Q1. What is/are the recent policy initiative(s) of the Government of India to promote the growth manufacturing sector?
- Setting up of National Investment and Manufacturing Zones.
- Providing the benefit of ‘single window clearance’.
- Establishing the Technology Acquisition and Development Fund.
Select the correct answer using the codes given below:
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer – C
- These two initiatives helped to grow the manufacturing sector. Setting up of National Investment and Manufacturing Zones. Establishing the Technology Acquisition and Development Fund.
Q2. A “closed economy” is an economy in which
(a) The money supply is fully controlled
(b) Deficit financing takes place
(c) Only exports take place
(d) Neither exports nor imports take place
Which of the statements given above is correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer – D
- A closed economy is an economy in which neither imports nor exports take place in that particular country. As the name suggests the country provides the consumers with everything they need from within the country’s economy.
Q3. A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is the “base effect”?
(a) It is the impact of drastic deficiency in supply due to the failure of crops
(b) It is the impact of the surge in demand due to rapid economic growth
(c) It is the impact of the price levels of previous year on the calculation of inflation rate
(d) None of the above
Answer -C
- If the prices in the previous year are low then the inflation in the corresponding year spikes. This higher level of inflation can be attributed to much lower inflation in the previous year compared to the base year or base effect.
Q4. Which one of the following statements appropriately describes the “fiscal stimulus”?
(a) It is a massive investment by the Government in the manufacturing sector to ensure the supply of goods to meet the demand surge caused by rapid economic growth
(b) It is an intense affirmative action of the Government to boost economic activity in the country
(c) It is the Government’s intensive action on financial institutions to ensure the disbursement of loans to agriculture and
allied sectors to promote greater food production and contain food inflation
(d) It is an extreme affirmative action by the Government to pursue its policy of financial inclusion
Answer – B
- An increase in public spending or a reduction in the level of taxation that might be performed by a government in order to encourage and support economic growth is called fiscal stimulus. Thus only option A matches this description.
Q5. India has experienced persistent and high food inflation in the recent past. What could be the reasons?
- Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
- As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
- The food supply chain has structural constraints.
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
- Notwithstanding some moderation, food price inflation has remained persistently elevated for over a year now, reflecting in part the structural demand-supply mismatches in several commodities. The trend of food inflation was pointing at not only structural demand-supply mismatches in commodities comprising the essential consumption basket but also at changing consumption patterns.
Q6. Economic growth is usually coupled with
(a) Deflation
(b) Inflation
(c) Stagflation
(d) Hyperinflation
Answer – B
- Inflation and economic growth are parallel lines and can never be met. Inflation reduces the value of money and makes it difficult for the common people. Inflation and economic growth are incompatible because the former affects all sectors as indicated by CPI or Consumer Price Index.
Q7.Match List I with List II and select the correct answer using the codes given below the lists:
List – I List-II
A. Boom 1. Business activity at a high level with increasing income, output, And employment at the macro level
B. Recession 2. Gradual fall of income, output, and employment with business activity in a low gear
C. Depression 3. Unprecedented levels of underemployment, and unemployment, drastic fall in income output
D. Recovery 4. The steady rise in the general level of prices, income, output, and employment.
Codes:
(a) A-1; B-2; C-3; D-4
(b) A-1; B-2; C- 4; D-3
(c) A-2; B-1; C- 4; D-3
(d) A-2; B-1; C-3; D-4
Answer – A
- An economic boom is the expansion and peak phases of the business cycle. It\’s also known as an upswing, upturn, and growth period. During a boom, key economic indicators will rise. Gross domestic product, which measures a nation\’s
economic output, increases. - An economic recession is a period of general economic decline and is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. Generally, a recession is less severe than a depression.
