1 Indian EcoNOMy

1. What does the term ‘Green shoots’ represent in an Which of the statements given above are correct?
Economy? (a) 1 and 2 only (b) 2 and 3 only
(a) signs of growth of agriculture sector in a (c) 1 and 3 only (d) 1, 2 and 3
growing economy 4. Consider the following statements in regard to
(b) signs of economic recovery during an ‘RESIDEX’:
economy downturn (1) The index is prepared to track the prices of
(c) signs of growth of agriculture sector in a residential properties in India on the basis of
declining economy actual transaction prices.
(d) signs of economic decline in a developed (2) The index is prepared from the secondary data
economy. available from various sources like housing,
2. Consider the following statement in regard to finance companies and banks.
reserve currency : Which of the statements given above is/are
(1) Reserve currency acts as the international correct?
pricing currency in the global market for (a) 1 only (b) 2 only
commodities like oil and gold. (c) Both 1 and 2 (d) Neither 1 nor 2
(2) The country whose local currency is accepted 5. Which of the following is/are the functions of the
as reserve currency gets an added advantage National Development Council of India?
in terms of lower commodity rates in the (1) To prescribe guidelines for preparation of the
international market. national economic plan.
Which of the statements given above is/are correct (2) To review the working of the national
(a) 1 only (b) 2 only economic plan from time to time.
(c) Both 1 and 2 (d) Neither 1 nor 2 (3) To consider important questions of social
3. Consider the following in regard to the reason and economic policy affecting national
for the persistence of inflation according to the development
Economic Survey 2012-13 : Select the correct answer using the codes given
(1) Inflation in protein foods, particularly eggs, below?
meat and fish and in fruits and vegetables has (a) 1 only (b) 1 and 2 only
persisted because of changes in dietary habits (c) 2 and 3 only (d) 1, 2 and 3
and supply constraints. 6. Consider the following statements in regard to
(2) Rise in income is also a reason for sustained inclusive development :
food inflation. (1) Inclusive developments refer to the social
(3) An increase in MSP while necessary to ensure inclusion of the socially excluded sections
remunerative returns to farmers, raised the of the society.
floor prices and also contributed to the rise (2) Creating productive and gainful employment
in input prices. opportunities.
 Which of the statements given above is/are correct? Which of the statements given above is/are correct?
(a) 1 only (b) 2 only (a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2 (c) Both 1 and 2 (d) Neither 1 nor 2
7. Consider the following statements in regard to 11. What do you understand by ‘regressive taxation’?
Hedge funds: (a) Tax that takes a larger perentage from low-
(1) Hedge funds are open to all types of investors. income people than from high income people.
(2) Hedge funds are immune to risk of the market (b) Taxation where the tax rate increases
and always produce positive returns. irrespective of fall or rise in taxable incomes.
(3) Investments in hedge funds are illiquid as they (c) Taxation where the tax rate increase with the
often require investors keep their money in increase of taxable income
the fund for at least one year. (d) None of above
Which of the statements given above is/are correct? 12. Consider the following statements in regard to
(a) 1 only (b) 1 and 2 only Zero Base Budgeting (ZBB) :
(c) 2 and 3 only (d) 3 only (1) Existing Government programmes can be
8. Consider the following systems : discarded under ZBB if they are found to be
(1) Introduction of portfolio system in the outdated.
Executive. (2) ZBB is difficult to be applied to Human
(2) Establishment of a Federal public service Development programmes as the outcome
commission. of such programme is intangible in nature.
(3) Separation of provincial budgets from the Which of the statements given above is/are correct?
central budget for the first time. (a) 1 only (b) 2 only
Which of the systems given above was/were (c) Both 1 and 2 (d) Neither 1 nor 2
provided by the government of India, Act 1935? 13. In the hours of surging energy needs, why and
(a) 1 and 2 only (b) 2 only how it is necessary to manage coal wisely for a
(c) 1 and 3 only (d) 3 only sustainable socio-economic development?
9. Consider the following statements in regard to (1) Coal fired power plants are the biggest source
money market in India: of manmade CO2 emissions and coal energy
(1) It is a market for short-term and long-term the single greatest threat our climate faces.
funds with maturity ranging from overnight (2) To get to the coal we must either cut down
to one year. the forests and/or displace large number of
(2) It acts as an instrument of liquidity adjustment people from these regions.
for the Central Bank. Select the correct answer using the codes given
Which of the statements given above is/are correct? below :
(a) 1 only (b) 2 only (a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2 (c) Both 1 and 2 (d) Neither 1 nor 2
10. Consider the following statements in regard to 14. Which of the following can be the outcomes of
‘Inflation Index bonds’? very high inflation in the economy?
(1) Investment in these bonds is more risky (1) Reduction in economic growth
as these bonds increase the inflation risk (2) Increase in savings
attached to the investment. (3) Reduction in exports
(2) It is better financial instrument compared to Select the correct answer using the codes below :
gold to hedge the risk rising out of volatile (a) 1 and 4 only (b) 3 and 4 only
economy. (c) 2 and 3 (d) 1 and 3 only
15. Which of the following activities can lead to 20. Which of the following best explains the cascading
financial inclusion in India? effect of taxation?
(1) Issuing of general purpose credit cards. (1) When tax imposition leads to a disproportionate
(2) Strict know your customer’ (KYC) norms increase in prices by an extent more than the
(3) Opening of Bank branches in unbanked rural rise in the tax.
areas. (2) When tax imposition leads to a disproportionate
(4) Opening of no-frills account. decrease in prices by an extent more than the
Select the correct answer using the codes given rise in the tax.
below : (3) When tax imposition leads to a disproportionate
(a) 1, 2 and 3 only (b) 2, 3 and 4 only decrease in imports.
