1.

The economic cost of food grains to the Food • It helps in:

Corporation of India is Minimum Support Price and o Streamlining procedures.
bonus (if any) paid to the farmers plus o To discover better prices.
a) transportation cost only • Small Farmers Agribusiness Consortium
b) interest cost only (SFAC) implements e-NAM.
c) procurement incidentals and distribution cost o It was established in 1994 under
d)procurement incidentals and charges for Societies Registration Act, 1860.
godowns. o It is promoted by Agriculture
Solution: Ministry.

• The total economic cost to the Food 3. The substitution of steel for wooden ploughs in
Corporation of India consists of: agricultural production is an example of
o Acquisition Cost a) labor-augmenting technological progress
o Distribution Cost b) capital- augmenting technological progress
• Acquisition Cost consists of: c) capital- reducing technological progress
o Minimum Support Price (MSP) d) None of the above
o Procurement incidental cost – these Solution:
are the expenses incurred during
• Technological Progress means discovery of new
procurement till the food grains reach
and improved methods of producing goods.
the first point of godown.
• Labor-Augmenting Technological Progress-
• Distribution Costs consist of:
State of technology improves, it makes each
o Freight charges
worker more productive by augmenting their
o Losses during transportation
skills.
o Handling Charges
• Capital-Augmenting Technological
Progress- State of technology improves, it
2. What is/are the advantage/advantages of makes each existing capital more productive
implementing the ‘National Agriculture Market’ than labor.
scheme? • Capital-Reducing Technological Progress-
1. It is a pan-India electronic trading portal for State of technology improves but still existing
agricultural commodities. technology is more efficient.
2. It provides the farmers access to nationwide • Therefore, substitution of steel for wooden
market, with prices commensurate with the quality ploughs is a capital augmentation progress.
of their produce.
Select the correct answer using the code given
4. The Fair and Remunerative Price (FRP) of
below:
sugarcane is approved by the
a) 1 only b) 2 only
a) Cabinet Committee on Economic Affairs
c) Both 1 and 2 d) Neither 1 nor 2
b) Commission for Agricultural Costs and Prices
Solution:
c)Directorate of Marketing and Inspection, Ministry
• It is a pan-India electronic trading portal. of Agriculture
• It aims at integrating the existing mandis to d) Agricultural Committee Produce Market
have unified market. Solution:

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

Fair and Remunerative Prices (FRP) Mahatma Gandhi National Rural Employment
Guarantee Act (MGNREGA)
• The Sugarcane Order, 1966 introduced Fair
and Remunerative Price (FRP) for sugarcane. • It provides for:
• It is the minimum price that sugar mills must o A legal guarantee (not fundamental
pay to farmers. right).
• The Cabinet Committee on Economic Affairs o Of at least 100 days of unskilled
(CCEA) approves the FRP based on wage employment.
recommendations of Commission for • Objectives of the Act are:
Agricultural Costs and Prices (CACP). o To create employment
• Under these farmers are not required to wait till opportunities.
the end of the season or for any announcement
of the profits by sugar mills.

5. Disguised unemployment generally means?

7. In the ‘Index of Eight Core Industries’, which one
a) large number of people remain unemployed
of the following is given the highest weight?
b) alternative employment is not available
a) Coal production b) Electricity generation
c) marginal productivity of labor is zero
c) Fertilizer production d) Steel production
d) productivity of workers is low
Solution:
Solution:
Index of Eight Core Industries
• It is also called as Hidden Unemployment.
• It means more people/labor are employed • It is a lead indicator of the monthly industrial
than required. performance.
• Those labor is employed but does not • It includes:
contribute to the total output. o Petroleum & Refinery (28%)
• Hence, marginal productivity is zero. o Electricity (19%)
o Steel (17%)
o Coal (10%)
o Crude oil
6. Consider the following statements in respect of the
o Natural gas
National Rural Employment Guarantee Act, 2005:
o Cement
1. Under the provisions of the Act, 100 days of
o Fertilizer
employment in a year to every household whose
• It comprises 40.27% of the weight of items
adult members volunteer to do unskilled manual
included in the Index of Industrial Production
work has become a fundamental right.
(IIP).
2. Under the provisions of the Act, women are to get
• Office of the Economic Adviser (Under
priority to the extent that one-half of persons who
Commerce Ministry)
are given employment are women who have asked
for work.
Which of the statements given above is/are correct? 8. Which of the following brings out the ‘Consumer
a) 1 only b) 2 only Price Index Number for Industrial Workers’?
c) Both 1 and 2 d) Neither 1 nor 2 a) The Reserve Bank of India
Solution: b) The Department of Economic Affairs

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 c) The Labor Bureau Select the correct answer using the codes given below:
d) The Department of Personal and Training a) 1 and 4 only b) 2, 3 and 4
Solution: c) 1, 2 and 3 only d) 1, 2, 3 and 4
Solution:
Consumer Price Index for Industrial Workers (CPI-
IW) • The following acts provided Reserve Bank to
regulate banks:
• It is compiled and maintained by Labor
o Reserve Bank Act 1934
Bureau.
o Banking Regulation Act 1949
o It is an attached office of the Ministry
• In the following matters:
of Labor & Employment.
o Liquidity of assets
• Base year has been revised to 2016.
o Branch expansion
• It is used for determining:
o Merger of banks
o Dearness allowance (DA).
o Winding-up of banks
o Revision of minimum wages.
Licensing and establishment
11. Tourism industry in India is quite small compared
9. In India, in the overall Index of Industrial
to many other countries in terms of India’s potential
Production, the Indices of Eight Core Industries
and size. Which one of the following statements is
have a combined weight of 37.90%. Which of the
correct in this regard?
following are among those Eight Core Industries?
a) Distances in India are too far apart, and its luxury
1. Cement 2. Fertilizers
hotels are too expensive for Western tourists.
3. Natural Gas 4. Refinery products
b) For most of the months, India is too hot for
5. Textiles
Western tourists to feel comfortable.
Select the correct answer using the codes given
c) Most of the picturesque resorts in India such as
below:
in the North-East and Kashmir are, for all practical
a) 1 and 5 only b) 2, 3 and 4 only
purposes, out of bounds.
c) 1, 2, 3 and 4 only d) 1, 2, 3, 4 and 5
d) In India, the infrastructure required for
Solution:
attracting tourists is inadequate.

Index of Industrial Production (IIP) Solution:

• It is a key indicator of manufacturing activity Challenges faced by Indian Tourism Industry

in different sectors of an economy.

• Lack of proper infrastructure
• Base year of IIP is 2011-2012.
o Transportation facilities
• It is prepared by Central Statistical Office
o Health facilities etc.
every month.
• Insufficient promotion and marketing
o CSO is under Ministry of Statistics
• Security issues
and Programme Implementation
• High taxation
(MoSPI).
• Unskilled labor force
10. The Reserve Bank of India regulates the commercial
12.Consider the following statements:
banks in matters of
1. Most of India’s external debt is owed by
1. Liquidity of assets 2. Branch expansion
governmental entities.
3. Merger of banks 4. Winding-up of banks

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 2. All of India’s external debt is denominated in US c) 1 and 3 only d) 1, 2 and 3
dollars. Solution:
Which of the statements given above is/are correct?
Asian Infrastructure Investment Bank (AIIB)
a) 1 only b) 2 only
c) Both 1 and 2 d) Neither 1 nor 2 • It is headquartered in Beijing.
Solution: • It began its operations in 2016.
• Second statement is incorrect as:
India’s External Debt
o The largest contributor to AIIB is
• The external debt of India is the total debt the China
country owes to foreign creditors. o Second-highest shareholder is India.
• Statement 1 is incorrect as the largest share of • Germany, U.K., France are its members so
external debt is owed by private entities by statement 3 is wrong.
way of External Commercial Borrowings
(ECB’s).

14. Consider the following statements:

Composition of India’s External Debt
1. Purchasing Power Party (PPP) exchange rates are
calculated by comparing the prices of the same
Component Percentage
basket of goods and services in different countries.
Multilateral 12% 2. In terms of PPP dollars, India is the sixth largest
economy in the world.
Bilateral 5%
Which of the statements given above is/are correct?
IMF loans 1% a) 1 only b) 2 only
c) Both 1 and 2 d) Neither 1 nor 2
Commercial 40%
Solution:
Borrowings
Purchasing Power Parity (PPP)

• Statement 2 is wrong as India's external debt • It compares:

is held in multiple currencies. o Different country currencies through
o Around 50% of debt is held in U.S. basket of goods" approach.
dollars. o The productivity and standards of
o The rest is held in Indian rupees, living between countries.
special drawing rights, Japanese yen, • In terms of PPP dollars India is the 3rd largest
Euros etc. economy in the world.

