Test: Economics - Economics And Social Development - 1


30 Questions MCQ Test Economy and Indian Economy (Prelims) by Shahid Ali | Test: Economics - Economics And Social Development - 1


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QUESTION: 1

Which of the following is/are considered as “secondary sector”?
1. Manufacturing
2. Mining and Quarrying
3. Electricity, Gas and Water Supply
4. Construction

Select the correct code

Solution:

Generally all economic activities divided into eight different industrial divisions.They are (i) Agriculture (ii) Mining and Quarrying (iii) Manufacturing (iv) Electricity, Gas andWater Supply (v) Construction (vi) Trade (vii) Transport and Storage and (viii) Services.

For simplicity, these divisions can be clubbed into three major sectors viz., (a) primary sectorwhich includes (i) and (ii) , (b) secondary sector which includes (iii), (iv) and (v) and (c) servicesector which includes divisions (vi), (vii) and (viii).

QUESTION: 2

The difference between the market prices and factor cost is equal to

Solution:

Basically, ‘factor cost’ is the ‘input cost’ the producer has to incur in the process of producingsomething (such as cost of capital i.e. interest on loans, raw materials, labour, rent, power,etc.). This is also termed as ‘factory price’ or ‘production cost/price’. This is nothing but ‘price’of the commodity from the producer’s side. While the ‘market prices’ is derived after addingthe indirect taxes to the factor cost of the product, it means the cost at which the goods reachthe market i.e. showrooms (these are the Cenvat/central excise and the CST which are paid bythe producers to the Central government in India).

QUESTION: 3

Recently union government made some changes to the GDP calculation method. Which of the following is/are correct with regards to these changes?


1. The base year for the calculation of GDP was changed to 2011-12 from 2004-05.
2. GDP will be measured by using gross value added (GVA) at market price, rather than factor cost.
3. The change in method of calculation has brought Indian GDP calculations more in line with global practice.

Select the correct code-

Solution:

Earlier, in India, income is calculated at factor cost, and so is the case with most of the developing countries. The reasons are – lack of uniformity in taxes, goods are not printed with their prices, etc.

QUESTION: 4

Which one of the following statement is true?

Solution:

Gross National Product (GNP) is the GDP of a country added with its ‘income from abroad’. Theitems which are counted in the segment ‘Income from Abroad’ are:

1. Trade Balance: the net outcome at the year end of the total exports and imports of acountry may be positive or negative accordingly added with the GDP.

2. Interest of External Loans: the net outcome on the front of the interest payments i.e.balance of the inflow (on the money lend out by the economy) and the outflow (on themoney borrowed by the economy) of the external interests.

3. Private Remittances: the net outcome of the money which inflows and outflows onaccount of the ‘private transfers’.

The balance of all the three components of the ‘Income from Abroad’ segment may turn out tobe positive or negative. Thus relationship between GDP and GNP depends on the net value ofincome from abroad. When the income from abroad is zero GDP is equal to GNP.

QUESTION: 5

Consider the following statements regarding the “GDP deflator”.
1. GDP deflator is a comprehensive measure of inflation.
2. The GDP deflator is based on a fixed basket of goods and services.

Which of the above statement is/are correct?

Solution:

Unlike other price indexes, the GDP deflator is not based on a fixed basket of goods andservices. It covers the whole economy

QUESTION: 6

Which of the following is not a feature of “capitalist economy”?

Solution:

Explanation: A capitalist economy can be defined as an economy in which most of theeconomic activities have the following characteristics (a) there is private ownership of means ofproduction (b) production takes place for selling the output in the market (c) there is sale andpurchase of labour services at a price which is called the wage rate (the labour which is soldand purchased against wages is referred to as wage labour).

QUESTION: 7

Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)?
1. The Government intends to use the revenue earned from the disinvestment mainly to pay back the external debt.
2. The Government no longer intends to retain the management control of the CPSEs.
Which of the statements given above is/are correct?

Solution:
QUESTION: 8

With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements

1. AIIB has more than 80 member nations.

2. India is the largest shareholder in AIIB.

3. AIIB does not have any members from outside Asia.

Which of the statements given above is / are correct?

