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ECONOMY PYQ

18th June, 2025

Q.1 Which one of the following statements about a borrower from a Microfinance Company is not correct?  CDS  2022

  1. The borrower should not have annual income beyond a limit.
  2. The borrower should not seek loan amount beyond a limit.
  3. The borrower should not refuse to offer a collateral.
  4. The borrower should not refuse to pay any rate of interest offered.

 

Answer: C

  • Microfinance refers to the financial services provided to low-income individuals or groups who are typically excluded from traditional banking. Most microfinance institutions focus on offering credit in the form of small working capital loans, sometimes called microloans or microcredit.
  • Interest rates and other charges/ fees on microfinance loans should not be usurious. These shall be subjected to supervisory scrutiny by the Reserve Bank. Hence statement 4 is correct.
  • Key Features of Microfinance
  • Some of the significant features of microfinance are as follows:
  • The borrowers are generally from low-income backgrounds. Hence statement 1 is correct.
  • Loans availed under microfinance are usually of small amount, i.e., micro loans. Hence statement 2 is correct.
  • The loan tenure is short.
  • Microfinance loans do not require any collateral. Hence statement 3 is incorrect.
  • These loans are usually repaid at higher frequencies
  • The purpose of most microfinance loans is income generation.

 

Q.2 Consider the following statements about the Micro, Small and Medium Enterprises (MSMEs): CDS 2022

  1. The MSMEs comprise a dynamic sector of the Indian economy providing large employment opportunities.
  2. MSMEs require low capital cost and help industrialization of backward regions.
  3. MSMEs contribute enormously to socio-economic development.

How many of the above statements is/are correct?

  1. 1
  2. 2
  3. 3
  4. None of the above

 

Answer: C

  • MSME stands for Micro, Small, and Medium Enterprises. It was introduced by the Government of India in agreement with the MSMED (Micro, Small, and Medium Enterprises Development) Act of 2006.
  • As per this act, MSMEs are the enterprises involved in the processing, production, and preservation of goods and commodities.
  • In 1961, with the merger of the Ministry of Small-Scale Industries and the Ministry of Agro and Rural Industries; the Ministry of Micro, Small, and Medium Enterprises (M/o MSME) was formed.
  • MSME sector is the backbone of the country's economy, contributing 30 percent of India's GDP and 40 percent of exports.
  • They are also accountable for one-third of India's manufacturing output.
  • It contributes about 11% of GDP from manufacturing and 24.63% of GDP from service activities.
  • According to 2018-19 Annual Report of Department of MSMEs, there are 6.34 crore MSMEs in the country. Around 51 per cent of these are situated in rural India. 99.5 per cent of all MSMEs fall in the micro category.
  • These MSMEs employ more than 11 crore people. MSMEs are recognized for having the highest rate of economic growth. Hence statement 1 is correct.
  • They account for approximately 45% of India's total exports.
  • MSMEs have propelled India to new heights due to their low investment requirements, flexibility in operations, and ability to develop suitable native technology. Hence statement 2 is correct.
  • MSMEs promote inclusive growth by creating job opportunities, especially for people from lower socioeconomic backgrounds in rural areas. Hence statement 3 is correct.

 

Q.3 Consider the following statements : UPSC 2023

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

Statement-II : InvITs are recognized as borrowers under the 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002'.

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

  1. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
  2. Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
  3. Statement-I is correct but Statement-II is incorrect
  4. Statement-I is incorrect but Statement-II is correct

Answer: D

  • Infrastructure Investment Trusts (InvITs) are investment instruments that work like mutual funds and are regulated by SEBI.
  • Typically, such a vehicle is designed to pool money (small sums) from several investors to be invested in income-generating assets.
  • InvITs are mostly structured as trusts, and an independent trustee holds assets on behalf of unitholders.
  • InvITs could be set up for sectors defined under the infrastructure as per RBI guidelines. So far, developers engaged in the road, power transmission, gas pipelines and tower transmission have formed InvIT.
  • Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is taxable. The dividend is also taxable. Hence statement 1 is incorrect.
  • InvITs are recognized as borrowers under the ‘Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’. The SARFAESI Act provides a legal framework for the securitization of financial assets and enables the enforcement of security interests in case of default. Hence statement 2 is correct.

 

Q.4 Consider the following statements : UPSC 2023

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

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

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

  1. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
  2. Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
  3. Statement-I is correct but Statement-II is incorrect
  4. Statement-I is incorrect but Statement-II is correct

Answer: A

  • As central banks across the world simultaneously hike interest rates in response to inflation, the world may be edging toward a global recession in 2023 and a string of financial crises in emerging market and developing economies that would do them lasting harm, according to a comprehensive new study by the World Bank. Hence statement 1 is correct.
  • Central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades—a trend that is likely to continue well into next year, according to the report. Yet the currently expected trajectory of interest-rate increases and other policy actions may not be sufficient to bring global inflation back down to levels seen before the pandemic. Investors expect central banks to raise global monetary-policy rates to almost 4 percent through 2023—an increase of more than 2 percentage points over their 2021 average. Hence statement 2 is correct.
  • Therefore statement 2 provides the correct explanation for statement 1.

Q.5 Consider the following statements : CSE 2023

  1. The Government of India provides Minimum Support Price for niger (Guizotia abyssinica) seeds.
  2. Niger is cultivated as a Kharif crop.
  3. Some tribal people in India use niger seed oil for cooking.

How many of the above statements are correct?

  1. Only one
  2. Only two
  3. Only three
  4. All four

Answer: C

  • ALL THE STATEMENTS ARE CORRECT:
  • Niger (Guizotia abyssinica) is a minor oilseed crop that is grown in India mainly during kharif season. It is also known as ramtil or karala. Niger seeds have high oil content (37-47%) and protein content (18-24%). The oil is used for cooking, lighting, lubrication and perfume making. The seed cake is used as animal feed and manure. Niger seed oil are also consumed as a condiment by some tribal people. The Government of India provides Minimum Support Price for niger.
  • Niger can grow on various types of soils, from clay loam to sandy loam, as long as they are well drained. It can tolerate slight alkalinity and salinity. It requires moist soil and moderate rainfall (1000-1300 mm). Niger is cultivated as a sole crop or mixed crop with millets, groundnut or pulses. The seed rate varies from 5 to 15 kg/ha depending on the method of sowing. Niger is cross-pollinated by bees and other insects.
  • The major niger producing states in India are Madhya Pradesh, Orissa, Maharashtra, Karnataka, Gujarat and Jharkhand. The average yield of niger in India is around 266 kg/ha. However, the area under niger cultivation has been declining over the years due to various factors such as low productivity, lack of government support, amarbel infestation and increasing preference for paddy.

Q.6 Consider the investments in the following assets: CSE 2023

  1. Brand recognition
  2. Inventory
  3. Intellectual property
  4. Mailing list of clients

How many of the above are considered intangible investments?

  1. Only one
  2. Only two
  3. Only three
  4. All four

Answer: C

  • Intangible assets are non-physical assets that have a monetary value since they represent potential revenue.
  • Intangible assets include patents, copyrights, and a company's brand.
  • Intangible assets are intellectual property that includes:
  • Patents, which provide property rights to an inventor.
  • Trademarks, which are a recognizable phrase or symbol that denotes a specific product and differentiates a company
  • Franchises, which are a type of license that a party (franchisee) buys to allow them to have access to a company's brand and sell goods under their name
  • Goodwill, which represents the value above and beyond a target company's assets that another company pays to acquire them.
  • Copyrights, which represent intellectual property that's protected from being duplicated by non-authorized parties.
  • NOTE: Inventory refers to the goods or products that a company holds for sale. It represents tangible assets, as inventory consists of physical items that can be seen, touched, and measured. Therefore, it is not considered an intangible investment.

Q.7 Which one of the following does not influence quantity demanded for a good? CDS 2022

  1. Good's own price
  2. Price of a complementary good
  3. Price of a substitute good
  4. Prices of inputs into production of the good

Answer: D

  • Demand is the quantity of consumers who are willing and able to buy products at various prices during a given period of time. Demand for any commodity implies the consumers' desire to acquire the good, the willingness and ability to pay for it.
  • The demand for a good that the consumer chooses, depends on the price of it, the prices of other goods, the consumer’s income and her tastes and preferences. Whenever one or more of these variables change, the quantity of the good chosen by the consumer is likely to change as well.
  • If the prices of other goods, the consumer’s income and her tastes and preferences remain unchanged, the amount of a good that the consumer optimally chooses, becomes entirely dependent on its price. The relation between the consumer’s optimal choice of the quantity of a good and its price is called the demand function.
  • Some factors affecting demand include the appeal of a good or service, the availability of competing goods, the availability of financing, and the perceived availability of a good or service.
  • Factors responsible for demand
  • Various factors can affect the demand for a particular good or service. Some important demand factors are:-
  • The appeal of the product or service to the buyer.
  • Availability of competing products or services.
  • Financing rate of interest and availability.
  • Availability and also the perceived availability of the good or service. Thus, the demand for the products or services is based on these factors.
  • Therefore, option 4 is incorrect.

 

Q.8 Consider the following: UPSC 2023

  1. Demographic performance
  2. Forest and ecology
  3. Governance reforms
  4. Stable government
  5. Tax and fiscal efforts

For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?

  1. Only two
  2. Only three
  3. Only four
  4. All five

Answer: B

  • Income distance: Income distance is the distance of a state’s income from the state with the highest income. Income of a state has been computed as average per capita GSDP during the three-year period between 2016-17 and 2018-19.
  • A state with lower per capita income will have a higher share to maintain equity among states.
  • Demographic performance: The Terms of Reference of the Commission required it to use the population data of 2011 while making recommendations. Accordingly, the Commission used 2011 population data for its recommendations.
  • The demographic performance criterion has been used to reward efforts made by states in controlling their population. States with a lower fertility ratio will be scored higher on this criterion.
  • Forest and ecology: This criterion has been arrived at by calculating the share of the dense forest of each state in the total dense forest of all the states. Tax and fiscal efforts: This criterion has been used to reward states with higher tax collection efficiency.
  • It is measured as the ratio of the average per capita own tax revenue and the average per capita state GDP during the three years between 2016-17 and 2018-19.

 

Q.9 Consider the following infrastructure sectors: UPSC 2023

  1. Affordable housing
  2. Mass rapid transport
  3. Healthcare
  4. Renewable energy

On how many of the above do UNOPS Sustainable Investments in Infrastructure and Innovation (S3i) initiative focus for its investments?

  1. Only one
  2. Only two
  3. Only three
  4. All four

Answer: C

  • The S3i team has prepared monthly risk reports for the investments in 2022 and held monthly internal risk discussions based on the risk reports. The risk reports indicated that the team had identified a number of risks in the field of construction, environmental, social, legal/regulatory, supply chain, strategic/partnering, land, financial markets, governmental and force majeure. Additionally, the risks were discussed in weekly meetings with the co-investor and project developer.
  • Climate-resilient and sustainable infrastructure development is cross-cutting multiple sectors that are identified as key drivers to sustainable development, and UNOPS’ S3i is prioritizing the following:
  • Renewable energy: By 2040, developing economies are predicted to consume 65% of the world’s energy. Investments in renewable energy could support developing economies in the goal of net zero greenhouse gas emissions by 2050 or sooner and in making progress towards the SDGs by promoting access to affordable, reliable and sustainable energy.
  • Affordable housing: Based on current trends in urbanization and income growth, the number of people living in substandard housing could grow to 1.6 billion by 2025. Investments in affordable housing can help to improve social equality and trigger economic development within communities.
  • Health infrastructure: Achieving the SDG health targets would require an annual increase in new investments of up to $371 billion. COVID-19 has demonstrated how our world’s infrastructure is ill-equipped to deal with global health crises. Investing in health infrastructure and improved health systems has the potential to prevent an estimated 97 million premature deaths by 2030.
  • Mass Rapid Transport is not included in the UNOPS S3i initiative. Hence point 2 is not included.