13. With reference to Asian Infrastructure Investment

Bank (AIIB), consider the following statements: 15. With reference to ‘IFC Masala Bonds’, sometimes
1. AIIB has more than 80 member nations. seen in the news, which of the statements given
2. India is the largest shareholder in AIIB. below is/are correct?
3. AIIB does not have any members from outside 1. The International Finance Corporation, which
Asia. offers these bonds, is an arm of the World Bank.
Which of the statements given above is/are correct?
a) 1 only b) 2 and 3 only

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 2. They are the rupee-denominated bonds and are a 17. India’s ranking in the ‘Ease of Doing Business
source of debt financing for the public and private Index’ is sometimes seen in the news. Which of the
sector. following has declared that ranking?
Select the correct answer using the code given a) Organization for Economic Cooperation and
below. Development (OECD)
a) 1 only b) 2 only b) World Economic Forum
c) Both 1 and 2 d) Neither 1 nor 2 c)World Bank
Solution: d) World Trade Organization (WTO)
Solution:
• These are rupee-denominated bonds issued
outside India by Indian entities to raise funds. Ease of Doing Index
• It was introduced in 2014 by International
• Option c is correct.
Finance Corporation (IFC).
• It is released by World Bank.
• The issue of these bonds is in Indian currency
• It measures performance across 10 different
rather than local currency.
parameters like:
• If rupee rate falls, the investor bears the loss.
o Resolving Insolvency
• Both the government and private entities can
o Electricity availability
issue these bonds.
o Contract’s enforcement
16. In the context of which of the following do you
sometimes find the terms ‘amber box, blue box and
18. Consider the following statements:
green box’ in the news
1. New Development Bank has been set up by
a) WTO affairs
APEC.
b) SAARC affairs
2. The headquarters of New Development Bank is
c) UNFCCC affairs
in Shanghai.
d) India-EU negotiations on FTA
Which of the statements given above is/are correct?
Solution:
a) 1 only b) 2 only
• In WTO terminology, subsidies are identified c) Both 1 and 2 d) Neither 1 nor 2
by “boxes” each representing a different kind of Solution:
subsidies.
New Development Bank
• Green Box: Subsidies that do not distort trade
and cause minimal distortion. • It was established by BRICS.
• Amber Box: All domestic support measures • Headquarter: Shanghai, China
considered to distort production and trade. • It supports public and private projects both.
• Blue Box: • Authorized capital of the bank is $100 billion
o This is the “amber box with divided into 1 million shares.
conditions”. • Every member has one vote.
o Such conditions are designed to reduce • India is the founding member.
distortion.
19. ‘Global Financial Stability Report’ is prepared by
the
a) European Central Bank

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 b) International Monetary Fund o It protects a developing country’s food
c) International Bank for Reconstruction and procurement programmes against
Development action from WTO members in case
d) Organization for Economic Cooperation and subsidy ceilings are breached.
Development
Solution:
21. Regarding the International Monetary Fund (IMF),
Global Financial Stability Report which one of the following statements is correct?
a) It can grant loans to any country.
• It is a semiannual report by the International b) It can grant loans to only developed countries.
Monetary Fund (IMF). c) It grants loans to only member countries.
• It assesses the stability of global financial d) It can grant loans to the central bank of a country.
markets and emerging-market financing. Solution:
• Financial Stability Report is published by
RBI. • Statement 1 is incorrect as International
Monetary Fund grant loans to only member
20. The terms ‘Agreement on Agriculture’, ‘Agreement
nations to stabilize their economies.
on the Application of Sanitary and Phytosanitary
• Any member country rich, middle-income,
Measures’ and ‘Peace Clause’ appear in the news
or poor, are eligible for IMF loans so statement
frequently in the context of the affairs of the
2 is incorrect.
a) Food and Agriculture Organization (FAO)
b) United Nations Framework Conference on
Climate Change (UNFCCC)
c) World Trade Organization (WTO) 22. Consider the following actions which the

d)United Nations Environment Programme Government can take:

(UNEP) 1. Devaluing the domestic currency.

Solution: 2. Reduction in the export subsidy.

3. Adopting suitable policies which attract greater
• Agreement on Agriculture: It focuses on FDI and more funds from FIIs.
elimination of the ‘trade distorting’ agricultural Which, of the above action/ actions can help in
subsidies. reducing the current account deficit?
• Agreement on the Application of Sanitary a) 1 and 2 b) 2 and 3
and Phytosanitary Measures: It deals with c) 3 only d) 1 and 3
restricting exports if nation do not follow the Solution:
international standards of germs/bacteria.
• Both the Agreements are: Current Account Deficit (CAD):

o Treaties of the World Trade

• CAD is the shortfall between the money
Organization.
flowing in on exports, and the money flowing
o Negotiated during Uruguay Round
out on imports.
talks.
• It also includes net income (such as interest and
o Entered into force in 1995.
dividends) and transfers from abroad (such as
• Peace Clause:
foreign aid, remittances).
o It entered through WTO Bali
• Measures to check rising CAD:
conference 2013.

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 o Boosting exports (Ex. Devaluation) difference/differences between a “Trademark” and
o Curbing non-essential imports. a Geographical Indication is/are
o Liberalizing rules for entities to raise 1. A Trademark is an individual or a company’s
foreign funds (Ex. External right whereas a Geographical Indication is a
Commercial Borrowing). community’s right.
o Policies favoring FDI and FII inflow. 2. A Trademark can be licensed whereas a
o Tight fiscal/monetary policy. Geographical Indication cannot be licensed.
• Reduction in export subsidy will further 3. A Trademark is assigned to the manufactured
widen the deficit by reducing exports. goods whereas the Geographical Indication is
assigned to the agricultural goods/products and
handicrafts only.
23.Both Foreign Direct Investment (FDI) and Foreign
Which of the statements given above is/are correct?
Institutional Investor (FII) are related to investment in a
a) 1 only b) 1 and 2 only
country. Which one of the following statements best
c) 2 and 3 only d) 1, 2 and 3
represents an important difference between the two?
Solution:
a) FII helps bring better management skills and
technology, while FDI only brings in capital. Difference between Trademark and Geographical
b) FII helps in increasing capital availability in Indication (GI):
general, while FDI only targets specific sectors.
• Origin of product:
c) FDI flows only into the secondary market, while
o Trademark from a particular
FII targets primary market.
enterprise
d) FII is considered to be more stable than FDI.
o Geographical Indication from a
Solution:
geographical region.
Difference between FDI and FII • Governed by:
o Trademark by Trademarks Act, 1999.
FDI FII
o Geographical Indication by
Transfer of funds, Transfer of funds only. Geographical Indications of Goods
resources, technologies, Act, 1999.
skills, and strategies. • Usage and License:
These are long term These are short term o Trademark is individual right and
investments. investments. can be licensed
o Geographical Indication is
It increases capital, Only increases capital.
community right and cannot be
employment,
licensed.
infrastructure, and
• Coverage
GDP.
o Trademark is a letter, a word,
Entry and exit are Entry and Exit is easy
numerals, hologram, sound, or
difficult (More stable). (Less stable).
smell.
o Geographical indication can only be

24. In order to comply with TRIPS Agreement, India geographical names and symbols

enacted the Geographical Indication of Goods related to places.

(Registration & Protection) Act, 1999. The

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 • Geographical Indication is used for • It allows free inflows and outflows of
agricultural products, foodstuffs, wine and foreign currency by Indians for all purpose
spirit drinks, handicrafts, and industrial including:
products. o Imports.
o Exports
25. Which one of the following is not related to United
o Receiving and ending remittances
Nations (UN)?
• Convertibility means freedom to convert
a) Multilateral Investment Guarantee Agency
rupee into any foreign currency and vice-
(MIGA)
versa.
b) International Finance Corporation (IFC)
• Tarapore Committee submitted its reports
c) International Centre for Settlement of Investment
on Fuller capital account convertibility
Disputes (ICSID)
(CAC).
d) Bank for International Settlements (BIS)
• As per committee preconditions for 100%
Solution:
CAC were:
• World Bank Group is a specialized agency of o Fiscal consolidation
UN. o Inflation control
• It comprises of: o Low level of Non-Performing
Assets
o International Finance o Low current account deficit
Corporation (IFC) o Strong financial market.
o Multilateral Investment Guarantee
Agency (MIGA)
27. Participatory Notes (PNs) are associated with
o International Centre for Settlement
which one of the following?
of Investment Disputes (ICSID)
a) Consolidated Fund of India
o International Bank for Reconstruction
b) Foreign Institutional Investors
and Development (IBRD)
c) United Nations Development Programme
o International Development
d) Kyoto Protocol
Association (IDA)
Solution:
• BIS is the financial institution owned by central
banks of nations. Participatory notes

• BIS is not related to UN.