(c) 1, 3 and 4 only (d) 2 and 3 only (4) When tax imposition leads to a disproportionate
16. Consider the following statements in regard to decrease in exports.
Gross Domestic product (GDP) of India: (a) 1 only (b) 2 and 3 only
(1) Between 1951 and 2000 the share of (c) 4 only (d) 3 and 1 only
agriculture in GDP fell from around 56% to 21. An economy with very low rate of interest and
around 25% where economic agents expect the interest rate
(2) Share of the services sector in GDP was less to rise in future and consequently bond prices to
than industrial sector between 1951 and 2000 fall, causing capital loss in the economy is going
Which of the statements given below is/are not through a situation known as
correct? (a) Hyperinflation
(a) 1 only (b) 2 only (b) Double dip recession
(c) Both 1 and 2 (d) Neither 1 nor 2 (c) Slow down in the economy
17. In an economy a condition of lack of money supply (d) Liquidity trap
in comparison to the supply of the goods services, 22. Consider the following statements :
will lead to: (1) Fiat money is a term used for Gold coins
(a) Inflation (b) Deflation
(2) Currency Deposit Ratio is the proportion of
(c) Hyperinflation (d) Devaluation
the total deposits commercial banks keep as
18. Currency devaluation done by the government
reserves.
leads to which of the following?
Which of the above statements is/are correct?
(a) Fall in domestic prices
(a) 1 only (b) 2 only
(b) Increase in domestic prices
(c) Both 1 and 2 (d) Neither 1 nor 2
(c) No impact on domestic prices
23. Which of the following are correct in regard to
(d) Irregular fluctuations in domestic prices.
the austerity measures taken by a country going
19. Consider the following statements in regard to
through adverse economy conditions:
‘poverty line’ :
(1) These measures include a reduction in
(1) The International poverty line according to
spending.
World Bank is US $ 1.25/day/person based
(2) These measures include an increase in tax
on PPP (Purchasing Power Parity).
(2) Planning commission of India has defined (3) These measures include reduction in budget
poverty line based on intake of calories and deficit.
is different for rural and urban areas. Select the correct answer using the codes given
Which of the statements given above is/are correct? below :
(a) 1 only (b) 2 only (a) 1 and 2 only (b) 1 and 3 only
(c) Both 1 and 2 (d) Neither 1 nor 2 (c) 2 and 3 only (d) 1, 2 and 3
24. Consider the following statements in regard to the 30. When the RBI wants to inject liquidity into
GDP of a country : economy, it may adopt the following :
(1) Real GDP is calculated by keeping inflation (1) Buy the government securities from the
into consideration. banks.
(2) Nominal GDP is calculated on the basis of (2) Enter into reverse repo operations
the prices of goods and services produced in (3) Raise cash Reserve Ratio
the current year. (4) Reduce SLR.
Select the correct answer using the codes given
Which of the statements given above is/are correct?
below:
(a) 1 only (b) 2 only
(a) 1 only (b) 1 and 4 only
(c) Both 1 and 2 (d) Neither 1 nor 2 (c) 1, 2 and 4 only (d) 1, 2, 3 and 4
25. Which of the following is associated with fiscal 31. Which of the following statements is/are correct
policy? in regard to ‘micro-finance’?
(a) Inflation (b) Taxation (1) Micro-credit extended by banks to individual
(c) Consumption (d) Money supply is reckoned as a part of their priority sector
26. Consider the following statements in regard to lending.
Headline inflation : (2) RBI has prescribed a particular model the
(1) It provides an accurate picture of the inflation banks to provide micro-finance.
in the country. Choose the correct answer using the codes given
(2) It is affected by short term transitory effect below:
on prices of products. (a) 1 only (b) 2 only
Which of the statements given above is/are correct? (c) Both 1 and 2 (d) Neither 1 nor 2
(a) 1 only (b) 2 only 32. Which of the following steps that will result in
containing inflation?
(c) Both 1 and 2 (d) Neither 1 nor 2
(1) Increasing Cash Reserve Ratio (CRR)
27. Consider the following statements :
(2) Decreasing Statutory Liquidity Ratio (SLR)
(1) Higher growth in GDP and population can (3) Permitting Central/State agencies to import
occur together. duty free pulses and sugar.
(2) Per capita income always decreases with high Select the correct answer using the codes given
population growth. below:
Which of the statements given above is/are correct? (a) 1 only (b) 1 and 3 only
(a) 1 only (b) 2 only (c) 2 and 3 only (d) 1, 2 and 3
(c) Both 1 and 2 (d) Neither 1 nor 2 33. Which of the following will not contribute to a
28. Which of the following is not a part of India’s higher current account deficit?
National Debt? (1) Increase in price of crude oil
(a) National Savings Certificates (2) Rise in export of software services
(b) Dated Government Securities (3) Rise in import of services
(c) Provident Funds Choose the correct answer using the codes given
below:
(d) Life Insurance Policies
(a) 1 and 2 only (b) 2 only
29. ‘Fiscal Drag’ expresses the impact of inflation on
(c) 3 only (d) 1 and 3 only
which of the following ?
34. Consider the following statements in regard to
(a) Fiscal Deficit devaluation and depreciation of a currency:
(b) Tax Revenue and GDP (1) Devaluation is an activity conducted by
(c) Black money central government whereas depreciation
(d) Investment happens due to market forces.
 (2) In both the devaluation and depreciation 39. Which of the following is the characteristic of
currency loses value against other currencies progressive tax?
in a floating currency exchange market. (1) Marginal tax rate should be increasing.
Which of the statements given above is/are correct? (2) Marginal tax rates should be more than
(a) 1 only (b) 2 only average tax rate.
(c) Both 1 and 2 (d) Neither 1 nor 2 Select the correct answer using the code given
35. GDP deflator is used to : below:
(a) measure the relative reduction in GDP growth (a) 1 only (b) 2 only
rate of a country. (c) Both 1 and 2 (d) Neither 1 nor 2
(b) measure the inflation in a country. 40. Consider the following statements in regard to the
(c) compare the GDP of a country vis a vis other Goods and Service Tax:
countries of the world. (1) The GST shall have two components : one
(d) estimate the purchasing power of the citizen levied by the centre, and the other levied by
of a country. the states.
36. Consider the following statements in regard to (2) The central GST and state GST are to be paid
‘Marginal Standing Facility (MSF)’ of RBI : to the joint accounts of the centre and the
(1) It will help in reducing volatility in the states.
overnight lending rates in the inter-bank (3) While the imports would be zero-rated, the
market. exports would be subjected to the GST.
(2) The borrowing under the MSF should be over Which of the above statements is/are correct?
and above the statutory liquidity requirement. (a) 1 only (b) 2 and 3 only
Which of the statements given above is/are correct? (c) 1 and 3 (d) 1 and 2 only
(a) 1 only (b) 2 only 41. Which of the following will not be the part of
(c) Both 1 and 2 (d) Neither 1 nor 2
‘financial inclusion’?
