

Option (d) is correct: Expansionary Monetary Policy is a set of policy measures such as increase in money supply by the RBI to stimulate economy. It cannot influence the variations of rupee value.  

22. Consider the following statements:

The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data, popularly known as data diktat, command the payment system providers that

1. They shall ensure that entire data relating to payment systems operated by them are stored in a system only in India.
2. They shall ensure that the systems are owned and operated by public sector enterprises.
3. They shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year.

Which of the statements given above is/are correct?

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

Answer: (a)

Statement 1 is correct: The RBI’s recent directives command payment system providers that they shall ensure that entire data relating to payment systems operated by them are stored in a system only in India.

Statement 2 is not correct: The systems are owned and operated by International payments services providers including foreign banks that have a small number of wholesale branches in India, and switch providers.

Statement 3 is not correct: The consolidated system audit report should be submitted to the Reserve Bank of India not to the Comptroller and Auditor General of India. The audit would be conducted by CERT-IN empanelled auditors to certify that these payment system providers have complied with the above mentioned directive.

23. The money multiplier in an economy increases with which one of the following?

1. Increase in the cash reserve ratio
2. Increase in the banking habit of the population
3. Increase in the statutory liquidity ratio
4. Increase in the population of the country

Answer: (b)

Option (b) is correct: The money-multiplier is the maximum amount of broad money (M3 Money) that could be created by the commercial banks for a given fixed amount of base money or reserve ratios. Or, simply it can be stated that the maximum amount of money that the banking system generates with each rupee of reserves.

In the above mentioned four situations, only the increase in banking habit of the population will increase the money multiplier as only when the deposits come into the banking system, they can be used by the banks to create more Money.

Additional Info:

Increase in the cash reserve ratio and the statutory liquidity ratio will decrease the money multiplier as now banks would be able to further lend only a smaller proportion of deposits due to the increased reserve requirements as compared to earlier. Increase in population of the country would not have much impact until this increased population participates in the cyclical flow of the economy and engages with the banking system.

2018

1. 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?

1. 1, 2, 3 and 7 only
2. 2, 4, 5 and 6 only
3. 1, 3, 4, 5 and 6 only 
4. 1, 2, 3, 4, 5 and 7

Answer: (b)

Option (b) is correct: Government announces MSP for 22 mandated crops and fair and remunerative price (FRP) for sugarcane. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops. The list of crops are as follows:

Cereals: Paddy, Wheat, Barley, Jowar, Bajra, Maize and Ragi (finger millet). Pulses: Gram, Arhar/tur, Moong, Urad and Lentil.

Oilseeds: Groundnut, Rapeseed/mustard, Toria, Soyabean, Sunflower seed, Sesamum, Safflower seed and Niger seed.

Others: Raw cotton, Raw jute, Copra, De-husked coconut, Sugarcane and Virginia flu cured (VFC) tobacco.

2. With reference to the governance of public sector banking in India, consider the following statements:

1. Capital infusion into public sector banks by the Government of India has steadily increased in the last decade.
2. To put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected.

Which of the statements given above is/are correct?

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

Answer: (b)

The purpose of capital infusion into public sector banks (PSBs) is to strengthen the lending capacity and improve credit growth among PSBs that are saddled with a heavy, non-performing assets (NPAs) as well as are struggling to meet capital adequacy ratio.

Statement 1 is not correct: Capital infusion into public sector banks by the Government of India has not steadily increased in the last decade. As per the Department of Financial Services data, Rs. 25,000 crores were infused in 2016-2017 Financial Year while only Rs. 10,000 crores were infused in the FY of 2017-18.

Statement 2 is correct: One of the desired objectives of consolidation of banks is the streamlining of banking operations and reduce their NPA burden. In 2017, State Bank of India merged with five of its associate banks, which are: State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad, and State Bank of Patiala along with Bhartiya Mahlia Bank.

3. Consider the following items:

1. Cereal grains hulled
2. Chicken eggs cooked
3. Fish processed and canned
4. Newspapers containing advertising material

Which of the above items is/are exempted under GST (Good and Services Tax)?

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

(d) 1, 2, 3 and 4

Answer: (c)

Goods and Services Tax was introduced in 2017 as a destination based indirect tax. The Constitution was amended under the 101^st Constitutional Amendment Act to insert Article 246A and Article 269A among other changes to facilitate the GST.

Statement 1 is correct: Previously GST council imposed 5% rate of GST on hulled grains. However, later on 11th June 2017, the rate of GST applicable on hulled grains is 0%. (Nil rate) falls under GST HSN code number 1104.

Statement 2 is correct: Chicken eggs cooked: 0% GST rate  

Statement 3 is not correct: Fish processed and canned: 5% GST rate  

Statement 4 is correct: Newspapers containing advertising material: 0% GST rate. However, ads attract 5% GST, not the newspapers publishing them.

4. Consider the following countries:

1. Australia
2. Canada
3. China
4. India
5. Japan
6. USA

Which of the above are among the ‘free-trade partners’ of ASEAN?

1. 1, 2, 4 and 5 only
2. 3, 4, 5 and 6 only
3. 1, 3, 4 and 5 only
4. 2, 3, 4 and 6 only

Answer: (c)

Option (c) is correct: Apart from the ASEAN Free Trade Area (AFTA) between ASEAN member states, the regional trade bloc has signed several FTAs with some of the major economies in the Asia-Pacific region. These include the ASEAN-Australia-New Zealand FTA (AANZFTA), the ASEAN-China FTA (ACFTA), the ASEAN-India FTA (AIFTA), the ASEAN Korea FTA (AKFTA), and the ASEAN-Japan Comprehensive Economic Partnership (AJCEP).

Additional Info:

The Association of Southeast Asian Nations (ASEAN) was established in August 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration). Currently, it has 10 member nations which are: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

5. Which of the following is/are the aims of “Digital India” Plan of the Government of India?

1. Formation of India’s own Internet companies like China did.
2. Establish a policy framework to encourage overseas multinational corporations that collect Big Data to build their large data centres within our national geographical boundaries.
3. Connect many of our villages to the Internet and bring Wi-Fi to many of our schools, public places and major tourist centres.

Select the correct answer using the code given below:

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

Answer: (b)

Option (b) is correct: The Digital India programme is centered on three key vision areas:

• Digital Infrastructure as a Core Utility to Every Citizen
• Governance and Services on Demand
• Digital Empowerment of Citizens

Additional Info:

Digital India campaign was launched in July 2015, with the aim of ensuring that the government’s services are made available to citizens electronically by improving online infrastructure and by increasing Internet connectivity or making the country digitally empowered in the field of technology.

6. With reference to Pradhan Mantri Kaushal Vikas Yojana, consider the following statements:

1. It is the flagship scheme of the Ministry of Labour and Employment.
2. It, among other things, will also impart training in soft skills, entrepreneurship, financial and digital literacy.
3. It aims to align the competencies of the unregulated workforce of the country to the National Skill Qualification Framework.

Which of the statements given above is/are correct?

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

Answer: (c)

Statement 1 is not correct: Pradhan Mantri Kaushal Vikas Yojana is the flagship scheme of the Ministry of Skill Development & Entrepreneurship (MSDE) implemented by National Skill Development Corporation. The objective of this Skill Certification Scheme is to enable a large number of Indian youths to take up industry-relevant skill training that will help them in securing a better livelihood.

Statement 2 is correct: The training programme under the scheme comes under the National Skill Qualification Framework (NSQF) wherein various training centers provide skills and training in areas such as soft skills, entrepreneurship, financial and digital literacy.

Statement 3 is correct: Recognition of Prior Learning is a subcomponent under the scheme wherein the existing competencies of the individuals through the way of their knowledge/ skill set and experience which have been gained either through formal or informal means is assessed and recognised. The scheme aims to align the competencies of the unregulated workforce of the country to the National Skill Qualification Framework.

7. The Partnership for Action on Green Economy (PAGE), a UN mechanism to assist countries transition towards greener and more inclusive economies, emerged at

1. The Earth Summit on Sustainable Development 2002, Johannesburg
2. The United Nations Conference on Sustainable Development 2012, Rio de Janeiro
3. The United Nations Framework Convention on Climate change 2015, Paris
4. The World Sustainable Development Summit 2016, New Delhi

Answer: (b)

Option (b) is correct: The Partnership for Action on Green Economy (PAGE), a United Nation mechanism to assist countries transition towards greener and more inclusive economies, emerged at The United Nations Conference on Sustainable Development 2012, Rio de Janeiro. PAGE seeks to put sustainability at the heart of economic policies and practices to advance the 2030 Agenda for Sustainable Development.

PAGE brings together five UN agencies which are the UN Environment, International Labour Organization, UN Development Programme, UN Industrial Development Organization, and UN Institute for Training and Research.

8. Which one of the following statements correctly describes the meaning of legal tender money?

1. The money which is tendered in courts of law to defray the fee of legal cases.
2. The money which a creditor is under compulsion to accept in settlement of his claims.
3. The bank money in the form of cheques, drafts, bills of exchange, etc.
4. The metallic money in circulation in a country.

Answer: (b)

Option (b) is correct: Legal tender is any official medium of payment recognized by law that can be used to extinguish a public or private debt, or meet a financial obligation. The national currency is legal tender in practically every country. A creditor is obligated to accept legal tender toward repayment of a debt.

Additional Info:

Currency notes and coins (fiat money) do not have intrinsic value like gold or silver coins, but they cannot be refused by any citizen of the country for settlement of any kind of transaction, hence called legal tenders.

Cheques drawn on savings or current accounts, however, can be refused by anyone as a mode of payment. Hence, demand deposits are not legal tenders.

9. If a commodity is provided free to the public by the Government, then

1. the opportunity cost is zero.
2. the opportunity cost is ignored.
3. the opportunity cost is transferred from the consumers of the product to the tax-paying public.
4. the opportunity cost is transferred from the consumers of the product to the Government.

Answer: (c)

Option (c) is correct: Opportunity cost represents the benefits an individual, investor or business misses out on when choosing one alternative over another. When you have the opportunity to access public services for free, this would always come at a cost of somebody paying for it. In this case, the tax payer bears the opportunity cost.

10. Increase in absolute and per capita real GNP do not connote a higher level of economic development, if

1. industrial output fails to keep pace with agricultural output.
2. agricultural output fails to keep pace with industrial output.
3. poverty and unemployment increase.
4. imports grow faster than exports.

Answer: (c)

Option (c) is correct: Increasing poverty and unemployment reflect that the fruits of growth in Real GNP have not adequately spread to all. While economic growth is happening for the nation in general a section of people is left behind hence a higher level of economic development is not taking place in the country.

Additional Info: 

Per capita real GNP accurately captures the economic growth of a nation by adjusting for price level changes so that the actual growth in the production of goods and services can be understood. By dividing real GNP on a per capita basis, a clearer comparison can be made with other nations having different populations.

11. Consider the following statements

Human capital formation as a concept is better explained in terms of a process which enables

1. individuals of a country to accumulate more capital.

2. increasing the knowledge, skill levels and capacities of the people of the country.
3. accumulation of tangible wealth.
4. accumulation of intangible wealth

Which of the statements given above is/are correct?

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

Answer: (c)

Human Capital can be defined as the economic value of an individual’s skills, abilities, knowledge, or experience, etc.

Statement 1 is not correct: This is Gross Capital Formation (GCF) representing physical capital.

Statement 2 is correct: According to the OECD, human capital is defined as: “the knowledge, skills, competencies and other attributes embodied in individuals or groups of individuals acquired during their life and used to produce goods, services or ideas in market circumstances”.

Statement 3 are not correct: Human Capital Formation relates to the enhancement in the abilities of humans as a resource in himself/herself and not the accumulation of tangible wealth like land, money, etc. Tangible wealth is related to assets which can be seen and touched like gold, land etc. However, these form the part of economic capital and not human capital. Tangible capital is also GCF is it involves largely infrastructural components.

Statement 4 is correct: Through the process of Human Capital Formation the people can accumulate knowledge and skill levels which are attributed to intangible wealth as they cannot be touched and seen. Intangible wealth of a nation is comprised of the skilled population, human resource base, culture, arts etc.