• They are Offshore Derivative
26. Tarapore Committee was associated with which one Instruments (ODIs) issued by Foreign
of the following? Portfolio Investor’s (FPI).
a) Special Economic Zones • It allows foreign investor to invest in
b) Fuller capital account convertibility market without registering with Securities
c) Foreign exchange reserves and Exchange Board of India (SEBI).
d) Effect of oil-prices on the Indian economy • FPI’s issuing P-Notes
Solution: o Must register with SEBI.
o They invest on behalf of the
Capital Account Convertibility
foreign investors.

28. Consider the following statements:

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

1. The National Housing Bank, the apex institution of • Annually published by the International Bank
housing finance in India, was set up as a wholly for Reconstruction and Development
owned subsidiary of the Reserve Bank of India (IBRD).
2. The Small Industries Development Bank of India was
established as a wholly owned subsidiary of the
30. Which of the following best describes the term
Industrial Development Bank of India
‘import cover’, sometimes seen in the news?
Which of the statements given above is/are correct?
a) It is the ratio of value of imports to the Gross
a) 1 only b) 2 only
Domestic Product of a country.
c) Both 1 and 2 d) Neither 1 nor 2
b) It is the total value of imports of a country in a
Solution:
year.
National Housing Bank c) It is the ratio between the value of exports and
that of imports between two countries.
• It is a financial institution for housing
d) It is the number of months of imports that
financial institution (Finance Ministry).
could be paid for by a country’s international
• It was established in 1988 under the National reserves.
Housing Bank Act, 1987. Solution:
• It was set up as a wholly owned subsidiary of
the Reserve Bank of India. • It measures the number of months of imports

• It is a part of All India Financial Institution. that can be covered with foreign exchange
reserves available with the central bank of the
Small Industries Development Bank of India
country.

• Its purpose is to provide: • It indicates stability of a currency.

o Refinance facilities
o Principal finance institution for 31. Which one of the following groups of items is
Micro, Small and Medium included in India’s foreign-exchange reserves?
Enterprises (MSME). a) Foreign-currency assets, Special Drawing Rights
• It was established in 1990. (SDRs) and loans from foreign countries
• It was set up as a wholly owned subsidiary of b) Foreign-currency assets, gold holdings of the
the Reserve Bank of India. RBI and SDRs
• But now government has 51% stake in it. c) Foreign-currency assets, loans from the World
• It is a part of All-India Financial Institution. Bank and SDRs
d) Foreign-currency assets, gold holdings of the
29. “World Development Report” is an annual
RBI and loans from the World Bank
publication of
Solution:
a) United Nations Development Programme
b) International Bank of Reconstruction and Foreign exchange reserves
Development
c) World Trade Organization • It is a cushion against any potential balanced of

d) International Monetary Fund payment related crisis.

Solution: • India’s foreign exchange reserves comprises of:

o Foreign currency assets (FCA)
o Gold

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 o Special Drawing Rights (SDRs) (a) Both A and R are individually true, and R is
o Reserve tranche position (RTP) in the correct explanation of A
the International Monetary Fund (b) Both A and R are individually true, but R is not
• Legal provisions governing reserves: the correct explanation of A
o Reserve Bank of India Act (c) A is true but R is false
o Foreign Exchange Management Act, (d) A is false but R is true
1999 Solution:

32. Despite having large reserves of coal, why does Balance of Payment (BOP) Vs Balance of Trade
India import millions of tons of coal? (BOT).
1. It is the policy of India to save its own coal
• BOT records only import and export of
reserves for future and import it from other
tangible goods whereas BOP records both
countries for the present use.
visible and non-visible item.
2. Most of the power plants in India are coal-based
and they are not able to get sufficient supplies of • BOT is a part of BOP.

coal from within the country. • BOT result can be negative, positive, or

3. Steel companies need large quantity of coking balanced whereas BOP is always balanced.

coal which has to be imported. • Capital Transfers are recorded only in BOP.

Which of the statements given above is/are correct?

a) 1 only b) 2 and 3 only 34. If you withdraw Rs. 1,00,000 in cash from your
c) 1 and 3 only d) 1, 2 and 3 Demand Deposit Account at your bank, the
Solution: immediate effect on aggregate money supply in the
economy will be
• India has 5th Largest coal reserves.
• Statement 1 is wrong as India import coal not
a) to reduce it by ₹ 1,00,000
because it is a policy but due to other reasons:
b) to increase it by ₹ 1,00,000
o Indian coal (lignite and bituminous)
c) to increase it by more than ₹ 1,00,000
has lower calorific value and higher
d) to leave it unchanged
ash content.
Solution:
o It lacks in anthracite reserves which
has high carbon and low smoke. • M3 = Cash held by public + Demand Deposit.
• Therefore, it imports high grade coal. • Withdrawing cash from demand deposit only
• Statement 2 and 3 are correct. puts it with the public, hence no change in
money supply.

33. Assertion (A): ‘Balance of Payments’ represents a

better picture of a country’s economic transactions 35. With reference to ‘Financial Stability and
with the rest of the world than the ‘Balance of Development Council’, consider the following
Trade’. statements:
Reason (R): ‘Balance of Payments’ takes into 1. It is an organ of NITI Aayog.
account the exchange of both visible and invisible 2. It is headed by the Union Finance Minister.
items whereas ‘Balance of Trade’ does not. 3. It monitors macroprudential supervision of the
Codes: economy.

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 Which of the statements given above is/are correct? 1. Permitting the Non-Banking Financial
a) 1 and 2 only b) 3 only Companies to do banking.
c) 2 and 3 only d) 1, 2 and 3 2. Establishing effective District Planning
Solution: Committees in all the districts.
3. Increasing the government spending on public
• It is a non-statutory council under the Ministry
health.
of Finance constituted in 2010.
4. Strengthening the Mid-day Meal Scheme.
• It aims to
Select the correct answer using the codes given
o Maintain financial stability.
below:
o Monitors macro-prudential.
a) 1 and 2 only b) 3 and 4 only
• Chairperson: Finance Minister.
c) 2, 3 and 4 only d) 1, 2, 3 and 4
• Other members include heads of: Solution:
o Reserve Bank of India
o Securities Exchange Board of India Inclusive Governance:

o Pension Fund Regulatory and

• Governance is inclusive when its accessibility
Development Authority
and effectiveness reaches to all members of
o Insurance Regulatory Development
the society.
Authority
• All the above statements help in achieving
o Finance Secretary
inclusiveness in the society.
o Department of Economic Affairs
o Department of Financial Services 38. Consider the following statements:
o Chief Economic Adviser 1. National Payments Corporation of India (NPCI) helps
• Sub-committee is headed by the RBI in promoting the financial inclusion in the country.
Governor. 2. NPCI has launched RuPay, a card payment scheme.
Which of the statements given above is/are correct?
a) 1 only b) 2 only
36. The main objective of the 12th Five-Year Plan is
c) Both 1 and 2 d) Neither 1 nor 2
a) inclusive growth and poverty reduction
Solution:
b) inclusive growth and sustainable growth
c)sustainable and inclusive growth to reduce National Payments Corporation of India
unemployment
• It is an umbrella organization for operating
d) faster, sustainable, and more inclusive growth
retail payments and settlement systems.
Solution:
• It is an initiative of:
th
12 Five Year Plan (Last FYP) o Reserve Bank of India (RBI)
o Indian Banks’ Association (IBA)
• Theme of plan was “Faster, More Inclusive
o Under the provisions of Payment and
and Sustainable Growth”.
Settlement Systems Act, 2007.
• Targets of the Plan:
• It aims at bringing innovations in retail
o GDP Growth Rate of 8%.
payment systems.
37. Which of the following can be said to be essentially
RuPay
the parts of ‘Inclusive Governance’?