Q.10 Which one of the following is considered as an agency function of commercial banks in India? CDS 2022

  1. Acceptance of deposits
  2. Investment of surplus funds
  3. Acceptance of income tax payments
  4. Providing overdraft facilities

 

Answer: A

  • A commercial bank is a primary unit of the Indian Banking System. Some examples of commercial banks in India are Punjab National Bank (PNB), Canara Bank, State Bank of India (SBI), Union Bank, etc. A commercial bank is the backbone of an economy and acts as a financial intermediary between the households saving a part of their income and the productive sector who invests money. As a financial intermediary, commercial banks collect savings from households and lend the same to the productive sector.
  • Accepting Deposits and Advancing of Loans are the two primary functions performed by commercial banks.
  • Accepting Deposits:
  • One of the most essential functions of commercial banks is accepting deposits. Commercial banks accept deposits from their customers in different forms based on the requirements of different sections of society.
  • Advancing of Loans:
  • The banks are not allowed to keep the amount deposited with them, idle. Therefore, commercial banks have to keep some amount of the total deposits as cash reserves and lend the rest of the balance to needy borrowers and charge interest from them. The interest received by commercial banks from advancing loans is the main source of their income.

 

Q.11 "Consider the following statements: UPSC 2023

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

How many of the above statements are correct?"

  1. Only one
  2. Only two
  3. Only three
  4. None of the above

 

Answer: B

  • In 1991-92 NABARD started promoting self-help groups on a large scale. And it was the real take-off point for the ‘SHG movement’. In 1993, the Reserve Bank of India also allowed SHGs to open saving accounts in banks. Facility of availing bank services was a major boost to the movement. Hence statement 1 is incorrect.

 

  • NABARD has, from time to time, issued a number of guidelines/instructions to RRBs and Cooperative Banks on Self Help Group-Bank Linkage Programme (SHG- BLP). The members of an SHG face similar problems. They help each other, to solve their problems. SHGs promote small savings among their members. The savings are kept with the bank. This is the common fund in the name of the SHG. The SHG gives small loans to its members from its common fund. Hence statement 2 is correct.

 

  • The Indian micro finance sector has seen tremendous growth in the last few years. GOI has taken initiatives to widen the reach of RRBs all over India, especially in rural areas where commercial banks and other financial institution are beyond the reach of rural poor. Micro financing is one of the distinctive functional areas of RRBs. Hence statement 3 is correct.

 

  • The two important models of microfinance involving credit linkages with banks in India are SHG - Bank Linkage Model: This model involves the SHGs financed directly by the banks viz., CBs (Public Sector and Private Sector), RRBs and Cooperative Banks. MFI - Bank Linkage Model: This model covers financing of Micro Finance Institutions (MFIs) by banking agencies for on-lending to SHGs and other small borrowers.

 

Q.12 Consider the following statements: UPSC 2023

Statement-I: India's public sector health care system largely focuses on curative care with limited preventive, promotive and rehabilitative care.

Statement-II: Under India's decentralized approach to health care delivery, the States are primarily responsible for organizing health services.

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

  1. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
  2. Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
  3. Statement-I is correct but Statement-II is incorrect
  4. Statement-I is incorrect but Statement-II is correct

 

Answer: B

  • The primary objective of India’s health care system is to Improve health status through concerted policy action in all sectors and expand preventive, promotive, curative, palliative and rehabilitative services provided through the public health sector with focus on quality. Hence statement 1 is correct.
  • All Indian citizens can get free outpatient and inpatient care at government facilities. Under India’s decentralized approach to health care delivery, the states are primarily responsible for organizing health services.
  • Because of severe shortages of staff and supplies at government facilities, many households seek care from private providers and pay out-of-pocket. For low-income people, the government recently launched the tax-financed National Health Protection Scheme (Ayushman Bharat-PradhanMantri Jan ArogyaYojana, or PM-JAY), which allows them to also get cashless secondary and tertiary care at private facilities.
  • There are also a handful of health insurance arrangements for specific population groups like government employees and factory workers. Private voluntary insurance is available, but uptake is limited. Hence statement 2 is correct.
  • Therefore, Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I.

Q.13 Consider the following statements: UPSC 2023

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

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

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

  1. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
  2. Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
  3. Statement-I is correct but Statement-II is incorrect
  4. Statement-I is incorrect but Statement-II is correct

Answer: D

  • As per the WTO data released in 2022, India’s share in global exports for merchandise was 1.9 % and in global imports was 4.1 %. India’s share in global exports was 3.5 % and imports was 3.2 %. Hence statement 1 is incorrect.
  • Leading international companies are expanding production at their newly setup units in India after the government launched attractive initiatives such PLI. Hence statement 2 is correct.

 

Q.14 Which one of the following Labour Codes notified by the Government of India incorporated various provisions of the Central Labour Acts such as the Factories Act, 1948 and Plantations Labour Act, 1951? CDS 2022

  1. The Occupational Safety, Health and Working Conditions Code, 2020
  2. The Industrial Relations Code, 2020
  3. The Code on Wages, 2019
  4. The Code on Social Security, 2020

 

Answer: A

  • The four labour codes -- the Code on Wages, Industrial Relations Code, Social Security Code and the Occupational Safety, Health and Working Conditions Code -- are set to replace 29 labour laws.
  • Besides, the new industrial relation code would also improve ease of doing business by allowing firms with up to 300 workers to go ahead for lay-offs, retrenchment and closure without government permission. At present all firms with up to 100 employees are exempted from government permission for lay-off, retrenchment and closure.
  • And finally, The Occupational Safety, Health And Working Conditions (OSH) Code amalgamates 13 existing labour laws and applies to factories having at least 20 workers if the manufacturing process is being carried on with the aid of power and 40 if the manufacturing process is being done without power.
  • Under this code, employers are required to ensure that the workplace is free from hazards which cause injury or occupational disease to the employees, provide free annual health examination or test, free of costs to certain classes of employees.
  • A provision has been made for employers to provide travelling allowance annually to an inter-state migrant worker for undertaking a to-and-fro journey to his native place. Further, providing appointment letters to the workers has been made mandatory.
  • Some provisions of these codes have also invited criticism, including the one which allows firms with up to 300 workers to go ahead with retrenchment and closure without the government permission.

Q.15 With reference to the Indian economy, consider the following statements: UPSC 2022

  1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
  2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.
  3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.

Which of the above statements are correct ?

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

 

Answer: C

  • NEER is a measure of value of a currency against a weighted average of several foreign currency. An increase in NEER indicates appreciation of rupee. Hence statement 1 is correct.
  • REER:
  • The real effective exchange rate (REER) compares a nation's currency value against the weighted average of the currencies of its major trading partners.
  • It is an indicator of the international competitiveness of a nation in comparison with its trade partners.
  • The formula is weighted to take into account the relative importance of each trading partner to the home country.
  • An increasing REER indicates that a country is losing its competitive edge. Hence statement 2 is incorrect.
  • A nation's nominal effective exchange rate (NEER), adjusted for inflation in the home country, equals its real effective exchange rate (REER).
  • An increase in REER implies that exports become more expensive and imports become cheaper; therefore, an increase indicates a loss in trade competitiveness. Hence statement 3 is correct.

Q.16 Consider the following statements: UPSC 2023

The 'Stability and Growth Pact' of the European Union is a treaty that

  1. limits the levels of the budgetary deficit of the countries of the European Union
  2. makes the countries of the European Union to share their infrastructure facilities
  3. enables the countries of the European Union to share their technologies

How many of the above statements are correct?

  1. Only one
  2. Only two
  3. All three
  4. None of the above

Answer: A

  • The SGP aims to ensure that countries in the EU do not spend beyond their means. To achieve this goal, a set of fiscal rules are enforced to limit budget deficits and debt relative to gross domestic product (GDP). Hence statement 1 is correct.
  • The Stability and Growth Pact (SGP) is a set of fiscal rules designed to prevent countries in the EU from spending beyond their means.
  • A state’s budget deficit cannot exceed 3% of GDP and national debt cannot surpass 60% of GDP.
  • Failure to abide by the rules can lead to a maximum fine of 0.5% of GDP.
  • The SGP is criticized for its strict fiscal rules, lack of compliance, and perceived favoritism toward certain nations. Hence statement 2 and 3 are incorrect.
  • The SGP sets two hard limits on EU member states: a state's budget deficit cannot exceed 3% of GDP and national debt cannot surpass 60% of GDP. In cases where a national debt exceeds 60% of the member state’s GDP, it must be declining at a reasonable pace to within acceptable limits to avoid incurring penalties.

Q.17 Which of the following activities constitute real sector in the economy ? UPSC 2022

  1. Farmers harvesting their crops
  2. Textile mills converting raw cotton into fabrics
  3. A commercial bank lending money to a trading company
  4. A corporate body issuing Rupee Denominated Bonds overseas

Select the correct answer using the code given below:

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

 

Answer: A

  • The real sector of the economy, as it has been already noted, consists of enterprises (nonfinancial corporations), households and nonprofit institutions serving households. From the point of view of monetary and financial statistics the households and nonprofit institutions serving households are in some cases combined into one subsector named “Other resident sectors”. Hence statement 1 and 2 are correct.
  • In the financial markets, economic sectors are broken down even further into sub-sectors called investment sectors. Investment sectors represent a grouping of companies with similar business activities. Examples of investment sectors include technology, energy, and financial services.
  • In the financial markets, investment sectors are sub-sectors that aid in comparing the financial performance of similar businesses. Hence statement 3 and 4 are incorrect.

 

Q.18 With reference to the Indian economy, consider the following statements : UPSC 2022

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

Which of the statements given above are correct ?

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

Answer: B

  • In the economy if the inflation is high, RBI tries to reduce the liquidity from the market, by selling Government securities to the public via open market operation. Hence statement 1 is incorrect.
  • Rupee depreciation means, fall in value of rupee with respect to dollar. In free floating exchange rate regime, depreciation takes place when the demand for dollar is more than the supply. Hence statement 2 is correct.
  • There will be an inflow of dollars in the Indian market, leading to an appreciation of the rupee. Hence statement 3 is correct.

 

Q.19 Which one of the following would be considered as Foreign Direct Investment? CDS 2022

  1. A foreign company buying shares in stock exchanges in India
  2. A foreign country pension fund investing in Indian stock markets
  3. A foreign merchant banker buying shares from Indian stock markets
  4. A foreign entity setting up an educational institution in India

 

Answer: D

  • Foreign direct investment (FDI) is when a company takes controlling ownership in a business entity in another country.
  • With FDI, foreign companies are directly involved with day-to-day operations in the other country. This means they aren’t just bringing money with them, but also knowledge, skills and technology.
  • Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company.
  • Foreign Direct Investments are commonly made in open economies that have skilled workforce and growth prospect. FDIs not only bring money with them but also skills, technology and knowledge.
  • Therefore, A foreign entity setting up an educational institution in India.
  • Sectors which come under up to 100% Automatic Route' category are:
  • Infrastructure Company in the Securities Market: 49%
  • Insurance: up to 74%
  • Medical Devices: up to 100%
  • Pension: 49%
  • Petroleum Refining (By PSUs): 49%
  • Power Exchanges: 49%
  • Telecom: 100%

Q.20 Consider the following markets : UPSC 2023

  1. Government Bond Market
  2. Call Money Market
  3. Treasury Bill Market
  4. Stock Market

How many of the above are included in capital markets?

  1. Only one
  2. Only two
  3. Only three
  4. All four

Answer: B

 

  • The capital market is the place that acts as the platform between the suppliers and the buyers. The savings and investments are channelized between the persons who have capital and the person who needs capital. Hence statement 1 and 4 are correct.
  • In simpler terms, the market where buyers and sellers engage in trading of financial securities like bonds, stocks, etc. However, the market is much wider than securities.
  • The markets deal mainly with debts and equity securities. The money market involves the purchase and sale of large volumes of very short-term debt products, such as overnight reserves or commercial paper.
  • An individual may invest in the money market by purchasing a money market mutual fund, buying a Treasury bill, or opening a money market account at a bank.
  • Money market investments are characterized by safety and liquidity, with money market fund shares targeted at $1. Hence statement 2 and 3 are incorrect.

Q.21 With reference to the Indian economy, what are the advantages of "Inflation-Indexed Bonds (IIBs)"?  UPSC 2022

  1. Government can reduce the coupon rates on its borrowing by way of IIBs.
  2. IIBs provide protection to the investors from uncertainty regarding inflation.
  3. The interest received as well as capital gains on IIBs are not taxable.