12. Despite being a high saving economy, capital formation may not result in significant increase in output due to

1. weak administrative machinery
2. illiteracy
3. high population density
4. high capital-output ratio

Answer: (d)

Option (d) is correct: Capital-output ratio is the amount of capital needed to produce one unit of output. A higher ratio means that more capital is needed to produce one unit of output due to which the increased capital formation may not result in significant increase in output. A higher ratio generally indicates inefficient deployment of the capital resources of a nation.

It is also represented by the famous economic model called as Harod-Domar Model where G x c = S

Here G = Growth, C= ICOR or incremental capital output ration and S= Savings

So, clearly with high savings growth or output may remain low because of high capital- output ratio.

13. Consider the following statements:

1. The Reserve Bank of India manages and services Government of India Securities but not any State Government Securities.
2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
3. Treasury bills offer are issued at a discount from the par value.

Which of the statements given above is/are correct?

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

Answer: (c)

Statement 1 is not correct: G-Secs are issued through auctions conducted by RBI. Floatation of State Government Loans (State Development Loans): As per the Reserve Bank of India Act, 1934, the RBI may, by agreement with any State Government undertake the management of the public debt of that State. Accordingly, the RBI has entered into agreements with 29 State Governments and one Union Territory (UT of Puducherry) for management of their public debt.

Statement 2 is correct: In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). Treasury Bills (T-bills) Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91-day, 182 day and 3.64 day.

Statement 3 is correct: Treasury bills are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity.

Additional Info:

Currently, the RBI acts as banker to all the State Governments in India (including Union Territory of Puducherry), except Sikkim. For Sikkim, it has limited agreement for management of its public debt.

14. Consider the following statements:

1. Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account holders fail to repay dues.
2. Capital Adequacy Ratio (CAR) is decided by each individual bank.

Which of the statements given above is/are correct?

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

Answer: (a)

Statement 1 is correct: Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation to its risk-weighted assets and current liabilities. It is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account holders fail to repay dues.

Statement 2 is not correct: It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.

Additional Information:

As per RBI norms, Indian Scheduled Commercial Banks are required to maintain a CAR of 9% while Indian Public Sector Banks maintain a CAR of 12%.

15. With reference to the provisions made under the National Food Security Act, 2013, consider the following statements:

1. The families coming under the category of ‘below poverty line (BPL)’ only are eligible to receive subsidised food grains.
2. The eldest woman in a household, of age 18 years or above, shall be the head of the household for the purpose of issuance of a ration card.
3. Pregnant women and lactating mothers are entitled to a ‘take-home ration’ of 1600 calories per day during pregnancy and for six months thereafter.

Which of the statements given above is/are correct?

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

Answer: (b)

Statement 1 is not correct: The Act provided for coverage of up to 75% of the rural and 50% of the urban population to receive highly subsidized food grains under Targeted Public Distribution System. Under this Act, two-thirds of the total population of the country or approximately 81 crore persons are estimated to receive benefits under the Targeted Public Distribution System. Hence, the families coming under the category of ‘below poverty line (BPL)’ are not the only eligible people to receive subsidized food grains.

Statement 2 is correct: As a step towards women empowerment, the eldest woman of the household of age 18 years or above is mandated to be the head of the household for the purpose of issuing ration cards under the Act.

Statement 3 is not correct: Pregnant women and lactating mothers and children in the age group of 6 months to 14 years will be entitled to meals as per prescribed nutritional norms under Integrated Child Development Services (ICDS) and Mid-Day Meal (MDM) schemes. The nutritional and feeding norms for supplementary nutrition as prescribed by GOI are 500 calories and 12-15 grams of protein of children between the ages of 6 months to 6 years, 600 (not 1600) calories and 18-20 grams of protein to pregnant and nursing mothers and 800 calories and 20-25 gm. of protein to malnourished children.

16. With reference to digital payments, consider the following statements:

1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.
2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication.

Which of the statements given above is/are correct?

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

Answer: (a)

Statement 1 is correct: Bharat Interface for Money (BHIM) is mobile Payment app developed by the National Payments Corporation of India (NPCI) based upon the system of Unified Payments Interface (UPI). BHIM app integrates the Payments platform as the official app of the government of India. It allows the user to transfer money to anyone with a UPI-enabled bank account.

Statement 2 is not correct: Debit cards do not have four factor authorization and BHIM app has three factor authorization. A system that uses two-factor authentication is a bank account with a debit card, where you need to know a PIN and have the physical debit card to withdraw money.

17. With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct?

1. It is introduced as a part of the Income Tax Act.
2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double Taxation Avoidance Agreements”.

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

Answer: (d)

Statement 1 is not correct: Equalisation Levy is a tax on business transaction for online marketing in which any Indian pays a sum of more than Rs.1 lakh to non-residents entities such Google and Facebook etc. It is part of the Finance act.

Statement 2 is not correct: Since Equalisation Levy is outside the scope of tax treaties entered into by India with other countries, the foreign company cannot claim a tax credit in its home country.

Additional Information:

Equalisation levy of 6% was introduced in 2016 as a direct tax on non-resident service providers for online advertisement as existing Double Tax Avoidance Agreements and other taxation provisions could not rightfully tax the overseas digital transactions, due to which these transaction by non- resident service providers for online advertisement largely went untaxed.

Recent amendments to the Finance Act 2020 have expanded the net of equalisation levy to non- resident e-commerce players also.

18. Consider the following statements:

1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.
2. The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.
3. As per the Constitution of India, it is mandatory for a State to take the Central Government’s consent for raising any loan if the former owes any outstanding liabilities to the latter.

Which of the statements given above is/are correct?

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

Answer: (c)

Statement 1 is correct: FRBM review panel had recommended the criterion of debt as a parameter for fiscal responsibility the central share being 40% and state 20%. Also, in terms of domestic liabilities the figures are actually reverse i:e central government 49% and state 21%.

Statement 2 is not correct: At the time of the report submission domestic liabilities of the Central Government accounted for 46.5% of the GDP and that of States accounted for 24% of the GDP.

Statement 3 is correct: Article 293 (3) of the Constitution of India states that, “A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India or by its predecessor Government”.

Additional Information:

FRBM Act was enacted in 2003 with an aim to introduce transparency in India’s Fiscal Management System. It sets particular Debt-to-GDP, Revenue Deficit and Fiscal Deficit targets for the Government. Subsequently, these targets were revised by the FRBM Review Committee set under N.K Singh. The Act allows for an “escape clause” under which in special circumstances like calamities the government can flexibly follow the Fiscal Deficit targets, allowing it for more room and space to tackle the situation.

19. Consider the following statements:

1. The quantity of imported edible oils is more than the domestic production of edible oils in the last five years.
2. The Government does not impose any customs duty on all the imported edible oils as a special case.

Which of the statements given above is/are correct?

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

Answer: (a)

Statement 1 is correct: India imports about 14-15 million tonnes of edible oil annually to meet domestic demand. At present, the import duty on crude soybean oil is 3.0 per cent, crude sunflower oil 25 per cent and crude rapeseed oil 25 per cent. According to ICRA, India occupies a prominent position in the world oilseeds industry with contribution of around 10% in worldwide production. But the demand of edible oils (extracted from oilseeds in addition to palm oil) is significantly higher than the domestic production, leading to dependence on imports (60% of requirement). 

Statement 2 is not correct: The government levies 35% and 45% import duty on all crude and refined edible oils respectively. While in 2018 the import duty on Olive oil was 40%.

Additional Information:

Around 62 percent of edible oil imports are accounted for by Palm Oil due to a high domestic demand. With effect from January 2020, import policy of refined Palm Oil is amended from ‘free’ to ‘Restricted’ category, meaning that the government has imposed certain trade barriers which the importer has to overcome before importing the product into the country.

20. Which one of the following links all the ATMs in India?

1. Indian Banks’ Association
2. National Securities Depository Limited
3. National Payments Corporation of India
4. Reserve Bank of India

Answer: (c)

Option (c) is correct: National Payments Corporation of India links all the ATMs in India. It is expected to bring greater efficiency by way of uniformity and standardization in retail payments and expanding and extending the reach of both existing and innovative payment products for greater customer convenience.

Additional Info:

National Financial Switch (NFS) is the largest network of shared automated teller machines (ATMs) in India. It was designed, developed and deployed by the Institute for Development and Research in Banking Technology (IDRBT) in 2004, with the goal of inter-connecting the ATMs in the country and facilitating convenience banking.

National Financial Switch (NFS) ATM network having 3.7 members and connecting about 50,000 ATMs was taken over by NPCI from Institute for Development and Research in Banking Technology (IDRBT) on December 14, 2009.

National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India. It has been incorporated as a “Not for Profit” Company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act 2013).

21. Consider the following statements:

1. Aadhaar card can be used as a proof of citizenship or domicile.
2. Once issued, Aadhaar number cannot be deactivated or omitted by the Issuing Authority.

Which of the statements given above is/are correct?

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

Answer: (d)

Statement 1 is not correct: As per Calcutta HC decision Aadhar Card is not a proof of citizenship.

Statement 2 is not correct: The Unique Identification Authority of India (UIDAI) on its website mentioned following provisions for deactivation of Aadhaar: If within 2 years of attaining age 5, the child’s biometrics are not updated in the Aadhaar database, his/her Aadhaar number will be deactivated (no authentication permissible). It will be reactivated once biometrics are updated in the database. If a resident has not been biometrically authenticated in 5 years, his/her One Time Password (OTP) based authentication services will be deactivated. They will be reactivated once the resident is biometrically authenticated.

2017

1. What is/are the advantage/advantages of implementing the ‘National Agriculture Market’ scheme?

1. It is a pan-India electronic trading portal for agricultural commodities.
2. It provides the farmers access to nationwide market, with prices commensurate with the quality of their produce.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither1 nor 2

Answer: (c)

           National Agriculture Market:

• The National Agriculture Market connects the existing APMC mandis to form a unified national agricultural commodity market.
• It is an electronic trading portal for agricultural commodities that operates across India. Hence, statement 1 is correct.
• It gives farmers access to a nationwide market at prices that are commensurate with the quality of their produce. Essentially, it provides a platform for purchasing at lower prices. Hence, Statement 2 is correct.
• The Centre launched it in 2015.
• NAM also promotes the scientific storage and movement of agricultural goods.

2. Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)?

1. It decides the RBI’s benchmark interest rates,
2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
3. It functions under the chairmanship of the Union Finance Minister.

Select the correct answer using the code given below: 

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 2 and 3 only

Answer: (a)

• Monetary Policy Committee (MPC)
  • The RBI’s benchmark interest rates, which include MSF, Repo Rate, Reverse Repo Rate, and Liquidity Adjustment Facility, are determined by the Monetary Policy Committee (MPC). Hence, Statement 1 is correct.
  • The committee will consist of six people. Hence, Statement 2 is not correct.
  • The government will propose three candidates for each of the six open seats.
  • The RBI’s other three members would be included.
  • Ex-officio Chairperson of MPC is the Governor of the Reserve Bank. Hence, Statement 3  is not correct.
  • Appointments to the Monetary Policy Committee will last for four years.
  • Reappointments to the Monetary Policy Committee are not permitted.

3. Consider the following statements:

1. National Payments Corporation of India (NPCI) helps in promoting the financial inclusion in the country
2. NPCI has launched RuPay, a card payment scheme.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither1 nor 2

Answer: (c)

• The National Payments Corporation of India (NPCI) 
  • It is an umbrella organisation that operates retail payment and settlement systems as well as promotes financial inclusion in India. Hence, Statement 1 is correct.
  • It is a joint venture between the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA).
  • It was established under the provisions of the Payment and Settlement Systems Act of 2007, to develop a strong Payment and Settlement Infrastructure in India.

Some of its initiatives are:

• It is an indigenously developed payment system aimed at meeting the expectations and needs of Indian consumers, banks, and merchants. Hence, Statement 2 is correct.
• Aadhaar-enabled Payment System (AePS) has been introduced to enable access to these funds at the doorstep and drive financial inclusion in India.
• The Unified Payments Interface (UPI) has been referred to as a revolutionary product in the payment system, and Bharat Bill Payment System provides a one-stop bill payment solution for all recurring payments with 200+ Billers across India in the categories of Electricity, Gas, and Water, Telecom, DTH, Loan Repayments, Insurance, FASTag Recharge, Cable, and so on.