37. Which of the following should be considered for
(1) Opening educational centres
‘Pigovian taxation’?
(2) Opening wealth management centres by
(1) Consumption of cigarettes
citibank.
(2) Research for new technologies
(3) Eradication of poverty.
(3) Burning of fossil fuels
(4) Report of Khan commission on financial
(4) Restoration of lost cultural heritage
inclusion.
Choose the correct answer using the codes given
Select the correct answer using the codes given
below:
below:
(a) 1 and 3 only (b) 2, 3 and 4 only
(a) 1, 2 and 3 only (b) 1, 2 and 4 only
(c) 1, 2 and 3 (d) 2 and 4 only
(c) 1, 3 and 4 only (d) 1, 2, 3 and 4
38. ‘Basel III’ norms target at which of the following?
42. Which of the following can be associated with
(1) Improve the banking sector’s ability to absorb
‘Gini Coefficient’?
shocks arising from financial and economic
stress. (1) National income inequality
(2) Improve risk management and governance. (2) Lorenz curve
(3) Strengthen banks’ transparency. (3) Education system
Choose the correct answer using the codes given Select the correct answer using the codes given
below: below:
(a) 1 only (b) 1 and 2 only (a) 1 only (b) 2 only
(c) 1 and 3 only (d) 1, 2 and 3 (c) 1 and 2 only (d) 1, 2 and 3
43. In India, rural incomes are generally lower than (a) 1 and 2 (b) 1 and 3
the urban incomes. Which of the following reasons (c) 2 and 4 (d) 1, 2, 3 and 4
account for this? 48. National Income is the
(1) A large number of farmers are illiterate and (a) NNP at market price
know little about scientific-agriculture. (b) NNP at factor cost
(2) Prices of primary products are lower than (c) Net Domestic product at market price
those of manufactured products. (d) Net domestic product at factor cost.
(3) Investment in agriculture has been lower 49. The Minimum Alternative Tax (MAT) was
when compared to investment in industry : introduced in the budget of the Government of
(a) 1, 2 and 3 (b) 1 and 2 India for the year?
(c) 1 and 3 (d) 2 and 3 (a) 1991-92 (b) 1992-93
44. Human Development Index comprises literacy (c) 1995-96 (d) 1996-97
50. The supply-side economics lays greater emphasis
rates, life expectancy at birth and
on the point of view of :
(a) GDP per head in the US dollars.
(a) producer (b) global economy
(b) GDP per head at real purchasing power.
(c) consumer (d) middle-man
(c) GNP in US dollars
51. The volatility in the Indian share market is due to
(d) National Income per head in US dollars. 1. inflow and outflow of foreign funds.
45. In India, inflation is measured by the : 2. fluctuations in foreign capital markets.
(a) wholesale price Index Number 3. changes in the monetary policy.
(b) consumers price Index for urban non-manual Which of the above mentioned causes are correct?
workers. (a) 1 and 2 (b) 1 and 3
(c) consumers price Index for agricultural (c) 1, 2 and 3 (d) 2 and 3
(d) National Income Deflation 52. Fiscal deficit implies
46. For the Assertion (A) and Reason (R) below. (a) Total expenditure – (Revenue receipts +
Choose the correct alternative. recovery of loans + receipts from disinvestment)
(A) : The emergence of economic globalism does (b) Total expenditure – Total receipts
not imply the decline of socialist ideology. (c) Total expenditure – (Revenue receipts +
(R) : The ideology of socialism believes in receipts from disinvestment)
Universalism and globalism. (d) Total expenditure – Disinvestment receipts
Which one of the following is correct? 53. India’s Trade Policy (2009-14) seeks to
(a) Both A and R are true and R is the correct 1. double the country’s share of global trade by
explanation. 2020
(b) Both A and R are true but R is not the correct 2. achieve a growth of 25 percent per annum in
explanation of A. exports.
(c) A is true but R is false. 3. double Indian exports of goods and services
(d) A is flase but R is true. by 2014.
Choose the correct statement:
47. Which of the following comes under Non-plan
(a) 1 and 2 (b) 2 and 3
expenditure?
(c) 1 and 3 (d) 1, 2 and 3
1. Subsidies
54. Which of the following is not correctly matched?
2. Interest payments
(a) Chitra Ramkrishna – National Stock
3. Defence expenditure
Exchange
4. Maintenance expenditure for the infrastructure (b) Chanda Kochar – ICICI Bank
Choose the correct answer using the codes given (c) Naina Lal Kidwai – HSBC
below: (d) Shikha Sharma – SBI
55. Which of the following definitions are correct? 1. the Primary Agricultural Co-operative
(i) Basis points: increase in interest rates in Societies, Commercial Banks, RRBs and
percentage terms. Private money lenders.
(ii) Repo rate: rate at which commercial banks 2. the NABARD, RBI, Commercial banks and
borrow from the RBI by selling their Private money lenders.
securities or financial assets to the RBI for a 3. the District Central Co-operative Banks
long-period of time. (DCCB), the lead banks, IRDP and JRY
(iiii) Reverse repo rate: rate of interest at which the 4. the Large Scale Multi-purpose programme,
central bank borrows funds from other banks DCCB, IFFCO and Commercial banks.
(a) All of the above (b) 1 and 2 only
for a short duration.
(c) 1 only (d) 3 and 1 only
(iv) Cash reserve ratio: minimum percentage of
59. Which of the following is true regarding Indian
cash deposits that banks must keep with itself
Economy from 2007-2008 to 2012-13 ?
to avoid liquidity issues.
1. Indian Economy’s growth was continuously
(a) (i) & (ii) (b) (ii), (iii) & (iv) slowing down from 2007-2008 to 2012-2013
(c) (ii) & (iv) (d) (iii) & (iv) due to many factors including Eurozone crisis
56. The Ministry of Corporate Affairs has notified the as well as domestic factors.
Corporate Social Responsibility (CSR) rules and 2. WPI has high weightage for food and fuel
they would come into effect from April 1. Under than CPI.
the new laws that govern companies, spending on 3. In India lack of food grain production due to
CSR or social welfare activities is mandatory for continuous failure of monsoons is the primary
certain class of firms. They are required to shell reason for food inflation.
out at least 2 per cent of their three—year aver- 4. GAAR (General Anti Avoidance Rule) was
age annual profit towards such works. Which of re-introduced in budget 2013.
the following firms classify under the new law to Options :
make CSR spend? (a) 1, 2 and 3 (b) 2 only
(i) Companies having net worth of at least (c) All the above (d) None of the above
`750 crore 60. What are the difference between Millenium
(ii) Companies having minimum turnover of Development Goals and Sustainable Development
`500 crore Goals?
