Structure of the Indian Economy & Demographics - Solved Questions (2013-2024) | UPSC Topic Wise Previous Year Questions PDF Download

Question 1: Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization'? (2023)
(a) Conducting 'Open Market Operations'
(b) Oversight of settlement and payment systems
(c) Debt and cash management for the Central and State Governments
(d) Regulating the functions of Non-banking Financial Institutions

Ans: (a)

• Sterilisation refers to the process by which the RBI takes away money from the banking system to neutralise the fresh money that enters the system. Classical sterilisation involves central banks conducting buy and sell operations in open markets. Hence, option a is the correct answer.
• For sterilisation, the RBI usually adopts the Market Stabilisation Scheme (MSS).
  • Market Stabilisation Scheme (MSS): Surplus liquidity arising from large capital inflows is absorbed through the sale of short-dated government securities and treasury bills.

Question 2: Consider the following markets: (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?
(a) Only one
(b) Only two
(c) Only three
(d) All four

Ans: (b)

• Government bond market is a part of the Capital Market. Hence, option 1 is correct. Call money rate is the rate at which short term funds are borrowed and lent in the money market. Hence, option 2 is not correct.
• Treasury bills are short-term debt securities issued by thgovernment. They have a maturity of up to one year and are considered to be the safest type of money market instrument. Hence, option 3 is not correct.
• The Stock Market is a part of the Capital Market. Hence, option 4 is correct.

Question 3: In India, which one of the following is responsible for maintaining price stability by controlling inflation? (2022)
(a) Department of Consumer Affairs
(b) Expenditure Management Commission
(c) Financial Stability and Development Council
(d) Reserve Bank of India

Ans: (d)

• The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth.
• 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.
• In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.

Hence, option (d) is correct.

Question 4: Consider the following statements: 

1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in public interest.
3. The Governor of the RBI draws his power from the RBI Act.

Which of the above statements are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Correct Answer is Option (c)

• Statement (1) is correct: RBI Governor and Deputy Governors are appointed by the Central Government.
• Statement (2) is incorrect: RBI ACt, 1934- The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.
• Statement (3) is correct: RBI Act- 1934 -S Governor and in his absence the Deputy Governor nominated by him in this behalf, shall also have powers of general superintendence and direction of the affairs and the business of the Bank, and may exercise all powers and do all acts and things which may be exercised or done by the Bank

Question 5: With reference to casual workers employed in India, consider the following

statements:

1. All casual workers are entitled for Employees Provident Fund coverage.
2. All casual workers are entitled for regular working hours and overtime payment.
3. The government can by a notification specify that an establishment or industry shall pay wages only through its bank account.

Which of the above statements are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Correct Answer is Option (d)

• Statement (1) is correct: Holding that an employer cannot differentiate between contractual and permanent employees, the Supreme Court has ruled that casual workers are also entitled to social security benefits under the Employees’ Provident Funds and Miscellaneous Provisions Act

Question 6: Which among the following steps is most likely to be taken at the time of an economic recession?
(a) Cut in tax rates accompanied by increase in interest rate
(b) Increase in expenditure on public projects
(c) Increase in tax rates accompanied by reduction of interest rate
(d) Reduction of expenditure on public projects

Correct Answer is Option (b)

In Economic Recession, the Government can:

• Decrease interest rate to make more room for borrowing
• Increase Government Spending
• Cut Tax rates to increase spending capacity of people

Question 7: With reference to urban cooperative banks in India consider the following

statements:

1. They are supervised and regulated by local boards set up by the state governments
2. They can issue equity shares and preference shares.
3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Correct Answer is Option (b)

• The recent Banking Regulation (Amendment) Act 2020 enables the RBI to get all the powers, including those hitherto exclusively with the registrar of cooperative societies. However, powers of registrar continue to be with him but the powers of RBI override those of registrar.
• UCBs are permitted to raise equity share capital, preference shares and debt instruments.
• The applicability of banking laws to cooperatives societies since March 1, 1966 ushered in ‘duality of control’ over UCBs between the Registrar of Cooperative Societies/Central Registrar of Cooperative Societies and the Reserve Bank of India. 

Question 8: Indian Government Bond Yields are influenced by which of the following?