Solution:

Headquartered in Beijing, the Asian Infrastructure Investment Bank (AIIB) is a development bank established to boost lending for projects in sectors like energy, transportation, urban construction, logistics, education and healthcare. AIIB presently has 97 approved members worldwide. The Bank has invested in 13 member regions; it has members from outside Asia in Egypt (Middle East), Azerbaijan (Asia and Europe) and others. The three largest shareholders of the bank are China, India and Russia.

QUESTION: 9

Consider the following statements with respect to state economy.
1. Socialist & Communist economies are the forms of state economy
2. Planning is the central theme of state economy.
3. India at present is pursuing state economy.

 

Which of the following is/are correct?

Solution:

India presently follows mixed economy.

QUESTION: 10

Company ‘X’ is headquartered at Delhi, India and it has a production facility at Beijing,China. The output of production facility is part of China’s ____. The profits of the companywhich are repatriated to the India are part of India’s ____.

Solution:
QUESTION: 11

Consider the following statements:


1. India does not have any deposits of Thorium.
2. Kerala’s monazite sands contain Uranium.


Which of the statements given above is/are correct?

Solution:
QUESTION: 12

Foreign exchange rate means the rate at which the currency of one country can be traded for

Solution:
QUESTION: 13

Which among the following are called ‘Notified Minerals’?
1. Bauxite
2. Iron ore
3. Coal
4. Uranium

5. Limestone
6. Manganese ore

Select the correct ones

Solution:

 Mines and Minerals (Development and Regulation) Bill adds a new FourthSchedule to the Act. It includes bauxite, iron ore, limestone and manganese ore and aredefined as notified minerals. The central government may, by notification, amend thisSchedule.

QUESTION: 14

Consider the following statements w.r.t Enforcement Directorate
1. It looks after investigation cases related to Foreign Exchange Management Act, 1999 and Prevention of Money Laundering Act, PMLA
2. It falls under Ministry of Finance, Department of Expenditure
3. ED can arrest the offenders in relation to PMLA offence

Select the correct code

Solution:

ED is in news for quite a long time. Prepare about it. It is part of Department ofRevenue not Expenditure.

QUESTION: 15

Which of the following treaties are related to Nuclear Weapons?
1. Antarctica Treaty
2. Seabed Treaty
3. START
4. NPT
5. SORT

Select the correct code

Solution:

The Strategic Arms Reduction Treaty (START) was signed between the US and Soviet Union inJuly 1991. In summary, START I limited the number of heavy bombers (the large aircraft able tocarry heavier bombs including nuclear ones), intercontinental ballistic missiles (ICBMs), andsubmarine launched ballistic missiles (SLBMs), to 1,600 in total. These delivery systems werethen limited to deploying no more than 6,000 nuclear warheads in all.

The Strategic Offensive Reductions Treaty (SORT) or Moscow Treaty entered into force in June2003 to limit the numbers of operationally deployed nuclear warheads by the US and Russia to1,700-2,200 apiece.

Antarctica TreatyIn June 1961 the Antarctica Treaty established the use of this continent as only for peacefulpurposes and it must be free from nuclear weapons deployment and testing.

Seabed Treaty The Seabed Treaty entered into force in May 1972 with the purpose of forbidding the sitting ofnuclear weapons and other weapons of mass destruction on the seabed or ocean floor over 12miles away from any coastal zone.

QUESTION: 16

Which of the following factors have never been accounted in the calculation of poverty in India before the Rangarajan committee came up with its report on Poverty?
1. Cost of basic Education
2. Health expenses
3. Housing expenses
4. Nutrition based expenses

Choose the correct answer using the codes below.

Solution:

The Tendulkar committee, appointed before the Rangarajan committee, had included the estimatesof health and education in its estimation of poverty. But the Rangarajan committee also includednutrition (fat etc.) and a richer basket of commodities for the poor’s consumption.

QUESTION: 17

The concept of ‘Depreciation’ is applicable to which of the following?
1. Human capital
2. Physical capital
3. Currency

Choose the correct answer using the codes below.

Solution:

Depreciation is nothing but a continous reduction in the value of something over time. Continuoususe of machine leads to depreciation and change of technology makes a machine obsolete. That isan example of depreciation of physical capital. In the case of human capital, depreciation takes placewith ageing but can be reduced, to a large extent, through continuous investment in education,health, etc. This investment also facilitates the human capital to cope with change in technologywhich is not the case with physical capital.