1. Millenium Development Goals (MDGs) were
(iii) Companies with at least net profit of `5
not developed through an inter-governmental
crore
process, while SDG were.
(a) (i) & (ii) (b) (i), (ii) & (iii)
2. All the MDGs are applicable only to the
(c) Only (iii) (d) (i) & (iii) developing countries except for MDG
57. Consider the following : 8 which relates to aid and finance.
1. Market borrowing Options :
2. Treasury bills (a) 1 only (b) 2 only
3. Special securities issued to RBI (c) Both 1 and 2 (d) None of these
Which of these is/are components of internal debt? 61. Which of the following grants/grant direct credit
(a) 1 only (b) 1 and 2 assistance to rural households ?
(c) 2 only (d) 1, 2 and 3 1. Regional Rural Banks
58. The farmers are provided credit from a number of 2. National Bank for Agriculture and Rural
sources for their short and long term needs. The Development
main sources of credit to the farmers include : 3. Land Development Banks
 Select the correct answer using the codes given Which of the above statements is/are correct ?
below : (a) 1 only
(a) 1 and 2 only (b) 2 only (b) 2 only
(c) 1 and 3 only (d) 1, 2 and 3 only (c) None of the above
62. In the context of Indian economy, open market (d) 3 and 4 only
operations to : 67. One of the reasons for India’s occupational
1. borrowing by scheduled banks from RBI structure remaining more or less the same over
2. lending by commercial banks to industry and the years has been that :
trade 1. invest pattern has been directed towards
3. purchase and sale of government securities capital intensive industries
by the RBI 2. productivity in agriculture has been high
4. None of the above
enough to induce people to stay with
Select the correct answer using the codes given
agriculture
below :
3. ceiling on land holdings have enabled more
(a) 1 and 2 only (b) 3 only
people to own land and hence their preference
(c) 4 and 1 only (d) 2 and 3 only
to stay with agriculture
63. Consider the following statements :
1. Inflation benefits the debtors. 4. people are largely unaware of the significance
2. Inflation benefits the bond-holders. of transition from agriculture to industry for
Which of the statements given above is/are correct? economic development
(a) 2 only (b) 1 only Find out the correct option from the code :
(c) Both 1 and 2 (d) Neither 1 nor 2 (a) 2 and 3 only
64. Disguised unemployment generally means: (b) 4 only
1. large number of people remain unemployed (c) None of the above
2. alternative employment is not available (d) 1 only
3. marginal productivity of labour is zero 68. The banks are required to maintain a certain ratio
4. productivity of workers is low between their cash in the hand and total assets.
Find out the correct option from the code: This is called :
(a) 1 and 4 only (b) 3 and 1 only 1. Statutory Bank Ratio (SBR)
(c) 2 only (d) 3 only 2. Statutory Liquid Ratio (SLR)
65. In India, deficit financing is used for raising 3. Central Bank Reserve (CBR)
resources for : 4. Central Liquid Reserve (CLR)
1. redemption of public debt Choose the correct option from the code :
2. adjusting the balance of payments (a) 2 and 3 only (b) All of the above
3. reducing the foreign debt (c) 1 and 4 only (d) 2 only
4. economic development 69. Fiscal deficit in the Union Budget means :
Which of the above statements is/are correct ?
1. the difference between current expenditure
(a) 4 only (b) None of the above
and current revenue
(c) 2 and 3 only (d) 1 and 2 only
2. net increase in Union Governments borrowings
66. To obtain full benefits of demographic dividend,
from the Reserve Bank of India.
what should India do ?
3. the sum of budgetary deficit and net increase
1. Promoting skill development
2. Introducing more social security schemes in internal and external borrowings
3. Reducing infant mortality rate 4. the sum of monetised deficit and budgetary
4. Privatisation of higher education deficit
 Choose the correct option from the code : 74. The ‘activity rate’ of an economy depends upon
(a) 3 only (b) 2 and 4 only so many factors, such as :
(c) All of the above (d) 2 only 1. School leaving age
70. Gilt-edged market means : 2. Popularity of higher education
1. bullion market 3. Social customs
2. market of government securities 4. Retirement age
3. market of guns Code :
4. market of pure metals (a) 1 and 2 (b) 2 and 3
Find out the correct option from the code: (c) 2, 3 and 4 (d) 1, 2, 3 and 4
(a) 2 only (b) 4 and 3 only 75. The “Dual Economy” is a mixture of ?
(c) 1 and 3 only (d) 3 only (a) traditional agriculture sector and modern
71. Consider the following statements about ‘hidden industrial sector
price rise’ and select the correct code : (b) industrial sector and manufacturing sectors
1. A situation of reduction in quality or amount (c) state ownership of the means of production
of a product offered at an unchanged price (d) industrial sector and trading of goods obtained
2. A situation of increase in indirect taxes on through imports
goods, which compromises on the quality of (e) None of these
the goods offered for sale 76. Economic liberalization in India started with?