4. What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?

1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.

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: (a)

• Goods and Services Tax (GST)
  • The Goods and Services Tax (GST) is a value-added tax that is levied on the majority of goods and services sold for domestic consumption.
  • While consumers pay the GST, it is remitted to the government by the businesses that sell the goods and services.
  • GST is levied on the supply side, which means it applies to the ‘supply’ of goods or services.
  • GST is based on the principle of destination-based consumption taxation; it will replace multiple taxes collected by multiple authorities, resulting in the creation of an Indian single market. Hence, Statement 1 is correct.
  • It is a dual GST, with the Centre and the States levying tax on a common base at the same time. The GST levied by the Centre is known as Central GST (CGST), while the GST levied by the States is known as State GST (SGST).
  • The GST Bill was first introduced in India in 2014 as the 122nd Constitutional Amendment Bill, and it was approved in 2016 and renumbered in the statute as the 101st Constitutional Amendment Act, 2016.
  • Because of crude oil imports and the OPEC cartel that manipulates its prices, GST is unlikely to ‘dramatically’ reduce the current account deficit. Hence, statement 2 is incorrect.
  • Similarly, GST is unlikely to significantly increase the size of our economy because the IMF predicts a 1-1.5% increase in growth rate. We will not be able to overtake China soon because it will necessitate currency depreciation and labour exploitation. Hence, statement 3 is incorrect.

5. Consider the following statements:

1. Tax revenue as a percent of GDP of India has steadily increased in the last decade.
2. Fiscal deficit as a percent of GDP of India has steadily increased in the last decade.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither I nor 2

Answer: (d)

• Tax to GDP
  • Decade 2001-2011: Consistent decline following the subprime mortgage crisis (2007-2010) and then recovery.
  • Decades 2006-2016: Except for the 2008-2010 recession, there has been steady growth. Hence, statement 1 is incorrect. 
• Fiscal Deficit to GDP
  • Decade 2001-2011: Decline between 2009-11.
  • Decade 2006-2016: Steadily declining from 2011 to 2016. Hence statement 2 is incorrect.

6. Consider the following statements:

1. The Standard Mark of Bureau of Indian Standards (BIS) is mandatory for automotive tyres and tubes.
2. AGMARK is a quality Certification Mark issued by the Food and Agriculture Organisation (FAO).

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: (a)

• Certain types of electronics and IT goods, cement, household electrical products, food products, steel materials, and all types of automotive tyres and tubes are required to bear the Bureau of Indian Standards (BIS) Standard Mark. Hence, statement 1 is correct.
• AGMARK vs FSSAI:
  • AGMARK is a quality certification mark issued by the Government of India’s Directorate of Marketing and Inspection. Hence, statement 2 is incorrect.
  • AGMARK is a certification mark that is applied to agricultural products.
  • The Food Safety and Standards Authority of India (FSSAI) is a body established by the Food Safety and Standards Act of 2006 to inspect the quality of food products.
  • FSSAI’s role is agency inspection, whereas AGMARK’s role is certification.

7. Which of the following has/have occurred in India after its liberalization of economic policies in 1991?

1. Share of agriculture in GDP increased enormously.
2. Share of India’s exports in world trade increased.
3. FDI inflows increased. 4. India’s foreign exchange reserves increased enormously.

Select the correct answer using the codes given below:

(a) 1 and 4 only

(b) 2, 3 and 4 only

(c) 2 and 3 only

(d) 1, 2, 3

Answer: (b)

• India’s agriculture sector has gradually reduced its contribution to the Indian economy.
• Agriculture, India’s traditional occupation, now accounts for about 15% of GDP, down from 29% in 1991. Hence, statement 1 is incorrect.
• The economy’s opening has resulted in a 150 per cent increase in foreign direct investment (FDI) and foreign exchange reserves (by 20 times).
• Foreign investment, which includes both direct and indirect investment, has increased from approximately US $ 100 million in 1990-91 to approximately US $ 150 billion in 2003-04. Hence, statements 3 and 4 are correct.
• During the reform period, India is regarded as a successful exporter of IT software, auto parts, textiles, and engineering goods. Hence, statement 2 is correct.

8. Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news?

(a) It is a procedure for considering ecological costs of developmental schemes formulated by the Government.

(b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

(c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.

(d) It is an important provision in The Insolvency and Bankruptcy Code’ recently implemented by the Government.

Answer: (b)

• Sustainable Structuring of Stressed Assets (S4A)
  • The RBI unveiled a new programme called Sustainable Structuring of Stressed Assets (S4A) to address large firms’ bad loans. Hence, Option (b) is correct.
  • The Reserve Bank of India (RBI) unveiled the Scheme for Sustainable Structuring of Stressed Assets (S4A) — for “reworking the financial structure” of large corporate entities “facing genuine difficulties” — to put real assets back on track and strengthen lenders’ ability to deal with stressed assets.
  • According to the RBI’s S4A notification, the Scheme envisions the bifurcation of outstanding debt into sustainable debt and equity/quasi-equity instruments, as well as determining the sustainable debt level for a stressed borrower.

9. Consider the following statements:

1. India has ratified the Trade Facilitation Agreement (TFA) of WTO.
2. TFA is a part of WTO’s Bali Ministerial Package of 2013.
3. TFA came into force in January 2016.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 1 and 3 only

(c) 2 and 3 only

(d) 1, 2 and 3

Answer: (a)

• Trade Facilitation Agreement (TFA)
  • The Trade Facilitation Agreement (TFA) was one of ten agreements reached by WTO members (including India) at the Bali Ministerial meeting in December 2013. Hence, statement 2 is correct.
  • The TFA aims to accelerate global trade by reforming customs procedures and eliminating red tape.
  • India agreed to sign the TFA by July 31, 2014, to ease customs procedures and boost commerce. Hence, statement 1 is correct.
  • The ratification will supplement India’s ongoing reforms to simplify and improve transparency in cross-border trade in goods, and it will also help India boost economic growth by lowering trade costs and supporting its integration into the global economy.
  • The TFA’s implementation has the potential to generate $1 trillion in global economic activity, creating 21 million new jobs and lowering the cost of doing international trade by 10 to 15%.
  • TFA entered into force in February 2017 following ratification by two-thirds of WTO members. Hence, statement 3 is incorrect.

10. With reference to the ‘National Intellectual Property Rights Policy’, consider the following statements:

1. It reiterates India’s commitment to the Doha Development Agenda and the TRIPS Agreement.
2. Department of Industrial Policy and Promotion is the nodal agency for regulating intellectual property rights in India.

Which of the above statements is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: (c)

National Intellectual Property Rights Policy:

• The National Intellectual Property Rights Policy aims to create a country-wide ecosystem that fosters innovation and creativity in terms of IP awareness and creation, commercialization, and enforcement.
• The nodal department has been designated as the Department of Industrial Policy and Promotion (DIPP). Hence, statement 2 is correct.
• India introduced this policy as part of its commitment to the Doha Development Agenda and the TRIPS Agreement. Hence, statement 1 is correct.
• The National Intellectual Property Rights Policy encompasses and unifies all IPRs on a single platform.
• It intends to incorporate and adapt global best practises to the Indian context.
• TRIPS Agreement:
  • TRIPS is an acronym for Trade-Related Aspects of Intellectual Property Rights. It is an international legal agreement between all World Trade Organization (WTO) member countries. It went into effect on January 1, 1995.

11. Which of the following is a most likely consequence of implementing the Unified Payments Interface (UPI)?

(a) Mobile wallets will not be necessary for online payments.

(b) Digital currency will totally replace the physical currency in about two decades.

(c) FDI inflows will drastically increase.

(d) Direct transfer of subsidies to poor people will become very effective.

Answer: (a)

Option (a) is correct:

• Unified Payments Interface (UPI) allows you to pay directly from your bank account to various merchants without having to type in your credit card information or net banking/wallet password. UPI is a payment system that allows money to be transferred between two bank accounts via smartphone.
• The Unified Payments Interface (UPI) is a real-time instant payment system developed by NPCI to facilitate inter-bank transactions via mobile phone.

12. What is the purpose of setting up of Small Finance Banks (SFBs) in India?

1. To supply credit to small business units
2. To supply credit to small and marginal farmers
3. To encourage young entrepreneurs to set up business particularly in rural areas.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (a)

• According to the RBI guidelines
  • The goals of small finance banks will be to increase financial inclusion by providing savings vehicles and providing credit to small business units, small and marginal farmers, micro and small industries, and other unorganised sector entities via high technology-low-cost operations. Hence, statements 1 and 2 are correct.
  • There is no explicit provision stating that SFBs were established to encourage the establishment of businesses in rural areas. Hence, statement 3 is incorrect.

13. With reference to the ‘Prohibition of Benami Property Transactions Act, 1988 (PBPT Act), consider the following statements:

1. A property transaction is not treated as a benami transaction if the owner of the property is not aware of the transaction.
2. Properties held benami are liable for confiscation by the Government.
3. The Act provides for three authorities for investigations but does not provide for any appellate mechanism.

Which of the statements .given above is/are correct?

(a) 1only

(b) 2 only

(c) 1 and 3 only

(d) 2 and 3 only

Answer: (b)

• Benami Property Transactions Act, 1988 (PBPT Act)
  • A property transaction is treated as a Benami transaction even if the owner of the property is unaware of the transaction because ignorance of the law is never an acceptable defence for breaking the law in India. Hence, statement 1 is incorrect. 
  • Benami’s properties are subject to confiscation by the government. 
  • They are also subject to confiscation by the government without compensation. Hence, statement 2 is correct.
  • The Adjudicating Authority and Appellate Tribunal have been established as an appeals mechanism. Hence, statement 3 is incorrect.
  • Persons involved in Benami transactions may face up to 7 years in prison and a fine.

14. ‘Broad-based Trade and Investment Agreement (BTIA)’ is sometimes seen in the news in the context of negotiations held between India and

(a) European Union

(b) Gulf Cooperation Council

(c) Organization for Economic Cooperation and Development

(d) Shanghai Cooperation Organization

Answer: (a)

Option (a) is correct: On June 28, 2007, India and the EU began negotiations in Brussels, Belgium, on a broad-based Bilateral Trade and Investment Agreement (BTIA). Both India and the EU expect to promote bilateral trade by removing trade barriers in goods and services, as well as barriers to investment in all sectors of the economy. 

Both parties believe that a comprehensive and ambitious agreement that is consistent with WTO rules and principles would open new markets and expand opportunities for Indian and EU businesses.

Trade in Goods, Trade in Services, Investment, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Trade Remedies, Rules of Origin, Customs and Trade Facilitation, Competition, Trade Defense, Government Procurement, Dispute Settlement, Intellectual Property Rights & Geographical Indications, Sustainable Development are all covered by the negotiations.

15. The term ‘Digital Single Market Strategy’ seen in the news refers to

(a) ASEAN

(b) BRICS

(c) EU

(d) G20

Answer: (c)

Option (c) is correct: In the news, the term “Digital Single Market Strategy” refers to the EU. The ‘Digital Single Market Strategy’ includes telecom, digital marketing, and e-commerce. Juncker Commission announced the digital market in May 2015.

This strategy is built on three pillars:

• Development of digital networks and services; 
• expansion of the European digital economy.
• Availability of online products and services.

15. Consider the following in respect of ‘National Career Service’:

1. National Career Service is an initiative of the Department of Personnel and Training, Government of India.
2. National Career Service has been launched in a Mission Mode to improve the employment opportunities to uneducated youth of the country.