QUESTION: 18

Entrepreneurs, bureaucrats and politicians are now advancing views about how India cantransform itself into a knowledge-based economy by

Solution:

In a knowledge economy, a significant part of a company's value may consist of intangible assets,such as the value of its workers' knowledge (intellectual capital).Lesser-developed countries tend to have agriculture or agriculture and manufacturing-basedeconomies, while developing countries tend to have manufacturing or manufacturing and servicebasedeconomies, and developed countries tend to have service-based economies, which revolvemostly around intellectual capital. IT, research, consultancy etc. are major examples of a knowledgebased economy.

QUESTION: 19

Consider the following statements with regard to the public expenditure on education in India.
1. Elementary education takes a major share of total education expenditure.
2. Expenditure per student in tertiary education is higher than that of elementary.
3. Public expenditure on education per year is greater than that in Defence sector.

Choose the correct answer using the codes below.

Solution:

According to the latest UNDP report the government spending on education is 4.1 per cent of GDPwhich is lower than the global weighted average of 4.9 per cent. Defence sector accounts foraround 2.5 per cent of GDP in India.Expenditure on elementary education has to be greater than that in tertiary because of the hugenumber of students. For e.g. 12 crore children are served mid day meals daily in school!!!

QUESTION: 20

The capital that is consumed by an economy or a firm in the production process is known as

Solution:

The capital that is consumed by an economy or a firm in the production process is known as Depreciation. In economics, depreciation is the gradual decrease in the economic value of the capital stock of a firm, nation or other entity, either through physical depreciation, obsolescence or changes in the demand for the services of the capital in question.

QUESTION: 21

In the context of Indian economy, consider the following statements: 

1. The growth rate of GDP has steadily increased in the last five years 
2. The growth rate in per capita income has steadily increased in the last five years.

Which of the statements given above is/are correct?

Solution:
QUESTION: 22

What is meant by the ‘casualization of workforce’?

Solution:

In the last four decades (1972-2010), people have moved from self-employment and regular salariedemployment to casual wage work. Yet self-employment continues to be the major employmentprovider. Scholars call this process of moving from self-employment and regular salariedemployment to casual wage work as casualization of workforce. This makes the workers highlyvulnerable due to lack of proper legal protection, tough work conditions and social security schemes.

QUESTION: 23

Which of the following human development indicators are published by the United Nations Development Program (UNDP)?
1. Multi-dimensional poverty Index (MPI)
2. Inequality-adjusted HDI
3. Gender Development Index
4. Gender Inequality Index

Choose the correct answer using the codes below.

Solution:
QUESTION: 24

Consider the following statements with reference to inequality in India.
1. India has the lowest income inequality among all emerging economies.
2. Its income inequality is lower than that in all the western developed countries.
3. Income inequality in India has increased in the last decade.

Which of the above is/are true?

Solution:
QUESTION: 25

The Atal Pension Yojana launched in the Union Budget 2015-16 focuses on
1. All citizens in the unorganized sector
2. All income tax payer citizens
3. Only BPL citizens in the unorganized sector
4. All BPL citizens

Choose the correct answer from the codes below.

Solution:

To address the longevity risks among the workers in unorganized sector and to encourage theworkers in unorganized sector to voluntarily save for their retirement

 The APY is focussed on all citizens in the unorganized sector. All bank account holders mayjoin APY. APY is applicable to all citizen of India aged between 18-40 years.

 The scheme is administered by the Pension Fund Regulatory and Development Authority(PFRDA) through NPS architecture.

 Under the APY, there is guaranteed minimum monthly pension for the subscribers rangingbetween Rs. 1000 and Rs. 5000 per month. GoI will also co-contribute 50% of thesubscriber’s contribution or Rs. 1000 per annum, whichever is lower. Government cocontributionis available for those who are not covered by any Statutory Social SecuritySchemes and is not income tax payer. The pension is guaranteed by GoI.

QUESTION: 26

An underdeveloped economy is characterized by

Solution:

Underdeveloped countries face the problem of deprivation of large section of the population, low per capita real income etc.