Which of the statements given above are correct?

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

 

Answer: A

  • The CIBs issued in 1997 provided inflation protection only to principal and not to interest payment. New product of IIBs will provide inflation protection to both principal and interest payments. Inflation indexed bonds provides protection to investors from uncertainty regarding inflation.
  • G-Secs helps the Government to reduce the coupon rates on its borrowing. Like other G-Secs, coupon on IIBs would be paid on half yearly basis. Fixed coupon rate would be paid on the adjusted principal. Hence statement 1 is correct.
  • Inflation-indexed bonds offer a fixed, long-term yield. This is appealing to investors who want the stability of a fixed-income investment but are worried about the impact of inflation. Hence statement 2 is correct.
  • The phantom income is defined as unrealized gains on investments that are not subject to current taxes. In other words, it’s money you have earned but haven’t actually received yet. With inflation-indexed bonds, phantom income can occur when the CPI rises and the value of your bond increases. Hence statement 3 is incorrect.

 

Q.22 Consider the following statements with reference to India: UPSC 2023

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

Which of the statements given above is/are correct?

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

Answer: D

  • The classification of Micro, Small and Medium Enterprises is defined under the MSMED Act 2006 amendment dated 01/06/2020. The Micro, Small and Medium Enterprises is based on the Investment in Plant, Machinery or Equipment values (excluding land and building) and Annual Turnover. Micro Enterprise: Where the investment in Plant and Machinery or Equipment does not exceed one crore rupees and turnover does not exceed five crore rupees. Small Enterprise: Where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees. Medium Enterprises: Where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees. Hence statement 1 is incorrect.
  • In terms of Master Direction on ‘Priority Sector Lending (PSL) – Targets and Classification’ dated September 4, 2020, all bank loans to MSMEs conforming to the conditions prescribed therein qualify for classification under priority sector lending. Hence statement 2 is incorrect.

Q.23 "System of Rice Intensification" of cultivation, in which alternate wetting and drying of rice fields is practised, results in : UPSC 2022

  1. 1. Reduced seed requirement
  2. Reduced methane production
  3. Reduced electricity consumption

Select the correct answer using the code given below :

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

Answer: D

  • System of Rice Intensification (SRI) includes a method called Alternate Wetting and Drying (AWD) which is a form of controlled irrigation of the rice crops. The benefits from the programme include;
  • Reduction in methane emissions as compared to traditional rice cultivation.
  • Reduction in water consumption.
  • Reducing fuel consumption.
  • Increase paddy yields.
  • Reduce required seeds for transplanting.
  • Reduce use of chemical fertilizers and agrichemicals.
  • Reduce irrigation demand.
  • Reduce production costs.
  • With increased output and reduced costs, farmers’ net income is increased.

Q.24 Consider the following statements: UPSC 2022

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

Which of the statements given above are correct?

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

Answer: A

  • Tight, or contractionary monetary policy is a course of action undertaken by a central bank such as the Federal Reserve to slow down overheated economic growth, constrict spending in an economy that is seen to be accelerating too quickly, or curb inflation when it is rising too fast.
  • US Fed Reserve recently tighten its monetary policy, which led to an increase in interest rates in the US economy and hence the portfolio investors in India pull out their money and invested in the US economy. Hence statement 1 is correct.
  • Capital flight can drive up the interest costs as there is reduced money supply in the system. Thus, it would lead to increase in the interest cost of firms that have external commercial borrowings. Hence statement 2 is correct.
  • Currency devaluation is an economic policy by a country's government to weaken the value of its currency. Ever since world currencies abandoned the gold standard and allowed their exchange rates to float freely against each other, there have been many currency devaluation events that have hurt not only the citizens of the country involved but have also rippled across the globe.
  • If the fallout can be so widespread, why do countries devalue their currency? In short, countries do it to boost exports, shrink trade deficits, and reduce sovereign debt burdens. Below we take a closer look at currency devaluation and the reasons why countries do it. Hence statement 3 is incorrect.

 

Q.25 Consider the following statements: CSE 2022

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

Which of the statements given above are correct?

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

Answer: B

  • In India, credit rating agencies are regulated by the Securities Exchange Board of India (SEBI). Hence statement 1 is incorrect.
  • ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited) was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. Hence statement 2 is correct.
  • Brickwork Ratings (BWR) is a Bengaluru based company registered with the Securities and Exchange Board of India (SEBI) in 2008. Hence statement 3 is correct.

 

Q.26 Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization'?  UPSC 2023

  1. Conducting 'Open Market Operations'
  2. Oversight of settlement and payment systems
  3. Debt and cash management for the Central and State Governments
  4. Regulating the functions of Non- banking Financial Institutions

Answer: A

  • In the context of the Reserve Bank of India (RBI), the activity of Open Market Operations (OMO) is considered to be part of “sterilization.” Sterilization is a monetary policy tool used by central banks, including the RBI, to manage liquidity in the economy and stabilize the money supply.
  • When the RBI conducts OMO, it involves buying or selling government securities (bonds) in the open market. If the RBI purchases government securities through OMO, it injects liquidity into the banking system, increasing the money supply.
  • To prevent any potential inflationary pressures resulting from excessive liquidity, the RBI may engage in sterilization measures. Sterilization is the process of offsetting the impact of the injected liquidity by absorbing it from the market.

 

Q.27 With reference to Central Bank digital currencies, consider the following statements: UPSC 2023

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

Which of the statements given above is/are correct?

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

Answer: C

  • Alternatives to SWIFT and the U.S. dollar are coming from two directions: cryptocurrencies and central bank digital currencies. Cryptocurrencies (or “crypto”) are a form of payment that can circulate without the need for a central monetary authority such as a government or bank and are created using distributed ledger technologies and cryptographic techniques that enable people to buy, sell or trade them securely in a decentralized way. These decentralized networks are controlled by no one and enable privacy from government intrusion or intervention. Hence statement 1 is correct.
  • Currently, access to digital central bank money is limited to central bank operating hours, traditionally less than 24 hours a day and usually five days a week.8 CBDCs could be available 24 hours a day and seven days a week or only during certain specified times (such as the operating hours of large value payment systems). CBDC could be available permanently or for a limited duration (eg it could be created, issued and redeemed on an intraday basis). Hence statement 2 is correct.

 

 

Q.28 With reference to the 'Banks Board Bureau (BBB)', which of the following statements are correct? UPSC 2022

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

Select the correct answer using the code given below:

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

Answer: B

  • BBB was set up in February 2016 as an autonomous body– based on the recommendations of the RBI-appointed Nayak Committee. It was part of the Indradhanush Plan. The Ministry of Finance takes the final decision on the appointments in consultation with the Prime Minister’s Office. Hence statement 1 is incorrect.
  • It makes recommendations for the appointment of whole-time directors as well as non-executive chairpersons of Public Sector Banks (PSBs) and state-owned financial institutions. Hence statement 2 is correct.
  • Assisting banks with the strategies to deal with issues of bad loans or stressed assets is the agenda of BBB. Hence statement 3 is correct.

Q.29 With reference to Non-Fungible Tokens (NFTs), consider the following statements: UPSC 2022

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

Which of the statements given above is/are correct?

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

Answer: A

  • Anything that can be converted into a digital form can be an NFT. Everything from your drawings, photos, videos, GIFs music, in-game items, selfies, and even a tweet can be turned into an NFT, which can then be traded online using cryptocurrency. Hence statement 1 is correct.
  • NFTs are unique from other digital forms as it is backed by Blockchain technology. Hence statement 2 is correct.
  • NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). Hence statement 3 is incorrect.

 

Q.30 Which one of the following is the opportunity cost of a chosen activity? CDS 2021

  1. Out of pocket cost
  2. Out of pocket cost plus cost incurred by the Government
  3. Value of all opportunities forgone
  4. Value of next best alternative that is given up

Answer: D

  • Opportunity cost is the forgone benefit that would have been derived from an option not chosen.
  • To properly evaluate opportunity costs, the costs and benefits of every option available must be considered and weighed against the others.
  • Considering the value of opportunity costs can guide individuals and organizations to more profitable decision-making.
  • Opportunity cost is a strictly internal cost used for strategic contemplation; it is not included in accounting profit and is excluded from external financial reporting.
  • Examples of opportunity cost include investing in a new manufacturing plant in Los Angeles as opposed to Mexico City, deciding not to upgrade company equipment, or opting for the most expensive product packaging option over cheaper options.

Q.31 If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India? UPSC 2020

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

Select the correct answer using the code given below:

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

Answer: A

  • No dependence on short term foreign borrowings means India won't be liable to pay in foreign currency, thus protecting us. Hence statement 1 is correct.
  • Opening up for foreign banks would threaten India as those banks would be unstable due to global crisis. Hence statement 2 is incorrect.
  • Full capital account convertibility would result in rapid flight of capital out of India thus threatening the nation. Hence statement 3 is incorrect.

Q.32 With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct? UPSC 2022

  1. They can sell their own goods in addition to offering their platforms as market-places.
  2. The degree to which they can own big sellers on their platforms is limited.

Select the correct answer using the code given below:

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

Answer: B

  • The Draft Rules, 2021 mandate every marketplace e-commerce entity to ensure that it does not use any information collected through its platform for the unfair advantage of its related parties and associated enterprises. Furthermore, it is to be ensured that none of the related parties and associated enterprises are enlisted as sellers for sale to consumers directly and that nothing is done by related parties which the e-commerce entity cannot do itself. The definition of ‘associated enterprises’ are given under the Draft Rules, 2021. Hence statement 1 is incorrect.
  • According to the FDI policy, a foreign-owned e-commerce marketplace entity cannot exceed 25% equity stake in an Indian-owned seller. Hence statement 2 is correct.

 

Q.33 If you withdraw Rs. 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be UPSC 2020

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

Answer: D

  • A demand deposit account (DDA) is a bank account from which deposited funds can be withdrawn at any time, without advance notice. DDA accounts can pay interest on the deposited funds but aren’t required to. Checking accounts and savings accounts are common types of DDAs.
    • Demand deposit accounts (DDAs) allow funds to be withdrawn at any time from the financial institution.
    • Demand deposits provide funds for daily expenses and purchases.
    • Demand deposit accounts pay little or no interest—the trade-off for the funds being so readily available.
    • Demand deposit accounts can have joint owners.
  • If depositors were required to notify their banks in advance before withdrawing funds, it would be quite a challenge to obtain cash or make mundane transactions. Demand deposit accounts are intended to provide ready money—the funds that people need to make a purchase or pay bills.
  • Demand deposits make up most of a particular measure of the money supply—M1. This is the sum of all of a nation's demand deposits, plus all the currency in circulation. It's a measure of the most liquid types of money in the money supply.
  • Hence Money supply=Currency with public + Currency in bank.
  • Hence there will be no change.

Q.34 In the context of finance, the term "beta" refers to: UPSC 2023

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

Answer: D

  • Beta is a numeric value that measures the fluctuations of a stock to changes in the overall stock market. Beta measures the responsiveness of a stock's price to changes in the overall stock market.
  • On comparison of the benchmark index for e.g. NSE Nifty to a particular stock return, a pattern develops that shows the stock's openness to the market risk. This helps the investor to decide whether he wants to go for the riskier stock that is highly correlated with the market (beta above 1), or with a less volatile one (beta below 1).
  • For example, if a stock's beta value is 1.3, it means, theoretically this stock is 30% more volatile than the market.
  • Beta calculation is done by regression analysis which shows security's response with that of the market. By multiplying the beta value of a stock with the expected movement of an index, the expected change in the value of the stock can be determined. For example, if beta is 1.3 and the market is expected to move up by 10%, then the stock should move up by 13% (1.3 x 10).
  • Beta is the key factor used in the Capital Asset Price Model (CAPM) which is a model that measures the return of a stock. The volatility of the stock and systematic risk can be judged by calculating beta.
  • A positive beta value indicates that stocks generally move in the same direction with that of the market and the vice versa.