In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a recession, which is a slowdown in economic activity over the course of a normal business cycle. - Depressions are characterized by their length, by abnormally large increases in unemployment falls in the availability of credit, shrinking output as buyers dry up and suppliers cut back on production and investment, more bankruptcies including sovereign debt defaults, significantly reduced amounts of trade and commerce (especially international trade), as well as highly volatile relative currency value fluctuations (often due to currency devaluations).
- Price deflation, financial crises, and bank failures are also common elements of a depression that does not normally occur during a recession. An economic recovery is the phase of the business cycle following a recession, during which an economy regains and exceeds the peak employment and output levels achieved prior to the downturn.
Q8.Price rise goes in favor of those who are
(a) Debtors
(b) Pensioners
(c) Businessmen
(d) Government servants
Answer – A
- Price rise benefits the debtors. In case the wages increase with inflation, and if the borrower already owed the money before the inflation occurred, the inflation benefits the borrower. This is because the borrower still owes the same amount of money, but now he or she has more money in his or her paycheck to pay off the debt. This results in less interest for the lender if the borrower uses the extra money to pay his or her debt.
Q9. Buyers’ market denotes the place where
(a) The demand exceeds the supply
(b) The supply exceeds the demand
(c) The demand and supply are well-balanced
(d) Commodities are available at competitive rates
Answer – B
- A buyer’s market is a situation in which supply exceeds demand, giving purchasers an advantage over sellers in price negotiations. The term ? buyer’s market? is commonly used to describe real estate markets, but it applies to any type of market in which there is more product available then there are people who want to buy it. The opposite of a buyer’s market is a seller’s market, a situation in which demand exceeds supply and owners have an advantage over buyers in price.
Q10. An increase in the Bank Rate generally indicates that the
(a) Market rate of interest is likely to fall
(b) The Central Bank is no longer making loans to commercial banks
(c) The Central Bank is following an easy money policy
(d) The Central Bank is following a tight money policy
Answer – D
- A tight monetary policy is a course of action undertaken by the Central bank to constrict spending in an economy, or to curb inflation when it is rising too fast. The increased bank rate increases the cost of borrowing and effectively reduces its attractiveness
Q11. The supply of money remains 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
- Supply remains the same, increase in demand for money will lead to more options to lend money for the banks. Thus, banks will lend money at a greater rate of interest to earn more money as there are more customers for the same amount of money.
Q12. 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
- It is an activity by a central bank RBI to buy or sell government securities. The aim of open market operations is to manipulate the short-term interest rate and the supply of base money in an economy and indirectly control the total money supply.
Q 13. Consider the following liquid assets:
- Demand deposits with the banks
- Time deposits with the banks
- Savings deposits with the banks
- 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
- Currency/cash is the most liquid, then the demand deposits (current accounts), then the savings deposits with the bank and finally the least liquid is the time deposits with the bank (fixed deposits).
Q14. Which of the following constitutes a Capital Account?
- Foreign Loans
- Foreign Direct Investment
- Private Remittances
- 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
- Capital account shows the net change in the physical or financial asset ownership for a country. It includes Foreign Direct Investment, Portfolio Investment, foreign loans, changes in reserve accounts etc. Private remittances come under Current account and not Capital account.
Q15. Which of the following measures would result in an increase in the money supply in the economy?
- Purchase of government securities from the public by the Central Bank.
- Deposit of currency in commercial banks by the public.
- Borrowing by the government from the Central Bank.
- Sale of government securities to the public by the Central Bank.
Select the correct answer using the codes given below:
(a) 1 only
(b) 2 and 4 only
(c) 1 and 3
(d) 2, 3 and 4
Answer – C
- The money supply increases when money flows out of the RBI. The purchase of Govt securities from the public by the Central bank leads to the transfer of money to the public thereby leading to an increase in money supply in the economy. Similarly, borrowing by the government from the Central bank leads to an increased money supply. However, a deposit of currency in commercial banks by the public doesn’t lead to an increase in money supply as the money just gets transferred from the public to commercial banks.