Code : (a) Substantial changes in industrial licensing
(a) Only 1 (b) Only 2 policy
(c) 1 and 2 both (d) Neither 1 nor 2 (b) The convertibility of Indian rupees
72. Consider the following statements and select the (c) Doing away with procedural formalities for
correct code : foreign direct investment
1. Most of the governments run unbalanced (d) Significant reduction in tax rates
budgets. 77. Quaternary sector implies
2. In a balanced budget there could be budget (a) Activities related to mining and quarrying
surplus but no budget deficit. (b) Activities related to manufacturing
Code : (c) Fishing activities
(a) Only 1 (b) Only 2 (d) Research and developmental activities
(c) Both 1 and 2 (d) Neither 1 nor 2 78. Consider the following statements:
73. Which of the following statements are not correct I. Government disinvesting its share in various
about ‘bond’ ? public sector undertakings
1. It is an instrument of raising long-term capital. II. Process of disinvestment is very fast
2. Bond-issuing body pays interest on it which III. Process of disinvestment is very slow and
is known as ‘contango rate’. government always falls short of target
3. It may be issued by governments and private Which of above statements is/ are true about
companies both. government policy of disinvestment
4. ‘Bonds’ and ‘debantures’ are different in (a) Only I (b) I and III
nature. (c) I and II (d) I, II and III
Codes: 79. Market Based economic climate means:
(a) 1 and 3 only (b) Neither of the above (a) All financial determinations are taken based
(c) 2 only (d) All are true
mostly on the demand and provide forces
 (b) Some financial choice are taken by authorities (b) will increase
and different are left to market forces (c) will neither increase nor decrease
(c) Government has full handle over the exclusive (d) None of the above
sector 83. Consider the following liquid assets:
(d) Economic judgements are taken after 1. Demand deposits with the banks
maintaining in view the social welfare 2. Time deposits with the banks
80. In pursuance with the recommendations of 3. Savings deposits with the banks
Narsimhan Committee, the RBI has framed new 4. Currency
guidelines The correct sequence of these decreasing orders
(a) to govern entry of new private sector banks of Liquidity is:
to make the banking sector more competitive (a) 1-4-3-2 (b) 4-3-2-1
(b) to reduce the freedom given to banks to (c) 2-3-1-4 (d) 4-1-3-2
rationalize their existing branch network 84. In the context of Indian economy; which of the
(c) to setup more foreign exchange banks following is/are the purpose/purposes of ‘Statutory
(d) to lend more easily for industrial development Reserve Requirements’?
81. Deficit financing leads to inflation in general, but 1. To enable the Central Bank to control the
it can be checked if: amount of advances the banks can create
(a) government expenditure leads to increase in 2. To make the people’s deposits with banks safe
the aggregate supply in ratio of aggregate and liquid
demand 3. To prevent the commercial banks from
(b) only aggregate demand is increased making excessive profits
(c) all the expenditure is denoted national debt 4. To force the banks to have sufficient vault
payment only cash to meet their day-to-day requirements
(d) All of the above Select the correct answer using the code given
82. If all the banks in an economy are nationalized and below.
converted into a monopoly bank, the total deposits (a) 1 only (b) 1 and 2 only
(a) will decrease (c) 2 and 3 only (d) 1, 2, 3 and 4
 ANSWER KEY
1. (b) 12. (c) 23. (d) 34. (a) 45. (a) 56. (c) 67. (d) 78. (b)
2. (c) 13. (d) 24. (c) 35. (b) 46. (a) 57. (d) 68. (d) 79. (a)
3. (d) 14. (d) 25. (c) 36. (a) 47. (d) 58. (c) 69. (a) 80. (a)
4. (c) 15. (c) 26. (b) 37. (a) 48. (d) 59. (d) 70. (a) 81. (d)
5. (d) 16. (b) 27. (c) 38. (d) 49. (d) 60. (c) 71. (a) 82. (c)
6. (c) 17. (d) 28. (c) 39. (c) 50. (a) 61. (c) 72. (a) 83. (d)
7. (d) 18. (c) 29. (b) 40. (a) 51. (c) 62. (b) 73. (c) 84. (b)
8. (b) 19. (a) 30. (b) 41. (b) 52. (a) 63. (b) 74. (d)
9. (b) 20. (a) 31. (a) 42. (c) 53. (c) 64. (d) 75. (a)
10. (d) 21. (d) 32. (b) 43. (a) 54. (d) 65. (a) 76. (a)
11. (a) 22. (d) 33. (b) 44. (d) 55. (c) 66. (a) 77. (d)

Hints & Solutions

1. (b) Green shoots is the first signs of an improvement is also being collected from the housing finance
in an economy that is performing badly. It was first companies and banks, which is based on housing
used in this sense by Norman Lamont, the then loans contracted by these institutions.
Chancellor of the Exchequer of the United Kingdom, 5. (d) The National Development Council (NDC) or
during the 1991 recession. the Rashtriya Vikas Parishad is the apex body for
2. (c) A reserve currency (or anchor currency) is decision making and deliberations on development
a currency that is held in significant quantities by matters in India, presided over by the Prime Minister.
governments and institutions as part of their foreign The functions of the Council are to prescribe
exchange reserves, and that is commonly used in guidelines for the formulation of the National Plan; to
international transactions for commodities like consider the National Plan as formulated by the NITI
oil and gold. Persons who live in a country that Aayog; to consider important questions of social and
issues a reserve currency can purchase imports and economic policy affecting national development; and
borrow across borders more cheaply than persons in to review the working of the Plan from time to time
other nations because they need not exchange their and to recommend such measures as are necessary for
currency to do so. achieving the aims and targets set out in the National
3. (d) According to the economic survey 2012-13 Plan.
Inflation persisted because of changes in dietary 6. (c) Inclusive growth is a concept which includes
habits and supply constraints, Rise in income of equitable allocation to every section of society. It
consumers and increase in Minimum support prices creates an environment of equality in opportunity
which raised the floor prices and also contributed to in all dimensions such as employment creation,
the rise in input prices. market, consumption, and production and has created
4. (c) At present, index is being developed only for a platform for people who are poor to access a good
residential housing sector. However, at a later stage, standard of living.
the index could be expanded to develop separate 7. (d) Hedge funds invest in a diverse range of markets
indices for commercial property and land. Primary and use a wide variety of investment styles and
data on housing prices is being collected from financial instruments. Hedge funds are open only to
real estate agents by commissioning the services certain types of investors in a country specified by the
of private consultancy/research organisations of regulator and cannot be offered or sold to the general
national repute. In addition, data on housing prices public. Legally, hedge funds are most often set up
 as private investment partnerships that are open to a 14. (d) Inflation is a persistent increase in the general
limited number of investors and require a very large price level of goods and services in an economy
initial minimum investment. over a period of time . When the general price level
8. (b) The limited advisory function accorded to the rises, each unit of currency buys fewer goods and
Public Service Commission and the continued stress services. Consequently, inflation reflects a reduction
on this aspect by the leaders of our freedom movement in the purchasing power per unit of money – a loss of
resulted in the setting up of a Federal Public Service real value .High inflation means excessive supply of
Commission under the Government of India Act, money and thus leads to rise in the cost of credit and
1935. The Federal Public Service Commission interest rates. Higher inflation leads to reduction in
became the Union Public Service Commission after economic growth, decrease in cost of credit, increase
Independence. The portfolio system in the Executive in spending rather than saving as the value of money
was introduced by the Indian constitution council act, is declining.
