Search results for: “”

Pre 2012

1. Consider the following specific stages of demographic transition associated with economic development : 

1. Low birthrate with low death rate
2. High birthrate with high death rate
3. High birthrate with low death rate

Select the correct order of the above stages using the codes given below :

(a) 1, 2, 3

(b) 2, 1, 3

(c) 2, 3, 1

(d) 3, 2, 1

Theory of demographic transition. Anybody can solve with common sense. Low death rate and low birth rate is population stabilization as in developed world  would be later stage and high death rate would obviously be first

Learning – TFR needed to achieve population stabilization, delimitation of constituencies and population stabilization , North India v/s South India difference in TFR

2. To obtain full benefits of demographic dividend, what should India do?

(a) Promoting skill development

(b) Introducing more social security schemes

(c) Reducing infant mortality rate

(d) Privatization of higher education

Question on demographic dividend also asked in 2011. hot topic. Common sense topic

Learning – Demographic dividend, dependency ratio, total factor productivity, CENSUS 2011, sex ratio, child sex ratio etc

3. The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the following?

1. Other banks retain their deposits with the RBI.
2. The RBI lends funds to the commercial banks in times of need.
3. The RBI advises the commercial banks on monetary matters.

Select the correct answer using the codes given below :

(a) 2 and 3 only

(b) 1 and 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

Functions of RBI asked several times

4. Under which of the following circumstances may ‘capital gains’ arise?

1. When there is an increase in the sales of a product
2. When there is a. natural increase in the value of the property owned
3. When you purchase a painting and there is a growth in its value due to increase in its popularity

Select the correct answer using the codes given below :

(a) 1 only

(b) 2 and 3 only

(c) 2 only

(d) 1, 2 and 3

• Capital means asset, capital gains means rise in the value of asset.
• Sale increase is not asset price rise, property value rise is asset value rise, similar is the case with painting

Learning – Capital gains tax and FII, Security transaction tax

5. Which of the following measures would result in an increase in the money supply in the economy?

1. Purchase of government securities from the public by the Central Bank
2. Deposit of currency in commercial banks by the public
3. Borrowing by the government from the Central Bank
4. Sale of government securities to the public by the Central Bank

Select the correct answer using the codes given below :

(a) 1 only

(b) 2 and 4 only

(c) 1 and 3

(d) 2, 3 and 4

• From the holy bundle
• 1 and 3 options are similar, only Public and govt are interchanged so net effect would be the same. Both have to be correct or incorrect simultaneously. RBI by securities # give money to people or govt # more money in the market # money supply increased

6. Which of the following would include Foreign Direct Investment in India?

1. Subsidiaries of companies in India
2. Majority foreign equity holding in Indian companies
3. Companies exclusively financed by foreign companies
4. Portfolio investment

Select the correct answer using the codes given below :

(a) 1, 2, 3 and 4

(b) 2 and 4 only

(c) 1 and 3 only

(d) 1, 2 and 3 only

• Obviously portfolio investment is FII or FPI not FDI, eliminate 4
• Now check 4, majority foreign equity holding means ownership, management in foreign hands, clearly FDI

Learning – FDI v/s FII, Arvind Mayaram committee recommendations, sectors attracting maximum FDI

7. The price of any currency in international market is decided by the

1. World Bank
2. demand for goods/services provided by the country concerned
3. stability of the government of the concerned country
4. economic potential of the country in question

Which of the statements given above are correct?

(a) 1, 2, 3 and 4

(b) 2 and 3 only

(c) 3 and 4 only

(d) 1 and 4 only

• From the holy bundle
• 1 is definitely wrong as prices are market determined
• 2 is definitely correct as prices depend on demand supply
• Eliminate 1, include 2, you reach the correct answer

8. The basic aim of Lead Bank Scheme is that:

(a) big banks should try to open offices in each district

(b) there should be stiff competition among the various nationalized banks

(c) individual banks should adopt particular districts for intensive development

(d) all the banks should make intensive efforts to mobilize deposits

Lead means leading a district, 1 bank adopting 1 district

Learning – Local area bank, RRB, NABARD, SIDBI, Cooperative bank

9. In India, in the overall Index of Industrial Production, the Indices of Eight Core Industries have a combined weight of 37-90%. Which of the following are among those Eight Core Industries?

