Test: Economics - Economics And Social Development - 2


30 Questions MCQ Test Economy Traditional for UPSC (Civil Services) Prelims | Test: Economics - Economics And Social Development - 2


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QUESTION: 1

Inflation has multidimensional effects on the economy. Which of the following is/are correct regarding the effects of inflation?
1. Lenders suffers and borrowers benefit out of inflation.
2. In the short run, investment in the economy is boosted.
3. Burden of tax payer is increased as they are forced to pay increased taxes.

Select the correct code from below.

Solution:

There are multi-dimensional effects of inflation on an economy both at the micro and macrolevels. It redistributes income; distorts relative prices; destabilises employment, tax, saving andinvestment policies and finally it may bring in recession and depression in an economy.

I. On Creditors and DebtorsInflation redistributes wealth from creditors to debtors i.e. lenders suffer and borrowers benefitout of inflation. The opposite effect takes place when inflation falls (i.e. deflation).

II. on InvestmentInvestment in the economy is boosted by the inflation (in the short-run) because of tworeasons:

a. Higher inflation indicates higher demand and suggests enterpreneurs to expand theirproduction level, and

b. Higher the inflation, lower the cost of loan

III. on TaxTax-payers suffer while paying their direct and indirect taxes. As indirect taxes are imposed advalorem (on value), increased prices of goods make tax-payers to pay increased indirect taxes.Similarly, due to inflation, direct tax (income tax, interest tax, etc.) burden of the tax-payersalso increases as tax-payer’s gross income moves to the upward slabs of official tax brackets(but the real value of money does not increase due to inflation; in fact, it falls).

QUESTION: 2

Consider the following statements regarding “core inflation”.
1. Core inflation is an indicator of long-term trend in the inflation.
2. While calculating core inflation transitory price changes are excluded.

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

Solution:

Core inflation is the non food manufacturing inflation. Core inflation shows price rise in allgoods and services excluding energy and food articles.In India, it was first time used in the financial year 2000–01. This was criticized by experts onaccount of excluding food articles and energy out of the inflation and feeling satisfied on theinflation front. Basically, in the western economies, food and energy are not the problems forthe masses, while in India these two segments play the most vital role for them.

QUESTION: 3

WPI and CPI are two important indices for measuring inflation. But there are substantial differences between the two. Which of the following statements is/are true bout the difference between CPI and WPI?
1. WPI measures inflation at wholesale market, while CPI measure at retail level.
2. WPI is more or less same throughout the country but CPI vary across the region.

Select the correct code from below.

Solution:

WPI measures inflation at wholesale market, while CPI measure at retail level. Besides, the waytwo indices are calculated differs, both in terms of weightage assigned to products as well asthe kind of items included in the baskets of products.

Wholesale prices are more or less same throughout the country but Consumer prices varyacross the regions(rural and urban) and also across the cities according to the consumerpreference for certain products, supplies and purchasing power.

QUESTION: 4

“Inflationary gap” refers to

Solution:

The excess of total government spending above the national income (i.e. fiscal deficit) isknown as the inflationary gap. This is intended to increase the production level whichultimately pushes the prices up due to extra-creation of money during the process.

The shortfall in total spending of the government (i.e. fiscal surplus) over the national incomecreates deflationary gap in the economy. This is a situation of producing more than thedemand and the economy usually heads for a general slowdown in the level of demand. This isalso known as the output gap.

QUESTION: 5

New CPI series with base year 2010 are available for five major groups. For which of thosefive groups CPI-Rural index is not calculated?

Solution:

New CPI indices are available for five major groups namely Food, beverages and tobacco; Fueland light; Housing; Clothing, bedding and footwear, and Miscellaneous.House rent index is compiled only for CPI (Urban). This index is not compiled for rural sectorbecause of two reasons: first there is negligible number of rented dwellings in the rural areas;and the Consumer Expenditure Survey also does not provide estimate of imputed rent forowner occupied houses for this sector.

QUESTION: 6

Consider the following regarding ‘Telegraphy’

1. The first telegraph came in the form of Optical telegraph.
2. In India, it became available for public use in 1854.
3. Continuous wave is used in wireless telegraphy

Select the correct code

Solution:

Wireless telegraphy is still used widely today by amateur radio hobbyists where it is commonlyreferred to as radio telegraphy, continuous wave, or just CW.Telegraph services in India date back to 1850, when the first experimental telegraph line wasestablished between Calcutta and Diamond Harbour. The British East India Company startedusing the telegraph a year later, and by 1854—when the system opened to the public—telegraph lines had been laid across the country. The telegraph continued to thrive, in India andaround the world, even after Alexander Graham Bell patented the telephone in 1876. For morethan half a century, telegrams were sent over cable lines, but in 1902 (capitalizing on the workof Italian inventor Guglielmo Marconi) the Indian system went wireless.The first telegraphs came in the form of optical telegraph, including the use of smokesignals, beacons or reflected light, which have existed since ancient times.