Which of the above statements is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: (d)

• On July 20, 2015, the Hon’ble Prime Minister of India launched National Career Service, a five-year Mission Mode Project.
• The project is being carried out by the Directorate General of Employment, Ministry of Labour and Employment. Hence, statement 1 is incorrect.
• NCS offers Indian citizens a one-stop shop for career-related and employment services. Hence, statement 2 is incorrect.
• It works to bridge the gap between candidates seeking training and career guidance, job seekers and employers, and training and career counselling organisations.
• Its three essential pillars for reaching out to the people are as follows: NCS portal, which is a well-designed ICT-based portal, Establishment of Model Career Centres across the country, as well as interconnection with all states through employment exchanges.

16. What is the aim of the programme ‘Unnat Bharat Abhiyan’?

(a) Achieving 100% literacy by promoting collaboration between voluntary organizations and government’s education system and local communities.

(c) Strengthening India’s scientific research institutions in order to make India a scientific and technological power.

(b) Connecting institutions of higher education with local communities to address development challenges through appropriate technologies.

(d) Developing human capital by allocating special funds for health care and education of rural and urban poor, and organizing skill development programmes and vocational training for them.

Answer: (b)

Option (b) is correct: The Unnat Bharat Abhiyan is the Ministry of Human Resource Development’s flagship programme (MHRD). 

It aims to connect Higher Education Institutions with at least five villages or local communities to address development challenges using appropriate technologies so that these institutions can contribute to the economic and social well-being of these village communities by leveraging their knowledge base. 

17. The Global Infrastructure Facility is a/an

(a) ASEAN initiative to upgrade infrastructure in Asia and financed by credit from the Asian Development Bank.

(b) World Bank collaboration that facilitates the preparation and structuring of complex infrastructure Public-Private Partnerships (PPPs) to enable mobilization of private sector and institutional investor capital.

(c) Collaboration among the major banks of the world working with the OECD and focused on expanding the set of infrastructure projects that have the potential to mobilize private investment.

(d) UNCTAD funded initiative that seeks to finance and facilitate infrastructure development in the world

Answer: (b)

Option (b) is correct:  The World Bank established the Global Infrastructure Facility (GIF) to address countries’ infrastructure needs. The Global Infrastructure Facility (GIF) is a global, open platform that assists in the planning and structuring of complex infrastructure public-private partnerships (PPPs) to mobilise private sector and institutional investor capital.  It is intended to provide a new way for institutions to collaborate on complex projects that no single institution could handle on its own.

18. With reference to ‘National Investment and Infrastructure Fund’, which of the following statements is/are correct?

1. It is an organ of NITI Aayog.
2. It has a corpus of Rs. 4, 00,000 crore at present.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: (d)

• National Investment and Infrastructure Fund (NIIF):
  • The National Infrastructure Investment Fund (NIIF) is a collaborative investment platform for international and Indian investors looking for investment opportunities in infrastructure and other high-growth sectors of the country.
  • It was established under the Securities and Exchange Board of India (SEBI) Regulations as a Category II Alternate Investment Fund (AIF). Hence, Statement 1 is not correct.
  • It was India’s first infrastructure-specific investment fund, established in February 2015 by the Government of India.
  • The fund’s total corpus is Rs. 40000 Crore. Hence, Statement 2 is not correct.

19. Which of the following are the objectives of ‘National Nutrition Mission’?

1. To create awareness relating to malnutrition among pregnant women and lactating mothers.
2. To reduce the incidence of anemia among young children, adolescent girls and women.
3. To promote the consumption of millets, coarse cereals and unpolished rice.
4. To promote the consumption of poultry eggs.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 1, 2 and 3 only

(c) 1, 2 and 4 only

(d) 3 and 4 only

Answer: (a)

National Nutrition Mission

• It is also known as the POSHAN Abhiyaan (Prime Minister’s Overarching Scheme for Holistic Nutrition). It took off from Jhunjhunu in Rajasthan on March 8, 2018, to commemorate International Women’s Day.
• ‘National Nutrition Mission’ Goals:
• Raising awareness about malnutrition among pregnant women and lactating mothers. Hence, statement 1 is correct.
• Lower the prevalence of anaemia in young children, adolescent girls, and women. Hence, statement 2 is correct.
• To reduce maternal and child malnutrition (children under the age of three) in 200 high-burden districts.
• There is no mention of promoting the consumption of millet, coarse cereals, and unpolished rice in the report. Hence, statement 3 is not correct.
• The report also makes no mention of encouraging the consumption of poultry eggs. Hence, statement 4 is not correct.

20. What is the purpose of Vidyanjali Yojana’?

1. To enable the famous foreign educational institutions to open their campuses in India.
2. To increase the quality of education provided in government schools by taking help from the private sector and the community.
3. To encourage voluntary monetary contributions from private individuals and organizations so as to improve the infrastructure facilities for primary and secondary schools.

Select the correct answer using the code given below:

(a) 2 only

(b) 3 only

(c) 1 and 2 only

(d) 2 and 3 only

Answer: (a)

• Vidyanjali Yojana
  • Vidyanjali Yojana is a school volunteer programme sponsored by India’s Ministry of Human Resource Development. 
  • It was established to improve the quality of education provided in government schools with the assistance of the private sector and the community. Hence, option 2 is correct.
  • Considering the problems associated with teaching quality Hence of various issues confronting government public schools, the Vidyanjali Yojana’s goal is to meet those resource requirements.
  • Yojana allows individuals to participate in government reforms and assist the government in addressing issues such as quality education and teacher shortages across India.
  • The programme is being piloted across 21 states, including Indian states such as Assam, Andhra Pradesh, Bihar, Chhattisgarh, Delhi, Haryana, Himachal Pradesh, Gujarat, Goa, Jammu and Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Manipur, Odisha, Punjab, Rajasthan, Telangana, Tripura, Uttarakhand, and Uttar Pradesh.

2016

1. With reference to `IFC Masala Bonds’, sometimes seen in the news, which of the statements given below is/are correct?

1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank.
2. They are the rupee-denominated bonds and are a source of debt financing for the public and private sector.

Select the correct answer using the code given below

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither1 nor 2

Answer: (c)

• Masala Bonds 
  • It is debt instruments that are used to raise money in local currency from foreign investors.
  • It is issued outside India by an Indian entity or a corporate.
  • It is also used by Indian corporates to raise funds from foreign investors.
  • The goal of such bonds was to stimulate Indian culture at the international platform as ‘masala’ is a Hindi word for spices.
  • The first Masala bond was issued in 2014 by International Finance Corporation (IFC) for infrastructure projects in India and IFC is an arm of World Bank group. Hence, Statement 1 is correct.
  • They are the rupee-denominated bonds issued to offshore investors and are a source of debt financing for the public and private sectors. Hence statement 2 is correct.

Additional Information

• The World Bank Group (WBG) consists of five organizations – 
  • International Bank for Reconstruction and Development (IBRD)
  • International Development Association (IDA)
  • International Finance Corporation (IFC) 
  • Multilateral Investment Guarantee Agency (MIGA)
  • International Centre for Settlement of Investment Disputes (ICSID)

2. Recently, which one of the following currencies has been proposed to be added to the basket of IMF’s SDR?

(a) Rouble

(b) Rand

(c) Indian Rupee

(d) Renminbi

Answer: (d)

Option (d) is correct:

• Special Drawing Right (SDR) is an international reserve asset, created by the IMF in 1969.
• It is an artificial currency created to augment international liquidity.
• It is not a currency or a claim against the IMF; rather, it adds to the current reserves of IMF member nations.
• A currency must be freely useable, widely traded, and widely used in order to qualify as an SDR.
• The SDR basket is made up of the US dollar, the euro, the British pound, and the Japanese yen.
• In 2016, the Chinese renminbi (RMB) was added to the SDR basket as the fifth currency. 
• The choice was made at the IMF’s five-year assessment of the currency basket.
• The SDR currently uses a basket of five currencies as its base: the US dollar, the euro, the Chinese yuan, the Japanese yen, and the British pound sterling.

4. India’s ranking in the ‘Ease of Doing Business Index’ is sometimes seen in the news. Which of the following has declared that ranking?

(a) Organization for Economic Cooperation and Development (OECD)

(b) World Economic Forum

(c) World Bank

(d) World Trade Organization (WTO)

Answer: (c)

Option (b) is correct: 

• Ease of Doing Business Index
  • Every year, the World Bank releases it. 
  • The indicator gauges a nation’s performance over a 12-month period ending May 1, 2019, across ten distinct parameters.
  • India climbed from 77th place in the 2019 ranking to 63rd place in the 2020 study.
  • India’s score improved from 67.23 to 71.0 this year over the previous year.
  • Starting a Business, Dealing with Construction Permits, Trading Across Borders, and Resolving Insolvency are the four criteria on which India’s rating has improved.
  • India appeared on the list of the top 10 economies where the business climate has improved the most for the third year in a row.
  • India continues to hold the top spot among the nations of South Asia.
  • India is maintaining its first position among South Asian countries.
• Global Economic Prospects, World Development Report IBRD are the other reports released by the World Bank.

5. Consider the following statements:

1. New Development Bank has been set up by APEC.
2. The headquarters of New Development Bank is in Shanghai.

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)

New development bank 

• India presented the idea to establish the New Development Bank at the 4th BRICS summit in Delhi in 2012.
• The BRICS nations established the new development bank in 2014. Hence, Statement 1 is not correct.
• Its main office is in Shanghai, China. Hence, Statement 2 is correct.
• The Bank’s primary responsibility is to support public or private projects through loans, guarantees, equity investments, and other financial instruments. In addition, the Bank collaborates with other financial institutions and international organisations and offers technical assistance for projects.
• Johannesburg, South Africa, is home to the NDB’s first regional office.
• The BRICS, or Brazil, Russia, India, China, and South Africa, is an organisation of five significant emerging national economies.

6. With reference to the International Monetary and Financial Committee (IMFC), consider the following statements:

1. IMFC discusses matters of concern affecting the global economy, and advises the International Monetary Fund (IMF) on the direction of its work.
2. The World Bank participates as observer in MFC’s meetings,

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither I nor 2

Answer: (c)

International Monetary and Financial Committee (IMFC)

• The IMFC has 24 members, drawn from the pool of 187 governors. 
• Its structure mirrors that of the Executive Board and its 24 constituencies. As such, the IMFC represents all the member countries of the Fund.
• It makes recommendations and provides updates to the IMF Board of Governors on matters pertaining to the supervision and administration of the global monetary and financial system, particularly how to handle developing situations that could cause disruptions. Hence, Statement 1 is correct.
• Typically, the IMFC convenes twice a year.
• The World Bank is among the foreign organisations that attend the IMFC meetings as observers. Hence, Statement 2 is correct.
• It also considers proposals by the Executive Board to amend the Articles of Agreement and advises on any other matters that may be referred to it by the Board of Governors.
• Although the IMFC has no formal decision-making powers, in practice, it has become a key instrument for providing strategic direction to the work and policies of the Fund.

7. ‘Global Financial Stability Report’ is prepared by the

(a) European Central Bank

(b) International Monetary Fund

(c) International Bank for Reconstruction and Development

(d) Organization for Economic Cooperation and Development

Answer:(b)

 Option (b) is correct: 

• IMF was set up along with the World Bank after the Second World War to assist in the reconstruction of war-ravaged countries.
• The two organizations agreed to be set up at a conference in Bretton Woods in the US. Hence, they are known as the Bretton Woods twins.
• Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership. India joined on 27th December 1945.
• The IMF’s primary purpose is to ensure the stability of the international monetary system — the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.
• The Fund’s mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.
• Global Financial Stability Report Of IMF
  • The Global Financial Stability Report provides an assessment of the global financial system and markets and addresses emerging market financing in a global context.
  • It is a semi-annual report by the International Monetary Fund (IMF). 

8. Which of the following best describes the term ‘import cover’, sometimes seen in the news?

(a) It is the ratio of value of imports to the Gross Domestic Product of a country

(b) It is the total value of imports of a country in a year

(c) It is the ratio between the value of exports and that of imports between two countries

(d) It is the number of months of imports that could be paid for by a country’s international reserves

Answer: (d)

 Option (d) is correct: 

• Import Cover estimates how many months of imports may be covered by foreign exchange (forex) reserves held by the country’s central bank, in this case the Reserve Bank of India (RBI). 
• Eight to 10 months of import cover is critical for the currency’s and economy’s stability.
• It is the number of months of imports that a country’s international reserves could cover. 
• It is a crucial indicator of currency stability, and a minimum of eight to ten months of import cover is required for currency stability.
• By taking early preventive action, import cover helps to avoid a BoP disaster.