1. Cement
2. Fertilizers
3. Natural gas
4. Refinery products
5. Textiles

Select the correct answer using the codes given below :

(a) 1 and 5 only

(b) 2, 3 and 4 only

(c) 1, 2, 3 and 4 only

(d) 1, 2, 3, 4 and 5

• Question on core sector asked again in 2015
• Core is huge likely impact on general economic activity as well as other industrial activity
• Obviously textile can’t be core, it’s finished thing, not used in other activities
• Remove textile, look at cement, indicates construction, real estate etc.

Learning – IIP, Core sector <both with weightage>, organization publishing IIP and Core sector data <different organizations>, volatility and Reforms in IIP

10. The balance of payments of a country is a systematic record of

(a) all import and transactions of a during a given period normally a year

(b) goods exported from a country during a year

(c) economic transaction between the government of one country to another

(d) capital movements from one country to another

From the holy bundle

Pre 2011

1. India has experienced persistent and high food inflation in the recent past. What could be the reasons?

1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
3. The food supply chain has structural constraints.

Which of the statements given above are correct?

(a.) 1 and 2 only

(b.) 2 and 3 only

(c.) 1 and 3 only

(d.) 1, 2 and 3

1st is obviously wrong. 2 and 3 are correct

Learning – inflation in food products v/s food articles, Core v/s headline inflation, PDS reform, Shantakumar recommendations

2. In terms of economy, the visit by foreign nationals to witness the XIX Common Wealth Games in India amounted to

(a.) Export

(b.) Import

(c.) Production

(d.)Consumption

Simple, service consumption abroad, India gains forex, tourism is services export <mode 2 as per GATS>

Learning – all 4 modes of GATS

3. Which one of the following statements appropriately describes the “fiscal stimulus”?

(a.) It is a massive investment by the Government in manufacturing sector to ensure the supply of goods to meet the demand surge caused by rapid economic growth

(b.) It is an intense affirmative action of the Government to boost economic activity in the country

(c.) It is Government’s intensive action on financial institutions to ensure disbursement of loans to agriculture and allied sectors to promote greater food production and contain food inflation

(d.) It is an extreme affirmative action by the Government to pursue its policy of financial inclusion

• From the holy bundle
• Fiscal stimulus is pump priming the economy to boost growth by increasing the expenditure and slashing the taxes

4. Consider the following actions which the Government can take:

1. Devaluing the domestic currency
2. Reduction in the export subsidy
3. Adopting suitable policies which attract greater FDI and more funds from FIIs.

Which of the above action/actions can help in reducing the current account deficit?

(a.) 1 and 2

(b.) 2 and 3

(c.) 3 only

(d.) 1 and 3

• From the holy bundle
• Devaluation makes domestic products cheaper in terms of foreign currency thsu exports increase
• Reduce export subsidy, exports would obviously decline
• Eliminate 3

5. A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?

(a.) It is the impact of drastic deficiency in supply due to failure of crops

(b.) It is the impact of the surge in demand due to rapid economic growth

(c.) It is the impact of the price levels of previous year on the calculation of inflation rate

(d.)None of the statements (a), (b) and (c) ‘given above is correct in this context

• From the holy bundle
• Note that base effect and base year are different

Learning – Base years of CPI, WPI, GDP, IIP

6. Why is the offering of “teaser loans” by commercial banks a cause of economic concern?

1. The teaser loans are considered to be an aspect of sub-prime lending and banks may be exposed to the risk of defaulters in future.
2. In India, the teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units.

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

• Teaser loan is loan which teases i.e at low rates initially with interest rate rising with time.
• It was one of the main causes of subprime crisis, given to gullible customers

Learning – Don’t lose too much sleep over this question, This issue was very much in news at that time

7. 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?

(a.) 1 only

(b.) 2 only

(c.) Both 1 and 2

(d.) Neither 1 nor 2

• Asked in 2015 as well
• Growth rate is never steady. There was financial crisis in 2008 and growth rate had come down
• If GDP growth rate is not steady, per capita income growth rate would also not be steady

8. In India, which of the following have the highest share in the disbursement of credit to agriculture and allied activities?

