UPSC Prelims Mock Test – ECONOMY 7

Here are 25 Questions, a part of our series on UPSC Prelims Mock Test.

Q1. India enacted the Geographical Indications of Goods (Registration and Protection) Act, 1999 in order to comply with the obligations to

(a) ILO
(b) IMF
(c) UNCTAD
(d) WTO

Answer – D

• GI indicators fall under the WTO domain.

Q2. The Global Infrastructure Facility is 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 Partnership (PPPs) to enable the mobilization of private sector and institutional investor capital.
(c) Collaboration among the major banks of the world working with the OECD and 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

• It is a multilateral development bank of the world’s governments, private companies, and the World Bank. It deals with infrastructure projects which cannot be handled by any one agency.

Q3. Consider the following statements:

1. India has ratified to 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

• India has ratified to Trade Facilitation Agreement (TFA) of WTO. TFA came into force in 31 The Trade Facilitation Agreement (TFA) was one among the 10 agreements of the deal the WTO members (including India) had agreed upon in the December 2013 Bali Ministerial meeting.

Q4. 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

Q5. ‘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

• The International Monetary Fund (IMF) releases he Global Financial Stability Report twice in a year

Q6. 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

• In the review conducted in November 2015, the IMF decided that the Renminbi Chinese Yuan would be added to the basket effective October 1 2016.

Q7.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 an observer in IMFC’s meetings.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer – C

• The IMF Board of Governors is advised by two ministerial committees, the International Monetary and Financial Committee (IMFC) and the Development Committee. The IMFC was established on September 30, 1999, by a resolution of the IMF Board of Governors, to replace the Interim Committee of the Board of Governors on the International Monetary System (usually known simply as the Interim Committee), which had been established in 1974. The Committee discusses matters of common concern affecting the global economy and also advises the IMF on the direction of its work.

Q 8. Consider the following statements:

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

• The New Development Bank (NDB), formerly referred to as the BRICS Development Bank, is a multilateral development bank established by the BRICS states (Brazil, Russia, India, China and South Africa). The headquarters of the New Development Bank is in Shanghai.

Q9. 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

• Global Economic Prospects is a World Bank Group report that examines global economic developments, with a special focus on developing countries, on a semiannual basis (in January and June). First published in 1998, the report provides both historical data and economic forecasts.

Q10. Which of the following organizations brings out the publication known as ‘World Economic Outlook?

(a) The International Monetary Fund
(b) The United Nations Development Program
(c) The World Economic Forum
(d) The World Bank

Answer – A

• World Economic Outlook is a survey conducted and published by the International Monetary Fund.

Q11. In terms of the economy, the visit by foreign nationals to witness the XX Common Wealth Games in India amounted to:

(a) Export
(b) Import
(c) Production
(d) Consumption

Answer – A

• Undermost economy, the visit to foreign nationals in India to witness of Xix Commonwealth Games amounted to export.

Q12. Consider the following actions that the government can take:

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

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

(a) 1 and 2

(b) 2 and 3

(c) 3 only

(d) 1 and 3

Answer – D

• The current account deficit is the excess of imports over exports. Policies favoring FDI and FII will reduce the deficit. Also if the domestic currency is devalued exports would become cheaper which will create additional demand for countries’ products in the world markets. Any reduction in export subsidy is dangerous as the country’s goods will become costlier and exports would fall.

Q13. In order to comply with the TRIPS Agreement, India enacted the Geographical Indications off Goods (Registration and Protection) Act, of 1999. The difference/differences between a “Trade Mark” and a Geographical Indication is/are:

1. A Trade Mark is an individual or a company’s right whereas a Geographical
   Indication is a community’s right.
2. A Trade Mark can be licensed whereas a Geographical Indication cannot be licensed.
3. A Trade Mark is assigned to manufactured goods whereas the Geographical Indication is assigned to agricultural goods/products and handicrafts only.

Which of the statements given above is/are correct?

(a) 1 only

(b) 1 and 2 only

(c) 2 and 3 only

(d) 1, 2 and 3

Answer – B

• Only in 3rd statement, red flag, pause, and think. Obviously, GI can also be assigned to manufactured goods, even natural products, etc. Eliminate it. Now we only have to look at option 2 You know trademark is private property so a private party can license it to a 3rd party while GI is community property and hence can not be licensed to 3rd party. In any case, if GO is due to a particular geography, how can a manufacturer from another geography get GI status.

Q14. 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) Neither 1 nor 2

Answer – C

• The International Finance Corporation IFC the investment arm of the World Bank issued a ` 1000 crore bond to fund infrastructure projects in India.b These bonds were listed on the London Stock Exchange LSE.c They are rupee-denominated bonds issued to overseas buyers. The purpose of the issue was to fund infrastructure projects in India. IFC named them ‘masala’ bonds to reflect the Indian angle to it. The first statement is right and the Second statement initial part is also correct- they denominated and ‘debt’ type of instrument. We’ve to check whether public sector firms also use it. the answer is yes. Hence both are correct.

Q15. Which of the following would include Foreign Direct Investment in India?