9. With reference to ‘Financial Stability and Development Council’, consider the following statements:

1. It is an organ of NITI Aayog.
2. It is headed by the Union Finance Minister
3. It monitors macro-prudential supervision of the economy.

Which of the statements given above is/ are correct?

(a) 1 and 2 only

(b) 3 only

(c) 2 and 3 only

(d) 1, 2 and 3

Answer: (c)

• The Financial Stability and Development Council (FSDC) 
  • It was established by Executive Order in 2010 and serves as the Ministry of Finance’s non-statutory apex council. Hence, Statement 1 is not correct.
  • Its members comprise the heads of all financial sector regulators (RBI, SEBI, PFRDA, and IRDA), the finance secretary, the secretaries of the departments of economic affairs (DEA), financial services (DFS), and chief economic adviser. 
  • It is presided over by the finance minister. Hence, Statement 2 is correct.
  • The objective of FSDC is to
    • Strengthening and institutionalising the system for preserving financial stability is FSDC’s primary goal. Hence, Statement 3 is correct.
    • Improving inter-regulatory coordination and encouraging the growth of the financial sector.
    • Keep an eye on the macroprudential control of the economy.
    • It will evaluate how well the major financial corporations are operating.

10. ‘The establishment of ‘Payment Banks’ is being allowed in India to promote financial inclusion. Which of the following statements is/are correct in this context?

1. Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks.
2. Payment Banks can issue both credit cards and debit cards.
3. Payment Banks cannot undertake lending activities.

Select the correct answer using the code given below

(a) 1 and 2 only

(b) 1 and 3 only

(c) 2 only

(d) 1, 2 and 3

Answer: (b)

• Payment Banks 
  • It is like any other bank, but operating on a smaller or restricted scale.
  • Credit risk is not involved with the Payments Bank. 
  • It can carry out most banking operations but cannot advance loans or issue credit cards. Hence statement 3 is correct.
  • It can accept demand deposits only i.e. savings and current accounts, not time deposits.
  • The Payment Banks cannot set up subsidiaries to undertake non-banking financial services activities.
  • A committee headed by Dr. Nachiket Mor recommended setting up of ‘Payments Bank’ to cater to the lower income groups and small businesses.
  • It can Accept demand deposits.
  • It can Issue ATM/Debit cards, but can’t issue credit cards. Hence statement 2 is not correct.

             Eligible to be promoters of Payment Banks:

• Existing non-bank Prepaid Payments Instrument (PPI) issuers,
• NBFCs Corporate Business Correspondents,
• Mobile phone companies, supermarket chains, public sector entities, real sector cooperatives, etc. Hence statement 1 is correct.

11. What is/are the purpose/purposes of the ‘Marginal Cost of Funds based Lending Rate (MCLR)’ announced by RBI?

1. These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances.
2. These guidelines help ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither I nor 2

Answer: (c)

Marginal cost of funds-based lending rate (MCLR) 

• It is the lowest interest rate that a bank can charge borrowers. 
• The Reserve Bank of India issued final guidelines for calculating interest rates on advances based on the marginal cost of funds. 
• The transmission of policy rates into bank lending rates is also improved by these rules.
• It helps to improve transparency in the methodology followed by banks for determining interest rates on advances. Hence statement 1 is correct.
• These guidelines are also expected to ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks. Hence statement 2 is correct.
• Marginal cost pricing of loans will help the banks become more competitive and enhance their long-run value and contribution to economic growth.

12. What is/are the purpose/purposes of 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
3. 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)

Sovereign Gold Bond Scheme

• Under the Gold Monetization Scheme, the Sovereign Gold Bond Scheme was introduced in November 2015.
• Sovereign Gold Bonds (SGBs) are government securities issued by the RBI on behalf of the government and denominated in kilos of gold.
• The Gold Monetization Scheme aims to minimise the nation’s dependency on gold imports by facilitating the use of household gold that is already in circulation for productive purposes. Hence statement 1 and 3 is correct.
• All Scheduled Commercial Banks excluding RRBs are eligible to implement the Scheme.
• Both the schemes are not intended to promote FDI in the gold and jewellery sector. Hence statement 2 is not correct.

13. Which of the following is/are included in the capital budget of the Government of India?

1. Expenditure on acquisition of assets like roads, buildings, machinery, etc,
2. Loans received from foreign governments
3. Loans and advances granted to the States and Union Territories

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: (d)

The capital budgets 

• It refers to an account of assets and liabilities of the government that includes capital receipts and capital expenditures.
• Capital expenditure components examples are,
  • Examples include spending on the acquisition of land, buildings, machinery, and equipment, the construction of assets like as highways and hospitals, the repayment of central government borrowings, loans, and advances to state and union territory administrations, and so on. Hence statement 1 and 3 is correct.
• Capital receipts components Examples are,
  • Examples include loan borrowings, disinvestments, monies acquired via the issuance of shares or debentures, and so forth. Hence statement 2 is correct.

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

(a) Providing technical and financial assistance to start-up entre-preneurs in the field of renewable sources of energy

(b) Providing electricity to every household iv the country 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)

Option (d) is correct:

• Ujwal DISCOM Assurance Yojana (UDAY) was launched by the Ministry of Power in 2015.
• It is a financial restructuring and efficiency enhancing program. 
• It aims to reduce the debt burden of the state-owned electricity distribution companies (DISCOMs) started.
• Though the main component of UDAY is debt management, other measures like raising operational efficiency are also proposed to permanently settle the debt scenario of DISCOMs.
• Objectives of UDAY:
  • Improving operational efficiencies of DISCOM.
  • Reduction of cost of power.
  • Reduction in interest cost of DISCOMs.
  • Enforcing financial discipline on DISCOMs through alignment with State finances.
  • Scheme aims at financial turnaround and revival of Power Distribution companies (DISCOMs) and ensures a sustainable permanent solution.

15. With reference to ‘Stand Up India Scheme’, which of the following statements is/are correct?

1. Its purpose is to promote entrepreneurship among SC/ST and women entrepreneurs.
2. It provides for refinance through SIDBI,

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither1 nor 2

Answer (c)

• Stand Up India Scheme  is aimed at promoting entrepreneurship among SC/ST and Women entrepreneurs and facilitates at least two such projects per bank branch. Hence statement 1 is correct.
• With an initial sum of Rs. 10,000 crore, it allows for refinancing through the Small Industries Development Bank of India (SIDBI). Hence statement 2 is correct.
• It makes it possible for at least one borrower from a Scheduled Caste (SC) or Scheduled Tribe (ST) and at least one woman to obtain bank loans between ten lakh and one crore for the establishment of a new business in the manufacturing, service, or trading sectors.

17. ‘SWAYAM’, an initiative of the Government of India, aims at

(a) promoting the Self Help Groups in rural areas

(b) providing financial and technical assistance to young start-up entrepreneurs

(c) promoting the education and health of adolescent girls

(d) providing affordable and quality education to the citizens for free

Answer: (d)

Option (d) is correct:

• SWAYAM is an abbreviation for “Study Webs of Active-Learning for Young Aspiring Minds,” which is a Hindi acronym.
• It is a Ministry of Human Resource Development online platform that provides online programs/courses to students in India.
• SWAYAM was introduced on July 9, 2017.
• It offers Massive Open Online Courses (MOOCs) that offer high-quality instruction in a variety of areas to students in grades 9 through 12, as well as in Undergraduate and Postgraduate programmes.
• The scheme aims to provide free high-quality e-content to all colleges and universities free of cost. 
• Students who want a SWAYAM certificate must sign up for the final proctored tests, which cost money, and take them in person at certain locations on certain dates.

18. Pradhan Mantri MUDRA Yojana is aimed at

(a) bringing the small entrepreneurs into 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)

Option (a) is correct:

• On April 8, 2015, Prime Minister Narendra Modi unveiled the Pradhan Mantri MUDRA Yojana.
• It is a flagship programme that seeks to integrate small business owners into the official financial system by providing micro and small businesses with accessible loans. 
• It offers small and micro businesses that are neither corporations or farms loans up to Rs. 10 lakh.
• The Pradhan Mantri MUDRA loan offers three products:
  • Paying back loans up to Rs. 50,000 made through Shishu.
  • Covering loans under Kishore from over Rs. 50,000 to Rs. 500,000.
  • Tarun loan coverage ranging from Rs. 500,000 and Rs. 10,000.

19. 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. Same amount of pension is guaranteed for the spouse for life after 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)

• Atal Pension Yojana is a pension scheme introduced by the Government of India in 2015–16.
• The Aim of the scheme is to provide pension benefits to individuals in the unorganized sector. Hence statement 1 is correct.
• It is open to all bank account holders who are not members of any statutory social security scheme. Hence statement 2 is not correct.
• This scheme is regulated and controlled by the Pension Funds Regulatory Authority of India (PFRDA).
• Depending on their monthly contributions, programme participants have the option of receiving a periodic pension of Rs. 1000, Rs. 2000, Rs. 3000, Rs. 4000, or Rs. 5000.
• Anyone who is at least 18 years old and under 40 is eligible to invest in the Atal Pension Yojana.
• In the event that a beneficiary passes away prior to turning 60, his or her spouse will be eligible to receive a pension. As a result, the spouse has the choice of leaving the pension plan with the corpus or continuing to receive benefits.
• Even after the subscriber’s passing, the subscriber’s spouse is still eligible to receive the same pension amount. Hence statement 3 is correct.

20. The term ‘Base Erosion and Profit Shifting’ is sometimes seen in the news in the context of

(a) mining operation by multinational companies in resource-rich but backward areas

(b) curbing of the tax evasion by multinational companies

(c) exploitation of genetic resources of a country by multinational companies

(d) lack of consideration of environmental planning and developmental costs in the implementation of projects

Answer: (b)

Option (b) is correct:

• Base erosion and profit shifting (BEPS) has to do with tax avoidance tactics used by businesses to artificially transfer earnings to low- or no-tax jurisdictions by taking advantage of gaps and inconsistencies in tax laws.
• More than 135 nations and jurisdictions work together within the inclusive framework to implement the BEPS measures and reduce BEPS.
• To stop this behaviour, member countries communicate tax information with one another and sign double tax avoidance treaties.

20. 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 in any season 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 (PMFBY) is a government-sponsored crop insurance scheme that integrates multiple stakeholders on a single platform.
• This scheme was launched in 2016 by the Ministry of Agriculture and Farmers Welfare.
• Under this scheme farmers will have to pay a uniform premium of 2% for all Kharif crops and 1.5% for all Rabi crops and 5% in the case of annual commercial and horticultural crops. Hence statement 1 is not correct.
• It offers insurance cover to farmers against post-harvest losses arising out of cyclones and unseasonal rains. Hence the statement 2 is correct.
•  Post-Harvest Losses coverage is available only up to a maximum period of two weeks from harvesting for those crops which are allowed to dry in cut and spread condition in the field after harvesting against specific perils of the cyclone and cyclonic rains and unseasonal rains.

21. 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 licences 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 Foundation (DMF)
  • It is a non-profit body primarily established in those districts affected by the mining works. Hence statement 2 is correct.
  • It is supported by miner contributions and works in the interests of those whose lives are impacted by mining-related operations as well as the communities in which they occur.
  • District Mineral Foundations (DMFs) must be established in every district of the nation that is impacted by mining-related activities.
  • The Mines and Minerals (Development & Regulation) Amendment Act of 2015 (MMDRA) established it as a requirement.
  • Each State Government is responsible for overseeing the operation and regulation of DMF.
  • It does not promote mineral exploration activities in mineral-rich districts. Hence Statement 1 is not correct
  • It does not authorize states to issue a licence for mineral exploration. Hence Statement 3 is not correct. 