(a.) Commercial Banks

(b.) Cooperative Banks

(c.) Regional Rural Banks

(d.) Microfinance Institutions

Commercial banks dominate credit off take in all the sector and even in them Public sector banks

Learning – RRB, Rural cooperative credit structure, Kisan credit cards

9. Economic growth is usually coupled with

(a.) Deflation

(b.) Inflation

(c.) Stagflation

(d.) Hyperinflation

From the holy bundle

10. The lowering of Bank Rate by the Reserve Bank of India leads to

(a.) More liquidity in the market

(b.) Less liquidity in the market

(c.) No change in the liquidity in the market

(d.) Mobilization of more deposits by commercial banks

From the holy bundle

11. Which one of the following is not a feature of “Value Added Tax”?

(a.) It is a multi-point destination-based system of taxation

(b.) It is a tax levied on value addition at each stage of transaction in the production-distribution chain

(c.) It is a tax on the final consumption of goods or services and must ultimately be borne by the consumer

(d.) It is basically a subject of the Central Government and the State Governments are only a facilitator for its successful implementation

• VAT is your sales tax, imposed and collected by state govt
• That tax on buying toothapste wala question was an indirect repeat in 2014

Learning – Concept of GST which is a VAT, Amendment bill, roadblocks

12. A “closed economy” is an economy in which

(a.) the money supply is fully controlled

(b.) deficit financing takes place

(c.) only exports take place

(d.) neither exports nor imports take place

Closed to the world, no trade. India was relatively closed economy before reforms of 1991

Learning – India’s export, import share in world market, major trading partners, top imports and exports, Foreign trade policy

13. Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which one of the following statements best represents an important difference between the two?

(a.) FII helps bring better management skills and technology, while FDI only brings in capital

(b.) FII helps in increasing capital availability in general, while FDI only targets specific sectors

(c.) FDI flows only into the secondary market, while FII targets primary market

(d.) FII is considered to be more stable than FDI

• FDI is invested in specific sector say build a nuclear power plant while FII buy shares in stock market and increse liquidity and capital availability in general
• 1st statement, FDI brings tech and know how, FDI target primary market, FDI is stable, FII is hot money

14. Microfinance is the provision of financial services to people of low-income groups. This includes both the consumers and the self-employed. The service/services rendered under micro-finance is/are:

1. Credit facilities
2. Savings facilities
3. Insurance facilities
4. Fund Transfer facilities

Select the correct answer using the codes given below the lists:

(a.) 1 only

(b.) 1 and 4 only

(c.) 2 and 3 only

(d.) 1, 2, 3 and 4

Obviously all

Learning – MFI, small banks payment banks

15. Which of the following can aid in furthering the Government’s objective of inclusive growth?

1. Promoting Self-Help Groups
2. Promoting Micro, Small and Medium Enterprises
3. Implementing the Right to Education Act

Select the correct answer using the codes given below:

(a.) 1 only

(b.) 1 and 2 only

(c.) 2 and 3 only

(d.) 1, 2 and 3

Obviously all

16. 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?

(a.) I only

(b.) 2 only

(c.) Both 1 and 2

(d.) Neither 1 nor 2

• Divestment money comes in rupees, won’t pay back dollar debt
• Management control is given up by privatization or strategic sale not divestment

Learning – Divestment v/s privatization, strategic sale, NIF, sectors reserved for public sector, sectors requiring licenses, sectors reserve for MSEs

17. India is regarded as a country with “Demographic Dividend”. This is due to:

(a.) Its high population in the age group below 15 years

(b.) Its high population in the age group of 15-64 years

(c.) Its high population in the age group above 65 years

(d.) Its high total population

Youth bulge, more population in 15 – 64

1. The terms ‘Marginal Standing Facility Rate’ and ‘Net Demand and Time Liabilities’, sometimes appearing in news, are used in relation to

1. banking operations
2. communication networking
3. military strategies
4. supply and demand of agricultural product

Simple, from that holy bundle – Economy concepts simplified

2. What is/are the facility/facilities the beneficiaries can get from the services of Business Correspondent (Bank Saathi) in branchless areas?

1. It enables the beneficiaries to draw their subsidies and social security benefits in their villages.
2. It enables the beneficiaries in the rural areas to make deposits and withdrawals.

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

Financial inclusion programme, common sense, both the statements talk about the same thing, deposits and withdrawl

Learning – Financial inclusion – Swabhimaan, Swavlamban, Jan Dhan Yojana, Atal Pension, Jivan Jyoti Bima, NPS v/s EPF, small bank, payment bank

3. If the interest rate is decreased in an economy, it will 

1. decrease the consumption expenditure in the economy
2. increase the tax collection of the Government
3. increase the investment expenditure in the economy
4. increase the total savings in the economy

• From that holy bundle again
• Decreased interest rate # low cost of borrowing # more borrowing # more investment # more consumption
• Decreased rate # less interest # less incentive to deposit your money # less savings

4. In the context of Indian economy which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’?

1. To enable the Central Bank to control the amount of advances the banks can create
2. To make the people’s deposits with banks safe and liquid
3. To prevent the commercial banks from making excessive profits
4. To force the banks to have sufficient vault cash to meet their day-to-day requirements

Select the correct answer using the code given below.