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

Select the correct answer using the codes given below:
(a) 1, 2, 3 and 4
(b) 2 and 4 only
(c) 1 and 3 only
(d) 1, 2 and 3 only

Answer – C

• Portfolio investment doesn’t mean direct investment. It refers to investment in the security markets in India. Subsidiaries of a company come under Direct Investment. Majority equity holding and exclusively financing a company in India leads to getting some control in management or taking part in operations and is thus a Direct Investment.

Q16. Under which of the following circumstances may ‘capital gains’ arise?

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

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

Answer- C

• Capital gains arise when there is a natural increase in the value of the property owned and when you purchase a painting and there is a growth in its value due to the increase in its popularity.

Q17. Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which one of the following statements best represents an important difference between the two?

(a) FII helps bring better management skills and technology, while FDI only brings in capital
(b) FII helps in increasing capital availability in general, while FDI only targets specific sectors
(c) FDI flows only into the secondary market, while FII targets the primary market
(d) FII is considered to be more stable than FDI

Answer – B

• II helps in increasing capital availability in general, while FDI only targets specific sectors

Q18. Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)?

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

Which of the statements given above is/are correct?
(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer – D

• Disinvestment in CPSEs was done to: raise revenue for the government to invest in profitable PSUs and expand them and exit from loss-making PSUs to cut losses further.

Q19. Which of the following can be said to be essentially the parts of ‘Inclusive Governance’?

1. Permitting the Non-Banking Financial Companies to do banking.
2. Establishing effective District Planning Committees in all the districts.
3. Increasing the government spending on public health.
4. Strengthening the Mid-day Meal Scheme.

Select the correct answer using the codes given below:
(a) 1 and 2 only
(b) 3 and 4 only
(c) 2, 3 and 4 only
(d) 1, 2, 3 and 4

Answer – D

• Permitting the Non-Banking Financial Companies to do banking. Establishing effective District Planning Committees in all the districts. Increasing the government spending on public health. Strengthening the Mid-day Meal Scheme

Q20. Consider the following statements with respect to the Second Five-Year Plan:

1. It was based on the Mahalanobis Model of Development.
2. It was focused on Heavy industrialization and Capital goods.

Which of the statement(s) given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer – C

• The Second five-year plan was made under the leadership of then-Prime Minister Jawahar Lal Nehru. The plan period was for the period 1956-The target of growth rate was set to 4.5%but it actually achieved 4.27% of growth rate.
• Statement 1 is correct: The plan was based on Mahalanobis’s Model of Development and was developed by P. C. Mahalanobis who was an Eminent Statistician of India.
• Statement 2 is correct: The construction of the socialist pattern of society as the goal of economic policy was the focus of the Second Five-Year Plan in 1956. Rapid industrialization was stressed, with a focus on Heavy Industries and Capital Goods.

Q21, Consider the following Agreements:

1. Agreement on Agrarian Restructure.
2. Agreement on Rapid Industrialisation.
3. Agreement on the Development of Essential Consumer Goods.

Which of the agreements given above was/were concluded between the Bombay Plan Club and the National Planning Committee?
(a) 1 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer – D

Option (d) is correct:

• The National Planning Committee (NPC), chaired by J. L. Nehru, was established in October 1938 on the suggestion of INC president Subhash C. Bose to devise comprehensive development plans embracing all main economic sectors. The Bombay Plan, properly titled “A Plan of Economic Development for India,” was initiated by eight Indian capitalists. The first volume of this plan was released in 1944, and the second volume was issued in 1945. Popular feelings about the need of planning and the crisscrossing of memberships between the NPC and the Bombay Plan Club enabled some clear agreements between these two major plans.
• A basic agreement on the topic of agrarian restructuring, including the elimination of all middlemen (zamindari abolition), minimum salaries, a guarantee of minimum or fair pricing for agricultural products, cooperatives, credit, and marketing help.
• Rapid industrialization agreement in which both strategies agreed on a focus on heavy capital goods and fundamental industries (the Bombay Plan had allocated 35 percent of its total plan outlay on basic industries).
• Taking cues from Soviet planning, both the NPC and the Bombay Plan advocated for the development of critical consumer goods industries at the same time, although in a low-key manner.

Q22. Consider the following statements regarding different Types of Expenditure incurred by the Government of India:

1. All asset creating, and productive expenditures are Non-Planned
   Expenditure.
2. All consumptive, non-productive, nonasset building expenditures are Planned Expenditures.
3. The government switched over from the ‘Plan’ and ‘Non-Plan’ classification of expenditure to ‘Revenue’ and ‘Capital’ in the fiscal 2017-18.

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- B

• Statements 1 and 2 are not correct: The Plan and the Non-Plan are two categories of classification of every expenditure incurred on the public exchequer. In India, the plan expenditures are all those expenditures which are done in the name of planning and all others are non-plan expenditures. Essentially, the Planned expenditures are all asset creating, and productive expenditures and Non-Plan Expenditures are all consumptive, non-productive and non-asset building expenditures. These are also termed as Developmental and Non-developmental expenditures, respectively.
• Statement 3 is correct: In September 2011, Dr. C. Rangarajan (former Chairman of Prime Minister’s Economic Advisory Council) headed a high-power panel which recommended redefining Plan and Non-Plan expenditures as Capital and Revenue expenditures. This was recommended because the former set of terms ‘blur the classification’. The panel implied that this would facilitate linking expenditure to ‘outcomes’, and better public expenditure. Looking at this anomaly, since the fiscal 2017-18, the Government switched over from the ‘Plan’ and ‘Non-Plan’ classification of expenditure to ‘Revenue’ and ‘Capital’ (It was announced in the Union Budget 2017-18).