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 Liabilities Assets
• It is an electronic payment system developed by
NPCI. Capital Cash/Balance with
• Key Features: RBI
o User Friendly
Reserves and Surplus Money at Call and
o Simplified transaction flow
Short Notice
o Faster transaction processing.
o Highly secure. Deposits Investments

Borrowing Fixed Assets

39. There has been a persistent deficit budget year after
Other liabilities and Other Assets
year. Which action/actions of the following can be
Provisions
taken by the Government to reduce the deficit?
1. Reducing revenue expenditure
2. Introducing new welfare schemes 41. In the context of Indian economy, ‘Open Market
3. Rationalizing subsidies Operations’ refers to
4. Reducing import duty a) borrowing by scheduled banks from the RBI
Select the correct answer using the code given below. b) lending by commercial banks to industry and trade
a) 1 only b) 2 and 3 only c) purchase and sale of government securities by the
c) 1 and 3 only d) 1, 2, 3 and 4 RBI
Solution: d) None of the above
Solution:
• Budget Deficit: It is the difference between
total expenditure and total receipts. • It refers to buying and selling of government
• Government should aim at increasing revenue securities in open market by Reserve Bank of
and decreasing its expenditure to reduce India.
deficit. • To regulate money supply in economy.
• Statement 2 is wrong as introducing welfare • Purchase of securities from the market injects
scheme increases its expenditure. money into system.
• Statement 4 is wrong as reducing import duty • Sale of securities to market squeeze the money
decreases its revenue. out from system.

40. Which of the following is not included in the assets 42. The money multiplier in an economy increases with
of a commercial bank in India? which one of the following?
a) Advances b) Deposits a) Increase in the cash reserve ratio
c) Investments d) Money at call and short notice b) Increase in the banking habit of the
Solution: population
c) Increase in the statutory liquidity ratio
• The balance sheet of a commercial bank
d) Increase in the population of the country
provides a picture of its functioning.
Solution:

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 • The Money Multiplier refers to how an initial 2. CAR is decided by each individual bank.
deposit can lead to a bigger final increase in Which of the statements given above is/are correct?
the total money supply. a) 1 only b) 2 only
• Money Multiplier = 1/Reserve Ratio c) Both 1 and 2 d) Neither 1 nor 2
• Statement a and c are wrong as increase in Solution:
reserves (Cash reserve Ratio or Statutory
Capital Adequacy Ratio (CAR)
Liquidity Ratio) will lead to decrease in
multiplier. • It is the ratio of a bank’s capital in relation to
• Increase in banking habit of the population its risk weighted assets and current liabilities.
leads to more deposits in the banks allowing • It ensures that banks have enough cushion to
them to lend more creating a multiplier effect. absorb losses before they become insolvent.
• Banks with a high capital adequacy ratio is
considered safe and likely to meet its financial
43. Which one of the following best describes the term
obligations.
“Merchant Discount Rate” sometimes seen in
• The benchmark is globally defined by the Bank
news?
for International Settlements (BIS), Basel in
a) The incentive given by a bank to a merchant for
Switzerland.
accepting payments through debit cards pertaining
to that bank. • In India CAR benchmark is set by RBI

b) The amount paid back by banks to their aligned with BIS.

customers when they use debit cards for financial

transactions for purchasing goods or services.
c) The charge to a merchant by a bank for 45. Which one of the following statements correctly
accepting payments from his customers through describes the meaning of legal tender money?
the bank’s debit cards. a) The money which is tendered in courts of law to
d) The incentive given by the Government, to defray the fee of legal cases
merchants for promoting digital payments by their b) The money which a creditor is under
customers through Point of Sale (PoS) machines compulsion to accept in settlement of his claims.
and debit cards. c) The bank money in the form of cheques, drafts,
Solution: bills of exchange, etc.
d) The metallic money in circulation in a country.
Merchant Discount Rate/Transaction Discount Rate
Solution:
• It is cost paid by a merchant to a bank for
Legal Tender
accepting payment from their customers via
digital means. • It is recognized under law as a means of
• It includes bank charges and processing payment/settlement.
charges. • It should be accepted for the discharge of debt.

44. Consider the following statements: • Legal tender can be either limited or unlimited.

1. Capital Adequacy Ratio (CAR) is the amount that o Coins are limited legal tender.

banks have to maintain in the form of their own o Currency notes are unlimited legal

funds to offset any loss that banks incur if the tender.

account holders fail to repay dues.

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 • Cheques are not legal tender and can be 48. Despite being a high saving economy, capital
refused in settlement of claims. formation may not result in significant increase in
output due to
a) weak administrative machinery
46. If a commodity is provided free to the public by the
b) illiteracy
Government, then
c) high population density
a) the opportunity cost is zero.
d) high capital-output ratio
b) the opportunity cost is ignored.
Solution:
c) the opportunity cost is transferred from the
consumers of the product to the tax-paying Capital - Output Ratio
public.
• It is the amount of capital/investment needed
d) the opportunity cost is transferred from the
to produce one unit of output.
consumers of the product to the Government.
Solution: • It explains the relationship between the level of
investment made in the economy and the
• Opportunity cost refers to the hidden cost increase in GDP.
associated with not taking an alternative • Lower capital output ratio shows
course of action. productivity of capital and technological
• The opportunity to access public services for progress.
free comes at a hidden cost. o With advance technology, capital will
• Somebody must pay for it. be efficient to produce more output and
• So, it is transferred from consumers to the capital output ratio will be lower.
tax paying public.
• Despite being a high saving economy, capital
47. Increase in absolute and per capita real GNP do not formation may not result in significant increase
connote a higher level of economic development, if in output only when there is High Capital-
a) industrial output fails to keep pace with Output Ratio.
agricultural output. • Incremental Capital Output Ratio (ICOR):
b) agricultural output fails to keep pace with o It is additional unit of capital or
industrial output investment needed to produce an
c) poverty and unemployment increase. additional unit of output.
d) imports grow faster than exports.
49. Which of the following statements is/are correct
Solution:
regarding the Monetary Policy Committee (MPC)?
• Economic growth means an increase in real 1. It decides the RBI’s benchmark interest rates.
national income/output. 2. It is a 12-member body including the Governor
• Economic development is wider concept and of RBI and is reconstituted every year.
ensures improvement in quality of life, equality, 3. It functions under the chairmanship of the Union
distribution of income etc. Finance Minister.
• Increase in growth not necessarily means Select the correct answer using the code given
development. below:

• If high growth is coupled with poverty and a) 1 only b) 1 and 2 only

unemployment, it does not translate to higher c) 3 only d) 2 and 3 only

level of development. Solution:

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

Monetary Policy Committee • It cannot accept deposits from the Non-
Resident Indians (NRIs).
• It is responsible for fixing the benchmark
• It must maintain CRR with RBI.
interest rate to contain inflation.
• Meetings are held at least 4 times a year.
• The committee comprises 6 members: 51. What is/are the purpose/purposes of the ‘Marginal
o RBI Governor – Chairperson Cost of funds-based Lending Rate (MCLR)’
o RBI Deputy Governor announced by RBI?
o Executive Director of RBI 1. These guidelines help improve the transparency in the

o 3 Members nominated by methodology followed by banks for determining the

Government interest rates on advances.
o Members not eligible for re- 2. These guidelines help ensure availability of bank credit

appointment. at interest rates which are fair to the borrowers as

o Decisions are taken by majority well as the banks.