1. Actions of the United States Federal Reserve
2. Actions of the Reserve Bank of India
3. Inflation and short-term interest rates

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

Correct Answer is Option (d)

Bonds yields in India are affected by

• There are a number of economic factors that impact Treasury yields, such as interest rates, inflation, and economic growth.
• The major factors affecting the yield are the monetary policy of the Reserve Bank of India, especially the course of interest rates, fiscal position of the government, global markets, economy and the inflation.
• US Bond yields

Question 9: Consider the following:

1. Foreign currency convertible bonds.
2. Foreign institutional investment with certain conditions
3. Global depository receipts
4. Non-resident external deposits

Which of the above can be included in Foreign Direct Investments?
(a) 1, 2 and 3
(b) 3 only
(c) 2 and 4
(d) 1 and 4

Correct Answer is Option (a)

• FII - Foreign investment in Indian securities has also been made possible through the purchase of Global Depository Receipts, Foreign Currency Convertible Bonds and Foreign Currency Bonds issued by Indian issuers which are listed, traded and settled overseas.

Question 10: Consider the following statements:

The effect of devaluation of a currency is that it necessarily

1. Improves the competitiveness of the domestic exports in the foreign markets
2. Increases the foreign value of domestic currency
3. Improves the trade balance

Which of the above statement is/are correct?
(a) 1 only
(b) 1 and 2
(c) 3 only
(d) 2 and 3

Correct Answer is Option (a)

• A key effect of devaluation is that it makes the domestic currency cheaper relative to other currencies.
• There are two implications of a devaluation. First, devaluation makes the country’s exports relatively less expensive for foreigners. Second, the devaluation makes foreign products relatively more expensive for domestic consumers, thus discouraging imports. This may help to increase the country’s exports and decrease imports, and may therefore help to reduce the current account deficit

Question 11: Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?
(a) Diversion of resources to the purchase of real estate and investment in luxury housing
(b) Investment in unproductive activities and purchase of precious stones, jewelley, gold, etc.
(c) Large donations to political parties and growth of regionalism
(d) Loss of revenue to the state exchequer due to tax evasion

Correct Answer is Option (d)

• Black money eats up a part of the tax and, thus, the government’s deficit increases.

Question 12: Which one of the following is likely to be the most inflationary in its effects?

(a) Repayment of public debt

(b) Borrowing from the public to finance a budget deficit

(c) Borrowing from the banks to finance a budget deficit

(d) Creation of new money to finance a budget deficit

Correct Answer is Option (d)

• Deficit financing is inherently inflationary. Since deficit financing raises aggregate expenditure and, hence, increases aggregate demand, the danger of inflation looms large.

Question 13: The money multiplier in an economy increases with which one of the following?   [2021]
(a) Increase in the cash Reserve Ration in the banks
(b) Increase in the Statutory Liquidity Ratio in the banks
(c) Increase in the banking habit of the people
(d) Increase in the population of the country

Correct Answer is Option (c)

• The money created by the Federal Reserve is the monetary base, also known as high-powered money.
• Banks create money by making loans. A bank loans or invests its excess reserves to earn more interest. A one-dollar increase in the monetary base causes the money supply to increase by more than one dollar.
• The increase in the money supply is the money multiplier.

Question 14: With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?

1. Expansionary policies
2. Fiscal stimulus
3. Inflation-indexing wages
4. Higher purchasing power
5. Rising interest rates

Select the correct answer using the code given below.
(a) 1, 2 and 4 only
(b) 3, 4 and 5 only
(c) 1, 2, 3 and 5 only
(d) 1, 2, 3, 4 and 5

Correct Answer is Option (a)

• Rising interest rates will deter people to borrow money and hence it will not aid in demand pull inflation

Question 15: With reference to India, consider the following statements :

1. Retail investors through demat account can invest in ‘Treasury Bills’ and ‘Government of India Debt Bonds’ in primary market.
2. The ‘Negotiated Dealing System-Order Matching’ is a government securities trading platform of the Reserve Bank of India.
3. The ‘Central Depository Services Ltd’. is jointly promoted by the Reserved Bank of India and the Bombay Stock Exchange.

Which of the statements given above is/are correct?
(a) 1 only
(b) 1 and 2
(c) 3 only
(d) 2 and 3

Correct Answer is Option (b)

• CDSL is promoted by BSE which later divested its stakes among nationalized banks

Question 16: In India, the central bank’s function as the ‘lender of last resort’ usually refers to which of the following?

1. Lending to trade and industry bodies when they fail to borrow from other sources
2. Providing liquidity to the banks having a temporary crisis
3. Lending to governments to finance budgetary deficits

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

Correct Answer is Option (b)

• A lender of last resort (LoR) is an institution, usually a country’s central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse.