QUESTION: 7

‘Project Arrow’ is associated with

Solution:

‘Project Arrow, an initiative to transform Department of Posts into a vibrant and responsiveorganization and to make a visible and positive difference to quality and efficiency of service tothe customers, was conceived in April 2008.

QUESTION: 8

Consider the following statements regarding Post Office Saving Banks in India

1. The Department of Posts operates Small Savings on behalf of Ministry of Rural Development
2. Post office saving banks do not offer ATM services
3. The Post Office Savings Bank operates Savings Account, Recurring Deposit (RD) and Time Deposit (TD) apart from other services.

Select the correct code

Solution:

Comes under Ministry of Finance and offers ATM services as well

QUESTION: 9

Consider the following
1. The territorial sea is regarded as the sovereign territory of the state, although foreign ships (both military and civilian) are allowed innocent passage.
2. The difference between the territorial sea and the exclusive economic zone is that the first confers full sovereignty over the waters, whereas the second is merely a "sovereign right" which refers to the coastal state's rights below the surface of the sea.
3. The EEZ is 188 nautical miles from Territorial waters and includes contiguous zone.

Select the correct code

Solution:

From Base line
Territorial waters- 12 Nautical Miles

Contiguous zone- 24 Nautical Miles
EEZ- 200 Nautical Miles

From Territorial Waters- EEZ will be 188 Nautical Miles an includes Contiguous Zones 

Territorial waters are also called Territorial sea.

QUESTION: 10

Consider the following
1. Preservation and protection of Maritime Environment
2. Collection of Scientific Data
3. Protection and assistance to fishermen at sea

Which of the above includes the functions of Indian Coast Guard?

Solution:

Functions of Coast Guard as per Coast Guard Act 1978

(1) Safety and protection of artificial islands and offshore terminals installations and devices inMaritime Zones.

(2) Protection and assistance to fishermen at sea while in distress.

(3) Preservation and protection of marine environment.

(4) Prevention and control of marine pollution.

(5) Assistance to customs and other authorities in anti-smuggling operations.

(6) Enforcing of enactments being in force in the maritime zones.

(7) Other matters, including measures for the safety of life and property at sea and collection of scientific data.

QUESTION: 11

India successfully launched its first subsonic cruise missile named ‘Nirbhay’. Consider the following w.r.t it
1. Sub-sonic cruise missiles are able to fly at very low altitudes, close to the earth, without being detected
2. Nirbhay blasts off like a rocket, but then unlike a missile, it turns into an aircraft.
3. Like other ballistic missiles Nirbhay also has wings and pronounced tail fins.

Select the correct codes

Solution:

Nirbhaya has wings and pronounced tail fins unlike other ballistic missiles. So third statementis wrong.

QUESTION: 12

Consider the following about ‘Guru Poornima’
1. It is an Indian festival celebrated by Hindus, Jains and Buddhists
2. The first full moon after Summer Solstice is known as Guru Poornima.
3. Lord Shiva, the first yoga practitioner (Adi Yogi) is said to have begun imparting the knowledge of yoga to the rest of mankind on this day and became the first guru (Adi Guru).

Select the correct codes

Solution:
QUESTION: 13

The terms ‘Pushkaram’ and ‘Amrapali’ are related with

Solution:
QUESTION: 14

Broad money M3, is most commonly used measure of money supply. Which of the following is/are part of broad money?
1. Currency held by the public.
2. Demand deposits of the public held by commercial banks.
3. Interbank demand deposits held by commercial banks.
4. Time deposits of the public held by commercial banks.

Select the correct code from below.

Solution:

Broad money M3= M1 + Time deposits of the public held by commercial banks.

M1 = CU + DD

Where CU is the Currency held by the public and DD is net Demand deposits held bycommercial banks. The word ‘net’ implies that only deposits of the public held by the banks areto be included in money supply. The interbank deposits, which a commercial holds in othercommercial banks, are not regarded as money supply.

QUESTION: 15

Recently RBI revamped "priority sector lending" norms. Which of the following are considered as priority sectors?
1. Micro and small enterprises
2. Medium enterprises
3. Export credit
4. Renewable energy
5. Social infrastructure
6. Personal loans

Select the correct code from below.