Q.35 With reference to the international trade of India at present, which of the following statements is/are correct? UPSC 2020

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

Select the correct answer using the code given below:

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

Answer: D

  • India’s overall exports (Merchandise and Services combined) in May 2023* is estimated to be USD 60.29 Billion, exhibiting a negative growth of (-) 5.99 per cent over May 2022. Overall imports in May 2023 is estimated to be USD 70.64 Billion, exhibiting a negative growth of (-) 7.45 per cent over May 2022.
  • Merchandise exports in May 2023 were USD 34.98 Billion, as compared to USD 39.00 Billion in May 2022.
  • Merchandise imports in May 2023 were USD 57.10 Billion, as compared to USD 61.13 Billion in May 2022. Hence statement 1 is correct.
  • Effect of duty withdrawal on Iron Ore is visible on India’s exports of the item which have exhibited positive growth of 6.85 percent during March 2023 over the same month in 2022. Hence statement 2 is incorrect.
  • Services exports remain strong and projected to grow at 26.79 percent during FY 2022-23 (April-March) over FY 2021-22 (April-March). Hence statement 3 is correct.
  • India's trade deficit has shown considerable decline in April-June 2023. Overall trade deficit for April-June 2023* is estimated at USD 22.59 Billion as compared to the deficit of USD 31.49 Billion during April-June 2022, registering a decline of (-) 28.27 percent. Hence statement 4 is correct.

 

Q.36 In the context of the Indian economy, non-financial debt includes which of the following? UPSC 2020

  1. Housing loans owed by households
  2. Amounts outstanding on credit cards
  3. Treasury bills

Select the correct answer using the code given below:

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

Answer: D

  • Nonfinancial debt (countable and uncountable, plural nonfinancial debts) (finance) The debt held by governments, households, and companies not in the financial sector. Hence option D is correct.
  • Debt financing occurs when a company raises money by selling debt instruments to investors.
  • Debt financing is the opposite of equity financing, which entails issuing stock to raise money.
  • Debt financing occurs when a firm sells fixed income products, such as bonds, bills, or notes.
  • Unlike equity financing where the lenders receive stock, debt financing must be paid back.
  • Small and new companies, especially, rely on debt financing to buy resources that will facilitate growth.

Q.37 Which one of the following central features is not associated with Capitalist Economy? CDS 2022

  1. There is generalised commodity production - it has market value.
  2. Productive wealth is held predominantly in private hands.
  3. Economic life is organised according to market principles.
  4. Economic organisation is based on planning, a supposedly rational process of resource allocation.

Answer: D

  • Capitalism is founded on the following pillars:
  • private property, which allows people to own tangible assets such as land and houses and intangible assets such as stocks and bonds;
  • self-interest, through which people act in pursuit of their own good, without regard for sociopolitical pressure. Nonetheless, these uncoordinated individuals end up benefiting society as if, in the words of Smith’s 1776 Wealth of Nations, they were guided by an invisible hand;
  • competition, through firms’ freedom to enter and exit markets, maximizes social welfare, that is, the joint welfare of both producers and consumers;
  • a market mechanism that determines prices in a decentralized manner through interactions between buyers and sellers—prices, in return, allocate resources, which naturally seek the highest reward, not only for goods and services but for wages as well;
  • freedom to choose with respect to consumption, production, and investment—dissatisfied customers can buy different products, investors can pursue more lucrative ventures, workers can leave their jobs for better pay; and
  • limited role of government, to protect the rights of private citizens and maintain an orderly environment that facilitates proper functioning of markets. Hence statement D is correct.
  • Capitalism, for example, can be simply sliced into two types, based on how production is organized. In liberal market economies, the competitive market is prevalent and the bulk of the production process takes place in a decentralized manner akin to the free-market capitalism seen in the United States and the United Kingdom.

 

 

Q.38 With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct? UPSC 2020

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

Select the correct answer using the code given below:

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

Answer: C

  • TRIMS do not cover the services ; it is covered under TRIPS. It provides guidelines like prohibition on quantiative restriction. It is not concerned with the regulation of foreign investment.
  • The Agreement on TRIMs of the WTO is based on the belief that there is strong connection between trade and investment. Restrictive measures on investment are trade distorting. Several restrictive measures on investment are prohibiting trade and hence are not allowable. According to the TRIMs provision, countries should not adopt the investment measures which restrict and distort trade.
  • The TRIMs Agreement prohibits certain measures that violate the national treatment and quantitative restrictions requirements of the General Agreement on Tariffs and Trade (GATT).
  • Prohibited TRIMs may include requirements to:
    • achieve a certain level of local content;
    • produce locally;
    • export a given level/percentage of goods;
    • balance the amount/percentage of imports with the amount/percentage of exports;
    • transfer technology or proprietary business information to local persons; or
    • balance foreign exchange inflows and outflows.
  • These requirements may be mandatory conditions for investment, or can be attached to fiscal or other incentives. The TRIMs Agreement does not cover services.
  • Hence statement 1 and 3 are correct.

 

 

Q.39 If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do? UPSC 2020

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

Select the correct answer using the code given below:

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

Answer: B

  • Cutting the SLR rate or bank rate will lead to expansionary monetary policy. While Increasing the Marginal Standing Facility rate will lead to contracting monetary Policy. Hence only statement 2 is correct.
  • Contractionary
  • A contractionary policy increases interest rates and limits the outstanding money supply to slow growth and decrease inflation, where the prices of goods and services in an economy rise and reduce the purchasing power of money.
  • Expansionary
  • During times of slowdown or a recession, an expansionary policy grows economic activity. By lowering interest rates, saving becomes less attractive, and consumer spending and borrowing increase.
  • A contractionary policy can slow economic growth and even increase unemployment but is often seen as necessary to level the economy and keep prices in check. During double-digit inflation in the 1980s, the Federal Reserve raised its benchmark interest rate to 20%. Though the effect of high rates spurred a recession, inflation was reduced to a range of 3% to 4% over the following years.
  • Monetary policy employs tools used by central bankers to keep a nation's economy stable while limiting inflation and unemployment. Expansionary monetary policy stimulates a receding economy and contractionary monetary policy slows down an inflationary economy. A nation's monetary policy is often coordinated with its fiscal policy.

 

Q.40 Match List-I with List-II and select the correct answer using the code given below the Lists: CDS 2020

List - I(Market structure)         List - II (Characteristics)

  1. Perfect competition 1. Only one producer selling one commodity
  2. Monopoly 2. Few producers selling similar or almost similar products
  3. Monopolistic competition 3. Many producers selling differentiated products
  4. Oligopoly 4. Many producers selling similar products

Code:

  1. A-4, B-3, C-1, D-2
  2. A-4, B-1, C-3, D-2
  3. A-2, B-1, C-3, D-4
  4. A-2, B-3, C-1, D-4

Answer: B

  • List - I (Market structure) List - II (Characteristics)
  • Perfect competition -Many producers selling similar products
  • Monopoly -Only one producer selling one commodity
  • Monopolistic competition -Many producers selling differentiated products
  • Oligopoly -Few producers selling similar or almost similar products

 

Q.41 With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct ? UPSC 2022

  1. Acquiring new technology is capital expenditure.
  2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.

Select the correct answer using the code given below :

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

Answer: A

  • The differences between capital expenditures and revenue expenditures include whether the purchases will be used over the long-term or short-term. Capital expenditures (CAPEX) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, or equipment. Hence statement 1 is correct.
  • Debt financing can involve borrowing money from a bank or issuing corporate bonds, which are IOUs to investors who buy them and get paid interest periodically. Equity financing involves issuing shares of stock or equity to investors to raise funds for expansion and capital improvements. Both are capital expenditure. Hence statement 2 is incorrect.

Q.42 With reference to the Indian economy, consider the following statements: UPSC 2022

  1. A share of the household financial savings goes towards government borrowings.
  2. Dated securities issued at market-related rates in auctions form a large component of internal debt.

Which of the above statements is/are correct ?

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

Answer: C

  • A share of household financial savings goes to the government borrowings, as part of public accounts of India. Hence statement 1 is correct.
  • Dated securities means regular government bonds, whereas T-bills are considered separately. Dated securities issued at market related rates comprise a large share of internal debt. Hence statement 2 is correct.

 

Q.43 Consider the following statements: UPSC 2020

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

Which of the statements given above is/are correct?

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

Answer: A

  • The Food Index consisting of 'Food Articles' from Primary Articles group and 'Food Product' from Manufactured Products group has increased from 172.8 in May, 2023 to 175.2 in June, 2023. The annual rate of inflation (Y-o-Y) based on WPI Food Index changed from (-) 1.59% in May, 2023 to (-) 1.24% in June, 2023. Food has an overall weightage of roughly 25 per cent in the WPI basket while in the CPI basket, food occupies a weightage of 46 per cent. Hence statement 1 is correct.
  • WPI tracks inflation at the producer level and CPI captures changes in prices levels at the consumer level. WPI does not capture changes in the prices of services, which CPI does. Hence statement 2 is correct.
  • Reserve Bank of India has adopted CPI (NOT WPI) as its key measure of inflation and to decide on changing the key policy rates. Hence statement 3 is incorrect.

 

Q.44 There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit? UPSC 2016

  1. Reducing revenue expenditure
  2. Introducing new welfare schemes
  3. Rationalizing subsidies
  4. Reducing import duty

Select the correct answer using the code given below.

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

Answer: C

  • A budget deficit occurs when expenses exceed revenue.
  • Certain unanticipated events and policies may cause budget deficits.
  • Countries can counter budget deficits by raising taxes or cutting spending.
  • How Governments Reduce a Budget Deficit:
  • Increase taxes. Some groups want to increase federal revenue to offset the deficit. This could largely be achieved by increasing taxes, particularly on the wealthy, who, in spite of the deficit — and pandemic-induced recession — are still doing very well. Tax increases have downsides for politicians, however, as they are often unpopular, and proposing them can sometimes be a political disaster.
  • Increase growth. The government can also increase tax revenue by stimulating growth in the economy. When the economy is growing, people are making more money. And when there’s more money being made, there’s more money eligible for taxation, increasing the total tax revenue the government can collect. Increasing growth is tricky. Some believe cutting taxes increases growth, but there’s no evidence that that works. Others believe direct stimulus can help, but this can also put the government into more debt.
  • Cut spending. Cutting spending can come in a number of different forms. Some groups advocate for cutting spending on social programs like Social Security, Medicaid, and aid for state-based programs. Some advocate cutting the military budget, which is much higher than any other developed nation. Ultimately, this becomes a hotly contested political matter.
  • Hence statement 1 and 3 are correct.

Q.45 With reference to 'IFC Masala Bonds' sometimes seen in the news, which of the statements given below is/are correct? UPSC 2016

  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.

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

Answer: C

  • The World Bank Group
    • International Bank for Reconstruction and Development (IBRD)
    • International Development Association (IDA)
    • International Finance Corporation (IFC)
    • Multilateral Investment Guarantee Agency (MIGA)
    • International Centre for Settlement of Investment Disputes (ICSID)
  • The International Finance Corporation or IFC, is the private sector arm of the World Bank Group and shares its mission to reduce global poverty. Hence statement 1 is correct.
  • Masala Bonds were introduced in India in 2014 by International Finance Corporation (IFC). Masala bonds are bonds issued outside India but denominated in Indian Rupees, rather than the local currency. Masala is a Hindi word meaning spices. The term was used by the International Finance Corporation (IFC) to evoke the culture and cuisine of India. Hence statement 2 is correct.
  • The proceeds raised from these bonds can be used:
  • In refinancing of rupee loan and non-convertible debentures.
  • For the development of integrated townships and affordable housing projects.
  • Working capital to corporate.

 

Q.46 Among the following countries, where did the idea of 'Social Market Economy' emerge in 1950s? CDS 2022

  1. Germany
  2. France
  3. United states
  4. United Kingdom

Answer: A

  • Capitalism, the Rhenish model, and social capitalism,[1] is a socioeconomic model combining a free-market capitalist economic system alongside social policies and enough regulation to establish both fair competition within the market and generally a welfare state. It is sometimes classified as a regulated market economy.
  • The social market economy was originally promoted and implemented in West Germany by the Christian Democratic Union of Germany under Chancellor Konrad Adenauer in 1949,[5] and today the term is used by ordoliberals, social liberals, and social democrats, who generally reject full state ownership of the means of production but support egalitarian distribution of all goods and services in a market segment. Its origins can be traced to the interwar Freiburg school of economic thought.
  • Hence A option is correct.