Question 17: What is the importance of the term “Interest Coverage Ratio” of a firm in India?   [2020-I]
1. It helps in understanding the present risk of a firm that a bank is going to give a loan to.
2. It helps in evaluating the emerging risk of a firm that a bank is going to give a loan to.
3. The higher a borrowing firm’s level of Interest Coverage Ratio, the worse is its ability to service its debt.
Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3

Correct Answer is Option (a)

• NCERT class 12 Accountancy book also confirms, “A higher Interest coverage ratio ensures safety of interest on debts.” 
• Third statement is wrong. Statement 1 is correct, By looking at the interest coverage ratio we can identify the present risk of a firm (That it is not generating good revenue). There is only “A” option where statement#1 is present.

Question 18: With reference to the Indian economy, consider the following statements:    [2020-I]
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 a short-term finance used for interbank transactions.
4. ‘Zero-Coupon Bonds’ are the interest bearing shortterm bonds issued by the Scheduled Commercial Banks to corporations.
Which of the statements given above is/are correct
(a) 1 and 2 only
(b) 4 only
(c) 1 and 3 only
(d) 2, 3 and 4 only

Correct Answer is Option (c)

• Certificate of deposit is a short term debt instrument. #2 is wrong since it says ‘long term instrument’. This eliminates a and d. 
• #3: Call money is a short term finance for interbank transactions that is correct. So, Answer is (c).

Question 19: In the context of the Indian economy, non-financial debt includes which of the following ?    [2020-I]
1. Housing loans owed by households
2. Amounts outstanding on credit cards
3. Treasury bills
Select the correct answer using the code given below :
(a) 1 only
(b) 1 and 2 only
(c) 3 only
(d) 1, 2 and 3

Correct Answer is Option (d)

• “Non-Financial debt” excludes the debt of Financial Institutions i.e. those institutions that borrow solely to re-lend and the money. [In other words if, NABARD, ILFS etc. had borrowed money to re-lend it, then it’d be financial debt. And all other type of debt will be “non- Financial debt”] 
• So, In above options, all three loans are taken by persons or entities who’ll not ‘re-lend’ it, but They will use the funds for their own purpose. Therefore, Answer should be “(d)”.

Question 20: Which of the following is not included in the assets of a commercial bank in India?   [2019-I]
(a) Advances
(b) Deposits
(c) Investments
(d) Money at call and short notice

Correct Answer is Option (b)

NCERT Macroeconomics Class12, page 40: observe the table 3.1: Deposits are plotted on the liability side of a commercial bank’s balance sheet.

Question 21: In the context of India, which of the following factors is/ are contributor/contributors to reducing the risk of a currency crisis?    [2019-I]
1. The foreign currency earnings of India’s IT sector.
2. Increasing the government expenditure.
3. Remittances from Indians abroad.
Select the correct answer using the code given below.
(a) 1 only
(b) 1 and 3 only
(c) 2 only
(d) 1, 2 and 3 only

Correct Answer is Option (b)

• Currency crisis usually denotes that Indian Rupee is weakening and dollar is strengthening at a rapid level. In ordinary circumstances, rupee dollar exchange rate is determined by the market forces of supply and demand. Therefore we have to encourage the inflow of dollars to reduce the risk of currency crisis. #1 and #3 can help in this regard, #2 is irrelevant. Infact #2 can backfire if raising Government Expenditure results in excessive printing of Rupee currency. 
• Thus, by elimination answer is b: 1 and 3.

Question 22: The Chairman of public sector banks are selected by the   [2019-I]
(a) Banks Board Bureau
(b) Reserve Bank of India
(c) Union Ministry of Finance
(d) Management of concerned bank

Correct Answer is Option (a)

Bank Board Bureau (BBB) was setup in 2016, BBB selects top officials (MD, CEO, Chairman and full-time Directors) for PSBs, LIC and other public sector financial institutions.

Question 23: Consider the following statements:   [2019-I]
1. Petroleum and Natural Gas Regulatory Board (PNGRB) is the first regulatory body set up by the Government of India.
2. One of the tasks of PNGRB is to ensure competitive markets for gas.
3. Appeals against the decisions of PNGRB go before the Appellate Tribunals of Electricity.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Correct Answer is Option (b)

PNGRB was constituted under The Petroleum and Natural Gas Regulatory Board Act, 2006. SEBI was formed in 1988 by an executive order, given statutory status in 1992. Besides, IRDAI and many other regulatory bodies were setup before 2006. So, PNGRB is certainly not the first body to be setup by Govt of India. #1 is wrong, by elimination we are left with answer b.