Solution:

Priority sector refers to those sectors of the economy which may not get timely and adequatecredit in the absence of this special dispensation. Typically, these are small value loans tofarmers for agriculture and allied activities, micro and small enterprises, poor people forhousing, students for education and other low income groups and weaker sections.

Priority Sector includes the following categories:

(i) Agriculture

(ii) Micro and Small Enterprises

(iii) Education

(iv) Housing

(v) Export Credit

(vi) Others

The Reserve Bank of India (RBI) has revamped priority sector lending (PSL) norms. Now, loans tosectors such as social infrastructure, renewable energy and medium enterprises will also betreated as PSL.

QUESTION: 16

Consider the following statements regarding Regional Rural Banking.
1. Contribution to the share capital of the RRBs by the ‘sponsored bank’ is 50%.
2. The RRBs are also come under the ambit of priority sector lending.

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

Solution:

The Government of India, the concerned State Government and the bank, which had sponsoredthe RRB contributed to the share capital of RRBs in the proportion of 50%, 15% and 35%,respectively.The RRB’s have also been brought under the ambit of priority sector lending on par with thecommercial banks.

QUESTION: 17

Which of the following statement is not correct regarding Urjit Patel committeerecommendations on Monetary Policy Reform?

Solution:

Urjit Patel committeerecommended that CPI (combined) should be used as the nominal anchorfor a flexible inflation targeting (FIT) framework. The choice of CPI as nominal anchor wasmainly on account of the fact that the CPI closely reflects cost of living and has larger influenceson inflationary expectations than other anchors.

It also recommended that Administered prices and interest rates should be eliminated as theyact as impediments to monetary policy transmission and achievement of price stability.

Monetary policy decisions should be vested in a Monetary Policy Committee (MPC) comprisingthe Governor, the Deputy Governor and Executive Director in charge of monetary policy andtwo external full-time members. The decisions of the MPC will be by voting.

The Patel Committee endorses the setting up of an independent Debt Management Office(DMO).

QUESTION: 18

Consider the following statements regarding recently launched MUDRA bank.
1. In lending, MUDRA bank focuses on enterprises set up by the under-privileged sections of the society.
2. MUDRA is setup as a refinance institution.
3. Regulation of micro finance institutions (MFIs) is not the mandate of MUDRA bank

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

Solution:

This Bank would be responsible for regulating and refinancing all Micro-finance Institutions(MFI) which are in the business of lending to micro/small business entities engaged inmanufacturing, trading and services activities.

In lending, MUDRA proposes to give priority to enterprises set up by the under-privilegedsections of the society particularly those from the scheduled caste / tribe (SC/ST) groups, firstgeneration entrepreneurs and existing small businesses.

MUDRA Bank will refinance Micro-Finance Institutions through a Pradhan Mantri MudraYojana.

QUESTION: 19

Consider the following statements regarding Statutory Liquidity Ratio (SLR)?
1. It is the ratio of total deposit of the bank which is kept with RBI.
2. It is maintained in non-cash form.

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

Solution:

The statutory liquidity ratio (SLR) is the ratio (fixed by the RBI) of the total deposits of a bankwhichis to be maintained by the bank with itself in non-cash form prescribed by theGovernment.

The cash reserve ratio (CRR) is the ratio (fixed by the RBI) of the total deposits of a bank inIndiawhich is kept with the RBI in cash form.

QUESTION: 20

“Chit Fund” is in news because of Saradha Chit Fundscam. Which of the following statement/s is/are correct regarding chit funds in India?
1. Under Chit Funds Act, 1982, chit funds are regulated RBI.
2. FDI is prohibited in chit funds under the Government Route as well as the Automatic Route.
3. Chit fund comes under the Concurrent List of the Indian Constitution.

Select the correct code from below.

Solution:

Chit Funds Act, 1982: In 1982, the Ministry of Finance enacted the Chit Funds Act to regulatethe sector. Under the Act, the central government can choose to notify the Act in differentstates on different dates; if the Act is notified in a state, then the state act would be repealed.States are responsible for notifying rules and have the power to exempt certain chit funds fromthe provisions of the Act.

Classifying chit funds as contracts, the Supreme Court has read chit funds as being part of the
Concurrent List of the Indian Constitution; hence both the centre and state can frame
legislation regarding chit funds.
The Reserve Bank of India (RBI) is the regulator for banks and other non banking financial
companies (NBFCs) but does not regulate the chit fund business.
FDI in chit funds is prohibited under the Government Route as well as the Automatic Route.