Q.47 With reference to Convertible Bonds, consider the following statements: UPSC 2022

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

Which of the statements given above is/are correct?

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

Answer: C

  • A convertible bond is a type of fixed income security sold by public companies that can be converted into common shares of the issuing company’s stock.
  • Convertible bonds work just like ordinary corporate bonds, paying interest according to the specified coupon rate until you or the company decides to trigger a conversion to equity.
  • Under convertible bonds, companies reduce interest expenses due to lower interest rates. Indexation means adjusting a price, wage, or other value based on the changes in another price or composite indicator of prices. Indexation can be done to adjust for the effects of inflation, cost of living, or input prices over time, or to adjust for different prices and costs in different geographic areas.
  • Hence Statements 1 and 2 are correct.

Q.48 In the context of which of the following do you sometimes find the terms 'amber box, blue box and green box' in the news? UPSC 2016

  1. WTO affairs
  2. SAARC affairs
  3. UNFCCC affairs
  4. India-EU negotiations on FTA

Answer: A

  • In WTO terminology, subsidies in general are identified by “Boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. be reduced), red (forbidden). In agriculture, things are, as usual, more complicated. The Agriculture Agreement has no Red Box, although domestic support exceeding the reduction commitment levels in the Amber Box is prohibited; and there is a Blue Box for subsidies that are tied to programmes that limit production. There are also exemptions for developing countries (sometimes called an “S&D Box”).
  • Blue box
  • Included in the blue box are any support payments that are not subject to the amber box reduction agreement because they are direct payments under a production limiting program.
  • To be blue box policies, direct payments must be made on fixed areas and yields, or payments must be made on 85 percent or less of the base level of production.
  • Livestock payments must be on a fixed number of head.
  • Amber box
  • Agriculture's amber box, according to the WTO, is used for all domestic support measures considered to distort production and trade.
  • As a result, the trade agreement calls for committing to reduce their trade-distorting domestic supports that fall into the amber box.
  • WTO members without these commitments are required to maintain their amber box supports to within five to 10 percent of their value of production.
  • Green box
  • Agriculture-related subsidies that fit in WTO's green box are policies that are not restricted by the trade agreement because they are not considered trade distorting.
  • To qualify for the green box, WTO says a subsidy must not distort trade, or at most cause minimal distortion.
  • These green box subsidies must be government-funded — not by charging consumers higher prices, and they must not involve price support.
  • Hence option A is correct.

 

Q.49 In India, which one of the following compiles information on industrial disputes, closures, retrenchments and lay-offs in factories employing workers? UPSC 2022

  1. Central Statistics Office
  2. Department for Promotion of Industry and Internal Trade
  3. Labour Bureau
  4. National Technical Manpower Information System

Answer: C

  • Labour Bureau, established in 1920, is an attached office under the Ministry of Labour & Employment and is responsible for the collection, collation and dissemination of labour, employment and price statistics. Besides, it is also a major source of primary data pertaining to several important economic indicators.
  • These include the Consumer Price Index Numbers for Industrial Workers, Agricultural and Rural Labourers, Wage Rate Indices, wages, earnings, absenteeism, labour turnover, industrial relations, socio-economic conditions of workers in the organized and unorganized sectors of industry, etc.
  • The Bureau also collects administrative statistics under the 11 Labour Acts. With the formulation of the four Labour Codes, the Bureau is also proposed to be designated as the nodal agency for collection of statistical returns under all the four Labour Codes.
  • Labour Bureau is discharging its functions by implementing a continuing Central Sector Scheme called the “Labour & Employment Statistical System” (LESS).
  • The activities carried out under the scheme generate useful price, labour and employment statistics which have wide-ranging users nationally and internationally. The data provided by Bureau has immense utility in formulation of evidence-based policies and plans in the field of labour and employment. The data so produced is also in great demand for research and academic purposes.

 

Q.50 Which of the following is/are included in the capital budget of the Government of India? UPSC 2016

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

Select the correct answer using the code given below.

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

Answer: D

  • A capital budget is a long-term plan that outlines the financial demands of an investment, development, or major purchase. As opposed to an operational budget that tracks revenue and expenses, a capital budget must be prepared to analyze whether or not the long-term endeavor will be profitable.
  • Capital budgets are often scrutinized using NPV, IRR, and payback periods to make sure the return meets management's expectations.
  • Capital receipts are loans raised by the government from the public (which are called market loans), borrowings by the government from the Reserve Bank and other parties through sale of treasury bills, loans received from foreign bodies and governments, and recoveries of loans granted by the Central government to state and Union Territory governments and other parties.
  • Capital payments consist of capital expenditure on acquisition of assets like land, buildings, machinery, and equipment, as also investments in shares, loans and advances granted by the Central government to state and Union Territory governments, government companies, corporations and other parties.
  • Hence all statements are correct.

 

Q.51 The FAO accords the status of 'Globally Important Agricultural Heritage System (GIAHS)' to traditional agricultural systems. What is the overall goal of this initiative? UPSC 2016

  1. To provide modern technology, training in modern farming methods and financial support to local communities of identified GIAHS so as to greatly enhance their agricultural productivity
  2. To identify and safeguard eco-friendly traditional farm practices and their associated landscapes, agricultural biodiversity and knowledge systems of the local communities.
  3. To provide Geographical Indication status to all the varieties of agricultural produce in such identified GIAHS.

Select the correct answer using the code given below:

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

Answer: C

  • The concept of Globally Important Agricultural Heritage Systems (GIAHS) is distinct from, and more complex than, a conventional heritage site or protected area/landscape. A GIAHS is a living, evolving system of human communities in an intricate relationship with their territory, cultural or agricultural landscape or biophysical and wider social environment.
  • The humans and their livelihood activities have continually adapted to the potentials and constraints of the environment and also shaped the landscape and the biological environment to different degrees.
  • This has led to an accumulation of experience over generations, an increasing range and depth of their knowledge systems and generally, but not necessarily, a complex and diverse range of livelihood activities, often closely integrated.
  • The resilience of many GIAHS sites has been developed and adapted to cope with climatic variability and change, i.e. natural hazards, new technologies and changing social and political situations, so as to ensure food and livelihood security and alleviate risk.
  • Dynamic conservation strategies and processes allow maintaining biodiversity and essential ecosystem services thanks to continuous innovation, transfer between generations and exchange with other communities and ecosystems.
  • The wealth and breadth of accumulated knowledge and experience in the management and use of resources is a globally significant treasure that needs to be promoted and conserved and, at the same time, allowed to evolve.
  • Hence only statement 2 is correct.

 

Q.52 Consider the following statements: UPSC 2020

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

Which of the statements given above is/are correct?

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

Answer: D

  • MSP is price fixed by Government of India to protect the producer - farmers - against excessive fall in price during bumper production years. The minimum support prices are a guarantee price for their produce from the Government. After considering the recommendations of the Commission on Agricultural Costs and Prices, the Government of India releases Minimum Support Prices (MSP) for 22 important agricultural commodities each year throughout both harvest seasons (CACP). Hence statement 1 is incorrect.
  • The MSP is determined by the Central Government based on an average of MSP suggestions from various states, some of which may be greater than the Centre's recommendation. While suggestions based on input prices differ from state to state, the MSP remains constant to minimise pricing disparity. When market prices fall below the MSP, government entities purchase the food in order to safeguard the farmers. As a result, market prices may climb over MSP. Hence statement 2 is incorrect.

Q.53 In India, which of the following can be considered as public investment in agriculture? CSE 2020

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

Select the correct answer using the code given below:

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

Answer: C

  • Questions demanded investment. Except Option 2,3, and 6 all are subsidies and short term in nature.
  • Investments creates capital and provide long term sustainability. Fixing MSP, Free electricity, waiver of loans are short term measures.
  • The Economic Survey noted that the agriculture sector in the country grew by 3% in 2021-22, lower than an average growth of 4.6% in the last six years. In 2020-21, the growth in this sector was 3.3%. In 2016-17, the growth rate was 6.8%, followed by 6.6% in 2017-18, 2.1% in 2018-19 and 5.5% in 2019-20. The Survey said private investment in agriculture increased to 9.3% in 2020-21. The public investment, however, remained at 4.3%, the same as 2019-20. In 2011-12, the public investment in agriculture was 5.4%.
  • Fast-forward to 2022: India’s agriculture exports touched a historic high of USD 50 billion (FY 2021-22). The highest-ever exports were achieved for staples like rice, wheat, sugar, other cereals and meat.
  • As per the provisional figures released by the Directorate General of Commercial Intelligence and Statistics (DGCI&S), agricultural exports have grown by 19.92% during 2021-22 to touch $50.21 billion.
  • The main focus areas of the movement were (a) farm mechanization by substituting the use of cattle with modern tractors and other machinery to increase productivity, (b) the use of hybrid varieties of seeds for better yield, and (c) using the new dams constructed post-independence for better irrigation. It transformed India from a food-deficit nation to a food-surplus country.

 

Q.54 Exchange rates state the value of one currency in terms of other currencies. Which one of the following statements with respect to the exchange rate of a currency is correct? CDS 2021

  1. Floating exchange rates are rates in which the Governments interfere by buying or selling their currencies
  2. Fixed exchange rates are rates set by Government decisions and Maintained by Government actions.
  3. Under the Bretton Woods System, the exchange rates are floated in terms of rise or fall in price of gold.
  4. Under the classical gold standard, the exchange rates are fixed in terms of price of dollar.

Answer: B

  • The exchange rate system used by a country is called its exchange rate regime. Countries can choose which exchange rate regime to follow, depending on their goals. Countries may either fix or float their exchange rate, but there are a number of other exchange rate systems between these two extremes.
  • There are four main types of exchange rate regimes: freely floating, fixed, pegged (also known as adjustable peg, crawling peg, basket peg, or target zone or bands ), and managed float.
  • Fixed Exchange Rate
  • Under this system, the exchange rate for the currency is fixed by the government. Thus, the government is responsible to maintain the stability of the exchange rate. Each country maintains the value of its currency in terms of some ‘external standard’ like gold, silver, another precious metal, or another country’s currency.
  • Bretton Woods System (1944-1971): The gold standard system was replaced by the Bretton Woods System. This system was adopted to have clarity in the system. Even in the fixed exchange rate, it allowed some adjustments, thus it is called the ‘adjusted peg system of exchange rate’.
  • Gold Standard System (1870-1914): As per this system, gold was taken as the common unit of parity between the currencies of different countries. Each country defines the value of its currency in terms of gold. Accordingly, the value of one currency is fixed in terms of another country’s currency after considering the gold value of each currency.
  • Floating Exchange Rate
  • It is the combination of the fixed rate system (the managed part) and the flexible rate system (the floating part), thus, it is also called a Hybrid System. It refers to the system in which the foreign exchange rate is determined by the market forces and the central bank stabilizes the exchange rate in case of appreciation or depreciation of the domestic currency.

 

 

Q.55 Which of the following factors signify monopolistic competition? CDS 2022

  1. Differentiated products
  2. Large number of buyers and sellers
  3. Barriers to entry
  4. Homogeneous products

Select the correct answer using the code given below:

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

Answer: A

  • Monopolistic competition exists when many companies offer competing products or services that are similar, but not perfect, substitutes.
  • Monopolistic competition occurs when many companies offer products that are similar but not identical.
  • Firms in monopolistic competition differentiate their products through pricing and marketing strategies.
  • Barriers to entry, or the costs or other obstacles that prevent new competitors from entering an industry, are low in monopolistic competition. Hence statement 1 and 2 are correct.
  • Variety of choices for consumers
  • Company decision-making power for prices and marketing
  • Consistent quality of product for consumers
  • There are many firms offering similar but not identical items/products. Easy entry and exit are available. Hence statement 3 and 4 are incorrect.

Q.56 The term ‘Core Banking Solution’ is sometimes seen in the news. Which of the following statements best describes/describe this term? UPSC 2016

  1. It is a networking of a bank’s branches which enables customers to operate their accounts from any branch of the bank on its network regardless of where they open their accounts.
  2. It is an effort to increase RBI’s control over commercial banks through computerization.
  3. It is a detailed procedure by which a bank with huge non-performing assets is taken over by another bank.

