UPSC Economics Questions Prelims 2016: Get to Know the Paper Trend to Crack UPSC

1. With reference to `IFC Masala Bonds’

, sometimes seen in the news,

which of the statements given below is/are correct?

1. The International Finance Corporation, which offers these bonds, is
an arm of the World Bank.
2. They are the rupee-denominated bonds and are a source of debt
financing for the public and private sector.

Select the correct answer using the code given below

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Ans. (c)

Explanation

Both given statements about ‘Masala Bonds’ are correct.

NOTE:

The World Bank Group (WBG) consists of 5 organizations: IBRD, IDA,
IFC, MIGA and ICSID.

2. In the context of which of the following do you sometimes find the terms
‘amber box, blue box and green box’ in the news?

(a) WTO affairs

(b) SAARC affairs

(d) India-EU negotiations on FTA

Ans. (a)

Explanation

Self-explanatory. These “boxes” relate to direct/indirect support given by
states to their industries and agriculture, and regulate such supports as
they have a bearing on international trade.

3. Recently, which one of the following currencies has been proposed to be
added to the basket of IMF’s SDR?

(a) Rouble

(b) Rand

(d) Renminbi

Ans. (d)

Explanation:
Recently, the International Monetary Fund (IMF) has included China’s
Yuan or Renminbi into its elite reserve currency basket mainly used as an
international reserve asset with an effect from 1st October 2016.

4. India’s ranking in the ‘Ease of Doing Business Index’ is sometimes seen
in the news. Which of the following has declared that ranking?

(a) Organization for Economic Cooperation and Development (OECD)

(b) World Economic Forum

(d) World Trade Organization (WTO)

Ans. (c)

Explanation:
The correct answer is the World Bank. Ease of Doing Business Index is
released by the World Bank annually. The indicator measures the
performance of countries across 10 different dimensions in the 12-month
period ending May 1, 2019.

5. Consider the following statements:

1. New Development Bank has been set up by APEC.
2. The headquarters of New Development Bank is in Shanghai.

Which of the statements given above is/ are correct?

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Ans. (b)

Explanation

The New Development Bank was created by BRICS in 2014 and
headquartered in Shanghai, China.

6. With reference to the International Monetary and Financial Committee
(IMFC), consider the following statements:

1. IMFC discusses matters of concern affecting the global economy, and
advises the International Monetary Fund (IMF) on the direction of its
work.
2. The World Bank participates as observer in MFC’s meetings,

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(d) Neither I nor 2

Ans. (c)

Both the given statements are correct. Self explaned.

7. ‘Global Financial Stability Report’ is prepared by the

(a) European Central Bank

(b) International Monetary Fund

(d) Organization for Economic Cooperation and Development

Ans. (b)

Explanation:
Self explanatory

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8. Which of the following best describes the term ‘import cover’

, sometimes seen in the news?

(a) It is the ratio of value of imports to the Gross Domestic Product of a
country

(b) It is the total value of imports of a country in a year

(d) It is the number of months of imports that could be paid for by a
country’s international reserves

Ans. (d)

Explanation:
Import cover is the number of months of imports that could be covered for
by a country’s international reserves. Import cover is an important
indicator of the stability of a currency.

Self explanatory

9. With reference to ‘Financial Stability and Development Council’
,

consider the following statements:

1. It is an organ of NITI Aayog.
2. It is headed by the Union Finance Minister
3. It monitors macro-prudential supervision of the economy.

Which of the statements given above is/ are correct?

(a) 1 and 2 only

(b) 3 only

(d) 1, 2 and 3

Ans. (c)

Explanation

The Financial Stability and Development Council (FSDC) under the
chairmanship of the Union Finance Minister was set up by the government

as the apex-level forum in December 2010. (much before NITI Aayog was
even set up). So, 1 is incorrect.

Statements 2 & 3 are correct.

10. ‘The establishment of ‘Payment Banks’ is being allowed in India to
promote financial inclusion. Which of the following statements is/are
correct in this context?

1. Mobile telephone companies and supermarket chains that are owned
and controlled by residents are eligible to be promoters of Payment
Banks.
2. Payment Banks can issue both credit cards and debit cards.
3. Payment Banks cannot undertake lending activities.

Select the correct answer using the code given below

(a) 1 and 2 only

(b) 1 and 3 only

(d) 1, 2 and 3

Ans. (b)

Explanation

Statements 1 & 3 are correct.

Staement 2 is wrong:

Scope of activities of Payment Banks as per RBI guidelines (we are
mentioning only few of them):

* They can accept demand deposits.

* They can issue ATM/debit cards.

They cannot issue credit cards (as they can’t lend money).

11. What is/are the purpose/purposes of the ‘Marginal Cost of Funds based
Lending Rate (MCLR)’ announced by RBI?

1. These guidelines help improve the transparency in the methodology
followed by banks for determining the interest rates on advances.
2. These guidelines help ensure availability of bank credit at interest
rates which are fair to the borrowers as well as the banks.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(d) Neither I nor 2

Ans. (c)

Explanation

Both the given statements are correct.