(Governor has casting vote). Select the correct answer using the code given below.
50. The establishment of ‘Payment Banks’ is being a) 1 only b) 2 only

allowed in India to promote financial inclusion. c) Both 1 and 2 d) Neither 1 nor 2

Which of the following statements is/are correct in Solution:

this context?
Marginal Cost of funds-based Lending Rate
1. Mobile telephone companies and supermarket
• It is the minimum interest rate of a bank below
chains that are owned and controlled by residents
which it cannot lend, except in some cases
are eligible to be promoters of Payments Banks.
allowed by the RBI.
2. Payment Banks can issue both credit cards and
• It is an internal benchmark for the bank.
debit cards.
• It is a tenor linked internal benchmark (tenor
3. Payment Banks cannot undertake lending
means the amount of time left for the repayment
activities.
of a loan).
Select the correct answer using the code given
• Under the MCLR regime, banks must adjust
below.
their interest rates as soon as the repo rate
a) 1 and 2 only b) 1 and 3 only
changes.
c) 2 only d) 1, 2 and 3
Solution:
52. What is/are the purpose/purposes of Government’s
• Statement 1 is correct as currently there are 6 ‘Sovereign Gold Bond Scheme’ and ‘Gold
Payment Banks in India: Monetization Scheme’?
o Airtel Payments Bank Limited 1. To bring the idle gold lying with Indian households
o Paytm Payments Bank Limited into the economy
o Jio Payments Bank Limited 2. To promote FDI in the gold and jewelry sector
• Nachiket Mor committee recommended for 3. To reduce India’s dependence on gold imports
formation of payments bank. Select the correct answer using the code given below.
• It can accept deposits up to Rs. 1 lakh. a) 1 only b) 2 and 3 only
• It can issue debit cards but not credit card. c) 1 and 3 only d) 1, 2 and 3

• It cannot provide lending services. Solution:

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 • Sovereign Gold Bonds (SGBs) are a kind of • To be able to reduce reliance on import of gold
Government bonds that are issued (by the RBI over time to meet the domestic demand, as India
on behalf of the Government) on payment of is one of the largest consumers of gold with
rupees but denominated in grams of gold. virtually no domestic production. (India imports
• On redemption, the investor gets interest as much as 800-1000 tons of gold each year.
income and the prevailing price of gold. Though stocks of gold in India are estimated to
• Its objective is to reduce the demand for be over 20,000 tons, most of this gold is neither
physical gold and shift a part of the domestic traded, nor monetized.)
savings (used for the purchase of gold) into • To make the existing schemes for mobilizing
financial savings. Gold (Gold Deposit Scheme and Gold Metal
• Tenure: Sovereign gold bonds have a tenure of Loan Scheme) more effective and to broaden
eight years, with exit options are available from their ambit from merely mobilizing gold, to
the fifth year. putting this gold into a broad range of
• Gold Monetization Scheme: Gold Monetization productive uses including strengthening the
refers to unlocking the value of gold in terms of reserve requirements of the Central Bank
rupee.
• refers to a process wherein a depositor deposits
53. When the Reserve Bank of India reduces the
gold (say jewellery, coin, etc.) with a bank
Statutory Liquidity Ratio by 50 basis points, which
which is then lent by the bank to its borrowers
of the following is likely to happen?
(say jewellery makers), after melting into gold
a) India’s GDP growth rate increases drastically
bars. This is akin to a normal banking operation
b) Foreign Institutional investor may bring more capital
(like a savings bank account) but carried out in
into our country
terms of gold instead of in rupee.
c) Scheduled Commercial Banks may cut their lending
• Only Resident Indians (Individuals, HUF, rates
Trusts including Mutual Funds/Exchange d) It may drastically reduce the liquidity to the banking
Traded Funds registered under SEBI (Mutual system
Fund) Regulations and Companies) can make Solution:
deposits under the scheme, either individually
or jointly. While the minimum deposit at any Statutory Liquidity Ratio (SLR)

one time shall be raw gold (bars, coins,

• It is the amount maintained by commercial
jewellery excluding stones and other metals)
banks with themselves in the form of gold and
equivalent to 30 grams of gold of 995 fineness,
government securities.
there is no maximum limit for deposit under the
• Increase in SLR:
scheme. All Scheduled Commercial Banks
o It leads to less money available with
(excluding RRBs) can accept these deposits.
banks to lend.
• To mobilize the gold held by households, trusts
o To maintain profitability, they
and various institutions in India and put it into
increase the lending rate.
productive use.
o Consumers purchase less loans and
• To provide a fillip to the gems and jewellery
spend less.
sector in the country by making gold available
o Demand falls.
as raw material on loan from the banks.
o Price come down

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 o Inflation moves downwards. o 2010, Basel III guidelines were
• Opposite happens when SLR is reduced. released.
• Therefore, option c is correct. o Capital adequacy ratio is to be
maintained at 12.9%.
54. ‘Basel III Accord’ or simply ‘Basel III’, often seen in
o Banks must maintain a capital
the news, seeks to
conservation buffer of 2.5%.
a) develop national strategies for the conservation and
o Counter-cyclical buffer is also to be
sustainable use of biological diversity
maintained at 0-2.5%.
b) improve banking sector’s ability to deal with
o It created Liquidity Coverage Ratio
financial and economic stress and improve risk
and Net Stable Funds Rate.
management
c) reduce the greenhouse gas emissions but places a
heavier burden on developed countries 55. Convertibility of rupee implies
d) transfer technology from developed countries to poor a) being able to convert rupee notes into gold
countries to enable them to replace the use of b) allowing the value of rupee to be fixed by market
chlorofluorocarbons in refrigeration with harmless forces
chemicals c) freely permitting the conversion of rupee to other
Solution: currencies and vice versa
d) developing an international market for currencies in
Basel Accords
India
• These are standards formulated by group of Solution:
central banks known as Basel Committee on
• Convertibility means freedom to convert
Banking Supervision (BCBS).
domestic currency to other currencies and
• It ensures that financial institutions have enough
vice-versa.
capital to meet obligations and absorb
• In India there is:
unexpected losses.
o 100% current account
• BASEL-I:
convertibility.
o Introduced in 1988.
o Partial capital account
o Minimum capital requirement was
convertibility.
fixed at 8% of risk-weighted assets
(RWA). 56. If the interest rate is decreased in an economy, it will
• BASEL-II: a) decrease the consumption expenditure in the economy
o Published in 2004. b) increase the tax collection of the Government
o Minimum capital adequacy c) increase the investment expenditure in the economy
requirement of 8% of risk-weighted d) increase the total savings in the economy
assets. Solution:
o 3 types of risk defined were
• Higher interest rates reduce investment.
operational risk, market risk, capital
• There is inverse relationship between interest
risk.
and investment.
o Risk exposure should be disclosed to
• Because higher rates increase the cost of
the central bank.
borrowing and require investment to have a
• Basel III:
higher rate of return to be profitable.

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 Net Time and Demand Liabilities:
57. What does venture capital mean?
o Deposits that a customer can
a) A short-term capital provided to industries
withdraw on demand are demand
b) A long-term start-up capital provided to new
liabilities.
entrepreneurs
o Deposits that a customer only
c) Funds provided to industries at times of incurring
withdraws after a specified time are
losses
time liabilities.
d) Funds provided for replacement and renovation of
industries 59. An increase in the Bank Rate generally indicates that
Solution: the
a) Market rate of interest is likely to fall
Venture Capital
b) Central Bank is no longer making loans to commercial

• It is a form of financing provided by venture banks

capital firms to emerging firms having high c) Central Bank is following an easy money policy

growth potential. d) Central Bank is following a tight money policy

• These firm raises money and invest on behalf of Solution:

startups.
• Bank Rate is charged against loans offered by
the central bank to commercial banks.
58. The terms ‘Marginal Standing Facility Rate’ and ‘Net • Repo Rate is charged for repurchasing the
Demand and Time Liabilities’, sometimes securities sold by the commercial banks to the
appearing in news, are used in relation to central bank.
a) banking operations • Repo Rate is always lower than the Bank
b) communication networking Rate.
c) military strategies • Increase in Bank Rate:
d) supply and demand of agricultural products o It restricts people to avail loans.
Solution:
60. In India, deficit financing is used for raising resources
Marginal Standing Facility Rate for
a) Economic development
• It is the rate at which the scheduled banks can
b) Redemption of public debt
borrow funds overnight from RBI against
c) Adjusting the balance of payments
government securities.
d) Reducing the foreign debt
• RBI uses it to control money supply in the
Solution:
financial system.
• Increasing Marginal Standing Facility Rate: Deficit Financing
o It makes borrowing expensive for a
• It means generating funds to finance the
bank
deficit which results from excess of expenditure
o Loans become expensive
over revenue.
o Leads to lesser availability of the rupee
• Printing new currency notes increases the
(Controlling Depreciation).
flow of money in the economy.
• Banks can borrow funds up to 1% of their net
• It leads to increase in inflation which leads to
demand and time liabilities (NDTL).
price rise.