Select the correct answer using the code given below:

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

Answer: C

  • Core Banking Solution (CBS) is the networking of bank branches, which allows customers to manage their accounts, and use various banking facilities from any part of the world. Hence statement 1 is correct.
  • For the bank which implements CBS, the customer becomes the bank’s customer instead of the customer of a particular branch.
  • Execution of Core banking system across all branches helps to speed up most of the common transactions of bank and customer. In Core banking, all branches access banking applications from a centralized server which is hosted in a secured datacenter.
  • Importance:
    • To meet the dynamically changing market & customer needs.
    • To improve & simplify banking processes so that bank staff can focus on sales & marketing stuff.
    • Convenience to customers as well as banks.
    • To Speed up the banking transactions.
    • To expand presence in rural & remote areas
  • Benefits:
    • Quicker services at the bank counters for routine transactions like cash deposits, withdrawal, passbooks, statements of accounts, demand drafts, etc.
    • Anywhere banking by eliminating branch banking.
    • Provision of banking services 24 X 7.
    • Fast payment processing through Internet banking, mobile banking.
    • Anytime anywhere banking through ATMs.
    • All branches access applications from central servers/datacenter, so deposits made in any branch reflect immediately and the customer can withdraw money from any other branch throughout the world.
    • CBS is very helpful to people living in rural areas. The farmers can receive e-payments towards subsidy etc. in their account directly. Transfer of funds from the cities to the villages and vice versa will be done easily.
  • Hence statement 2 and 3 are irrelevant to core banking solutions.

Q.57 What is/are the purpose/purposes of the ‘Marginal Cost of Funds based Lending Rate (MCLR)’ announced by RBI? UPSC 2016

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

Select the correct answer using the code given below:

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

Answer: C

  • Hence both statements are correct.
  • MCLR (marginal cost of funds based lending rate) is the lowest interest rate that a bank or lender can offer. Most banks cannot offer interest rates lower than the marginal cost of funds based lending rate. However, certain exceptions can be made when allowed by the Reserve Bank of India (RBI).
  • MCLR or marginal cost of funds based lending rate has been introduced so that end borrowers can enjoy the benefits associated with repo rate cuts by the Reserve Bank of India (RBI). This has been implemented to make banking system even more transparent.
  • MCLR depends on factors like CRR (Cash Reserve Ratio), marginal cost of funds, tenor premium, and operating cost.
  • It is dependent on the repo rate changes made by the RBI.
  • Marginal cost of funds based lending rate can be different for different loan tenures.

 

Q.58 Which of the following factors/policies were affecting the price of rice in India in the recent past? UPSC 2020

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

Select the correct answer using the code given below:

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

Answer: D

  • ALL FACTORS AFFECT THE PRICE OF RICE IN INDIA
  • Rice requires highly specific environmental conditions to grow. After maize, rice was the world’s most produced crop. India ranked second in rice production globally. This volume amounted to over 129 million metric tons in financial year 2022.
  • The Indian rice industry is positively impacted by government support for rice production, suitable monsoon season, an increase in the number of rice processing industries, and exports.
  • However, climate change has had an impact on the crop seasons, along with high fertilizers prices, inadequate irrigation systems, and issues within the farming communities.
  • The most recent of the latter involved the farmer protests, one of the largest demonstrations in the world.
    • MSP impacts by increasing the price and making it competitive for Indian exporters in the global market.
    • Exports becomes expensive with the rise in prices.
    • Stockpiling a product anticipated price rise.
    • Impact on Consumer subsidy lowers the consumers price but increases producers price.

 

Q.59 Which one of the following statements about Non-Banking Financial Companies (NBFCs) is not correct? CDS 2022

  1. NBFCs cannot accept demand deposits.
  2. NBFCs cannot give loans.
  3. NBFCs cannot issue cheques drawn on themselves.
  4. NBFCs cannot offer deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation.

Answer: B

  • NBFC is a company incorporated as per the Companies Act,2013, or any other previous act. NBFC is governed by both the Ministry of Corporate Affairs and the RBI. Though NBFC provides financial services, it is different from Banks in many ways. It cannot accept public deposits by allowing people to open savings/current accounts with it.
  • However, NBFCs can receive deposits under any arrangement or scheme in one lump sum or regular contributions or some similar method. An NBFC, also, cannot issue cheques and drafts, drawn on itself.
  • NBFCs provide credit and loans at the micro-level. That is mainly to small, medium scale enterprises, to help them overcome their liquidity cash insufficiency. Hence statement B is incorrect.
  • Through its Personalized Customer Services, Implementation of Advance technology, and Customized Loan Product, NBFC helps in providing finance to the economically weaker section of the society.

 

Q.60 Consider the following statements: UPSC 2017

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

Which of the statements given above is/are correct?

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

Answer: B

  • India has ratified the new Trade Facilitation Agreement (TFA). India's WTO ambassador Anjali Prasad handed over her country's instrument of acceptance to Director-General Roberto Azevêdo on 22 April 2016. Hence statement 1 is correct.
  • WTO members concluded negotiations at the 2013 Bali Ministerial Conference on the landmark Trade Facilitation Agreement (TFA), which entered into force on 22 February 2017 following its ratification by two-thirds of the WTO membership. Hence statement 2 is correct.
  • The TFA is the WTO's first-ever multilateral accord that aims to simplify customs regulations for the cross-border movement of goods. It was outcome of WTO's 9th Bali (Indonesia) ministerial package of 2013. India ratified it in April 2016. It came into force in February 2017. Hence statement 3 is incorrect.

 

Q.61 Consider the following statements: UPSC 2017

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

Which of the statements given above is/are correct?

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

Answer: D

  • India Tax revenue: % of GDP was reported at 7.5 % in Mar 2023.
  • This records a decrease from the previous number of 7.8 % for Dec 2022.
  • India Tax revenue: % of GDP data is updated quarterly, averaging 7.4 % from Jun 1997 to Mar 2023, with 104 observations.
  • The data reached an all-time high of 10.8 % in Mar 2015 and a record low of 3.0 % in Jun 2003.
  • India Tax revenue: % of GDP data remains active status in CEIC and is reported by CEIC Data. Hence statement 1 is incorrect.
  • According to the Survey, fiscal deficit is expected to be at 6.4% of GDP in FY 23. The Survey highlighted that conservative budget assumptions provided a buffer during global uncertainties. The resilience in the fiscal performance was due to a recovery in economic activity and buoyancy in revenues.
  • The Central government's fiscal deficit for the last financial year ended March 31, 2023 narrowed to 6.4 percent of gross domestic product (GDP), from a year earlier, and also met the government's target, aided by buoyant tax receipts and some fiscal headroom from lower payments. Hence statement 2 is incorrect.

Q.62 For anything to be recognized as money, it needs to have which of the following characteristics? CAPF 2021

  1. Act as an intermediate in the exchange process
  2. Standard unit for quoting prices
  3. Must be easily divisible
  4. Have higher value in alternative uses

Select the correct answer using the code given below.

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

Answer: C

  • Money is something that people use every day. We earn it and spend it but don't often think much about it. Economists define money as any good that is widely accepted as final payment for goods and services.
  • Characteristics of Money:
    • Money is a store of value
    • Money is a unit of account.
    • Money is a medium of exchange
  • Divisible: Money is divisible means that money can be divided into small units and exchanged for goods and services. Divisibility is a crucial feature of money as it enables people to store value in silver and gold. Since money is divisible, it can be used to purchase all sorts of goods  of different values.
  • Money's Supply Should Be Stable
  • The supply of the item used as money should be relatively constant over time to prevent fluctuations in value.
  • Money should be easy to carry and divide so that a worthwhile quantity can be carried on one's person or transported.
  • Money Should Be Recognizable
  • The authenticity and quantity of the good should be readily apparent to users so that they can easily agree to the terms of an exchange.
  • Scarce: The more money people possess, the less valuable it becomes. In other words, money only becomes valuable when there is limited supply. The money should be unique, not something easy to find anywhere. Money has to be scarce enough to be of some value, but not so scarce that it is not available. The scarcity of money can be regulated by curbing the amount of money in circulation.
  • Hence statement 4 is not the characteristic of money.

 

 

Q.63 Which one of the following statements about production possibility frontier is not correct? CAPF 2021

  1. The production possibility frontier slopes downwards to the right as the resources are limited.
  2. The different combinations of various goods and services given the available resources and technology are denoted by the production possibility frontier.
  3. Any point on or inside the production possibility frontier is attainable under the existing technology and resources.
  4. On the production possibility frontier, the output of one commodity can be increased without changing the output of another commodity.

Answer: D

  • The production possibility frontier (PPF) is a curve on a graph that illustrates the possible quantities that can be produced of two products if both depend upon the same finite resource for their manufacture. The PPF is also referred to as the production possibility curve. PPF also plays a crucial role in economics. For example, it can demonstrate that a nation's economy has reached the highest level of efficiency possible
  • The PPF demonstrates that the production of one commodity may increase only if the production of the other commodity decreases. Hence option D is incorrect.

 

Q.64 Which one of the following forms of money supply is considered as the most widely used in the Indian monetary system? CDS 2022

  1. M1
  2. M2
  3. M3
  4. M4

Answer: C

  • RBI has been publishing four monetary aggregates – M1, M2, M3 and M4 - besides the reserve money. From among the aggregates, M1 and M3 are extensively used both for policy purposes and in academic exercises. While M1 includes currency with the public, non-interest bearing deposits with the banking sector including that of RBI, M3 captures the complete balance sheet of the banking sector. Hence the most commonly used indicator of the money supply is M3.

Q.65 In National Income (NI) accounts, Personal Income (PI) is defined as – CAPF 2018

  1. NI - undistributed profits - net interest payments made by households - corporate tax + transfer payments to the households from the government and firms
  2. NI - undistributed profits - corporate tax + transfer payments to the households from the government and firms
  3. Undistributed profits - net interest payments made by households + transfer payments to the households from the government and firms
  4. undistributed profits — net interest payments made by households —
    corporate tax

Answer: A

  • Personal Income = National Income – Undistributed Corporate Profits – Profit Taxes – Social Security Contributions + Transfer Payments + Interest on Public Debt. Disposable income or personal disposable income means the actual income which can be spent on consumption by individuals and families. Hence option A is correct.

 

 

Q.66 Consider the following statements: UPSC 2020

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

Which of the statements given above is/are correct?

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

Answer: B

  • Schedules bank contributes to about 70-80% share in agricultural and allied credit. Though co-operative institutions also play a significant role in providing finance to the agriculture sector which stands at 15-16%, hence not as much as Scheduled banks. Hence statement 1 is incorrect.
  • One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies. Hence statement 2 is correct.

 

 

 

Q.67 Which one of the following terms denotes the inputs in terms of tools, machines, buildings, raw materials, and money in hand required at any stage of production? CDS 2022

  1. A. Fixed capital
  2. Working capital
  3. Physical capital
  4. Human capital

Answer: C

  • In economic theory, physical capital is one of the three factors of production. Physical capital consists of tangible, human-made objects that a company buys or invests in and uses to produce goods.
  • Physical capital items, such as manufacturing equipment, also fall into the category of fixed capital, meaning they are reusable, and not consumed during the production process. Hence option C is correct.

 

Q.68 Which of the following has/have occurred in India after its liberalization of economic policies in 1991? UPSC 2017

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

Select the correct answer using the codes given below:

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

Answer: B

  • It is estimated that India’s agriculture sector accounts only for around 14 percent of the country’s economy but for 42 percent of total employment. As around 55 percent of India’s arable land depends on precipitation, the amount of rainfall during the monsoon season is very important for economic activity. GDP from Agriculture in India decreased to 6071.31 INR Billion in the first quarter of 2023 from 7004.72 INR Billion in the fourth quarter of 2022. Hence gradual decline. Statement 1 is incorrect.
  • In FY 2023, India received equity inflows worth US$46.03 billion. The total FDI inflows received in FY 2023, which includes equity inflows, reinvested earnings, and other capital sources, amounted to US$70.97 billion – a decrease from the US$84.83 billion recorded during FY 2022. In comparison it has increased. Hence statement 3 is correct.
  • India's overall exports in April 2023 estimated at USD 65.02 billion; a positive growth of 2 percent. India's overall exports (Merchandise and Services combined) in April 2023* is estimated to be USD 65.02 Billion, exhibiting a positive growth of 2.00 per cent over April 2022. Hence statement 2 is correct.
  • India's forex reserves rose by $2.350 billion to $596.098 billion in the week ending June 16, 2023. The increase was driven by a surge in foreign currency assets, which rose by $2.578 billion to $527.651 billion. Gold reserves were the only component to decline. Hence statement 4 is correct.