Q23. Which of the following Expenditures come under the category of Revenue Expenditure of the Government in India?

1. Loan Repayments by the Government
2. Salaries, Pension and Provident Fund paid by the Government to the Government employees
3. Subsidies forwarded to all sectors by the Government
4. Expenditures on Social services

Select the correct answer using the code given below:
(a) 2 and 4 only
(b) 2, 3 and 4 only
(c) 1 and 3 only
(d) 1, 2 and 3 only

Answer-B

• All expenditures incurred by the Government are either of the Revenue kind or Current kind or Compulsive kind. The basic identity of such expenditures is that they are of consumptive kind and productive assets are not created. They are either used in running a productive process or running a Government. In India a wide category of things comes under such expenditures like:
• The Government’s Interest payment (not loan repayment) on the internal and external loans. (Option 1 is not correct)
• Salaries, Pension, and Provident Fund paid by the Government to the Government employees. (Option 2 is correct)
• Subsidies are forwarded to all sectors by the Government. (Option 3 is correct)
• Defense expenditures by the Government.
• Postal Deficits of the Government.
• Law and order expenditures (i.e., police & paramilitary).
• Expenditures on Social services (includes all social sector expenditures such as education, health care, social security, poverty alleviation, etc.) and general services (tax collection, etc.). (Option 4 is correct)
• Grants given by the Government to Indian states and foreign countries.

Q24. Which of the following Expenditures come under the category of Capital Expenditure of the Government in India?

1. Loan Disbursals by the Government
2. Loan Repayments by the Government
3. Plan Expenditure of the Government
4. Capital Expenditures on Defence by the Government

Select the correct answer using the code given below:
(a) 2 and 4 only
(b) 2, 3 and 4 only
(c) 1 and 3 only
(d) 1, 2, 3 and 4

Answer – D

• The Capital Expenditure includes all the areas which gets Capital from the Government. In India, it comprises:
• Loan Disbursals by the Government: The loans forwarded by the Government might be internal (i.e., to the States, UTs, PSUs, FIs, etc.) or external (i.e., to foreign countries, foreign banks, purchase of foreign bonds, loans to IMF and WB, etc.). (Option 1 is correct)
• Loan Repayments by the Government: Loan payments might be internal as well as external. This involves only the capital part of the loan repayment as the element of interest on loans is shown as a part of the Revenue expenditure. (Option 2 is correct)
• Plan Expenditure of the Government: This includes all the expenditures incurred by the Government to finance the planned development of India as well as the Central Government’s financial support to the States for their plan requirements. (Option 3 is correct)
• Capital Expenditures on Defence by the Government: It includes all kinds of Capital expenses to maintain the Defence forces, the equipment purchased for them as well as the modernization expenditures. It should be kept in mind that defense is a Non-plan expenditure that has capital as well as Revenue expenditures in its maintenance. The Revenue part of expenditure in the Defence is counted in the Revenue expenditures by the Government. (Option 4 is correct)
• Other Liabilities of the Government: Basically, this consists of all the Repayment liabilities of the Government on the items of the other Receipts. The level of liabilities depends on the fact as to how much such receipts were made by the Governments in the past.

Q25. With reference to the ‘Effective Revenue Deficit’ calculated in India, consider the following statements:

1. Effective Revenue Deficit is the difference between Revenue Deficit and Grants for the creation of Capital Assets (GoCA).
2. The Grants for Creation of Capital Assets (GoCA) include the Government of India Grants forwarded to the States & Union Territories for the implementation of the Centrally Sponsored Programmes.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer – C

• Statement 1 is correct: The difference between Revenue Deficit and Grants for the creation of Capital Assets is called Effective Revenue Deficit. The Rangarajan Committee on Public Expenditure suggested the Effective Revenue Deficit concept. Its objective is to remove the money used out of borrowing to finance Capital expenditure. The concept was brought in to determine the actual deficit in the Revenue account after adjusting for expenditure of capital nature. The consumption component of the Revenue deficit will reduce with increased concentration on this. It will establish space for increased Capital spending. The Union Budget 2011-12 introduced this.
• Statement 2 is correct: The Grants for creation of Capital Assets (GoCA) includes the Government of India Grants forwarded to the States & Union Territories for the implementation of the Centrally Sponsored Programmes such as Accelerated Irrigation Benefit Programme, Pradhan Mantri Gram Sadak Yojana, Jawaharlal Nehru National Urban Renewal Mission, etc. Though the Government of India shows these expenses in its Revenue Expenditures, they are involved with creation of assets and cannot be considered completely ‘unproductive’ like other items put in the basket of the Revenue Expenditures.

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