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

• From that holy bundle
• 3 is definitely wrong as to control excess profit, margins would have to be reduced, not CRR, SLR
• 1 is definitely correct as CRR. SLR is used to control money supply and credit off take
• 2 may or may not be correct, To make people’s deposit safe, capital adequacy ratio is the norm.
• UPSC says only 1

6. With reference to Union Budget, which of the following is/are covered under Non-Plan Expenditure?

1. Defense -expenditure
2. Interest payments
3. Salaries and pensions
4. Subsidies

Select the correct answer using the code given below.

1. 1 only
2. 2 and 3 only
3. 1, 2, 3 and 4
4. None

• Covered in titbits, covered in holy bundle
• Plan expenditure is expenditure according to five year plans i.e development expenditure which is mainly capital expenditure except defense capital as defense capital is not for the developmental expenditure
• Maintenance expenditure such as wages, pension, interest, military is non plan

Learning – 14th FC on plan- non plan classification, zero based budgeting, gender budget etc

7. The sales tax you pay while purchasing a toothpaste is a

1. tax imposed by the Central Government.
2. tax imposed by the Central Government but collected by the State Government
3. tax imposed by the State Government but collected by the Central Government
4. tax imposed and collected by the State Government

• Many such questions have been asked.
• Sales tax is your state VAT. Centre levies tax on production stage i,e central excise while state levies on consumption i.e sales tax
• On interstate movement, central sales tax is levied and collected by centre but goes to originating state’s kitty
• Remember there is no tax which is levied by state but collected by centre or which accrue to centre

Learning – Direct v/s indirect tax, Concept of VAT, octroi,salient provisions of GST and opposition concerns, distribution of tax proceeds, Cess v/s surcharge

8. The main objective of the 12th Five-Year Plan is

1. inclusive growth and poverty reductions
2. inclusive and sustainable growth
3. sustainable and inclusive growth to reduce unemployment
4. Faster, sustainable and more inclusive growth

Learning – Remember theme of all 5 year plans, shift to heavy industry in 2nd , indicative planning in 8th, emergency during which plan?, emphasis on infrastructure during which plan?, garibi Hatao during which plan? Plan holidays. Just 3 points about every plan

9. What does venture capital mean?

1. A short-term capital provided to industries
2. A long-term start-up capital provided to new entrepreneurs
3. Funds provided to industries at times of incurring losses
4. Funds provided for replacement and renovation of industries

Venture capital is for startups.

Learning – Venture capital v/s Angel investors, Private Equity, Mutual Fund, alternative investment funds under SEBI, chit funds – regulation <just basic understanding>

10. With reference to Balance of Payments, which of the following constitutes/constitute the Current Account?

1. Balance of trade
2. Foreign assets
3. Balance of invisibles
4. Special Drawing Right

Select the correct answer using the code given below.

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

• Asset is capital, eliminate statement 2, you reach the conclusion
• Again from the holy bundle

11. Which of the following organizations brings out the publication known as ‘World Economic Outlook’?

1. The International Monetary Fund
2. The United Nations Development Programme
3. The World Economic Forum
4. The World Bank

Reports are very important

Prelims 2013

1. The Reserve Bank of India regulates the commercial banks in matters of 

1. liquidity of assets
2. branch expansion
3. merger of banks
4. winding-up of banks

Select the correct answer using the codes given below.

(a) 1 and 4 only

(b) 2, 3 and 4 only

(c) 1, 2 and 3 only

(d) 1, 2, 3 and 4

• Common sense. RBI doe it all.
• Please remember that in other companies, mergers and acquisitions are regulated by competition commission of India

Learning – Role of RBI and Role of CCI

2. An increase in the Bank Rate generally indicates that the:

(a) market rate of interest is likely to fall

(b) Central Bank is no longer making loans to commercial banks

(c) Central Bank is following an easy money policy

(d) Central Bank is following a tight money policy

• From the holy bundle
• Increase CRR # less money to lend # liquidity tightened # raised interest rate # tight money policy
• c and d are contradictory, one has to be true