22. Which of the following is/are the indicator/indicators used by IFPRI to compute the Global Hunger Index Report?

1. Undernourishment
2. Child stunting
3. Child mortality

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(c) 1, 2 and 3

(d) 1 and 3 only

Answer: (c)

Option (c) is correct:

• Global Hunger Index (GHI)  is intended to comprehensively assess and track hunger globally, as well as by country and region. It is estimated annually by the International Food Policy Research Institute (IFPRI).
• It emphasises achievements and failures in the fight against hunger and offers information on its causes.
• The GHI seeks to eliminate hunger by increasing knowledge of regional and national variations in hunger.
• To reflect the multidimensional nature of hunger, the GHI combines the four component indicators into one index:

          There are 4 measures it used by GHI:

• Undernourishment
  • The share of the population whose caloric intake is insufficient.
  • This makes up 1/3 of the GHI score.
• Child Stunting
  • The share of children under the age of 5 who have low height for their age, reflecting chronic undernutrition.
  • This makes up 1/6 of the GHI score.
• Child Wasting
  • The share of children under the age of 5 who have low weight for their height, reflecting acute undernutrition.
  • This makes up 1/6 of the GHI score.
• Child Mortality
  • The share of children who die before their 5th birthday, reflecting in part the fatal mix of inadequate nutrition and unhealthy environments.
  • This makes up 1/3 of the GHI score.

2015

1. Which one of the following best describes the main objective of 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 to make 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 technology and finance to set up seed companies

Answer: (b)

Option (b) is correct: 

• Seed Village
  • It is a village, wherein a trained group of farmers are involved in the production ‘of seeds of various crops and cater to the needs of themselves, fellow farmers of the village and neighbouring villages at the appropriate time and affordable cost is called a “seed village“.
  • 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.

2. 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 Marketing Committee

Answer: (a)

Option (a) is correct: 

• Fair and Remunerative Price’ (FRP) of sugarcane  
  • With the amendment of the Sugarcane (Control) Order, 1966 on 22nd October 2009, the concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the Fair and Remunerative Price (FRP) of sugarcane for 2009-10 and subsequent sugar seasons. 
  • The cane price announced by the Central Government is decided based on the recommendations of the Commission for Agricultural Costs and Prices (CACP) after consulting the State governments and associations of the sugar industry and approved by the Cabinet Committee on Economic Affairs.
  • It is based on the recommendation of the Commission of Agricultural Costs & Prices (CACP) as per its report on the price policy for sugarcane for a season.
  • The ‘FRP’ of sugarcane is determined under Sugarcane (Control) Order, 1966 uniformly applicable all over the country. 
  • The Determination of FRP is in the interest of sugarcane growers keeping in view their entitlement to a fair and remunerative price for their products and ensuring a guaranteed price to cane growers.

3. In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?

(a) Coal production

(b) Electricity generation

(c) Fertilizer production

(d) Steel production

Answer: (b)

Option (b) is correct: 

• Index of Eight Core Industries (ICI) is a production volume index. 
• It measures the collective and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.
• It is compiled and released by the Office of the Economic Adviser (OEA), Department of Industrial Policy & Promotion (DIPP), and Ministry of Commerce & Industry. 

The Index of Industrial Production

• It is an index that shows the growth rates in different industry groups of the economy over a fixed period.
• This is compiled and published monthly by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation.
• It is a composite indicator that measures the growth rate of industry groups classified under Broad sectors, namely, Mining, Manufacturing, and Electricity.
• Use-based sectors, namely Basic Goods, Capital Goods, and Intermediate Goods.
• The eight core sector industries represent about 40% of the weight of items that are included in the IIP.
• The eight core industries in decreasing order of their weightage: Refinery Products> Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.
• The base year for IIP calculation is 2011-2012.
• Previously, Electricity was having the highest weightage. Hence, Option 2 is correct.
• Currently, Refinery Products has the highest weightage.

4. Which of the following brings out the ‘Consumer Price Index Number for Industrial Workers?

(a) The Reserve Bank of India

(b) The Department of Economic Affairs

(c) The Labour Bureau

(d) The Department of Personnel and Training

Answer: (c)

Option (c) is correct: 

• Consumer Price Index Numbers for Industrial Workers
  • It is designed to measure a change over time in prices of a given basket of goods and services consumed by a defined population (i.e. Industrial Workers).
  • It is compiled for Industrial Workers residing in 70 centres of industrial importance in the country.
  • It is compiled and released every month based on the weights derived from the working-Class Family Income and Expenditure Survey and the current prices of the selected items collected from 226 markets spread over 70 centres.
  • Based on these centre indices the All-India index, which is a weighted average, is derived.
  • Labour Bureau compiles and releases indices to meet the specific requirements of the Index users of the respective states. 

5. Which one of the following issues the ‘Global Economic Prospects’ report periodically?

(a) The Asian Development Bank

(b) The European Bank for Reconstruction and Development

(c) The US Federal Reserve Bank

(d) The World Bank

Answer: (d)

Option (c) is correct: 

• Global Economic Prospects  is a World Bank Group flagship report.
  • This report examines global economic developments and prospects, with a special focus on emerging markets and developing economies.
  • This is issued twice a year, in January and June.
  • The January edition features an in-depth analysis of current policy issues, while the June edition contains shorter analytical articles.
  • Commodity Markets Outlook is now available as a separate report, which is also part of this collection.

6. The terms ‘Agreement on Agriculture’, ‘Agreement on the Application of Sanitary and Phyto-sanitary Measures’ and ‘Peace Clause’ appear in the news frequently in the context of affairs of the

(a) Food and Agriculture Organization

(b) United Nations Framework Conference on Climate Change

(c) World Trade Organization

(d) United Nations Environment Programme

Answer: (c)

Option (c) is correct: 

• World Trade Organisation (WTO)
  • The terms ‘Agreement on Agriculture’, ‘Agreement on the Application of Sanitary and Phytosanitary Measures’ and ‘Peace Clause’ appear in the news frequently in the context of the affairs of the World Trade Organisation.
  • It is the only global international organization dealing with the rules of trade between nations.
  • It was established by Uruguay Round negotiations (1986-94) with a membership of 164 members representing 98 per cent of world trade.
  • WTO was established on 1 January 1995 with its headquarters in Geneva, Switzerland.
  •  Its agreements are often called the Final Act of the Uruguay Round of Multilateral Trade Negotiations, signed in Marrakesh, Morocco on 15 April 1994.
  • It superseded the GATT as the umbrella organization for international trade.

7. ‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to

(a) develop national strategies for the conservation and sustainable use of biological diversity

(b) improve banking sector’s ability to deal with the financial and econo-mic stress and improve risk management

(c) reduce the greenhouse gas emissions but places a heavier burden on developed countries

(d) transfer technology from developed countries to poor countries to enable them to replace the use of chlorofluorocarbons in refrigeration with harmless chemicals

Answer: (b)

Option (b) is correct: 

• Basel-III Accord was issued in 2010 as a response to the financial crisis of 2008.
• It aims to promote a resilient banking system by focusing on capital leverage funding and liquidity. 
• The capital adequacy ratio was fixed at 12.9%. 
• The leverage rate was fixed at 3%. 
• The banks’ strength was improved Liquidity Coverage Ratio and Net Stable Fund Rate. 

Additional Information

Basel Committee:

• Basel accords refer to the Banking supervision accords issued by the Basel Committee on banking supervision.
• The Basel Committee on banking supervision is a global standard committee for the regulation of banks.  
• It was established by the central bank governors of 10 countries in 1974.
• Its objective is to improve the quality of banking supervision worldwide.
• The headquarters is in Basel, a city in Switzerland.

Basel Norms:

• Basel norms are the international banking regulations to strengthen the international banking system.
• It is in the form of an agreement by the Basel Committee of Banking supervision which mainly focuses on the risk to banks and the financial system. 

Important Points

Basel-I norms:

• Basel, I was introduced in 1988 and focused on credit risk.
• India adopted Basel 1 guidelines in 1999 as it defines the capital and structure of risk weights for banks.
• The minimum Capital requirement was fixed at 8% of risk-weighted assets.

Basel-II norms:

• Basel II norms were established in 2000 and were based on three parameters capital adequacy requirement, supervisory requirement, and market discipline.
• A minimum capital adequacy requirement of 8% of risk-weighted assets was fixed.  

8. Convertibility of rupee implies:

(a) being able to convert rupee notes into gold

(b) allowing the value of rupee to be fixed by market forces

(c) freely permitting the conversion of rupee to other currencies and vice versa

(d) developing an international market for currencies in India

Answer: (c)

Option (c) is correct: 

• The RBI used to regulate the exchange rate while converting Indian rupees into foreign money.
• A licenced dealer was required to buy all earned foreign currency.
• To buy foreign currency, one had to have the central bank’s approval.
• The fundamental intention behind this was to allocate the people’s earned foreign exchange under the government’s established priorities.
• India is one of the nations that international investors like to invest in because it is now a fast-developing nation.
• India could not restrict its foreign trade as It needs to grow further. So the government has allowed the convertibility of the rupee in a phased manner on current account transactions. 
• But full convertibility of currency for capital account transactions is still a distant dream.

9. There has been a persistent deficit budget year after year. Which of the following actions can be taken by the government to reduce the deficit?

1. Reducing revenue expenditure
2. Introducing new welfare schemes
3. Rationalizing subsidies
4. Expanding industries

Select the correct answer using the code given below:

(a) 1 and 3 only

(b) 2 and 3 only

(c) 1 only

(d) 1, 2, 3 and 4

Answer: (a)

• Budget deficit  occurs when government spending is more than its revenues. 
• Reducing revenue expenditure and Rationalizing subsidies will reduce the deficit. Hence statements 1 and 3 are correct.
• The increase in taxes is also a way to reduce the deficit i.e higher taxes increase revenue and help to reduce the budget deficit.
• Introducing new welfare schemes will further increase the budget deficit. Hence statement 2 is wrong.
• Expanding industries will also increase the budget deficit as in the short run, it will not add anything to the tax revenues of the government, and thus will increase the budget deficit. Hence statement 4 is wrong.

10. With reference to inflation in India, which of the following statements is correct?

(a) Controlling the inflation in India is the responsibility of the Government of India only

(b) The Reserve Bank of India has no role in controlling the inflation

(c) Decreased money circulation helps in controlling the inflation

(d) Increased money circulation helps in controlling the inflation

Answer: (c)

Option (c) is correct: 

• Inflation refers to the general increase in the prices of goods and services in an economy over some time.
• If the money supply increases than the economy’s ability to produce goods and services, then inflation will also increase.
• During the high inflation period, the government can reduce spending to decrease the money circulation in the country.
• Therefore, decreased money circulation helps in controlling inflation. Hence, Option 3 is correct.
• Sterilization is the process under which the RBI absorbs excess liquidity in the economy.
• The Central Bank of India is the authority to control inflation through monetary policies which it does by increasing bank rates, repo rates, cash reserve ratio, buying dollars, and regulating money supply and availability of credit.

11. The problem of international liquidity is related to the non-availability of

(a) goods and services

(b) gold and silver

(c) dollars and other hard currencies

(d) exportable surplus

Answer: (c)

Option (c) is correct: 

• International liquidity is associated with international payments that arise out of international trade in goods and services.
• It consists of all the resources that are available to the monetary authorities of countries to meet the balance of payments deficits.
• Such liquidity ranges from assets readily available to resources that become available only after extensive negotiation.
• The primary medium of international liquidity is gold and those foreign currencies which are universally acceptable in the settlement of international transactions.
• Since the dollar is the dominant worldwide currency in the forex market, issues with global liquidity are tied to the lack of availability of the dollar and other related currencies. 
• The problem of international liquidity exists essentially for developing countries.

12. With reference to the Indian economy, consider the following statements:

1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade.
2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.

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)

• From 2008 to the next few years, the rate of growth of the real gross domestic product fell from 8–9% to 5-6% as a result of the recession and other factors. Hence statement 1 is incorrect.
• The main factors affecting India’s drop in the rate of real GDP growth include a spike in capital inflows, an inflationary boom in commodities prices, the global financial crisis, and the collapse of foreign commerce.

