UPSC Prelims Economy Practice Questions

A. 1935 — The RBI was established on 1 April 1935 under the RBI Act, 1934, and was nationalised in 1949. 1969 was the year of the first bank nationalisation.

B. NITI Aayog — NITI Aayog (National Institution for Transforming India) replaced the Planning Commission on 1 January 2015 as the government's policy think-tank.

A. Gross Domestic Product — GDP is Gross Domestic Product — the total monetary value of all final goods and services produced within a country's borders in a given period.

C. 2017 — GST was launched on 1 July 2017, replacing many indirect taxes with a single unified tax under the slogan 'One Nation, One Tax'.

C. Reserve Bank of India — The RBI is the sole issuer of banknotes in India (the one-rupee note and coins are issued by the Government of India, though circulated by the RBI).

A. Total expenditure over total receipts excluding borrowings — The fiscal deficit is the amount by which the government's total expenditure exceeds its total receipts excluding borrowings — i.e. how much it needs to borrow. The gap between exports and imports is the trade deficit.

C. Net factor income from abroad — GNP = GDP + Net Factor Income from Abroad (income earned by residents abroad minus income earned by foreigners domestically), so NFIA is exactly what separates the two aggregates.

B. Reduce liquidity in the system and help control inflation — A higher repo rate makes RBI borrowing costlier for banks, raising lending rates and squeezing liquidity, which dampens demand and helps contain inflation.

D. The share of net demand and time liabilities banks must hold as cash reserves with the RBI — CRR is the fraction of net demand and time liabilities (NDTL) that banks must keep as cash reserves with the RBI; the other options describe the repo rate, the SLR concept, and the capital adequacy ratio.

A. Consumer Price Index (Combined) — The monetary policy framework anchors the inflation target on the Consumer Price Index (Combined), not the WPI or the GDP deflator; the IIP measures industrial output, not prices.

C. Fiscal deficit minus interest payments — Primary deficit equals fiscal deficit minus interest payments; it isolates the current year's borrowing need after removing the burden of past debt servicing.

D. Corporation tax — Corporation tax is levied directly on company profits and its burden cannot be shifted, making it a direct tax; GST, customs, and excise are indirect taxes on goods and services.

B. Currency with the public plus demand deposits with the banking system plus other deposits with the RBI — M1 (narrow money) = currency with the public + demand deposits with the banking system + other deposits with the RBI. Time deposits are added only in the broader aggregate M3.

A. Import of crude oil — Merchandise trade such as the import of crude oil is a current account item, whereas FDI, external commercial borrowing, and loan repayments are capital/financial account transactions.

C. Agriculture and allied activities — Priority sector lending covers areas such as agriculture, micro and small enterprises, education, and weaker sections that need adequate credit; large corporate and speculative loans are excluded.

B. Regulating the securities (stock) market — SEBI is the statutory regulator of the securities market, protecting investors and overseeing exchanges. Forex reserves and the repo rate fall to the RBI, and insurance is regulated by IRDAI.

D. Inequality in the distribution of income or wealth — The Gini coefficient ranges from 0 (perfect equality) to 1 (perfect inequality) and quantifies how unequally income or wealth is distributed across a population.

A. Commission for Agricultural Costs and Prices (CACP) — The CACP recommends MSPs to the government based on cost of production and other factors; the FCI handles procurement and storage, not price recommendation.

C. Indian exports cheaper and imports costlier — When the rupee depreciates, foreign buyers pay less in their currency for Indian goods (exports cheaper), while Indians pay more rupees for foreign goods (imports costlier).

B. P. C. Mahalanobis — The Second Five Year Plan followed the Mahalanobis model, emphasizing investment in heavy and capital-goods industries to build a self-reliant industrial base.

A. Short-term instruments with a maturity of less than one year — Treasury Bills are short-term money-market instruments issued at a discount with maturities of up to one year (91, 182, and 364 days); they are debt, not equity.

D. Construction of a new national highway — Building a highway creates a physical asset, so it is capital expenditure; salaries, interest payments, and subsidies are recurring revenue expenditures that create no lasting asset.