3. In India, deficit financing is used for raising resources for 

(a) economic development

(b) redemption of public debt

(c) adjusting the balance of  payments

(d) reducing the foreign debt

• c and d are useless options, BoP and foreign debt can not be repaid by domestic borrowings
• Redemption of public debt is by monetizing deficits i.e RBI printing money for he govt # as it’s very inflationary # not followed in India after reforms
• Govt borrow for economic development

Learning – Deficit financing, monetizing deficit, Treasury Bill v/s bond, State development bond, Commercial paper v/s certificate of deposit

4. Which of the following constitute Capital Account?

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

• From the holy bundle
• Remittances do not create any asset or liability, hence included in current account, eliminate that, we get to the right answer

Learning – Top remittance country order <India, China, Philippines, Mexico, arrange in correct order>, MAx remittance from where, Maximum FDI and FII from which countries and maximum FDI in which sectors

5. Consider the following statements :

1. Inflation benefits the debtors.
2. Inflation benefits the bond-holders.

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

• From that holy bundle again
• Debtor is borrower, bond holder is creditor. Obviously both can’t benefit at the same time or be in loss at the same time so c and d are eliminated.
• As real interest rate is nominal – inflation, inflation means debtor would have t pay less real interest, thus it benefits debtor
• That’s the reason, savings decline during inflation as Creditors are harmed

6. Disguised unemployment generally means 

(a) large number of people remain unemployed

(b) alternative employment is not available

(c) marginal productivity of labour is zero

(d) productivity of workers is low

• Disguised means hidden i.e unemployment is hidden i.e people are employed but not actually adding any value i.e marginal productivity is zero
• For instance, son starts working on the field with father but production remains the same. He is employed but is not adding any extra value

Learning – Employment and Labour force participation of males and females, Frictional unemployment, structural unemployment, Misery index

7. Consider the following liquid assets:

1.Demand deposits with the banks

2.Time deposits with the banks

3.Savings deposits with the banks

4.Currency

The correct sequence of these decreasing order of Liquidity is

(a) 1-4-3-2

(b) 4-3-2-1

(c) 2-3-1-4

(d) 4-1-3-2

• Liquidity is ease of conversion into cash so obviously currency would be most liquid
• Time deposit i,e your FD – can not withdraw money without paying penalty so least liquid
• Only option with 4 at 1st place and 2 at last place

Learning – fiat money, high powered money, broad money, narrow money (M0, M1, M2, M3)

8. In the context of Indian economy,Open Market Operations’ refers to:

(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

From the holy bundle

Learning – Market stabilization scheme, sterilization , automatic sterilization Quantitative easing

9. Priority Sector Lending by banks in India constitutes the lending to: 

(a) agriculture

(b) micro and small enterprises

(c) weaker sections

(d) All of the above

• Simple, can be solved with common sense
• topic covered in that bundle

Learning – New PSL norms, Urjit, Nachiket Mor recommendations <not important for prelims but name of committee and terms of reference imp.>

10. A rise in general level of prices may be caused by:

1. an increase in the money supply
2. a decrease in the aggregate level of output
3. an increase in the effective demand

Select the correct answer using the codes given below.

(a) 1 only

(b) 1 and 2 only

(c) 2 and 3 only

(d) 1, 2 and 3

• Again from the bundle
• Increased demand, decreased supply # apply demand supply principle # price rise
• Increase money supply # more money chasing same goods # price rise

11. Which one of the following groups of items is included in India’s foreign-exchange reserves?

(a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries

(b) Foreign-currency assets, gold holdings of the RBI and SDRs

(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

Obviously loan can not be counted in reserves. Eliminate that, answer reached

Learning – World bank’s concessional lending, IDA v/s IBRD, Forex reserve of RBI, SDR, IMF quota and governance reform

12. Which one of the following is likely to be the most inflationary in its effect?

(a) Repayment of public debt

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

(c) Borrowing from banks to finance a budget deficit

(d) Creating new money to finance a budget deficit

• From that bundle
• Obviously printing new money or creating new money out of nowhere would be most inflationary as money is increased without any increase in supply

13. Supply of money remaining the same when there is an increase in demand for money, there will be

(a) a fall in the level of prices

(b) an increase in the rate of interest

(c) a decrease in the rate of interest

(d) an increase in the level of income and employment

• From that holy bundle
• Increased demand for money # increase price of money # price of money is interest rate
• b and c are contradictory, one has to be true