1861. The separation of provincial budgets from the 15. (c) Financial inclusion or inclusive financing
central budget was introduced by the Indian councils is the delivery of financial services at affordable
Act, 1919. costs to sections of disadvantaged and low-income
9. (b) The money market consists of financial segments of society. For financial inclusion ‘Know
institutions and dealers in money or credit who wish your customer’ norms should be relaxed and no frills
to either borrow or lend. Participants borrow and account should be opened for low income segments
lend for short periods of time, typically up to thirteen which are looking for basic banking only. Along with
months. Money market trades in short-term financial general purpose credit cards should be issued and
instruments commonly called “paper.” bank branches should be opened in unbanked rural
10. (d) Inflation-indexed bonds are bonds where the areas.
principal is indexed to inflation. They are thus 16. (b) Between 1951 and 2000 the share of agriculture
designed to cut out the inflation risk of an investment. in GDP fell from around 59% to around 25%. Share
These bonds thus decrease the inflation risk attached of the services sector in GDP was more than industrial
to the investment. Moreover these bonds are a better sector. Between 1951 and 2000 it was around 28% for
hedge than gold in a volatile economy as gold does. services and 13 % for manufacturing in 1950. In 1990
11. (a) A regressive tax is generally a tax that is applied it was around 40 % services and 24 % manufacturing.
uniformly. This means that it hits lower income It was around 51 % services in 2000.
individuals harder. Regressive tax imposes a greater 17. (d) Deflation may be caused by a combination of
burden (relative to resources) on the poor than on the the supply and demand for goods and the supply and
rich — there is an inverse relationship between the demand for money, specifically the supply of money
tax rate and the taxpayer’s ability to pay as measured going down and the supply of goods going up.
by assets, consumption, or income. 18. (c) Devaluation is a deliberate downward
12. (c) Zero-based budgeting is an approach to adjustment to the value of a country’s currency,
planning and decision-making which reverses the relative to another currency, group of currencies.
working process of traditional budgeting. In zero- Since it is relative to other currency so internal price
based budgeting, every line item of the budget must remains unchanged. It causes a country’s exports to
be approved, rather than only changes. During the become less expensive and imports more expensive.
review process, no reference is made to the previous 19. (a) The poverty line is a minimum level of income
level of expenditure. Regarding zero Base Budgeting deemed adequate in a particular country. The
(ZBB) Existing Government programme can be common international poverty line has in the past
discarded under ZBB if they are found to be outdated. been roughly $1 a day. In 2008, the World Bank came
Moreover ZBB is difficult to be applied to Human out with a revised figure of $1.25 at 2005 purchasing-
Development programmes as the outcome of such power parity. In India poverty line is identified in
programmes is intangible in nature. monetary units as the level of income or consumption
13. (d) For sustainable socio-economic development it expenditure required in order to avoid poverty.
is necessary to manage coal wisely. However, coal 20. (a) “Taxation over taxes” or “cascading-effect” of
energy is not the single greatest threat our climate the taxes adds to the deadweight loss i.e. slump in
faces and coal is formed due to dead and decaying total surplus of supply chain consisting of supplier,
plants and animals under earth for thousands of years manufacturer, retailer and consumer. Due to
and to get to the coal it is not necessary to either cut cascading tax imposition leads to a disproportionate
down the forests and/or displace large number of increase in prices by an extent more than the rise in
people from these regions. the tax.
21. (d) A liquidity trap is a situation in which injections take away liquidity from the market as the banks
of cash into the private banking system by a central will have to deposit more money with the RBI and
bank fail to lower interest rates and hence fail to similarly entering the reverse repo operations may
stimulate economic growth. A liquidity trap is caused also take away liquidity from the market.
when people hoard cash because they expect interest 31. (a) Micro-credit extended by banks to individuals is
to rise in future ,an adverse event such as deflation, reckoned as a part of their priority sector lending and
insufficient aggregate demand, or war. no particular model has been prescribed for micro-
22. (d) Currency notes and coins are called fiat money. finance and banks have been extended freedom to
They don’t have intrinsic value like a gold or silver formulate their own models.
coin. The currency-deposit ratio measures the 32. (b) In order to curb inflation if CRR is increased,
relationship between the cash people have on hand then it may take liquidity from markets as banks will
and what they have in their accounts. have to deposit more money with RBI. Moreover
23. (d) Austerity describes policies used by governments inflation may also be curbed by Permitting Central/
to reduce budget deficits during adverse economic State agencies to import duty free pulses and sugar.
conditions. These policies may include spending However, Decreasing SLR will leave more money
cuts, tax increases. This is done in economic crisis with banks to give loans, which in turn will lead to
situation to improve the credit rating of the countries inflation.
going through adverse economic condition. 33. (b) Current account deficit is a measurement of
24. (c) Real Gross Domestic Product (real GDP) is a a country’s trade in which the value of goods and
macroeconomic measure of the value of economic services it imports exceeds the value of goods and
output adjusted for price changes (i.e., inflation or services it exports. Increase in crude oil price and rise
deflation). Nominal gross domestic product is defined in import of services oil increase the current account
as the market value of all final goods produced in a deficit. However increase in exports will reduce the
geographical region. deficit.
25. (c) Fiscal policy is the use of government revenue 34. (a) Devaluation happens in countries with a
collection (taxation) and expenditure (spending) to fixed exchange rate. In a fixed-rate economy, the
influence the economy. The two main instruments of government decides what its currency should be
fiscal policy are changes in the level and composition worth compared with that of other countries. The
of taxation and government spending in various exchange rate can change only when the government
sectors. decides to change it. If a government decides to
26. (b) Headline inflation also called as WPI inflation make its currency less valuable, the change is called
is a measure of the total inflation within an economy devaluation. Depreciation happens in countries with
and is affected by areas of the market which may a floating exchange rate. A floating exchange rate
experience sudden inflationary spikes such as food means that the global investment market determines
or energy. As a result, headline inflation may not the value of a country’s currency.
present an accurate picture of the current state of the 35. (b) GDP deflator is An economic metric that
economy as it doesn’t take account of service sector. accounts for inflation by converting output measured
27. (c) Higher growth in GDP and population can at current prices into constant-dollar GDP. The GDP
occur together. Per capita income always decreases deflator shows how much a change in the base year’s
with high population growth as income per person GDP relies upon changes in the price level.