Question 24: The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data’, popularly known as data diktat command the payment system providers that:   [2019-I]
1. They shall ensure that entire data relating to payment systems operated by them are stored in a system only in India.

2. They shall ensure that the systems are owned and operated by public sector enterprises.
3. They shall submit the consolidated system audit report to the comptroller and Auditor General of India by the end of the calendar year.
Which of the statements given above is/are correct
(a) 1 only
(b) 1 and 2 only
(c) 3 only
(d) 1, 2 and 3 only

Correct Answer is Option (a)

As per RBI’s directive, payment system providers are required to store the data in India only. Other features are not required by RBI.

Question 25: Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news?    [2018 - I]
(a) The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.
(b) The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.
(c) The charge to a merchant by a bank for accepting payments from his customers through the bank's debit cards.
(d) The incentive given by the Government, to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards

Correct Answer is Option (c)

Merchant Discount Rate (MDR) is the fee borne by the merchant for using credit and debit card payment system. To encourage digital transactions, Ministry of Electronics and information technology (MEITY) had announced that from 1 January 2018 for the next two years, it'll bear the MDR fees of merchants, for payments up-to Rs.2,000/- IF such payment is made via debit card, BHIM or Aadhar enabled payment system.

Question 26: With reference to digital payments, consider the following statements: [2018-I]
1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.
2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Correct Answer is Option (a)

• BHIM App was launched in 2016, it allows money transfer to UPI-enabled bank accounts so #1 is right. 
• The BHIM apps has three levels of authentication. For one, the app binds with a device's ID and mobile number, second a user needs to sync whichever bank account (UPI or non-UPI enabled) in order to the conduct transaction. Third, when a user sets up the app they are asked to create a pin which is needed to log into the app. Hence #2 is wrong.

Question 27: Which one of the following links all the ATMs in India ?   [2018-I]
(a) Indian banks' Association
(b) National Securities Depository Limited
(c) National Payments Corporation of India
(d) Reserve Bank of India

Correct Answer is Option (c)
Till 2009, RBI's Institute for Development and Research in Banking Technology (IDRBT) provided the linkages to ATM network in India but afterwards, it was taken over by NPCi's National Financial Switch (NFS).

Question 28: Consider the following statements: [2018-I]
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?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Correct Answer is Option (a)

CAR is decided by the benchmarks set by BASEL-III Committee on Banking supervision and implemented by the central bank of individual country. So, #2 is right, whereas #1 is correct.

Question 29: Consider the following statements [2018-I]
1. The Fiscal Responsibility and Budget Management ( FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.
2. The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.
3. As per the Constitution of India, it is mandatory for a State to take the Central Government's consent for raising any loan if the former owes any outstanding liabilities to the latter.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Correct Answer is Option (c)

As per Economic Survey, first statement is right but Central Government's domestic liability is ~46% so #2 is wrong. By elimination, we get (C)

Question 30: Consider the following items:    [2018-I]
1. Cereal grains hulted
2. Chicken eggs cooked
3. Fish processed and canned
4. Newspaper containing advertising material
Which of the above items is/are exempted under GST (Goods and Services Tax)?
(a) 1 only
(b) 2 and 3 only
(c) 1, 2 and 4 only
(d) 1, 2, 3 and 4

Correct Answer is Option (c)

When client books add in newspaper, he has to pay 18% GST to newspaper owner who deposits it to Government. But when such newspaper is sold to public, they are not required to pay newspaper price + GST. So #4 is exempted from GST. Processed / Canned food (#3) is subject to GST. So, by elimination, we get correct answer C. Some experts were divided that if eggs are cooked in a 5- star hotel, it'll be subjected to GST however UPSC's official Answer key has kept C is the correct option.

Question 31: 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?   [2018-I]
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:
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Correct Answer is Option (d)

This was introduced in 2016, as a separate legislation under Finance Bill, and it doesn't provide tax credit in home country so both wrong.

Question 32: Despite being a high saving economy, capital formation may not result in significant increase in output due to    [2018-I]
(a) weak administrative machinery
(b) illiteracy
(c) high population density
(d) high capital-output ratio

Correct Answer is Option (d)

Capital Output Ratio (ICOR) measures the percentage increase in capital formation required obtaining a percentage increase in GDP. Entrepreneurs, by investing their own savings and informally mobilizing the savings of their friends and relatives contribute to the process of capital formation. These informal funding supplements the funds made available by the formal means of raising resources from banks, financial institutions and capital markets. So, "D" is the fitting option- if capital to output ratio is high then capital formation may not result in significant increase in the output.