To ensure better transmission and transparency of rates, the RBI
introduced the MCLR framework, under which banks have to calculate
their cost of funds based on the latest rates offered on deposits or
borrowings. This was to ensure that changes in deposit rates were
immediately reflected on banks’ cost of funds. Apart from helping improve
the transmission of policy rates into the lending rates of banks, these
measures are expected to improve transparency in the methodology
followed by banks for determining interest rates on advances. The
guidelines are also expected to ensure availability of bank credit at interest
rates which are fair to the borrowers as well as the banks.

12. What is/are the purpose/purposes of the Government’s ‘Sovereign Gold
Bond Scheme’ and ‘Gold Monetization Scheme”?

1. To bring the idle gold lying with Indian households into the economy
2. To promote FDI in the gold and jewellery sector
3. To reduce India’s dependence on gold imports

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(d) 1, 2 and 3

Ans. (c)

Explanation:

The purpose of ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization
Scheme’ is to reduce India’s gold imports and bring all the gold lying idle
with individuals and households in India into the economy.ii FDI is not the
purpose – so all options involving 2 are wrong. 1 and 3 are right.

13. Which of the following is/are included in the capital budget of the
Government of India?

1. Expenditure on acquisition of assets like roads, buildings, machinery,
etc,
2. Loans received from foreign governments
3. Loans and advances granted to the States and Union Territories

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(d) 1, 2 and 3

Ans. (d)

Explanation

The Capital Budget is an account of the assets as well as liabilities of the
central government, which takes into consideration changes in Capital —
both capital expenditure and capital receipt.

The main items of capital receipts are loans raised by the government from
the public which are called market borrowings, borrowing by the
government from the Reserve Bank and commercial banks and other
financial institutions through the sale of treasury bills, loans received from
foreign governments and international organisations, and recoveries of
loans granted by the central government. So, 2 is correct.

Capital Expenditure includes expenditure on the acquisition of land,
building, machinery, equipment, investment in shares, and loans and
advances by the central government to state and union territory
governments, PSUs and other parties. So, 1 and 3 are correct.

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14. Which one of the following is the purpose of ‘UDAY’

, a scheme of the

Government?

(a) Providing technical and financial assistance to start-up entre-preneurs
in the field of renewable sources of energy

(b) Providing electricity to every household iv the country by 2018

(c) Replacing the coal-based power plants with natural gas, nuclear, solar,
wind and tidal power plants over a period of time.

(d) Providing for financial turnaround and revival of power distribution
companies

Ans. (d)

Explanation:

The scheme was launched in November 2015 for the financial restructuring
of the state DISCOMs which were hit by over 4.5 lakh crore loans.

15. With reference to ‘Stand Up India Scheme’

, which of the following

statements is/are correct?

1. Its purpose is to promote entrepreneurship among SC/ST and women
entrepreneurs.
2. It provides for refinance through SIDBI,

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Ans. (c)

Explanation

Straight forward question.

The scheme promotes entrepreneurship among SC/ST and Women
entrepreneurs, and facilitates at least two such projects per bank branch.
The Stand Up India Scheme provides for a refinance window through
Small Industries Development Bank of India (SIDBI) with an initial
amount of Rs. 10,000 crore. So, 2 is also correct.

16. ‘SWAYAM’

, an initiative of the Government of India, aims at

(a) promoting the Self Help Groups in rural areas

(b) providing financial and technical assistance to young start-up
entrepreneurs

(d) providing affordable and quality education to the citizens for free

Ans. (b)

Explanation:

An initiative of the Ministry of Human Resource Development under the
MOOC (Massive Open Online Courses) under which the professors of
IIMs, IITs and Universities provide ‘free’ online courses.

17. Pradhan Mantri MUDRA Yojana is aimed at

(a) bringing the small entrepreneurs into formal financial system

(b) providing loans to poor farmers for cultivating particular crops

(d) funding the voluntary organizations involved in the promotion of skill
development and employment generation

Ans. (a)

Explanation

Pradhan Mantri MUDRA Yojana is aimed at bringing sole-proprietors or
entrepreneurs of Small & Medium Enterprises into formal financial
system.

18. Regarding ‘Atal Pension Yojana’

, which of the following statements

is/are correct?

1. It is a minimum guaranteed pension scheme mainly targeted at
unorganized sector workers.
2. Only one member of a family can join the scheme.
3. Same amount of pension is guaranteed for the spouse for life after
subscriber’s death.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(d) 1, 2 and 3

Ans. (c)

Explanation

Statement 2 is wrong: Atal Pension Yojana (APY) is open to all bank
account holders who are not members of any statutory social security
scheme.

Statements 1 & 3 are correct.