decreases with rise in population. 36. (a) Marginal Standing Facility (MSF) is the rate at
28. (c) Government debt is the debt owed by central which scheduled banks could borrow funds overnight
government. Government usually borrows by issuing from the Reserve Bank of India (RBI) against
securities, government bonds, bills through NSC, approved government securities. Banks can borrow
Prvident funds etc. However pension policies are not funds through MSF during acute cash shortage
included in the list. (considerable shortfall of liquidity). This measure
29. (b) Fiscal drag is an economics term referring to has been introduced by RBI to regulate short-term
a situation where a government’s net fiscal position asset liability mismatch more effectively and the
(equal to its spending less any taxation) does not meet borrowing is within Statutory liquidity requirements.
the net savings goals of the private economy. Fiscal The Marginal Standing Facility (MSF) is pegged
drag is a concept where inflation and earnings growth 100bps or 1 % above the Repo Rate.
may push more taxpayers into higher tax bracket. 37. (a) A Pigovian tax is a tax applied to a market
30. (b) By buying the government securities from the activity that is generating negative externalities
banks and reducing SLR may inject money into the (costs for somebody else) like cigarette consumption,
system. However Raising cash Reserve Ratio may burning of fossil fuel.
38. (d) Basel III (or the Third Basel Accord) is a subsidies, interest payments etc. Non-plan revenue
global, voluntary regulatory standard on bank capital expenditure is accounted for by interest payments,
adequacy, stress testing and market liquidity risk . So subsidies , wage and salary payments to government
all the given statements are correct. employees, grants to States and Union Territories
39. (c) A progressive tax is a tax in which the tax governments, pensions, police, economic services
rate increases as the taxable base amount increases in various sectors, other general services such as
Regarding progressive tax, marginal tax rate should tax collection, social services, and grants to foreign
be increasing and it should be more than average tax rate. governments. Non-plan capital expenditure mainly
40. (a) The Goods and Services Tax (GST) is a Value includes defence, loans to public enterprises, loans
Added Tax (VAT) replacing all indirect taxes levied to States, Union Territories and foreign governments.
on goods and services by the Indian Central and State 48. (d) National Income is the Net National product at
governments. India is a federal republic, and the GST the factor cost. (NI = NNP at factor cost = NNP at
is thus implemented concurrently by the central and market price – Indirect taxes + subsidies)
state governments as the Central GST and the State 49. (d) The Minimum Alternative Tax (MAT) was
GST respectively. Exports will be zero-rated and introduced for the first time in the Budget for the
imports will be levied the same taxes as domestic year 1996-97. Minimum alternate tax or MAT is a
goods and services adhering to the destination tax levied on firms/ companies or limited liability
principle. partnership (LLPs) making abundant profits as well
41. (b) Financial inclusion is the delivery of financial as distributing dividend to its shareholders who
services, at affordable costs, to sections of leveraging on the features of the Indian Taxation
disadvantaged and low income segments of society. system do not contribute towards the government’s
It includes opening educational centres, opening taxation kitty. Thus, for such corporates a minimal tax
wealth management centres by Citibank etc. Khan amounting to some fixed percentage of book profits
commission had put forward its report on financial i.e. profits according to accounting records is charged
inclusion. as minimal alternative tax (MAT).
42. (c) The Gini coefficient is a measure of statistical 50. (a) Supply side economics lays greater emphasis on
dispersion intended to represent the income the point of view of the producer whereas the demand
distribution of a nation’s residents. Gini coefficient side economics lays emphasis on the interest of the
commonly used as a measure of inequality of consumer.
individual income or wealth. Lorenz curve helps to 52. (a) Fiscal Deficit: When a government’s total
find mathematical value of Gini coefficient. expenditure exceed the revenue that it generates
43. (a) In India a large number of farmers are illiterate (excluding money from borrowings). Deficit differs
and know little about scientific-agriculture, prices from debt, which is an accumulation of year deficits.
of primary products are lower than those of 53. (c) India’s Trade Policy 2009-14 had a view to
manufactured products and Investment in agriculture achieve a growth of 15% per annum in export rather
has been lower when compared to investment in than 25% per annum.
industry. All these reasons are responsible for lower 55. (c) Basis points: It is the increase in interest rates
rural income. in percentage terms. For instance, if the interest rate
44. (d) Human Development Report the HDI combines increases by 50 basis points (bsp), then it means
three dimensions: A long and healthy life: Life that interest rate has been increase by 50%. One
expectancy at birth, Education index: Mean years of percentage point is broken down into 100 basis
schooling and Expected years of schooling and A points. Therefore, an increase from 2% to 3% is an
decent standard of living: GNI per capita (PPP US$). increase of one percentage point or 100 basis points.
45. (a) In India, inflation is measured by the wholesale Repo rate: Repo rate is the policy rate and is part
price Index . The wholesale prices of commodities of RBI’s Liquidity Adjustment Facility (LAF). It is
of base year are compared with wholesale prices of the rate at which commercial banks borrow from the
current year to compute inflation. RBI by selling their securities or financial assets to
46. (a) Both A and R are true and R gives correct the RBI for a short-period of time. It comes with an
explanation of A. It believes in universalism and agreement that the sold securities will be repurchased
globalism. by the commercial banks from the RBI at a future
47. (d) Expenditure incurred on the non-development date at predetermined price. The repo rate is used by
plans is called non-plan expenditure which includes the central bank to increase liquidity in the system.
 Reverse repo rate: Reverse Repo Rate is also a 63. (b) Inflation redistributes wealth from creditors
part of LAF. It is the rate of interest at which the to debtors i.e., lenders suffer and borrowers benefit
central bank borrows funds from other banks for a out of inflation. Bond holders = this person has lend
short duration. The banks deposit their short term money (to debtors) and received bond in return. So
excess funds with the central bank and earn interest he is lender, he suffers, by the way they haven’t
on it. This rate is used by the central bank to absorb specifically used the word – “inflation indexed
liquidity from the economy. Generally it is one bonds”, hence we cannot say inflation benefits the
percentage less than the Repo rate. Bank rate: The bond-holders.
only way the bank rate is different from the repo rate 64. (d) Suppose three people work in farm, produce
is that the bank rate is the rate at which banks borrow 200 kg wheat. If one of them is removed, still
money from the central bank without any sale of farm produces 200 kg wheat. That is disguised
securities. It is generally for a longer period of time.
unemployment marginal productivity is zero.