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

61. Which one of the following is likely to be the most • It implies that if previous year witnessed an
inflationary in its effect? extremely high or an exceptionally low
a) Repayment of public debt inflation, then current year inflation will appear
b) Borrowing from the public to finance a budget deficit to be lower or higher accordingly.
c) Borrowing from banks to finance a budget deficit
d) Creating new money to finance a budget deficit
64. Which one of the following statements is an
Solution:
appropriate description of deflation?
• Option 4 is correct. a) It is a sudden fall in the value of a currency against

• For explanation refer to Q.60. other currencies

b) It is a persistent recession in both the financial and real
sectors of economy
62. Supply of money remaining the same when there is
c) It is a persistent fall in the general price level of
an increase in demand for money, there will be
goods and services
a) a fall in the level of prices
d) It is a fall in the rate of inflation over a period of time
b) an increase in the rate of interest
Solution:
c) a decrease in the rate of interest
d) an increase in the level of income and employment • It is a sudden fall in the value of a currency
Solution: against other currencies- Depreciation
• persistent recession in both the financial and
When supply of money is not changed and demand of
real sectors of economy - Depression
money increases.
• persistent fall in the general price level of goods
• With increase in demand for money, people will and services - Deflation
deposit less money in banks. • It is a fall in the rate of inflation over a period -
• Banks will increase rate of interest to attract Disinflation
people to deposit money in bank.
• Therefore option b is correct.
65. With reference to the Non-banking Financial

63. A rapid increase in the rate of inflation is sometimes Companies (NBFCs) in India, consider the
attributed to the “base effect”. What is “basic following statements:

effect”? 1. They cannot engage in the acquisition of securities

a) It is the impact of drastic deficiency in supply due to issued by the government

failure of crops 2. They cannot accept demand deposits like Savings

b) It is the impact of the surge in demand due to rapid Account

economic growth Which of the statements given above is/are correct?

c) It is the impact of the price levels of previous year a) 1 only b) 2 only

on the calculation of inflation rate c) Both 1 and 2 d) Neither 1 nor 2

d) None of the statements (a), (b) and (c) given above is Solution:

correct in this context

Non-Banking Financial Companies
Solution:
Factors NBFC’s
Base Effect
Demand Deposits Cannot accept
• It is the distortion in an inflation figure.

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 annual reduction target of 0.3% of GDP per year
by the Central government.
Deposit Insurance No insurance coverage
• FRBM Act provides a legal institutional
framework for fiscal consolidation.
Foreign Investment Allowed up to 100%
• The Act binds not only the present government
Cash Reserve Ratio Not applicable but also the future Government to adhere to the

Statutory Liquidity 15% for deposit taking NBFC path of fiscal consolidation.
Ratio • can move away from the path of fiscal

SARFAESI Applicable consolidation only in case of natural calamity,

national security and other exceptional grounds
Capital Adequacy 15%
which Central Government may specify.
Ratio (CAR) • Deposit taking.
• Act prohibits borrowing by the government
• Non-Deposit
from the Reserve Bank of India, thereby,
systematically
important.
making monetary policy independent of fiscal

Incorporation Companies Act policy.

• Act also requires the government to lay before
Payment and Not applicable the parliament three policy statements in each
Settlement System financial year namely Medium Term Fiscal
Policy Statement; Fiscal Policy Strategy
Statement and Macroeconomic Framework
Policy Statement.
66. Which one of the following was not stipulated in the • in addition to the existing three documents,
Fiscal Responsibility and Budget Management Act, Central Government shall lay another document
2003? - the Medium Term Expenditure Framework
a) Elimination of revenue deficit by the end of the fiscal Statement (MTEF) - before both Houses of
year 2007-08 Parliament in the Session immediately.
b) Non-borrowing by the central government from • Concept of “Effective Revenue Deficit” and
Reserve Bank of India except under certain “Medium Term Expenditure Framework”
circumstances statement are the two important features of
c) Elimination of primary deficit by the end of the amendment to FRBM Act in the direction of
fiscal year 2008-09 expenditure reforms.
d) Fixing government guarantees in any financial year as
a percentage of GDP
Solution:
67. In the context of Indian economy, consider the
• is to ensure inter-generational equity in fiscal following pairs:
management, long run macroeconomic Term Most appropriate description
stability, better coordination between fiscal and 1. Melt down Fall in stock prices
monetary policy, and transparency in fiscal 2. Recession Fall in growth rate
operation of the Government. 3. Slow down Fall in GDP
• The FRBM rule specifies reduction of fiscal Which of the pairs given above is/are correctly matched?
deficit to 3% of the GDP by 2008-09 with a) 1 only b) 2 and 3 only

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

c) 1 and 3 only d) 1, 2 and 3 Repo rate
Solution:
• It refers to the rate at which commercial
• Option 2 is wrong as recession means fall in banks borrow money by selling their
Gross Domestic Product (GDP). securities to the Central bank i.e Reserve
Bank of India (RBI) to maintain liquidity, in
• Slowdown means fall in growth rate.
case of shortage of funds or due to some
• Melt down is defined as steep fall in stock statutory measures.
markets and decline in asset values. • It is one of the main tools of RBI to keep
inflation under control.

68. With reference to India, consider the following: Gini Coefficient

1. Nationalization of Banks The Gini index, or Gini coefficient, is a measure

2. Formation of Regional Rural Banks of the distribution of income across a population

3. Adoption of villages by Bank Branches developed by the Italian statistician Corrado

Which of the above can be considered as steps taken to Gini in 1912. It is often used as a gauge

achieve the “financial inclusion in India”? of economic inequality, measuring income

a) 1 and 2 only b) 2 and 3 only distribution or, less commonly, wealth

c) 3 only d) 1, 2 and 3 distribution among a population. The coefficient

Solution: ranges from 0 (or 0%) to 1 (or 100%), with 0

representing perfect equality and 1 representing
• Government was committed to greater perfect inequality. Values over 1 are
financial inclusion which led to the theoretically possible due to negative income or

Nationalization of 14 banks in July 1969. wealth.

A value of 1 for Gini Coefficient in a country
• Regional Rural Banks play a vital role in
implies that there is perfectly inequal income
rural development of India and to spread
for everyone in its population.
financial inclusion.
• Adoption of villages by Bank Branches 70. Global capital-flows to developing countries
has brought banking facilities to the increased significantly during the nineties. In
doorsteps of rural households who are in view of the East Asian Financial crisis and
need of easy and cheap credit to help Latin American experience, which type of

financial inclusion. inflow is good for the host country?

69. Consider the following statements: a) Commercial loans

1. The repo rate is the rate at which other banks borrow b) Foreign Direct Investment
c) Foreign Portfolio Investment
from the Reserve Bank of India.
d) External Commercial Borrowings
2. A value of 1 for Gini Coefficient in a country implies
that there is perfectly equal income for everyone in Solution:

its population.
Foreign Direct Investment
Which of the statements given above is/are correct?
a) 1 only b) 2 only • investment by a foreign multinational or its
c) Both 1 and 2 d) Neither 1 nor 2 subsidiary or a foreign company in terms of
setting up a project in another country either
Solution:
by way of a 100% subsidiary or by way of a
joint venture.

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 • Thus, FDI investment is long term in nature. 73. With reference to the Wholesale Price Index (WPI),
Thus, it can not be pulled out of the country consider the following statements:
at short notice.
1. The new WPI series with base 1993-94=100 became
• It is also non-debt creating.
effective from April, 1998.
2. In the new WPI series, the weight for primary articles
71. In India, the first bank of limited liability managed by
has gone down by 10 percentage points.
Indians and founded in 1881 was
3. The weight for electricity has increased in the new WPI
a) Hindustan Commercial Bank
series.
b) Oudh Commercial Bank
Which of these statements are correct?
c) Punjab National Bank
a) 1, 2 and 3 b) 2 and 3
d) Punjab and Sind Bank
c) 1 and 3 d) 1 and 2
Solution:
Solution:

• The first bank of limited liability managed by

• The new WPI series with base 1993-94 =
Indian’s was Oudh Commercial Bank in 1881. 100 became effective from April 2000.
• Punjab National Bank - 1894. • In the new WPI series, the weight for
• Punjab and Sindh Bank - 1908 primary articles has gone down by 10
percentage points from 32 -22%.
• Hindustan Commercial Bank - 1943
• The weight for electricity has increased in
the new WPI series from 11-14%.
72. Consider the following financial institutions of India:
1. Industrial Finance Corporation of India (IFCI). 74. A rise in ‘SENSEX’ means
2. Industrial Credit and Investment Corporation of India a) a rise in prices of shares of all companies registered
(ICICI). with Bombay Stock Exchange
3. Industrial Development Bank of India (IDBI). b) a rise in prices of shares of all companies registered
4. National Bank for Agriculture and Rural Development with National Stock Exchange
(NABARD). c) an overall rise in prices of shares of group of
The correct chronological sequence of the establishment companies registered with Bombay Stock
of these institutions is Exchange
a) 1, 2, 3, 4 b) 2, 3, 4, 1 d) a rise in prices of shares of all companies belonging to
c) 3, 4, 1, 2 d) 4, 1, 2, 3 a group of companies registered with Bombay
Solution: Stock Exchange
Solution:
• Industrial Finance Corporation of India (IFCI)-
1948 SENSEX
• Industrial Credit and Investment Corporation of
• The Sensex measures the stock prices of 30
India (ICICI) - 1955
listed companies of the Bombay Stock
• Industrial Development Bank of India (IDBI)-
Exchange.
1964
• The reason behind fluctuation in the Sensex is
• National Bank for Agriculture and Rural
the movement in share price of top 30
Development (NABARD) - 1982
companies.
• Base year of the Sensex is 1978-79.