14. Economic growth in country X will necessarily have to occur if

(a) there is technical progress in the world economy

(b) there is population growth in X

(c) there is capital formation in X

(d) the volume of trade grows in the world economy

• c and d are happening in world economy so no necessary effect on country X
• Population growth may be due to children who would not produce anything so no growth
• Capital formation is investment, investment leads to growth

15. The national income of a country for a given period is equal to the:

(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

• GDP, GNP covered in the bundle
• national income is production by nationals , domestic income production inside the country

16. Which of the following grants/ grant direct credit assistance to rural households?

1. Regional Rural Banks
2. National Bank for Agriculture and Rural Development
3. Land Development Banks

Select the correct answer using the codes given below:

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

NABARD is regulator, financier to Regional rural banks , Obviously no direct credit offtake

Learning – NABARD v/s SIDBI, RRB, Cooperative banks

17. The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the following?

1. Other banks retain their deposits with the RBI.
2. The RBI lends funds to the commercial banks in times of need.
3. The RBI advises the commercial banks on monetary matters.

Select the correct answer using the codes given below :

(a) 2 and 3 only

(b) 1 and 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

• RBI does all these things. Similar question on RBI functions asked before
• Learning – Autonomy of RBI, Monetary Policy Committee, Debt management office, FERA v/s FEMA and Panama papers

In earlier series, I analysed IAS prelims polity section and we could glean some insights from that. In this series, I would analyse economy section of IAS prelims.

Economy section is the easiest section, most scoring section and on avg 16 questions are asked from it. Almost all the questions are doable ie you can get solid 28 – 30 marks out of your cut off of 107.34 (last year’s) from economy itself.

Like polity, on analysis a few things stand out <analysis of past 7 years papers i.e. from 2009 to 2015>

1. Average number of questions asked in last 5 years is 16 and almost every question is solvable with decent knowledge and logic.
2. Topics and even questions are repeated year after year
3. Even when you don’t know all the options, often answer wallh option is clearly visible<importance of reading all the options>
4. UPSC is not fond of statistics. So you don’t need to know if India’s growth rate is 7.6% or 7.9%, savings rate is 32% or 35%, inflation is 5% or 7% or what is India’s GDP etc.
5. Knowing about the broad trends is very imp.. For instance – direction of GDP growth <is it increasing or slowing down>, inflation etc.
6.  Every year 6 – 7 questions are from basics of National income accounting, Inflation -deflation, Monetary Policy, Fiscal policy, taxes, CAD, fiscal deficit, BOP etc. For solving such questions, understanding this collection – economics concepts simplified is very very important
7. UPSC doesn’t ask very intricate details / basic understanding would be enough. For instance – it does not even ask whether govt securities are used as collateral in repo but not in bank rate or for instance a user asked today, During a OMO, who all are eligible to purchase Govt. Securities?
   Obviously Banks. Are other FI allowed to purchase G-Secs ? These questions are not asked. Go after them, only after you are confident of solving with >80% accuracy basic questions of all the subjects.
8. From international organizations, again very superficial things are asked but you need to know them, otherwise you won’t be able to solve the questions. For instance – which organization publishes which report?, basic agreements or treaties, headquarters etc.

Most important topics

1. National income accounting, Inflation, Fiscal Policy, monetary policy, balance of payment, RBI, PSL – This bundle – Economics concepts simplified and prelims titbits would do
2. Basics of international organizations – WB, IMF, WTO, UNCTAD, WEF – reports, agreement/treaties, bodies w/i such organizations such as G-33, G-77 etc
3. Finance commission – major recommendations, themes of different plans – they used to ask such questions earlier, not much now days
4. Inclusive growth, demographic dividend, basic economic glossary – bear, bull, equity, debt, security – just basics no intricacy
5.  Committees and their reports, Govt schemes and budget, read these bundles, govt committees  and this one – govt schemes

Let’s now look at 2015 paper

1. Pradhan Mantri Jan Dhan Yojana has been launched for

(a) providing housing loan to poor people at cheaper interest rates

(b) Promoting women’s Self Help Groups in backward areas

(c) promoting financial inclusion in the country

(d) providing financial help to marginalised communities

Very easy. No help required

Learning – Major schemes – themes and salient provisions <theme at least>, MUDRA, payment bank, small bank, Ujjawala, sahaj etc.

