1. 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 subprime 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

Ans. (a)
The statement 1 is correct because it includes the definition of teaser
loans but the statement (2) is not correct, because in India teaser loan is
provided to the home buyers not setting up manufacturing or export units.

2. 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

Ans. (d)
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

3. 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

Ans. (a)
Commercial banks dominate credit off take in all the sector and even in
them Public sector banks

4. Economic growth is usually coupled with
(a) Deflation
(b) Inflation
(c) Stagflation
(d) Hyperinflation

Ans. (b)
Economic growth results in higher disposable income available with the
consumers which increases the overall demand along with the supply
available for the consumers. This increase in demand spurs inflation,
which eventually becomes a necessary evil for a growing economy.

5. 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

Ans. (a)
Bank rate, also referred to as the discount rate, is the rate of interest which
a central bank charges on the loans and advances that it extends to
commercial banks and other financial intermediaries. Changes in the bank
rate are often used by central banks to control the money supply.
The interest rate that is charged by a country’s central or federal bank on
loans and advances to control money supply in the economy and the
banking sector. This is typically done on a quarterly basis to control
inflation and stabilize the country’s exchange rates. A fluctuation in bank
rates triggers a ripple-effect as it impacts every sphere of a country’s
economy. For instance, the prices in stock markets tend to react to interest
rate changes. A change in bank rates affects customers as it influences
prime interest rates for personal loans.

6. 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

Ans. (b)
Notwithstanding some moderation, food price inflation has remained
persistently elevated for over a year now, reflecting in part the structural
demand supply mismatches in several commodities. The trend of food
inflation was pointing at not only structural demand-supply mismatches in
commodities comprising the essential consumption basket but also at
changing consumption patterns.

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7. Which one of the following statements appropriately describes the “fiscal
(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

Ans. (b)
An increase in public spending or a reduction in the level of taxation that
might be performed by a government in order to encourage and support
economic growth is called fiscal stimulus. Thus only option A matches
this description.

8. 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

Ans. (c)
The base effect relates to inflation in the corresponding period of the
previous year: if the inflation rate was two low in the corresponding
period of the previous year, even a smaller rise in the Price Index will
arithmetically give a high rate of inflation now;
On the other hand if the price index had risen at a high rate in the
corresponding period of the previous year and recorded high inflation
rate, a similar absolute increase in the Price index now will show a lower
inflation rate now.

9. 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 microfinance 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

Ans. (d)
Micro finance is the provision of a wide range of financial services, such
as deposits, loans, and insurance. The basic principle of micro finance is a
provision of a package of financial services to low-income households.
Microcredit (which is a component of micro finance) is a provision of
credit facilities to low income household. The basic principle of micro
credit is to give poor people access to capital and exploit their capacities
and potentialities for economic development. The fundamental difference
between these two terms are understanding of poor people economy and
livelihood conditions. Thus, microfinance covers the acute need of poor
people’s financial services and protects them from being further
vulnerable but microcredit seems to be a more technical and standalone
approach to provide only credit services.

10.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 subject of the Central Government and the State
Governments are only a facilitator for its successful implementation

Ans. (d)
VAT, being a ‘tax on sale or purchase of goods within a State’ is a State
Subject by virtue of Entry 54 of State List of the Seventh Schedule of the
Constitution of India. Since VAT/Sales tax is a State subject, the Central
Government has been playing the role of a facilitator for successful
implementation of VAT

11. 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

Ans. (d)
An economy in which no activity is conducted with outside economies. A
closed economy is self sufficient, meaning that no imports are brought in
and no exports are sent out. The goal is to provide consumers with
everything that they need from within the economy’s borders.

12.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

Ans. (d)
All the three are essential for inclusive growth as the inclusive growth
concept itself is based on both economic and social empowerment of
ordinary and underprivileged individuals.

13.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) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Ans. (d)
Disinvestment of a percentage of shares owned by the Government in
public undertakings emerged as a policy option in the wake of economic
liberalisation and structural reforms launched in 1991.

14.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

Ans. (a)
Because it brings foreign exchange.

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15.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

Ans. (d)
Current account deficit is the excess of imports over exports. Policies
favouring FDI and FII will reduce the deficit. Also if the domestic
currency is devalued, exports would become cheaper which will create
additional demand for countries products in the world markets. Any
reduction in export subsidy is dangerous as the country’s goods will
become costlier and exports would fall.

16.India is regarded as a country with a “Demographic Dividend”. This is
due to
(a) Its high population in the age group below 15 years
(b) Its high population in the group of 15-64 years
(c) Its high population in the age group above 65 years
(d) Its high total population

Ans. (b)
The demographic dividend is a rise in the rate of economic growth due to
a rising share of working age people in a population. This usually occurs
late in the demographic transition when the fertility rate falls and the
youth dependency rate declines.

17.With what purpose is the Government of India promoting the concept of
“Mega Food Parks”?
1. To provide good infrastructure facilities for the food processing
2. To increase the processing of perishable items and reduce wastage.
3. To provide emerging and eco-friendly food processing technologies to
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

Ans. (d)
The Scheme is under the purview of the Ministry of Food Processing
Industries. It establishes a mechanism to bring together farmers,
processors and retailers and link agriculture production to the market to
ensure maximization of value addition, minimization of wastage and
improving farmers’ income.

18.Regarding the International Monetary Fund, which one of the following
statements is correct?
(a) It can grant loans to any country
(b) It can grant loans to only developed countries
(c) It grants loans to only member countries
(d) It can grant loans to the central bank of a country

Ans. (c)
International Monetary Fund (IMF): The formation of the IMF was
initiated in 1944 at the Bretton Woods Conference. IMF came into
operation on 27th December 1945 and is today an international
organization that consists of 189 member countries.

19.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
(d) FII is considered to be more stable than FDI

Ans. (b)
Foreign Direct Investment only targets a specific enterprise. It aims to
increase the enterprises capacity or productivity or change its
management control. The FII investment flows only into the secondary
market. It helps in increasing capital availability in general rather than
enhancing the capital of a specific enterprise. The Foreign Direct
Investment is considered to be more stable than Foreign Institutional
Investor. FDI not only brings in capital but also helps in good governance
practises and better management skills and even technology transfer.

20.With reference to “Aam Admi Bima Yojana”, consider the following
1. The member insured under the scheme must be the head of the family
or an earning member of the family in a rural landless household.
2. The member insured must be in the age group of 30 to 65 years.
3. There is a provision for free scholarship for up to two children of the
insured who are studying between classes 9 and 12.
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

Ans. (c)
Aam Admi Bima Yojana (AABY) is a Government of India Social
Security Scheme administered through Life Insurance Corporation of
India (LIC) that provides Death and Disability cover to the head of the
family between the age group of 18 yrs to 59 yrs, under 48 identified
vocational/ occupational groups /rural landless households. The Scheme
also provides an add-on-benefit, wherein Scholarship of Rs 100 per
month per child is paid on a half-yearly basis to a maximum of two
children per member, studying in 9th to 12th Standard.


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UPSC 2011 Economics Questions and Answers : A detailed explanation with Solutions
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UPSC 2011 Economics Questions and Answers : A detailed explanation with Solutions
Find the detailed explanation of answers with solutions for 2011 UPSC Economics question paper. Learn more about the economic and social development upsc questions.
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