1. 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 unemployment is one of the major features of Indian Agriculture. It
seems that all members of a family are employed but if one member is
withdrawn, there is no change in total output. The third statement Marginal
Productivity is low is a correct statement.
2. Which one of the following groups of items is included in India’s
(a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from
(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
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.
3. 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
Bank rate refers to the rate at which the Central bank lends money to its clients
for a long term. An increase in this rate means that the Central bank is following
a tight monetary policy as increase in rates will lead to decrease in money
supply thereby leading to decrease in inflation and reduction in investment.
4. 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
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.
5. Priority Sector Lending by banks in India constitutes the lending to
(b) micro and small enterprises
(c) weaker sections
(d) All of the above
PSL includes all of the choices given in the question besides many other, for
example, retail trade, minorities, etc.
6. 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
General Price rise may be caused by an increase in the money supply as the real
value of the money reduces. The higher aggregate price level will reduce the
purchasing power subsequently reducing the consumer spending. Effective
demand also increases when there is less purchasing power due to inflation.
Options 2 and 3 fall under the ‘demand-pull’ inflation while option I is the
monetaristic reason for price rise.
7. Which one of the following is likely to be the most inflationary in its
(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
Deficit financing always brings inflationary pressure whatever be the means but
‘creation’ (printing) of new money has the highest inflationary impact.
8. 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
Supply remaining the same, increase in demand for money will lead to more
options to lend money for the banks. Thus, banks will lend money at greater rate
of interest to earn more money as there are more customers for the same amount
9. Which of the following grants/grant direct credit assistance to rural
1. Regional Rural Banks
2. National Bank for Agriculture and Rural Development
3. Land Development Banks
Select the correct answer using below.
(a) 1 and 2 only
(c) 1 and 3 only
(b) 1 and 3 only
(d) 1, 2 and 3
Land development bank started financing long term loan for more
significant rural development activities like rural and cottage industries,
rural artisans etc. The main purpose of RRB’s is to mobilize financial
resources from rural / semi-urban areas and grant loans and advances
mostly to small and marginal farmers, agricultural labourers and rural
10. Consider the following statements:
1. Inflation benefits the debtors.
2. Inflation benefits the bondholders.
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
Inflation brings benefit to borrowers (debtors) while the profit on the bonds
gets eroded (higher the inflation lower the return on bonds through
11. Consider the following liquid assets:
1. Demand deposits with the banks
2. Time deposits with the banks
3. Savings deposits with the banks
The correct sequence of these assets in the decreasing order of liquidity is
Currency/cash is the most liquid, then the demand deposits (current
accounts), then the saving deposits with the bank and finally the least liquid
is the time deposits with the bank (fixed deposits).
12. The balance of payments of a country is a systematic record of
(a) All import and export transactions of a country during a given period of
time, 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
BOP of payment shows all types of transactions a country goes for in a
period (normally, within a year) with all other countries. though the
transactions include public as well as private items but take place between
13. The Reserve Bank of India regulates the commercial banks in matters
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
RBI is called the banker’s bank and regulates the banking sector in India. By
using mechanisms like CRR, SLR etc, it keeps a check on liquidity of assets of
the banks. Moreover, RBI also sets rules and regulations concerning merger of
banks, their winding-up operations and branch expansion.
14. Which of the following constitute a 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
Explanation: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.
15. 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
Open market operations (OMO) refer to the buying and selling of government
securities in the open market in order to expand or contract the amount of
money in the banking system. Securities’ purchases inject money into the
banking system and stimulate growth, while sales of securities do the opposite
and contract the economy.
16. 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 expenditure
(c) sum of personal income of all individuals
(d) money value of final goods and services produced
17. 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
Demographic dividend refers to the growth in an economy that is the resultant
effect of a change in the age structure of a country’s population. Promoting Skill
Development will help India reap its benefits because a skilled younger
population will help in creating employment as well as become employable
ultimately increasing the rate of India’s Economic growth.
18. Economic growth in country X will 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
Capital formation (investment) brings additional income/production in the
economy which enhances growth. Other of the given choices do not lead to