Question 33: With reference to Indian economy, consider the following statements:  [2015-I]
1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade.
2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Correct Answer is Option (b)

Due to recession in 2008, the growth rate of the Indian economy had declined for the next few years from 8-9% to 5-6%. Even though the growth rate had declined, it never became negative. So, the GDP at market prices has always increased year on year since last one decade.

Question 34:  The main objective of the 12th Five-Year Plan is   [2014 - I]
(a) inclusive growth and poverty reduction
(b) inclusive and sustainable growth
(c) sustainable and inclusive growth to reduce unemployment
(d) faster, sustainable and more inclusive growth

Correct Answer is Option (d)

12th Five Year Plan of the Government of India (2012-17) aims at faster, sustainable and more inclusive growth

Question 35: The terms ‘Marginal Standing Facility Rate’ and ‘Net Demand and Time Liabilities’, sometimes appearing in news, are used in relation to    [2014 - I]
(a) banking operations
(b) communication networking
(c) military strategies
(d) supply and demand of agricultural products

Correct Answer is Option (a)

Marginal Standing Facility rate is the rate at which banks borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities. Net Demand and time liability is the sum of demand and time liability of Banks with public and other banks wherein assets with other banks is subtracted to get net liability of other bank.

Question 36: In India, deficit financing is used for raising resources for
(a) economic development    [2013 - I]
(b) redemption of public debt
(c) adjusting the balance of payments
(d) reducing the foreign debt

Correct Answer is Option (a)

Deficit financing refers to the difference between expenditure and receipts. In public finance, it means the govt. is spending more than what it is earning. Deficit financing is a necessary evil in a welfare state as the states often fail to generate tax revenue which is sufficient enough to take care of the expenditure of the state. The basic intention behind deficit financing is to provide the necessary impetus to economic growth by artificial means.

Question 37: Priority Sector Lending by banks in India constitutes the lending to  [2013 - I]
(a) agriculture
(b) micro and small enterprises
(c) weaker sections
(d) All of the above

Correct Answer is Option (d)

Priority sector lending constitutes the lending to– agriculture, micro and small enterprises, micro credit, education, housing and weaker sections.

Question 38: Which one of the following groups of items is included in India’s foreign-exchange reserves?   [2013 - I]
(a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
(b) Foreign-currency assets, gold holdings of the RBI and SDR’s
(c) Foreign-currency assets, loans from the World Bank and SDRs
(d) Foreign-currency assets, gold holdings of the RBI and loans from the World Bank

Correct Answer is Option (b)

In India’s foreign exchange reserve, it includes foreign currency deposits, bonds, gold reserves, SDRs and IMF reserve position. Foreign exchange reserves are an important part of the international investment position of a country.

Question 39: The national income of a country for a given period is equal to the   [2013 - I]
(a) total value of goods and services produced by the nationals
(b) sum of total consumption and investment expenditure
(c) sum of personal income of all individuals
(d) money value of final goods and services produced

Correct Answer is Option (d)

National Income is the money value of all the final goods and services produced by a country during a period of one year. National Income consists of a collection of different types of goods and services of different types.

Question 40: Which of the following constitute Capital Account?   [2013 - I]
1. Foreign Loans
2. Foreign Direct Investment
3. Private Remittances
4. Portfolio Investment
Select the correct answer using the codes given below.
(a) 1, 2 and 3
(b) 1, 2 and 4
(c) 2, 3 and 4
(d) 1, 3 and 4

Correct Answer is Option (b)

Capital Account comprises of Foreign loans, Foreign Direct Investment and Portfolio Investment. Capital Account is the net result of public and private international investments flowing in and out of a country. Portfolio investment is the buying of shares and bonds. FDI is the investments by foreigners in a country or the citizens investing in foreign countries.

Question 41: In the context of Indian economy, ‘Open Market Operations’ refers to    [2013 - I]
(a) borrowing by scheduled banks from the RBI
(b) lending by commercial banks to industry and trade
(c) purchase and sale of government securities by the RBI
(d) None of the above

Correct Answer is Option (c)

It is an activity by a central bank(RBI) to buy or sell government securities. The aim of open market operations is to manipulate the short term interest rate and the supply of base money in an economy, and indirectly control the total money supply.