Q16. Variable reserve rates and Open Market Operations are instruments of
(a) Fiscal Policy
(b) Monetary Policy
(c) Budgetary Policy
(d) Trade Policy
Answer – B
- Variable reserve rates and Open Market Operations are instruments of Monetary Policy.
Q17. ‘Interest Rate Policy’ is a component of
(a) Fiscal Policy
(b) Monetary Policy
(c) Trade Policy
(d) Direct Control
Answer – B
- Monetary policy is associated with interest rates and availability of credit. Instruments of monetary the policy have included short-term interest rates and bank reserves through the monetary base.
Q 18. The basic difference between imperative and indicative planning is that
(a) in the case of imperative planning the the market mechanism is entirely replaced by a command hierarchy, while in the case of indicative planning, it is looked upon as a way to improve the functioning of the system.
(b) In the case of indicative planning there is no need to nationalize any industry
(c) in the case of imperative planning, all economic activities belong to the public sector, while in the other type they belong to the private sector
(d) It is easier to achieve targets in the imperative type of planning
Answer – A
- Planning processes of all the non-state Economies (i.e., either Communist or Socialist economies) did belong to the ‘imperative’ (or target) planning. Planning by the Mixed Economies is of ‘indicative’ type
Q19. The term “Fiscal Crisis” in India currently refers primarily to
(a) Increase in nono-developmental government expenditure.
(b) Increase in public debt.
(c) Recurring deficit on the current account in the government budget.
(d) Phenomenal increase in external indebtedness.
Answer – D
- A fiscal crisis is the inability of the state to bridge a the deficit between its expenditures and its tax revenues. Fiscal crises are characterized by financial, economic, and technical dimensions on the one hand and political and social dimensions on the other.
Q20. Debenture holders of a company are its:
(a) shareholders
(b) creditors
(c) debtors
(d) directors
Answer – B
- Debenture holders of a company are its creditors
Q21. Real owners of the company are
(a) Debenture holders
(b) Directors of the company
(c) Equity shareholders
(d) Bearer bondholders
Answer – C
- Equity shareholders are the real owners of the company. Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds. They are the foundation for the creation of a company
Q22. What was the purpose of Inter-Creditor The agreement was signed by Indian banks and financial institutions recently.
(a) To lessen the Government of India’s perennial burden of fiscal deficit and current account deficit.
(b) To support the infrastructure projects of Central and State Governments
(c) To act as an independent regulator in case of application for loans of Rs. 50 cores or more
(d) To aim at faster resolution of stressed assets of Rs. 50 crore or more which are under consortium lending
Answer – D
- Project Sashakt by Finance Ministry: It has a 5-pronged approach to resolve the NPA problem in a time-bound manner for Public Sector Banks. Approach 2: For Mid-sized bad loans 50-500cr: Intercreditor pact. So, D is the correct choice.
Q23. The Chairman of public sector banks are selected by the
(a) Banks Board Bureau
(b) Reserve Bank of India
(c) Union Ministry of Finance
(d) Management of the concerned bank
Answer – A
- Bank Board Bureau (BBB) was setup in 2016, BBB selects top officials (MD, CEO, Chairman and full-time Directors) for PSBs, LIC, and other public sector financial institutions.
Q24. The Service Area Approach was implemented under the purview of
(a) Integrated Rural Development Program
(b) Lead Bank Scheme
(c) Mahatma Gandhi National Rural Employment Guarantee Scheme
(d) National Skill Development Mission
Answer – B
- Basic function of Lead Bank: Preparation of service area credit plan. Coordination with the efforts of the Government, banks and credit agencies.
- The service area approach is a modification of the Lead Bank scheme.
Q25. Which of the following is not included in the assets of a commercial bank in India?
(a) Advances
(b) Deposits
(c) Investments
(d) Money at call and short notice
Answer – B
- Deposit is a liability of the commercial bank, It has to be returned to the customer.
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