Additional Information

• Gross Domestic Product (GDP)
  • It is the final monetary value of all final goods and services produced in a country in a year.
• Real gross domestic product
  • It is the inflation-adjusted value of the goods and services in a country.
• GDP at market prices
  • It has always increased year on year since the last decade. Though the growth rate declined, it has never become negative. Hence statement 2 is correct.

13. A decrease in tax to GDP ratio of a country indicates which of the following?

1. Slowing economic growth rate
2. Less equitable distribution of national income

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither1 nor 2

Answer: (a)

• A tax-to-GDP ratio
  • It is a gauge of a nation’s tax revenue relative to the size of its economy as measured by gross domestic product (GDP).
  • It is a measure of a nation’s tax revenue relative to the size of its economy.
  • A tax-to-GDP ratio determines how well a nation’s government use its economic resources via taxation.
  • Developed nations typically have higher tax-to-GDP ratios than developing nations.
  • If the tax-to-GDP ratio is low it shows a slow economic growth rate. Hence, Statement 1 is correct.
  • The ratio shows that government spending can be financed.
  • A greater tax-to-GDP ratio indicates a robust tax buoyancy in an economy.
  • The government is under pressure to adhere to its fiscal deficit targets if the tax-to-GDP ratio is lower.
  • It only shows growth in the economy not the distribution of national income. Hence statement 2 is incorrect.

14. Pradhan Mantri Jan-Dhan Yojana’ has been launched for

(a) providing housing loan to poor people at cheaper interest rates

(b) promoting women’s Self-Help Groups in backward areas

(c) promoting financial inclusion in the country

(d) providing financial help to the marginalized communities

Answer: (c)

Option (c) is correct: 

• Pradhan Mantri Jan Dhan Yojana (PMJDY) is a National Mission on financial Inclusion which has an integrated approach to bring about comprehensive financial inclusion and provide banking services to all households in the country. 
• It is one of the biggest financial inclusion initiatives in the world, announced on 15 August 2014 by PM Narendra Modi from the ramparts of the Red Fort and launched on August 28th.
• Guinness World Records has also recognized the achievements made under it and has certified that the “Most bank accounts opened in one week as part of the Financial Inclusion Campaign is 18,096,130 and was achieved by the Department of Financial Services, Government of India.”
• Today, coverage of almost 100% has been achieved where out of the accounts opened, 60% are in rural areas and 40% are in urban areas while the share of female account holders is about 51%.

15. 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)

Option (b) is correct: 

Agricultural Produce Market Committee:

• The notified agricultural produce and livestock are regulated by the State Government.
• Agriculture is included as a state subject in Schedule 7 of the Indian Constitution.
• The entire geographical region of the State is divided and declared as a market area (Yard Mandis), with the markets controlled by Market Committees formed by the State Governments. Therefore, In, India, markets in agricultural products are regulated under the Agricultural Produce Market Committee act enacted by the states. 
• No individual or organisation is permitted to engage in wholesale marketing operations after a certain area is designated as a market area and comes under the purview of a Market Committee.
• To transact, buyers must also get unique licences from each APMC.
• It is a component of government policy aimed at ensuring food security, paying farmers a fair price, and providing fair prices to consumers.

16. The Government of India has established NITI Aayog to replace the

(a) Human Rights Commission

(b) Finance Commission

(c) Law Commission

(d) Planning Commission

Answer: (d)

Option (d) is correct: 

• NITI Aayog stands for National Institution for Transforming India.
• It has replaced the Planning Commission. 
• The Planning Commission was established in 1950.
• It was established on 1 January 2015, as the successor to the Planning Commission.
• It was created by an executive resolution of the Government of India.
• It is neither a constitutional body nor a statutory body.
• It is a Think Tank of the Government of India providing both directional and policy inputs.
• It is shaped by a ‘bottom-up’ approach rather than a ‘top-down’ approach.

17. With reference to the Indian Renewable Energy Development Agency Limited (IREDA), which of the following statements is/are correct?

1. It is a Public Limited Government Company.
2. It is a Non-Banking Financial Company.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: (c)

• The Indian Renewable Energy Development Agency (IREDA) 
  • It has been awarded Mini Ratan (Category-I) status in 2015 by the Ministry of New and Renewable Energy (MNRE).
  • It is a Non-Banking Financial Institution under the administrative control of the Ministry of New and Renewable Energy (MNRE). Hence statement 2 is correct.
  • It was established on 11th March 1987 as a Public Limited Government Company under the Companies Act, of 1956. Hence statement 1 is correct.
  • IREDA promotes, develops, and extends financial assistance for Renewable Energy and Energy Efficiency/Conservation Projects.

2014

1. In the context of food and nutritional security of India, enhancing the ‘Seed Replacement Rates’ of various crops helps in achieving the food production targets of the future. But what is/are the constraint/ constraints in its wider/greater implementation? 

1. There is no National Seeds Policy in place. 

2. There is no participation of private sector seed companies in the supply of quality seeds of vegetables and planting materials of horticultural crops. 

3. There is a demand-supply gap regarding quality seeds in case of low value and high volume crops. 

Select the correct answer using the code given below. 

(a) 1 and 2 

(b) 3 only 

(c) 2 and 3 

(d) None 

Answer: (c)

Option (c) is correct: 

• We have a National Seed policy made in 2002. Hence, Statement 1 is not correct. 
• The private sector produces high-priced seeds but in lower volume. It supplies nearly the entire hybrid seeds required for vegetables. Hence, Statement 2 is not correct. 
• The private sector seed companies supply quality seeds of vegetables but in a small volume. 
• There is a demand-supply gap recording quality of seeds in case of low value and high volume crops such as wheat and rice.   

• Farmers prefer to use their own preserve seeds due to the high demand and supply gap. Hence statement 3 is correct. 
• The seed replacement rate is a measure of how much of the total cropped area was sown with certified seeds in comparison to farm-saved seeds. 
• Seed replacement rate denotes better utilization of certified quality seeds which results in better productivity.  

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

(a) The International Monetary Fund 

(b) The United Nations Development Programme 

(c) The World Economic Forum 

(d) The World Bank 

Answer: (a)

Option (a) is correct: 

• World Economic Outlook  
  • It is published by the International Monetary Fund twice a year. (April and October).
  • This report analyses and predicts near and medium-term growth prospects. 
  • Countries are compared based on GDP growth rate, or absolute GDP. 

• Important Points: 
• The IMF  
  • It was set up along with the World Bank after the Second World War to assist in the reconstruction of war-ravaged countries. 
  • The two organizations agreed to be set up at a conference in Bretton Woods in the US. Hence, they are known as the Bretton Woods twins. 
  • Created in 1944, the IMF is governed by and accountable to the 190 countries that make up its near-global membership. India joined on 27th December 1945. 
  • The IMF came into formal existence in December 1945. 

3. Which of the following are associated with ‘Planning’ in India? 

1. The Finance Commission 
2. The National Development Council 
3. The Union Ministry of Rural Development 
4. The Union Ministry of Urban Development 
5. The Parliament 

Select the correct answer using the code given below. 

(a) 1, 2 and 5 only 

(b) 1, 3 and 4 only 

(c) 2 and 5 only 

(d) 1, 2, 3, 4 and 5 

Answer: (c)

Option (c) is correct:

The finance commission is involved in the distribution of taxes and grants. It is not involved in planning. So we can eliminate option 1.

Finance Commission 

• It is a constitutional body, that determines the method and formula for distributing the tax proceeds between the Centre and states, and among the states as per the constitutional arrangement and present requirements. 
• It is constituted by the President under article 280 of the Constitution to give its recommendations on the distribution of tax revenues between the Union and the States. 
• The 15th Finance Commission was constituted by the President of India in November 2017, under the chairmanship of NK Singh. Its recommendations will cover a period of five years from the year 2021-22 to 2025-26. 

Important Points: 

National Development Council 

• It is presided over by the Prime Minister. It is an executive body established in August 1952. 
• This body is neither a constitutional nor a statutory body. 

• It is the apex body to take decisions on matters related to approval of five-year plans of the country. 
• This council has been proposed to be abolished. 

Union Ministry of Rural Development 

• It is entrusted with the task of accelerating the socio-economic development of rural India. 

Union Ministry of Urban Development 

• It is known as the Ministry of Housing and Urban Affairs. 
• This ministry is entrusted with the formulation and administration of the rules and regulations and laws relating to the housing and urban development in India. 

The Parliament 

• It is the supreme legislative body of the Republic of India. 
• It is directly responsible to make laws for the welfare of the society. 

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

(a) inclusive growth and poverty reduction 

(b) inclusive growth and sustainable growth 

(c) sustainable and inclusive growth to reduce unemployment 

(d) faster, sustainable and more inclusive growth 

Answer: (d)

Option (d) is correct: 

• The Twelfth Five Year Plan   lasted from 2012-2017. 
• It was launched with the objective of faster, sustainable, and more inclusive growth. 
• The Twelfth Five Year Plan lasted from 2012-2017. 
• It was launched with the objective of faster, sustainable, and more inclusive growth. 
• It was the last five-year plan. 
• The plan was under the leadership of Manmohan Singh and Narendra Modi. 
• Its growth rate target was 8%. 
• Later, the government has dissolved the Planning Commission with the NITI Aayog. 

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

(a) decrease the consumption expenditure in the economy 

(b) increase the tax collection of the Government 

(c) increase the investment expenditure in the economy 

(d) increase the total savings in the economy 

Answer: (c)

• Impact of decreased Interest in an Economy 

• When the interest rates decrease, citizens do not want to keep their currency in banks since they would not get a high return. Hence, Statement 4 is not correct. 
• In such times, citizens keep the cash flowing in the economy.  
• They either invest in productive things or can spend the money on a day-to-day basis. Hence, Statement (a) is not correct. 
• Therefore, the interest rate is decreased in an economy, it will increase the investment expenditure in the economy. 
• Decreased interest rates would ensure the availability of capital for investment expenditure. Hence, Statement (c) is correct. 
• The relationship between the interest rate and investment Expenditure is also illustrated by the investment curve of the economy. 
• The curve has a downward slope, indicating that a drop in interest rate, causes the investment-spending to rise. 
• If the interest rate is decreased in an economy, it will decrease the tax collection of the Government. Hence, Statement (b) is not correct. 

6. What does venture capital mean? 

(a) A short-term capital provided to industries 

(b) A long-term start-up capital provided to new entrepreneurs 

(c) Funds provided to industries at times of incurring losses 

(d) Funds provided for replacement and renovation of industries 

Answer: (b)

Option (b) is correct: 

• Venture capital  is A long-term start-up capital provided to new entrepreneurs. 
• It is a form of private equity and a type of financing that investors provide to start-up companies and small businesses that are believed to have long-term growth potential. 
• It generally comes from well-off investors, investment banks, and any other financial institutions. 

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

(a) banking operations 

(b) communication networking 

(c) military strategies 

(d) supply and demand of agricultural products 

Answer: (a)

Option (a) is correct:  

• Marginal Standing Facility (MSF) is the rate at which banks borrow funds overnight from the RBI against approved government securities. 
• Under MSF, banks can borrow funds up to one percentage of their net demand and time liabilities (NDTL).  
• It used by banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely. 

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

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

Select the correct answer using the code given below. 

(a) 1 only 

(b) 2 only 

(c) Both 1 and 2 

(d) Neither 1 nor 2 

Answer: (c)

• The Business Correspondent (BC) Model  

• It was initiated by the Reserve Bank of India (RBI) in 2006 to upgrade financial inclusion in India. 
• Business Correspondents are agents who represent banks and are responsible for delivering banking services at locations other than a bank branch/ATM. 
• Services offered by Business Correspondent (Bank Saathi) in branchless areas are 

• Giving access to banking, 
• It also enables government subsidies and social security benefits to be directly credited to the accounts of the beneficiaries, enabling them to draw the money from the bank saathi or business correspondents in their village itself. Hence, Statements 1 and 2 are correct. 

9. 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. 