QUESTION: 21

An advance of banks is considered as Non Performing Asset (NPA) when
1. Interest and/or principal remains overdue for two harvest seasons but for a period not exceeding two-and-a-half years in the case of agricultural loans.
2. Interest and/or principal remain overdue for a period more than 90 days in respect of a term loan.

Select the correct code from below.

Solution:

Non-Performing Assets (NPAs) are bad debts of banks/Financial Institutions defined as followsAn advance of banks/FIs where—(i) Interest and/or installment or principal remains overdue for a period more than 180 daysinrespect of a term loan.

(ii) Interest and/or installment or principal remains overdue for two harvest seasons but foraperiod not exceeding two-and-a-half years in the case of agricultural loans.

QUESTION: 22

Consider the following statements regarding “small finance banks”.
1. Minimum paid-up capital requirement for setting up small finance bank is Rs.100 crores.
2. Foreign shareholding in small finance bank is not allowed.
3. The small finance banks will be required to extend 75 per cent of its net credit to the priority sector lending (PSL).

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

Solution:

The objectives of setting up of small finance banks will be to further financial inclusion. Thesmall finance banks will be required to extend 75 per cent of its Adjusted Net Bank Credit(ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the ReserveBank.

The foreign shareholding in the small finance bank would be as per the Foreign DirectInvestment (FDI) policy for private sector banks.

The minimum paid-up equity capital for small finance banks shall be Rs. 100 crore.

Resident individuals/professionals with 10 years of experience in banking and finance; andcompanies and societies owned and controlled by residents will be eligible to set up smallfinance banks. Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions(MFIs), and Local Area Banks (LABs) that are owned and controlled by residents can also opt forconversion into small finance banks.

QUESTION: 23

Activities of Non Banking Financial Companies (NBFC) are akin to that of banks but there are a few differences. Which of the following are correct regarding NBFCs?
1. NBFC cannot accept demand deposits.
2. Deposit insurance facility is not available to depositors of NBFCs.
3. NBFCs are part of the payment and settlement system.

Select the correct code from below.

Solution:

Major difference between Banks and NBFCs are as follows:

i. NBFC cannot accept demand deposits.

ii. NBFCs do not form part of the payment and settlement system and cannot issue chequesdrawn on itself.

iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is notavailable to depositors of NBFCs, unlike in case of banks.

QUESTION: 24

Recently India launched its first Air Quality Index. What are the chief pollutants under AQI?
1. Ozone
2. Sea Spray
3. Sulphur dioxide
4. Nitrogen dioxide
5. Elementary Carbon

Select the correct code

Solution:

Sea spray refers to aerosol particles that are formed directly from the ocean. Sea spray is a formof Particulate Matter. Elementary carbon is also known as Black Carbon-a PM. So, all of theabove are chief pollutants under AQI

QUESTION: 25

Consider the following regarding ‘Game theory’
1. It’s based on strategic decision making
2. It finds application in psychology, economics, mathematics and biology also.
3. It finds immense potential in Artificial Intelligence

Select the correct code

Solution:

Google it- Basic

QUESTION: 26

Addition of which of the following has harmful effect in the process of filtration of water?
1. Silver
2. Titanium Oxide
3. Carbon nanotube

Select the correct code

Solution:

All are used in Superior water filtration.

Silver- leaches in water and when the ions so released kill the bacteria by destroying theintegrity of the cell and by damaging the cell proteins and terminating the DNA replication.

Titanium oxide- also kills bacteria. Though its antibacterial property is best in the presence ofUV light, the present study did not use UV light.

Carbon Nanotubes- kill the bacteria through direct physical contact—and the roughness of thenanotubes also kills the bacteria.

QUESTION: 27

Consider the following
1. Isoniazid
2. Ethambutol
3. Streptomycin
4. Fluoroquinolones
5. p-Amino salicylic acid

Which of the above are Second-line anti-Tb drugs?

Solution:

Others are first-line

QUESTION: 28

Consider the following
1. Hay fever
2. Cancer
3. HIV
4. Parkinson’s disease
5. Alzheimer

Which of the above diseases are as a result of inflammation?

Solution:

HIV is not caused by inflammation. Rests of them are result of high or low inflammation of tissues.

QUESTION: 29

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: 30

Consider the following statements
1. It is a tropical grass which is considered a sacred material in Vedic scriptures and is said to purify the offerings during such rituals.
2. It has been identified as an eco-friendly food preservative.
3. It also acts as disinfectant

Select the correct term for above statements

Solution:

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