2. With Reference to the Fourteenth Finance Commission, which of the following statements is/are correct?

1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent
2. It has made recommendations concerning sector-specific grants

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Did not make sector specific grants except for a very sectors.

Learning – Major recommendations of 14th FC. Remember 14th FC would remain a current topic until 15th FC submits its report. Also polity part of FC

3. A decrease in tax to GDP ratio of a country indicates which of the following?

1. Slowing economic growth rates
2. 2. Less equitable distribution of national income

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Controversial question. Go with what UPSC says. Both the statement can be proved right and wrong.

Learning – Tax classification – who levies which tax, where proceeds go, GST, Tax to GDP ratio, direct v/s indirect tax

4. In the Index of Eight Core Industries, which one of the following is given the highest weight?

(a) Coal Production

(b) Electricity generation

(c) Fertilizer Production

(d) Steel Production

• You have to remember the weights. But fertilizer can be easily eliminated, it can not be the highest
• Manufacturing, mining an electricity are the 3 broad heads of IIP – through this you can reach electricity
• BTW, question on core sector of IIP was asked in 2013 also <not eaxct>. Importance of solving papers

Learning – IIP, who computes it, who computes GDP, CPI, WPI, CPI (ML). CPI(UNME), CPI(IW). Weight-age of different items <broadly not exact, food highest or manufacturing highest etc>

5. The Fair and Remunerative Price of Sugarcane is approved by the

(a) Cabinet Committee on Economic Affairs

(b) Commission for Agricultural Costs and Prices

(c) Directorate of Marketing and Inspection, Ministry of Agriculture

(d) Agricultural Produce Marketing Committee

• approval is always by govt i.e cabinet, commissions and committees never take final decision, they only recommend
• Question on FRP, MSP sugar was asked in 2010 also

Learning – CACP, MSP, FRP, Essential commodities act, Food processing etc

6. Which one of the following issues the “Global Economic Prospects” report periodically?

(a) The Asian Development Bank

(b) The European Bank for Reconstruction and Development

(c) The US Federal Reserve Bank

(d) The World Bank

Question on report. Reports very important. Global report will be published by global body not Asian, European or American

Learning – Reports of WB, WTO, IMF, UNCTAD, WEF <just names and theme>WB group

7. When the Reserve Bank of India reduces the Statutory Liquidity by 50 basis points, which of the following is likely to happen?

(a) India’s GDP growth rate increases drastically

(b) Foreign Institutional Investors may bring more capital into our country

(c) Scheduled Commercial Banks may cut their lending rates

(d) It  may drastically reduce the liquidity to the banking system.

• Reduced SLR # more money to lend # reduced interest rate
• Drastically in option a and d is exaggeration. Pause and think
• Question from the holy bundle

#8. In India, markets in agricultural products are regulated under the  

(a) Essential Commodities Act, 1955

(b) Agricultural Produce Market Committee Act enacted by States

(c) Agricultural Produce (Grading and Marking) Act, 1937

(d) Food Products Order, 1956 and Meat and Food Products Order, 1973

• Obviously a market act would regulate markets. so only option is b
• Also in your mains syllabus paper 3

Learning – essential commodities act, APMC, food safety act, FSSAI <what’s the status of act under option c and d?>

#9.Which of the following brings out the ‘Consumer Price Index Number for the Industrial Workers’?

(a) The Reserve Bank of India

(b) The Department of Economic Affairs

(c) The Labour Bureau

(d) The department of Personnel and Training

• Confusion could be b/w labour bureau and CSO but CSO not even in the option.
• RBI and DOPT easily ruled out. DEA prepares budget

Learning – CPI, WPI, GDP, IIP, CPI (AL), CPI (IW)- calculation done by?, CSO v/s NSSO

#10. The terms ‘Agreement on Agriculture’, ‘Agreement on the Application of Sanitary and Phytosanitary Measures’ and Peace Clause’ appear in the news frequently in the context of the affairs of the:

(a) Food and Agriculture Organization

(b) United Nations Framework Conference on Climate Change

(c) World Trade Organization

(d) United Nations Environment Programme

Learning – Reports and agreements of international organizations

#11. Convertibility of rupee implies:

(a) being able to convert rupee notes into gold

(b) allowing the value of rupee to be fixed by market forces

(c) freely permitting the conversion of rupee to other currencies and vice versa

(d) developing an international market for currencies in India

Convertibility is being able to convert int other currencies

Learning – Current and capital account convertibility, Narsimhan committee, LRS and panama papers, FDI v/s FII, ECB