 

Q.69 With reference to the Indian economy after the 1991 economic liberalization, consider the following statements: UPSC 2020

  1. Worker productivity (Rs. per worker at 2004-05 prices) increased in urban areas while it decreased in rural areas.
  2. The percentage share of rural areas in the workforce steadily increased.
  3. In rural areas, the growth in the non-farm economy increased.
  4. The growth rate in rural employment decreased.

Which of the statements given above is/are correct?

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

Answer: B

  • According to 2017 NITI Aayog Report, “Changing Structure of Rural Economy of India Implications for Employment and Growth”, provides the following information regarding the rural economy:
    • Worker productivity has increased for both rural and urban areas. For rural areas it was `37273 in 2004-05 and `101755 in 2011-12, while for urban areas it was `120419 in 2004-05 and `282515 in 2011-12. Hence, statement 1 is incorrect.
  • Rural employment showed 2.16% annual growth rate during the pre-reform period, which decelerated in the post-reform period to 1.45% and turned negative (-0.28%) in the period of economic acceleration. Hence, statement 4 is correct.
  • The rural share in the total workforce declined steadily from 76.1% in 1999-00 to 70.9% in 2011-12. Hence, statement 2 is not correct.
  • One of the significant changes in the rural production structure is the growing share of the non-farm sector, which increased from 37% in 1980-81 to 65% in 2009-10, and thus shows that in terms of value of production, rural is no longer merely agricultural. Hence, statement 3 is correct.

 

 

Q.70 Consider the following statements: UPSC 2018

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

Which of the statements given above is/are correct?

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

Answer: A

  • The capital adequacy ratio (CAR) is an indicator of how well a bank can meet its obligations. Also known as the capital-to-risk weighted assets ratio (CRAR), the ratio compares capital to risk-weighted assets and is watched by regulators to determine a bank's risk of failure. It's used to protect depositors and promote the stability and efficiency of financial systems around the world. Hence statement 1 is correct.
  • CAR is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process. Hence statement 2 is incorrect.

 

 

Q.71 With reference to the governance of public sector banking in India, consider the following statements: UPSC 2018

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

Which of the statements given above is/are correct?

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

Answer:  B

  • The government was forced to infuse as much as Rs 3.3 trillion between FY16 and FY21 into state-run banks to help them cope with the bad loan crisis. With the improvement in their balance sheets, the banks are in a position to scale up advances and support the growing credit appetite of a recuperating economy.
  • At an aggregate level, the capital to risk-weighted assets of state-run banks stood at 14.6% as of March 2022, against the requirement of 10.875%.
  • Non-food bank credit grew 16% in August, compared with 6.7% a year before. However, loans to industry grew at a slower pace of 11.4% even on a favourable base (it had risen just 1.5% in August 2021). Hence statement 1 is incorrect.
  • Capital infusion into public sector banks by the Government of India has not increased in the last decade. But to put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected. Hence statement 2 is correct.

 

Q.72 Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)? UPSC 2017

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

Select the correct answer using the code given below:

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

Answer: A

  • The Monetary Policy Committee (MPC) is a body of six members that decides the key policy interest rate and the monetary policy stance of the Reserve Bank of India (RBI). The policy interest rate, also known as the repo rate, is the rate at which the RBI lends money to commercial banks for short-term purposes. Hence Statement 1 is correct and statement 2 is incorrect.
  • The MPC has three members from the RBI, including the Governor, who acts as the chairperson, and two other officials nominated by the RBI. The other three members are external experts appointed by the Government based on their knowledge and experience in economics, banking, finance, or monetary policy. Hence statement 3 is incorrect.

 

Q.73 Which one of the following frameworks is developed to assess the value of the increasing investments made on e-governance projects in terms of service orientation, technology architecture, replicability and sustainability in various states across the country ? IES 2021

  1. eTechnology Group@IMRB
  2. e-Governance Assessment Framework
  3. Sustainable Access in Rural India
  4. e-governance Action Plan

Answer: B

  • Assessment Of e-Governance Projects
    • The Department of Electronics and Information Technology (DeitY) as part of its overall e-Assessment strategy proposes to list, identify and conduct independent third party assessment of e-Governance and ICT for Development (ICT4D) projects that provide any measure of e-Governance services, across India, in order to understand the impact, utility, sustainability, scalability and replicability of these projects.
    • DeitY has been undertaking independent third party assessment of projects since 2007.
  • Framework of Assessment
    • In order to undertake assessment of project and enable comparision of project performance across projects and across implementation geographies, all projects are assessed on an Assessment Framework which is customised to each project. The broad parameters of assessment – assessing impact on outreach, cost of accessing services, quality of services and overall governance across projects remain the same.
    • Assessment Framework used from 2007-08 can be accessed HERE. Assessment Framework used from 2009-10 can be accessed HERE.
    • Based Assessment studies carried out from 2007-10 several key learning emerged:
    • The Scope of Impact Assessment needs to be enhanced to include reason for Impact in the Impact Assessment Framework
    • Carry out Baseline studies to understand existing status of G2C Service delivery as well create a baseline for doing impact assessment at a later date
    • Carry out in depth case studies of large and/or successful projects to understand reasons for the variation in impact as well reasons for their success/failure, sustainability, potential for replication etc.

 

Q.74 If farmers loan are waived in India, how will it affect the aggregate demand in the economy? CAPF 2018

  1. Private consumption impact via increase in private sector net wealth
  2. Public sector impact via changes in government expenditure/taxes
  3. Crowding-out impact via higher borrowings by State Governments
  4. Crowding-in impact via higher credit availability as bank NPAs fall

Select the correct answer using the code given below:

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

Answer: D

  • The survey estimates that loan waivers by all states could reduce aggregate demand by as much as 0.7% of GDP, imparting a significant deflationary shock. This is mainly due to the fact that states funding the loan waiver would have to prune spending and possibly raise taxes to improve revenue and stick to their fiscal deficit limit of 3% .
  • The survey factors in four effects while estimating the impact on aggregate demand: Impact on private consumption via increases in net wealth of the private sector; impact on the public sector through changes in government expenditure/taxes; crowding out impact of higher state government borrowings and crowding in impact via higher credit availability as bad loans of bank fall proportionately. Hence option D is correct.

 

Q.75 Which one of the following is not a function of money? CDS 2021

  1. Act as an intermediate in the exchange process
  2. Acts as a store of value
  3. Used as the unit account
  4. Used for regulating consumption

Answer: D

  • Money performs four main functions in today’s society. It mainly serves as:
  • A medium of exchange
  • A standard of deferred payment
  • A store of wealth
  • A measure of value

 

Q.76 With reference to India's Five-Year Plans, which of the following statements is/are correct? UPSC 2019

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

Select the correct answer using the code given below.

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

Answer: A

  • The Second Plan focused on the development of the public sector and "rapid Industrialisation". The plan followed the Mahalanobis model, an economic development model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953.
  • The plan attempted to determine the optimal allocation of investment between productive sectors in order to maximize long-run economic growth.
  • The plan assumed a closed economy in which the main trading activity would be centered on importing capital goods. From the Second Five-Year Plan, there was a determined thrust towards substitution of basic and capital goods industries. Hence statement 1 is correct.
  • The Fourth Five-Year Plan adopted the objective of correcting the earlier trend of increased concentration of wealth and economic power. It was based on the Gadgil formula focusing on growth with stability and progress towards self reliance. At this time Indira Gandhi was the prime minister. Hence statement 2 is correct.
  • The Fifth Five-Year Plan laid stress on employment, poverty alleviation (Garibi Hatao), and justice. The plan also focused on self-reliance in agricultural production and defense. In 1978 the newly elected Morarji Desai government rejected the plan. Hence statement 3 is incorrect.

Q.77 Which of the following is/are the example(s) of Transfer Payment(s)? CDS 2016

  1. Unemployment Allowance
  2. Payment of Salary
  3. Social Security Payments
  4. Old age Pension

Select the correct answer using the code given below:

  1. 1 and 3 only
  2. 1,2 and 3 only
  3. 1,3 and 4 only
  4. None of the above

Answer: C

  • A transfer payment is a one-way payment to a person or organization which has given or exchanged no goods or services for it.
  • This contrasts with a simple "payment," which in economics refers to a transfer of money in exchange for a product or service. The most well-known form of transfer payment is likely Social Security payments, whether for retirement or disability.
  • These are considered transfer payments even though most recipients have paid into the system during their working lives. Similarly, unemployment payments are also considered transfer payments.

Q.78 Consider the following items: UPSC 2018

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

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

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

Answer: C

  • Fish, crustaceans, molluscs & other aquatic worms in processed, cured or frozen state are taxable at 5% rate under GST: Frozen, excluding fish fillets and different fish meat. Fish fillets and other fish meat such as dried, salted or in brine; smoked fish, and pellets of fish. Hence statement 3 is incorrect.

 

 

Q.79 Consider the following statements: UPSC 2018

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

Which of the statements given above is/are correct?

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

Answer: A

  • A wide range of oilseed crops are produced in different agro-climatic regions of the country, which include groundnut, soybean, and rapeseed-mustard, besides, sesamum, sunflower and safflower.
  • Till 1960s, India was a net exporter of oilseeds, meals, extractions and edible oils. However, by late-1970s, India became a net importer of edible oils, owing to stagnation in production, and increasing demand for edible oils.
  • By the mid-1980s, edible oil was the largest import item, constituting about 30% of the total imports, next only to petroleum products. This was, despite the fact that, India had the world’s second largest area under oilseeds. Hence statement 1 is correct.
  • Government imposes customs duty on edible oils to safeguard the interests of the domestic oil crushing industry. The duty on two major edible oils, namely crude sunflower seed oil and crude canola/rapeseed/mustard is 25 percent, while crude soybean oil attracts 30 percent duty. Hence statement 2 is incorrect.

 

Q.80 Which one of the following may lead to a movement along the demand curve of a commodity? CDS 2021

  1. Change in its price
  2. Change in price of the other commodities
  3. Change in income of the consumer
  4. Change in tastes and preferences of consumers

Answer: A

  • In economics, demand is defined as the quantity of a product or service, that a consumer is ready to buy at various prices, over a period. Demand Curve is a graph, indicating the quantity demanded by the consumer at different prices. The movement in demand curve occurs due to the change in the price of the commodity whereas the shift in demand curve is because of the change in one or more factors other than the price. Hence option A is correct.

 

Q.81 Consider the following statements: UPSC 2017

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

Which of the statements given above is/are correct?

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

Answer: A

  • A certification from the Bureau of Indian Standards (BIS) is mandatory for all types of automotive tyres and tubes. As per the directive of the BIS, all types of tyres and tubes for two-wheelers, three-wheelers, passenger cars and commercial vehicles. Hence statement 1 is correct.
  • AGMARK is a certification mark for agricultural produce, assuring that they conform to a grade standard notified by Directorate of Marketing & Inspection (DMI), Department of Agriculture, Cooperation and Farmers Welfare, Ministry of Agriculture & Farmers Welfare under Agricultural Produce (Grading Marking) Act, 1937. Hence statement 2 is incorrect

 

Q.82 The mismatch in the regional or occupational pattern of job vacancies and the pattern of worker availability results in CDS 2021

  1. Structural unemployment
  2. Disguised unemployment
  3. Altered unemployment
  4. Cyclical unemployment

Answer: A

  • Structural unemployment is a longer-lasting form of unemployment caused by fundamental shifts in an economy and exacerbated by extraneous factors such as technology, competition, and government policy. Structural unemployment occurs because workers lack the requisite job skills or live too far from regions where jobs are available and cannot move closer. Jobs are available, but there is a serious mismatch between what companies need and what workers can offer. Hence option A is correct.