(a) 1 only 

(b) 1 and 2 only 

(c) 2 and 3 only 

(d) 1, 2, 3 and 4 

Answer: (a) 

• Statutory Reserve Requirement 
  • It is a quantitative monetary policy instrument to manage liquidity. 
  • RBI requires commercial banks to keep reserves in order to ensure that banks have sufficient assets to draw on when account holders want to be paid. Hence, Statement 2 is not correct. 
  • Cash Reserve Ratio is the fraction of their deposits that banks must keep with RBI to make the people’s deposits with banks safe and liquid. 
  • When the central bank wants to increase the money supply in the economy, it lowers the reserve ratio. Hence it enables the Central Bank to control the number of advances the banks can create. Hence statement 1 is correct.  
  • Reserve requirements are designed as “precautionary measures” to control the economy and not to stop banks from “excessive” profit and not to force the banks to have sufficient cash to meet their day-to-day requirements. Hence statement 3 and 4 is incorrect. 

10. The sales tax you pay while purchasing a toothpaste is a 

(a) tax imposed by the Central Government 

(b) tax imposed by the Central Government but collected by the State Government 

(c) tax imposed by the State Government but collected by the Central Government 

(d) tax imposed and collected by the State Government 

Answer: (d)

Option (d) is correct:   

• The sales tax you pay while purchasing a toothpaste is the tax imposed and collected by the state government, as stated in the CST 1956 act of  also known as The Central Sales Tax Act.  
• It is paid to the Sale Tax Authority in the state from where the goods are moved or sold or bought. Whereas now all these taxes come under the GST, also known as Goods and Service Tax. 

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

18. Balance of trade 
19. Foreign assets 
20. Balance of invisibles 
21. Special Drawing Rights 

Select the correct answer using the code given below. 

(a) 1 only 

(b) 2 and 3 

(c) 1 and 3 

(d) 1, 2 and 4 

Answer: (c)

Option (c) is correct:  

• The balance of payment 
  • It is a record of all monetary transactions made between the residents of one country and the rest of the world.  
  • A balance of payments deficit means the nation imports are more than it exports.  
  • The two components of the Balance of Payments are the current account and capital account. 
  • The current account includes trade in goods and services (Invisibles) and transfer payments etc. 
  • The capital account includes Foreign Direct Investment, Foreign Portfolio Investment, External Commercial Borrowings, SDR.  
  • The capital account records all international purchases and sales of assets such as money, stocks, bonds, etc 

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

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

Select the correct answer using the code given below. 

(a) 1 only 

(b) 2 and 3 only 

(c) 1, 2, 3 and 4 

(d) None 

Answer: (c)

Option (c) is correct:  

• Non Plan Expenditure 

• All expenditures which are done in the name of planning were called plan expenditures while the rest are placed under non-plan expenditures.  
• The government of India has now scrapped the plan and non-plan expenditures in budget exercise and are replaced by capital and revenue spending classifications.  
• Example of Non-plan expenditure  

• Expenditure incurred on Defence Services 
• Interest payments for debt 
• Subsidies (food, fertilisers, etc.) 
• Salaries and pensions of employees in various government services  
• Economic services by the government such as Agriculture, Industry, Power, Science & Technology, 

• Loans and grants 
• Social services such as healthcare, education, social security 
• Police, etc. 

2013 

1. Disguised unemployment generally means 

(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 

Answer: (c) 

Option (c) is correct:  Disguised unemployment, means that more people are engaged in a job which can be done with less people, normally seen in agriculture where whole family is involved. It means extra people can be removed without affecting the productivity, i.e. their marginal productivity is zero. 

2. Which one of the following groups of items is included in India’s foreign-exchange reserves? 

(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 

Answer: (b)

Option (b) is correct:  India’s foreign exchange reserves comprise foreign currency assets (FCA), gold, special drawing rights (SDRs) and reserve tranche position (RTP) in the International Monetary Fund (IMF).

3. An increase in the Bank Rate generally indicates that the 

(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 

Answer: (d) 

Option (d) is correct:   An increase in Interest rate means that the Central bank is following a tight monetary policy as an increase in rates will lead to a decrease in money supply thereby leading to a decrease in inflation and a reduction in investment.

4. In India, deficit financing is used for raising resources for 

(a) Economic development 

(b) Redemption of public debt 

(c) Adjusting the balance of payments 

(d) Reducing the foreign debt 

Answer: (a) 

Option (a) is correct:  TDeficit financing refers to the difference between expenditure and receipts. In public finance, it means the govt. is spending more than what it is earning. Deficit financing is a necessary evil in a welfare state as the states often fail to generate tax revenue which is sufficient enough to take care of the expenditure of the state. The basic intention behind deficit financing is to provide the necessary impetus to economic growth by artificial means. 

5. Priority Sector Lending by banks in India constitutes the lending to 

(a) agriculture 

(b) micro and small enterprises 

(c) weaker sections 

(d) All of the above 

Answer: (d) 

Option (d) is correct:  Under the provisions of Priority Sector Lending, Banks have to lend minimum of 40% to priority sector which includes agriculture, MSMEs, and weaker sections. 

6. A rise in general level of prices may be caused by 

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 

Answer: (d) 

Option (d) is correct:  TAn increase in the money supply increases the general level of price and cause inflation. A decrease in the aggregate level of output increase the price of commodity due to the demand in the market and an increase in the demand will also increase the price. 

7. Which one of the following is likely to be the most inflationary in its effect? 

(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 

Answer: (d) 

Option (d) is correct:  TBorrowing from the public or from the banks to finance a budget deficit will lead to decrease the money supply in the market. Repayment of public debt and creating new money both are inflationary in nature but creating new money to finance a budget deficit is the most inflationary in its effect. 

8. Supply of money remaining the same when there is an increase in demand for money, there will be 

(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 

Answer: (b) 

Option (b) is correct:  The supply of money remaining the same when there is an increase in demand for money, there will be an increase in the rate of interest. This occurs in order to attract customers and initiate deposits among them by the banks. As we know, when the supply of onion in the market is the same but the demand for it rises, so in such a case the price of onion is increased in order to maintain stability in the market. It will definitely develop a fall in Aggregate Demand

9. 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 below. 

(a) 1 and 2 only 

(c) 1 and 3 only 

(b) 1 and 3 only 

(d) 1, 2 and 3 

Answer: (c) 

Option (c) is correct:  The Regional Rural Banks and the Land Development Banks grant direct credit assistance to rural households. NABARD do not provide direct assistance. It “refinance” the assistance by other institutions. 

10. Consider the following statements: 

1. Inflation benefits the debtors. 
2. Inflation benefits the bondholders. 

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: (a) 

For debtors, “real” interest rate goes down with inflation. Thus, it benefits them. On the other hand, with inflation the yield of bonds goes down, thus a negative effect for bond-holders. 

 Inflation redistributes wealth from creditors to debtors i.e. lenders suffer and borrowers benefit out of inflation. Bondholders have lent money (to debtor) and received a bond in return. So he is a lender, he suffers (Debtor benefits from inflation). Hence statement 1 is correct. 

Statement 2 has not used specifically the word “inflation-indexed bonds”, hence we cannot say Inflation benefits the bond-holders. Hence statement 2 is incorrect. 

11. Consider the following liquid assets: 

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 assets in the 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 

Answer: (d) 

Option (d) is correct: 

Liquidity of currency is highest. 

Next will come demand liabilities, as they have to be cleared when demanded. 

Next Savings deposits with the banks and 

least liquidity will be of Time deposits with the banks. 

12. The balance of payments of a country is a systematic record of 

(a) All import and export transactions of a country during a given period of time, 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 

Answer: (a) 

The balance of payments (BOP), also known as the balance of international payments, is a statement of all transactions made between entities in one country and the rest of the world over a defined period, such as a quarter or a year. It summarizes all transactions that a country’s individuals, companies, and government bodies complete with individuals, companies, and government bodies outside the country.

Option (a) is correct: The balance of payments (BoP) record the transactions in goods, services and assets between residents of a country with the rest of the world for a specified time period typically a year. 

13. The Reserve Bank of India regulates the commercial banks in matters of 

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 

Answer: (d) 

Option (d) is correct: RBI is regulator of Banks. It regulates the commercial banks in the matters of liquidity of assets, branch expansion, etc. One could think that merger might come under CCI only but it comes both under CCI and RBI. RBI issued order to windup few banks in recent past. (Sahara India Financial Corp (SIFCL), the para banking arm of Sahara India Pariwar, Siddharth Cooperative Bank, some Banks from Gujarat). Implied from deposit insurance and credit guarantee corporation (DICGC) scheme. Hence, 

14. Which of the following constitute Capital Account? 

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 

Answer: (b) 

Option (b) is correct: Foreign Loans, Foreign Direct Investment and Portfolio Investment are part of Capital Account. But the Private Remittances is a part of current account not the Capital Account. 

15. In the context of Indian economy, ‘Open Market Operations’ refers to 

(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 

Answer: (c) 

Option (c) is correct: The repo and reverse repo rates are used when RBI purchase or sale the government securities. This route is known as Open Market Operations. 

16. The national income of a country for a given period is equal to the 

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

(b) sum of total expenditure 

(c) sum of personal income of all individuals 

(d) money value of final goods and services produced 

Answer: (a) 

Option (a) is correct: National income is referred to as the total monetary value of all services and goods that are produced by a nation during a period of time. In other words, it is the sum of all the factor income that is generated during a production year. National income serves as an indicator of the nation’s economic activity.

NNP at factor cost ≡ National Income (NI) and no other option mentions Nationals. 

17. To obtain full benefits of demographic dividend, what should India do? 

(a) Promoting skill development 

(b) Introducing more social security schemes 

(c) Reducing infant mortality rate 

(d) Privatization of higher education 

Answer: (a) 

Option (a) is correct:

• Promoting skill development will create a workforce of skilled labour which could boost the economy and lift up their livelihood. 
• Introducing more social security schemes will not provide any benefit of demographic dividend. Social security schemes can be used for providing security to nonworking population like old-age pension etc.  
• Reducing Infant Mortality Rate is one of the Millennium Development Goal, but it does not provide any benefit of demographic dividend. 
• Privatization of higher education can in fact have negative effect as it will make education costlier thus making it out of reach of a large section of eligible population. 

18. Economic growth in country X will occur if 

(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 

Answer: (c) 

 Option (c) is correct: If there is population growth without any avenues for the economy to absorb them, it will have a deteriorating effect. But when there is capital formation in a country it will lead to growth.

Frequently Asked Questions (FAQs)

1. Q: What was the main reason behind the implementation of the Goods and Services Tax (GST) in India?

A: The Goods and Services Tax (GST) was introduced in India to replace multiple indirect taxes with a unified tax system, streamlining the taxation structure, reducing tax evasion, and fostering a common market across states.

2. Q: In the context of the Indian economy, what is the significance of the ‘Base Erosion and Profit Shifting’ (BEPS) project?

A: The Base Erosion and Profit Shifting (BEPS) project, initiated by the Organisation for Economic Co-operation and Development (OECD), aims to prevent multinational companies from exploiting gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. India’s participation in BEPS reflects its commitment to curb tax avoidance practices and ensure fair taxation.

3. Q: How does the ‘Monetary Policy Committee’ (MPC) contribute to shaping the economic policies in India?

A: The Monetary Policy Committee (MPC) plays a crucial role in India’s economic policies by determining the benchmark interest rates to achieve the inflation target set by the government. It consists of members from the Reserve Bank of India (RBI) and external experts, fostering transparency and accountability in the monetary policy decision-making process.

4. Q: What is the significance of the ‘National Infrastructure Pipeline’ (NIP) in the context of India’s economic development?

A: The National Infrastructure Pipeline (NIP) is a government initiative aimed at boosting economic growth by investing in various infrastructure sectors such as transportation, energy, and urban development. NIP aims to enhance the quality of life, create jobs, and improve economic productivity by addressing critical infrastructure gaps in the country.

5. Q: How does the ‘Index of Industrial Production’ (IIP) serve as an indicator of economic performance in India?

A: The Index of Industrial Production (IIP) is a key economic indicator that measures the performance of different industrial sectors in the country. It provides insights into the growth or contraction of industrial activities, reflecting the overall health of the manufacturing sector. Policymakers use IIP data to assess the impact of economic policies and make informed decisions to stimulate industrial growth.

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