QUESTION: 27

Which of the following government actions can be used as remedy for the “recession”
phase of the business cycle?
1. Cut in the direct and indirect taxes.
2. Slashing interest rate and liberalizing the lending procedures.
3. Upward revision of salaries and wages.

Select the correct code from below.

Solution:

What may a government do to rescue the economy from the phase of recession? The usualremedies are given below:

(i) Direct and indirect taxes should be cut down, so that the consumers have higher disposableincomes (income after paying direct tax i.e. income tax) on the one hand and the goods shouldbecome cheaper on the other hand thus there is hope that the demand might pick up.

(ii) The burden of direct tax, specially the income tax, divdend tax, interest tax are slashed toenhance the disposable income (i.e income after direct tax payment)—

(iii) Salaries and wages should be revised by the government to encourage general spendingby the consumers (as the Government of India implemented the recommendations of the fifthpay commission without much deliberation in 1996–97).

(iv) Indirect taxes such as custom duty, excise duty (cenvat), sales tax, etc. should be cut downso that produced goods reach the market at cheaper prices.

(v) The government usually goes on to follow a cheap money supply policy by slashing down theinterest rates across the board and the lending procedure is also liberalised.

(vi) Tax breaks are announced for new investments in the productive areas. etc.

QUESTION: 28

Consider the following statements with regards to inflation indexed bonds (IIBs).
1. IIBs will provide inflation protection to principal only.
2. Existing tax provisions will be applicable on interest payment and capital gains on IIBs.
3. Foreign institutional investors (FIIs) are not allowed to invest in IIBs.

Which of the above statements are NOT correct?

Solution:

Inflation Indexed Bonds (IIBs) were issued in the name of Capital Indexed Bonds (CIBs) during1997. The CIBs issued in 1997 provided inflation protection only to principal and not to interestpayment. IIBs will provide inflation protection to both principal and interest payments.

Tax provisions will be applicable on interest payment and capital gains on IIBs. There will be nospecial tax treatment for these bonds.

IIBs would be Government securities (G-Sec) and the different classes of investors eligible toinvest in G-Secs would also be eligible to invest in IIBs. FIIs would be eligible to invest in the IIBsbut subject to the overall cap for their investment in G-Secs (currently USD 25 billion).

QUESTION: 29

Which of the following step/s may result in inflation?
1. Increase in the repo rate.
2. Increase in the indirect taxation rate.
3. Proper maintenance of buffer stock of major agricultural products.
4. Decrease in the crude oil production.

Select the correct code from below.

Solution:

Inflation is a sustained rise in overall price levels.Repo rate is the rate at which the RBI lends money to commercial banks. In the event ofinflation, central banks increase repo rate as this acts as a disincentive for banks to borrow fromthe central bank. This ultimately reduces the money supply in the economy and thus helps inarresting inflation.

Introduction of increased taxes is one of the fiscal policies to control inflation. But sometimesthis may result in cost-push inflation, as increased indirect tax rate increases cost ofproduction.

Maintenance of buffer stock of major agricultural products could be used in supplymanagement which maintains price stability.Decrease in crude oil production increases crude oil price, which in turn increases cost ofproduction.

QUESTION: 30

Consider the following statements regarding Producer Price Index (PPI).
1. PPI gives an idea of consumer prices in the future.
2. In PPI only basic prices and taxes are used while trade margins and transport cost are
excluded.

Which of the above statement/s is/are correct?

Solution:

The PPI measures price changes from the perspective of the producer while the cosumer priceindex (CPI) measures it from the consumers’ perspective. As the producers sell at higher pricesto their wholesellers, so retailers and the price increase is translated into the higher consumerprices—thus the PPI is useful in having an idea of the consumer prices in the future.In PPI, only basic prices are used while taxes, trade margins and transport costs are excluded.This index is considered a better measure of inflation as price changes at primary andintermediate stages can be tracked before it gets built into the finished goods stage.The proposal of switching over to the PPI (from the WPI) came up from the Government bymid-2003. A working Group was set up in mid-2003–04 under the chairmanship of Prof. AbhijitSen, Member, Planning Commission to fulfill the twin tasks of:I. Revising the current series of the WPI (i.e. base 1993–94) andII. Recommending a producer price index (PPI) for India which could replace the WPI.

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