#12. The Government of India has established NITI Aayog to replace the

(a) Human Rights Commission

(b) Finance Commission

(c) Law Commission

(d) Planning Commission

Learning – Governing council of NITI, rank of Vice chairperson and members, NDC, status of interstate council and zonal council

#13. In India the steel production industry requires the import of

1. saltpetre
2. rock phosphate
3. coking coal
4. All of the above

• Everyone knows rock phosphate has nothing to do with steel. USed in fertilizer production. 2 and 4 ruled out
• India is rich in coal, but coal is of poor quality – last year question was asked – low Sulfur, high ash content – can’t be used in coking
• Saltpetre is KNO3, used in gun powder, ancient Indian Industry

#14. ‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to

(a) develop national strategies for the conservation and sustainable use of biological diversity

(b) improve banking sector’s ability to deal with financial and economic stress and improve risk management

(c) reduce the greenhouse gas emissions but places a heavier burden on developed countries

(d) transfer technology from developed Countries to poor countries to enable them to replace the use of chlorofluorocarbons in refrigeration with harmless chemicals

• Simple. No intricate detail
• You only have to know about Basel committee on banking supervision – not even Capital adequacy ratio

Learning – CAR, CRAR, tier1 , tioer 2 capital, recapitalisation of public sector banks, LCR, stress test, systemically important banks, NPAs etc

#15. With reference to India economy, consider the following statements:

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 statement given above is/are correct?

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

• Broad trend. No data
• Real GDP growth rate ca not increase steadily for 10 years in any country. It’s very difficult. In any case, 2008 financial crisis led to slow down, growth gain slowed down in final years of UPA. Modiji won on the plank to improve the economy.
• Nominal even real GDP would grow in the absence of recession which do not occur in developing country like India

#16. With reference to India economy, consider the following :

1. Bank rate
2. Open market operations
3. Public debt
4. Public revenue

Which of the above is/are component/components of Monetary Policy?

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

• What RBI does is monetary policy, what govt does is fiscal policy.
• Revenue and debt is of govt – fiscal
• Question from the sacred bundle

#17. Which reference to inflation in India, which of the following statements is correct?

(a)  Controlling the inflation in India is the responsibility of the Government of India only

(b) The Reserve Bank of India has no role in controlling the inflation

(c) Decreased money circulation helps in controlling the inflation

(d) Increased money circulation helps in controlling the inflation

• c and d contradict each other, one has to be true. # decrease money circulation # less money chasing same goods # price fall # inflation controlled
• a and b, no role, sole responsibility, red flags, pause and think
• Question from the holy bundle

#18. The substitution of steel for wooden ploughs in agricultural production is an example of

(a) labour-augmenting technological progress

(b) capital-augmenting technological progress

(c) capital-reducing technological progress

(d) None of the above

Common sense. Also b and c contradict each other. One of them has to be true

#19. The problem of international liquidity is related to the non-availability of

(a) goods and services

(b) gold and silver

(c) dollars and other hard currencies

(d) exportable surplus

• Liquidity is ability to convert into cash. Cash is currency
• Question on liquidity was also asked last year

#20. There has been a persistent deficit budget year after year. Which of the following actions can be taken by the government to reduce the deficit?

1. Reducing revenue expenditure
2. Introducing new welfare schemes
3. Rationalizing subsidies
4. Expanding industries

Select the correct answer using the code given below.

(a) 1 and 3 only

(b) 2 and 3 only

(c) 1 only

(d) 1,2,3 and 4

• Simple, raise revenues, reduce expenditure.
• More welfare schemes increases expenditure while rationalizing subsidies reduces expenditure
• Again from the bundle

Learning – Targeting of subsidies, JAM, DBT, BAPU

#21. With reference to the Indian Renewable Energy Development Agency Limited (IREDA), which of the following statements is/are correct?

1. It is a Public Limited Government Company.
2. It is a Non – Banking Financial Company.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 or 2

• Common sense – Name suggests it’s public limited company.
• It gives finances to companies in renewable business, hence – finance company. It’s not a bank hence NBFC

Learning – Bank v/s NBFC, Small bank, Payment bank, universal bank, MUDRA, NABARD just basics

Bottom line – 17/21 absolute joke

P.S. – Solutions of 2009 to 2014 with analysis and learning objectives will be published in next few days

You may also want to read – How to approach prelims 2016