Cash reserve ratio: CRR is the minimum percentage
65. (a) Deficit financing is a pragmatic tool of economic
of cash deposits that banks must keep with the central
bank. The current rate is 4%, which means for a cash development and has been used by Indian govt. to
deposit of `100, the bank has to park 4 rupees, with obtain necessary resources to finance the five year
the central bank. plans.
56. (c) Companies having net worth of at least `500 66. (a) To rip maximum demographic dividend,
crore or having minimum turnover of `1,000 crore India has to promote skill development. This is
or those with at least net profit of `5 crore, have to what Economic Survey and 12th FYP have been
make CSR spend. advocating.
57. (d) All these statements are components of internal 67. (d) The gap between poor and rich will be wide
debt. and it must be increase when their investment lean
58. (c) Statement 1 lists all the main and primary towards capital sector. They only prefer profit.
sources of agricultural credit institutions exclusively 68. (d) Banks are required to investment a portion of
for farmers. their statutory liquidity ratio besides CRR. Statutory
59. (d) Indian Economy grew by 8.6% and 9.3% in liquidity ratio (SLR) is the Indian government term
2009-10 and 2010-11 before it plunged again into for reserve requirement that the commercial banks
slow growth. CPI has high weightage for food. in India require to maintain in the form of gold, cash
In India, during the mentioned period food grain
or government approved recurities before providing
production actually had gone up. GAAR is kept in
credit to the customers. SLR is determined and
obeyance as of now.
60. (c) The Millenium Development Goals focus maintained by Reserve Bank of India in order to
on developing countries. There is one exception : control the expansion of bank credit.
MDG number 8 on developing a global partnership 69. (a) When a government’s total expenditure exceeds
for development, which includes commitments for the revenue that it generates (excluding money from
developed countries to help developing countries. borrowings). Deficit differs from debt, which is an
An important difference is that the sustainable accumulation of yearly deficits.
Development Goals are meant to apply to all A fiscal deficit is regarded by some as a positive
countries, including developed countries. economic event.
Another difference is that the sustainable Development 70. (a) Gilts are bonds issued by certain, national
Goals are explicitly meant to include the three governments. The term is of British origin and
dimensions of sustainable development economic, originally referred to the debt securities issued by
social and environmental. the Bank of England, which had a gilt (or gilded)
61. (c) NABARD doesn’t give “direct” credit assistance. edge. Hence, they are called gilt-edged securities,
It provides credit via intermediaries such as micro
or gilts for short. The term is also sometimes used in
finance companies, co-operative society, RRB.
Ireland and some British Commonwealth Countries,
Therefore, 2 is false.
62. (b) Open market operation : When RBI buys/sells South Africa and India. The term “Gilt Account” is
securities in open market, in case of OMO, first party also a term used by the RBI of India to refer to a
permanently sells the Government security to second constituent account maintained by a custodian bank
party. Second party is free to do whatever it wants for maintenance and servicing of dematerialised
with that security. Government Securities owned by a retail customer.
71. (a) For example, reduction in the weight of a packet disinvestment is very slow due to host of legal and
of chocolate sold at the same price as before. This political hurdles.
may take place in quality, too. 79. (a) Market based mostly economic climate refers
72. (a) When the total expenditures of a government is back to the financial system the place all financial
equal to the taxes and other receipts it is a balanced judgements are taken based mostly on the demand
budget. All budgets with either deficits or surpluses and provide circumstances prevailing out there.
are unbalanced. Government has minimal interference in financial
73. (c) The interest paid on bonds is known as ‘coupon’ actions. Private gamers are free to supply the items
or ‘coupon rate’. Bonds and debentures both are the and expertise based mostly on the demand and
instruments of raising long-term capital but while provides alerts out there.
the former is supported by collateral in the former 80. (a) The risk weight for a Government guaranteed
is supported by collateral in the form of immovable advance should be the same as for other advances.
property, the latter are not. To ensure that banks do not suddenly face difficulties
74. (d) The labour force of an economy is known as in meeting the capital adequacy requirement, the
the activity rate (also called participation rate). It is new prescription on risk weight for Government
shown in per cent and always as a proportion of an guaranteed advances should be made prospective
economy. The concept of the ‘demographic dividend’ from the time the new prescription is put in place.
is related to this rate.
81. (d) The definition of deficit financing is likely to
75. (a) A dual economy is the existence of two separate
vary with the purpose for which such a definition is
economic sectors within one country, divided by
needed.
different levels of development, technology, and
In one sense by deficit financing we mean the excess
different patterns of demand. The concept was
of government expenditure over its normal receipts
originally created by Julius Herman Boeke to
raised by taxes, fees, and other sources. In this
describe the coexistence of modern and traditional
economic sectors in a colonial economy. definition such expenditure whether obtained through
76. (a) With the introduction of Economic liberalisation borrowing or from the banking system measures the
requirement for government licensing has been budget deficit. Deficit financing is said to have been
abolished except for a small list of strategic and used whenever government expenditure exceeds its
potentially hazardous industries and a few industries receipts.
which are reserved for the small scale sector. For In under-developed countries deficit financing may
most industries however industrial investment has be in two forms:
been effectively delicensed and investors are free to (i) Difference between overall revenue receipts and
set up new units or expand existing units subject only expenditure
to environmental clearances. (ii) Deficit financing may be equal to borrowing
77. (d) Quaternary sector is characterized by the from the banking system of the country.
intellectual persons or individuals or group of 82. (c) It will remain the same, because banks do not
individual. It includes the research and development increase the national income. So it remains the same
activities. Mining and quarrying and fishing are immaterial whether banks are there or not.
concerned with primary sector activities. 83. (d) Currency is most liquid, because you can use it
78. (b) Government of India is divesting its share from as and when you want. Time deposit with bank (e.g.
public sector undertakings. Most of government fixed deposit), are least liquid compared to savings/
undertakings were incurring losses during the pre demand deposit with banks and currency.
liberalization period. Hence, after the introduction 84. (b) Because Reserve requirements are designed as
of new economic policy in 1991, government started “precautionary measures” and not to stop banks from
downsizing its share in PSU. But the process of “excessive” profit. This eliminates c and d.