19. The term ‘Base Erosion and Profit Shifting’ is sometimes seen in the
news in the context of

(a) mining operation by multinational companies in resource-rich but
backward areas

(b) curbing of the tax evasion by multinational companies

(d) lack of consideration of environmental planning and developmental
costs in the implementation of projects

Ans. (b)

Explanation

Base erosion and profit shifting (BEPS) refers to tax avoidance strategies
that exploit gaps and mismatches in tax rules to artificially shift profits to
low or no-tax locations

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

1. Reducing revenue expenditure
2. Introducing new welfare schemes
3. Rationalizing subsidies
4. Reducing import duty

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(d) 1, 2, 3 and 4

Ans. (c)

Explanation

Statement 2 is wrong: Introducing new welfare schemes will further
increase the fiscal deficit. Statement 4 is wrong: Reducing import duty
reduces tax revenue and thus increases fiscal deficit.

21. With reference to ‘Pradhan Mantri Fasal Bima Yojana’

, consider the

following statements:

1. Under this scheme, farmers will have to pay a uniform premium of
two percent for any crop they cultivate in any season of the year.
2. This scheme covers post-harvest losses arising out of cyclones and
unseasonal rains.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Ans. (2)

Explanation:

Pradhan Mantri Fasal Bima Yojana will also seek to address a long
standing demand of farmers and provide farm level assessment for
localised calamities including hailstorms unseasonal rains landslides and
inundation.ii Post-harvest loss is included so #2 is right. But Under the new
scheme farmers will have to pay a uniform premium of twoper cent for all
kharif crops and 1.5 per cent for all rabi crops. For annual commercial and
horticultural crops farmers will have to pay a premium of 5 per cent.So #1
is wrong. Therefore answer b only 2.

22. What is/are the purpose/purposes of ‘District Mineral Foundations’ in
India?

1. Promoting mineral exploration activities in mineral-rich districts
2. Protecting the interests of the persons affected by mining operations
3. Authorizing State Governments to issue licences for mineral
exploration

Select the correct answer using the code given below.

(a) 1 and 2 only

(b) 2 only

(d) 1, 2 and 3

Ans. (b)

Explanation:
DMF is a non-profit body promoted by the mineral exploration companies
since 2010. This is to be set up in every mineral district of the country.

23. Which of the following is/are the indicator/indicators used by IFPRI to
compute the Global Hunger Index Report?

1. Undernourishment
2. Child stunting
3. Child mortality

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(d) 1 and 3 only

Ans. (c)

Explanation:

The indicator of this index is ‘Acute malnutrition’. The IFPRI has its
Headquarters situated in Washington, DC.

24. ‘European Stability Mechanism, sometimes seen in the news, is an

(a) agency created by EU to deal with the impact of millions of refugees
arriving from Middle East

(b) agency of EU that provides financial assistance to eurozone countries

(d) agency of EU to deal with the conflicts arising among the member
countries.

Ans. [B]

Explanation

The European Stability Mechanism is a European Union agency that
provides financial assistance, in the form of loans, to eurozone countries or
as new capital to banks in difficulty.

25. With reference to ‘Bitcoins’

, sometimes seen in the news, which of the

following statements is/are correct?

1. Bitcoins are tracked by the Central Banks of the countries.

2. Anyone with a Bitcoin address can send and receive Bitcoins from
anyone else with a Bitcoin address.

3. Online payments can be sent without either side knowing the identity of
the other.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 and 3 only

(d) 1,2 and 3

Ans. [B]

Explanation

Statement 1 is wrong: The system is peer-to peer and transactions take
place between users directly, without an intermediary. So, it is not tracked
by the Central bank or any intermediary. Statements 2 & 3 are correct.

26. ‘Global Financial Stability Report is prepared by the

(a) European Central Bank

(b) International Monetary Fund

(d) Organization for Economic Cooperation and Development

Ans. [B]

Explanation

‘Global Financial Stability Report’ is prepared by the International
Monetary Fund (IMF).

27. The term ‘Regional Comprehensive Economic Partnership’ often
appears in the news in the context of the affairs of a group of countries
known as

(a) G20

(b) ASEAN

(d) SAARC

Ans. [B]

Explanation

Simple current affairs based question. Regional Comprehensive Economic
Partnership (RCEP): Agreement among ASEAN + 6 FTA Partners
(Australia, China, India, Japan, South Korea and New Zealand)

28. The term ‘Core Banking Solutions’ is sometimes seen in the news.
Which of the following statements best describes/describe this term?

1. It is a network of a bank’s branches which enables customers to operate
their accounts from any branch of the bank on its network regardless of
where they open their accounts.

2. It is an effort to increase RBI’s control over commercial banks through
computerization.

3. It is a detailed procedure by which a bank with huge nonperforming
assets is taken over by another bank.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 and 3 only

(d) 1,2 and 3

Ans. [A]

Explanation

Statement 1: Core Banking Solution (CBS) is networking of branches,
which enables customers to operate their accounts, and avail banking
services from any branch of the bank on CBS network, regardless of where
he maintains his account. Clearly, 1 is correct.

Statement 2 and 3: They are absurd and can easily be eliminated.

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