 

 

Q.83 With reference to India's decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct? UPSC 2018

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

Select the correct answer using the code given below:

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

Answer: D

  • An equalization levy tax of 6% on online advertisement services offered by non-resident entities was introduced in 2016, as a separate legislation under the Financial bill and it does not provide tax credit in the home country under the "Double Taxation Avoidance Agreements. Hence both statements are incorrect.

 

 

Q.84 Consider the following statements: UPSC 2018

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

Which of the statements give above is/are correct?

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

Answer: C

  • A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
  • In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.. Hence statement 1 is incorrect and 2 is correct.
  • Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued only by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day.
  • Treasury bills are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity.
  • For example, a 91 day Treasury bill of ₹100/- (face value) may be issued at say ₹20, that is, at a discount of say, ₹1.80 and would be redeemed at the face value of ₹100/-. The return to the investors is the difference between the maturity value or the face value (that is ₹100) and the issue price. Hence statement 3 is correct.

 

Q.85 What is the purpose of setting up of Small Finance Banks (SFBs) in India? UPSC 2017

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

Select the correct answer using the code given below:

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

Answer: A

  • Small finance banks are a type of bank that helps those sections which do not get support from other banks.
  • Small finance banks provide basic bank facilities to the economical sections which are not supported by the other banks.
  • It helps to provide financial aid to the small business units, small or marginal farmers, micro or small industries. It includes small scale businesses, the unorganized sector, low-income households, farmers, etc. Hence only statement 1 and 2 are correct .

 

 

Q.86 In India, which one of the following is responsible for maintaining price stability by controlling inflation? UPSC 2022

  1. Department of Consumer Affairs
  2. Expenditure Management Commission
  3. Financial Stability and Development Council
  4. Reserve Bank of India

Answer: D

  • The central bank has been described as the "lender of last resort," which means it is responsible for providing its nation's economy with funds when commercial banks cannot cover a supply shortage. In other words, the central bank prevents the country's banking system from failing.The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy. This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934. Hence option D is correct.

 

 

Q.87 Consider the following statements: UPSC 2019

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

Which of the statements given above is/are correct?

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

Answer: A

  • Purchasing power parity (PPP) is a popular metric used by macroeconomic analysts that compares different countries' currencies through a "basket of goods" approach.
  • Purchasing power parity (PPP) allows for economists to compare economic productivity and standards of living between countries.
  • Some countries adjust their gross domestic product (GDP) figures to reflect PPP. Hence statement 1 is correct.
  • In terms of PPP dollars, India is the third-largest economy in the world. Hence statement 2 is incorrect.

 

Q.88  With reference to the 'Prohibition of Benami Property Transactions Act, 1988 (PBPT Act)', consider the following statements: UPSC 2017

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

Which of the statements given above is/are correct?

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

Answer: B

  • Benami Transactions (Prohibition) Amendment Act, 2016, defines a benami transaction as a transaction where a property is held by or transferred to a person, but has been provided for or paid by another person, the transaction is made in a fictitious name, the owner is not aware of denies knowledge of the ownership of the property, the person providing the consideration for the property is not traceable. Hence statement 1 is incorrect.

 

Q.89 With reference to the Indian economy, consider the following statements: UPSC 2020

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

Which of the statements given above is/are correct?

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

Answer: C

  • Commercial paper is an unsecured form of promissory note that pays a fixed rate of interest. It is typically issued by large banks or corporations to cover short-term receivables and meet short-term financial obligations, such as funding for a new project. Hence statement 1 is correct.
  • A certificate of deposit (CD) is a savings product that earns interest on a lump sum for a fixed period of time. CDs differ from savings accounts because the money must remain untouched for the entirety of their term or risk penalty fees or lost interest. CDs usually have higher interest rates than savings accounts as an incentive for lost liquidity. Hence statement 2 is incorrect.
  • Call money is any type of short-term, interest-earning financial loan that the borrower has to pay back immediately whenever the lender demands it. Call money allows banks to earn interest, known as the call loan rate, on their surplus funds. Call money is typically used by brokerage firms for short-term funding needs. Hence statement 3 is correct.
  • A zero-coupon bond, also known as an accrual bond, is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value. Hence statement 4 is incorrect

 

Q.90 Which one of the following items is not covered under GST? CDS 2022

  1. Cosmetics
  2. Medical grade
  3. Jewellery
  4. Petrol

Answer: D

  • Diesel, Crude oil, petrol, natural gas, and jet fuel are not involved under GST as of now. Liquor is kept out of GST and therefore it would require an amendment under the constitutional provision to be brought into GST net. Hence option D is correct.

 

Q.91 Which of the following is/are the aim/aims of "Digital India" Plan of the Government of India? UPSC 2018

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

Select the correct answer using the code given below.

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

Answer: B

  • Digital India is a campaign launched by the Government of India to ensure that the Government's services are made available to citizens electronically through improved online infrastructure and by increasing Internet connectivity or making the country digitally empowered in the field of technology.[1][2] The initiative includes plans to connect rural areas with high-speed internet networks. It consists of three core components: the development of secure and stable digital infrastructure, delivering government services digitally, and universal digital literacy.
  • Hence only statement 3 is correct.

 

Q.92 Consider the following statements: UPSC 2019

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

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

Which of the statements given above is/are correct?

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

Answer: C

  • As per the amendment “Fixed Term Employment” has now been introduced irrespective of the industry of work. The amendment also directs that no employer of an industrial establishment shall convert the posts of the permanent workmen existing in his industrial establishment on the date of commencement of the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018 as fixed term employment thereafter. Hence statement 1 is correct.

 

  • The hours of work, wages, allowances shall not be less than that of permanent workman and all statutory benefits available to a permanent workman proportionately according to the period of service rendered by him even if his period of employment does not extend to the qualifying period of employment required in the statute.

 

  • “(2) Subject to the provisions of the Industrial Disputes Act, 1947 (14 of 1947),-
  • (i) no notice of termination of employment shall be necessary in the case of temporary workman whether monthly rated, weekly rated or piece rated and probationers or badli workmen; and
  • (ii) no workman employed on fixed term employment basis as a result of non-renewal of contract or employment or on the expiry of such contract period without it being renewed, shall be entitled to any notice or pay in lieu thereof, if his services are terminated. Hence statement 2 is correct.

Q.93 The natural rate of unemployment hypothesis was advocated by _________. CDS 2018

  1. Milton Friedman
  2. A. W. Phillips
  3. J. M. Keynes
  4. R. G. Lipsey

Answer: A

  • The natural rate of unemployment is the name that was given to a key concept in the study of economic activity. Milton Friedman and Edmund Phelps, tackling this 'human' problem in the 1960s, both received the Nobel Memorial Prize in Economic Sciences for their work, and the development of the concept is cited as a main motivation behind the prize. Hence option A is correct.

 

Q.94 Which of the following statements is/are correct regarding the Maternity Benefit (Amendment) Act, 2017? UPSC 2019

  1. Pregnant women are entitled for three months pre-delivery and three months post-delivery paid leave.
  2. Enterprises with creches must allow the mother minimum six creche visits daily.
  3. Women with two children get reduced entitlements.

Select the correct answer using the code given below

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

Answer: B

  • The Maternity Benefit Amendment Act has increased the duration of paid maternity leave available for women employees from the existing 12 weeks to 26 weeks. The benefit will be availed by women for a period extending up to a maximum of eight weeks before the expected delivery date and the remaining time can be availed after childbirth. Hence statement 1 is incorrect
  • Section 11 of the amended Act added that "every establishment having fifty or more employees shall have the facility of creche within such distance as may be prescribed, either separately or along with common facilities." Hence statement 2 is incorrect.
  • It is also required that the employer provide the woman with four visits to the creche every day, as well as rest periods for her. Women with two children get reduced entitlements. Hence statement 3 is correct.

Q.95 Which one of the following best describes the concept of 'Small Farmer Large Field'?  UPSC 2015

  1. Resettlement of a large number of people, uprooted from their countries due to war, by giving them a large cultivable land which they cultivate collectively and share the produce.
  2. Many marginal farmers in an area organize themselves into groups and synchronize and harmonize selected agricultural operations.
  3. Many marginal farmers in an area together make a contract with a corporate body and surrender their land to the corporate body for a fixed term for which the corporate body makes a payment of agreed amount to the farmers.
  4. A company extends loans, technical knowledge and material inputs to a number of small farmers in an area so that they produce the agricultural commodity required by the company for its manufacturing process and commercial production.

Answer: D

  • Small Farmers Large Field (SFLF)” is a collective action model to overcome the disadvantages faced by millions of small and marginal farmers due to diseconomies of scale and lack of bargaining power in the supply chain. This model is participatory and flexible and allows small farmers to benefit from achieving economies of scale by organizing themselves into groups and synchronizing and harmonizing selected operations. Hence option B is correct.

 

Q.96 Consider the following statements: UPSC 2019

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

Which of the statements given above is/are correct?

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

Answer: D

  • India's external debt, at US$ 620.7 billion as at end-March 2022, grew by 8.2 per cent over US$ 573.7 billon as at end-March 2021. While 53.2 per cent of it was denominated in US dollar, Indian rupee denominated debt, estimated at 31.2 per cent, was the second largest. Hence statement 2 is incorrect.
  • Commercial borrowings (CBs), NRIs deposits, short-term trade credit and multilateral loans together accounted for 90 per cent of the total external debt. Hence statement 1 is incorrect.

 

Q.97 In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis? UPSC 2019

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

Select the correct answer using the code given below.

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

Answer: B

  • A currency crisis involves the sudden and steep decline in the value of a nation's currency, which causes negative ripple effects throughout the economy. A currency crisis is sometimes predictable, yet they are often sudden. It may be precipitated by governments, investors, central banks, or any combination of actors. But the result is always the same: The negative outlook causes wide-scale economic damage and a loss of capital. Therefore we have to encourage the inflow of dollars to reduce the risk of currency crisis. Hence statement 1 and 3 are correct.
  • Increasing government expenditure results in excessive printing of Rupee currency, which can deteriorate the situation. Hence statement 2 is incorrect.

 

Q.98 Consider the following statements: UPSC 2018

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

  1. individuals of country to accumulate more capital.
  2. increasing the knowledge, skill levels and capacities of the people of the country.
  3. accumulation of tangible wealth.
  4. accumulation of intangible wealth.

Which of the statements given above is/are correct?

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

Answer: C

  • Human capital the intangible economic value of a worker's experience and skills. This includes factors like education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality. Hence statement 2 and 4 are correct.
  • The human capital theory posits that human beings can increase their productive capacity through greater education and skills training.
  • Critics of the theory argue that it is flawed, overly simplistic, and confounds labor with capital.

Q.99 To which of the following sectors of the economy, the activity of agriculture and services belong to ? CAPF 2017

  1. Primary and Tertiary respectively
  2. Primary and Secondary respectively
  3. Tertiary and Secondary respectively
  4. Secondary and Quaternary respectively

Answer: A

  • Sectors are used to categorize the economic activity of consumers and businesses into groupings based on the type of business activity.
  • Primary sector companies are directly engaged in activities utilizing natural resources, such as mining and agriculture.
  • Secondary sector companies produce goods derived from the products within the primary sector and include manufacturing.
  • Tertiary and quaternary sectors represent the services and knowledge-based economy and include. retail and information technology
  • In the financial markets, investment sectors are sub-sectors that aid in comparing the financial performance of similar businesses.

Q.100 Which one of the following is not an assumption in the law of demand? CDS 2019

  1. There are no changes in the taste and preferences of consumers.
  2. Income of consumers remains constant.
  3. Consumers are affected by demonstration effect.
  4. There are no changes in the price of substitute goods.

Answer: C

  • Some of the major assumptions of law of demands are:
  • No change in habits, customs and income of consumers,
  • This law does not apply on necessaries of life,
  • Joint demand,
  • Articles of distinction,
  • Fear of shortage in future,
  • Change in the price of substitutes,
  • Fear of a rise in price in future.
  • Hence option C is correct.

 

 

 

 

 

 

 

 

 

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