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 • Some companies might see decrease in share 77. In the context of India, which of the following factors
price, but overall SENSEX can still be positive is/are contributor/contributors to reducing the risk of a
if remaining companies performed good. currency crisis?
1. The foreign currency earnings of India’s IT sector
2. Increasing the government expenditure
3. Remittances from Indians abroad
Select the correct answer using the code given below.
75. A: Devaluation of a currency may promote export.
a) 1 only b) 1 and 3 only
R: Price of the country’s products in the international
c) 2 only d) 1, 2 and 3
market may fall due to devaluation.
Solution:
Solution:
Currency Crisis: Decline in the value of a country's
A devaluation means there is a fall in the value of a
currency
currency. • It negatively affects the economy by
creating instabilities in currency exchange
The main effects are rates.
• Exports are cheaper to foreign customers • The foreign currency earnings of India's
• Imports more expensive. Information Technology (IT) sector and
• In the short-term, a devaluation tends to remittances from Indians abroad together
cause inflation, higher growth and can reduce the risk of a currency crisis in
increased demand for exports. India.

78. Consider the following statements:

76. Economic Survey in India is published officially, 1. The Fiscal Responsibility and Budget Management
every year by the (FRBM) Review Committee Report has
a) Reserve Bank of India recommended a debt to GDP ratio of 60% for the
b) Planning Commission of India general (combined) government by 2023,
c) Ministry of Finance, Government of India comprising 40% for the Central Government and
d) Ministry of Industries, Government of India 20% for the State Governments.
Solution: 2. The Central Government has domestic liabilities of
21% of GDP as compared to that of 49% of GDP of
Economic Survey in India
the State 2 Governments.
• It is a source of data on India’s economy. 3. As per the Constitution of India, it is mandatory for a
• It is published by Finance Ministry. State to take the Central Government’s consent for
• It is prepared by: raising any loan if the former owes any outstanding
o Department of Economic Affairs liabilities to the latter.
(Under Finance Ministry) Which of the statements given above is/are correct?
o Chief Economic Advisor. a) 1 only b) 2 and 3 only
• 1st survey was presented in 1950-51. c) 1 and 3 only d) 1, 2 and 3

• The document is non-binding. Solution:

• The FRBM Review Committee headed by

former Revenue Secretary, NK Singh was

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 appointed by the government to review the 0.5% as escape clause for fiscal deficit
implementation of FRBM. target.
• Committee suggested that a rule based fiscal o
policy by limiting government debt, fiscal
deficit and revenue deficits to certain targets is 79. Consider the following statements:
good for fiscal consolidation in India. 1. The Reserve Bank of India manages and services
• The main recommendations of the NK Singh Government of India Securities but not any State
Committee are: Government Securities.
o combined debt-to-GDP ratio of the 2. Treasury bills are issued by the Government of India
centre and states should be brought and there are no treasury bills issued by the State
down to 60 per cent by 2023 Governments.
(comprising of 40 per cent for the 3. Treasury bills offer are issued at a discount from the
Centre and 20% for states) as against par value.
the existing 49.4 per cent, and 21per Which of the statements given above is/are correct?
cent respectively. a) 1 and 2 only b) 3 Only
o For fiscal consolidation, the centre c) 2 and 3 only d) 1, 2 and 3
should reduce its fiscal deficit from the Solution:
current 3.5% (2017) to 2.5% by 2023.
o the central government should reduce • The Government securities(G-secs)
its revenue deficit steadily by 0.25 comprise dated securities issued by the
Government of India and state
percentage (of GDP) points each year,
governments as also, treasury bills.
to reach 0.8% by 2023, from a
• The State Government Securities are
projected value of 2.3% in 2017.
securities issued by the state
o Year Debt/GDP FD RD
governments. The issues are also
o managed and serviced by the Reserve
o 2017 49.4 3.5 2.3 Bank of India.
o • In India, the Central Government issues
o 2023 38.7 2.5 0.80 both, treasury bills and bonds or dated
o It recommended setting up an securities while the State Governments
independent Fiscal Council. The issue only bonds or dated securities.
• Treasury bills have zero-coupon rates, i.e. no
Council will provide several advisory
interest is earned on them. Individuals can
functions. It will forecast key macro purchase T-bills at a discount to the face/value.
variables like real and nominal GDP
growth, tax buoyancy, commodity
80. In the context of India’s Five-Year Plans, a shift in
prices. Similarly, it will do a
the pattern of industrialization, with lower emphasis
monitoring role, besides advising
on heavy industries and more on infrastructure
about the use of escape clause and also
begins in
specify a path of return.
a) Fourth Plan b) Sixth Plan
o the committee recommends fiscal
c) Eight Plan d) Tenth Plan
flexibilities to go above or below the
Solution:
fiscal deficit targets in the form of
‘escape clauses. The Committee set

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

81. Consider the following statements regarding Indian • It aims to reduce money supply to fight
Planning: inflation.
1. The Second Five-Year Plan emphasized on the • Inflation is a sign of an overheated economy.
establishment of heavy industries. • Central Bank reduces money supply:
2. The Third Five-Year Plan introduced the concept o By making lending more expensive.
of import substitution as a strategy for • With decreased disposable income with
industrialization. people, there will be decrease in aggregate
Which of the statements given above is/are correct? demand.
a) 1 only b) 2 only • Hence, overall price (inflation) tends to come
c) Both 1 and 2 d) Neither 1 nor 2 down.
Solution:

Second Five Year Plan

• It was based on the P.C. Mahalanobis

83. Why is the Government of India disinvesting its
Model made in the year 1953.
equity in the Central Public Sector Enterprises
• Its main focus was on the industrial
development of the country. (CPSEs)?
1. The Government intends to use the revenue
Third Five Year Plan earned from the disinvestment mainly to pay back
the external debt.
• This plan is also called ‘Gadgil Yojna’, after
2. The Government no longer intends to retain the
the Deputy Chairman of Planning
management control of the CPSEs.
Commission D.R. Gadgil.
• The main target of this plan was to make Which of the statements given above is/are correct?

the economy independent. a) 1 only b) 2 only

• The stress was laid on agriculture and the c) Both 1 and 2 d) Neither 1 nor 2
improvement in the production of wheat. Solution:

• When it is said that “Mainly” the money is

to be used to pay the external debt it is not
correct to say so. Government may use the
money in a way it deems fit.
82. With reference to inflation in India, which of the • Government though “may intend” to
retain the management control but there
following statements is correct?
are fiscal constraints that induce the
a) Controlling the inflation in India is the responsibility
government to go for disinvestment. Both
of the Government of India only statements are NOT correc
b) The Reserve Bank of India has no role in controlling
the inflation
c) Decreased money circulation helps in controlling 84. Which one of the following is not the most likely
the inflation measure the Government/RBI takes to stop the slide of
d) Increased money circulation helps in controlling the Indian rupee?
inflation
a) Curbing imports of non-essential goods and promoting
Solution:
exports
Contractionary Monetary Policy:

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

b) Encouraging Indian borrowers to issue rupee 1. Purchase of government securities from the public by
denominated Masala Bonds the Central Bank
c) Easing conditions relating to external commercial 2. Deposit of currency in commercial banks by the public
borrowing 3. Borrowing by the government from the Central Bank
d) Following an expansionary monetary policy 4. Sale of government securities to the public by the
Solution: Central Bank
Select the correct answer using the codes given below:
Solution:
a) 1 only b) 2 and 4 only
Government measures to rescue sliding rupee c) 1 and 3 d) 2, 3 and 4

1- Easier External Commercial Borrowings (ECBs Solution:

2- More Zing for Masala Bonds

• When the RBI wants to increase the
3- No Hedging for infrastructure ECBs
money supply in the economy, it
4- Review of FPI 4 exposure limits purchases the government securities from
the market and it sells government
securities to suck out liquidity from the
85. The Reserve Bank of India (RBI) acts as a banker’s system.
bank. This would imply which of the following? • Borrowing by the government from the Central
1. Other banks retain their deposits with the RBI. Bank will increase the money supply in the
2. The RBI lends funds to the commercial banks in times market.
of need. • Deposit of currency in commercial banks
3. The RBI advises the commercial banks on monetary by the public and Sale of government
securities to the public by the Central Bank
matters.
will suck out the liquidity from the system.
Select the correct answer using the codes given below:
a) 2 and 3 only b) 1 and 2 only
87. In the parlance of financial investments, the term
c) 1 and 3 only d) 1, 2 and 3
‘bear’ denotes
Solution:
a) An investor who feels that the price of a particular

Reserve bank of India acts as a banker of banks. security is going to fall

b) An investor who expects the price of particular shares
• It is lender of last resort. to rise
• It influences credit creation by banks through c) A shareholder or a bondholder who has an interest in a
various monetary policy tools. company, financial or otherwise
• It has power of supervision and control over d) Any lender whether by making a loan or buying a bond
banks: Solution:
o Relating to licensing
• Bear: It is a situation where market experiences
o Branch expansion
downward trend and price decline.
o Asset management
• It is a pessimistic outlook.
• It advises the commercial banks on monetary
• Signs for Bearish trend are:
matters.
o Slowing economy
o Low employment and income
86. Which of the following measures would result in an o Drop in business profits
increase in the money supply in the economy?

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 • Bull: It is a situation where market has upward c) 1 3 2 4
trend and price increases. d) 3 1 4 2
• Signs for Bullish trend are: Solution:
o Growth in economy
• Budget Deficit: It is the difference between
o Increase in employment and income.
total expenditure and total receipts.
• It is an optimistic outlook.
• Revenue deficit: It is the excess of
government’s revenue expenditure over revenue
88. A country is said to be in a debt trap if receipts.
a) It has to abide by the conditionalities imposed by the • Fiscal Deficit: It is excess of total expenditure
International Monetary Fund over total receipts less borrowings.
b) It has to borrow to make interest payments on • Primary Deficit: It is fiscal deficit minus
outstanding loans interest payments.
c) It has been refused loans or aid by creditors abroad
d) The World Bank charges a very high rate of interest
90. A decrease in tax to GDP ratio of a country indicates
on outstanding as well as new loans
which of the following?
Solution:
1. Slowing economic growth rate
Debt Trap 2. Less equitable distribution of national income
Select the correct answer using the code given below.
• It is a situation where debtor is not able to pay
a) 1 only b) 2 only
back the loan (principal amount) due to high
c) Both 1 and 2 d) Neither 1 nor 2
interest rates.
Solution:
• Hence, countries are forced to take new loans
to repay outstanding interest payments.
• Slowdown in economic growth leads to
89. Match List I with List II and select the correct answer
slowdown in tax revenue collection because
using the codes given below the Lists:
people have less money at disposal.
List I
• Less equitable distribution of national income
A. Fiscal deficit
leads to smaller tax base and tax revenue
B. Budget deficit
collection.
C. Revenue deficit
D. Primary deficit
91. The national income of a country for a given period
List II
is equal to the
1. Excess of total Expenditure over Total Receipts
a) total value of goods and services produced by the
2.Excess of Revenue Expenditure over Revenue Receipts
nationals
3. Excess of Total Expenditure over Total Receipts less
b) sum of total consumption and investment expenditure
borrowings
c) sum of personal income of all individuals
4. Excess of Total Expenditure over Total Receipts less
d) money value of final goods and services produced.
borrowings and Interest Payments
Solution:
Codes:
A B C D National Income (Net national product at factor cost)
a) 3 1 2 4
b) 4 3 2 1

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 • It is defined as the monetary value of all final 94. With reference to ‘Pradhan Mantri Fasal Bima
goods and services produced by the resident Yojana’, consider the following statements:
of a country in an accounting year. 1. Under this scheme, farmers will have to pay a uniform
• It includes both people operating within premium of two percent for any crop they cultivate
domestic territory or outside. in any season of the year.
• National Income = Domestic factor income + 2. This scheme covers post-harvest losses arising out of
Net factor income from abroad. cyclones and unseasonal rains.

• It can be calculated in 3 ways: Which of the statements given above is / are correct?

o Expenditure method a) 1 only b) 2 only

o Production method c) Both 1 and 2 d) Neither 1 nor 2

o Value added method Solution:

Pradhan Mantri Fasal Bima Yojna

92. Economic growth is usually coupled with
• It is a crop insurance scheme.
a) Deflation b) Inflation
• It covers food, oilseed, and horticultural crops.
c) Stagflation d) Hyperinflation
• The premium under is:
Solution:
o 2% for kharif crops.
• Economic growth leads to: o 1.5% for rabi crops.
o Greater employment level. o 5% for horticultural crops.
o Higher personal disposable income. • Enrolment for scheme is voluntary for all farmers
• This increases demand in economy. from 2020 Kharif.
• With supply remaining unchanged greater
95. Consider the following statements:
demand leads to increase in price level.
1. The Standard Mark of Bureau of Indian Standards
93. The most appropriate measure of a country’s (BIS) is mandatory for automotive tyres and tubes.
economic growth is its 2. AGMARK is a quality Certification Mark issued by
a) Gross Domestic Product the Food and Agriculture Organization (FAO).
b) Net Domestic Product Which of the statements given above is/are correct?
c) Net National Product a) 1 only b) 2 only
d) Per Capita Real Income c) Both 1 and 2 d) Neither 1 nor 2
Solution: Solution:

• It measures the amount of money earned per • Bureau of Indian Standards (BIS):
person in a nation. o Bureau of Indian standards (BIS)
• It is calculated by dividing the country's Act 2016 established it.
national income by its population. o It comes under the Ministry of
• A higher per capita income represents higher Consumer Affairs.
purchasing power, as members of the o It provides standardization, marking
community have more money to spend. and quality certification for goods.
• It has a limitation as it does not talk about • AGMARK:
distribution of income among members. o It is enforced by Agricultural
Produce (Grading and Marking) Act
of 1937.

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 o It is given by Directorate of o Undernourishment
Marketing and Inspection (Under o Child Wasting
Agriculture Ministry). o Child Stunting
o The certification mark assures o Child Mortality
conformity to set of standards.

96. Consider the following statements: 98. The term ‘Base Erosion and Profit Sharing’ is
Human capital formation as a concept is better explained sometimes seen in the news in the context of
in terms of a process, which enables a) mining operation by multinational companies in
1. individuals of a country to accumulate more capital. resource-rich but backward areas
2. increasing the knowledge, skill levels and capacities of b) curbing of the tax evasion by multinational
the people of the country. companies
3. accumulation of tangible wealth. c) exploitation of genetic resources of a country by
4. accumulation of intangible wealth. multinational companies
Which of the statements given above is/are correct? d) lack of consideration of environmental planning and
a) 1 and 2 b) 2 only developmental costs in the implementation of
c) 2 and 4 d) 1, 3 and 4 projects
Solution: Solution:

Human Capital Formation • It is a tax planning strategy used by

multinationals to shift profits from higher-tax
• It is a concept where humans are treated as a
jurisdictions to lower-tax jurisdictions.
resource and are critical for development of a
• Companies shift profit to tax haven countries.
country.
• Organization for Economic Cooperation and
• It is done by increasing skills, knowledge, and
Development (OECD) launched the Base
experience of human beings.
Erosion Profit Shifting Project (BEPS):
• It leads to accumulation of intangible wealth.
o To tackle tax avoidance problem.

97. Which of the following is/are the indicator /

indicators used by IFPRI to compute the Global
Hunger Index Report? 99. A “closed economy” is an economy in which
1. Undernourishment 2. Child stunting a) the money supply is fully controlled
3. Child mortality b) deficit financing take place
Select the correct answer using the code given below. c) only exports take place
a) 1 only b) 2 and 3 only d) neither exports nor imports take place
c) 1, 2 and 3 d) 1 and 3 only Solution:
Solution:
• It is a type of economy where the import and
• Annual report published by Concern export of goods and services does not take
Worldwide (Ireland) and Welthungerhilfe place.
(German non-profit organization). • It implies the economy is self-sufficient.
• In 2018, IFPRI left the project.
• GHI combines 4 component indicators:

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions

 o Garibi Hathao
100. With reference to India’s Five-Year Plans, which of o Attainment of self-reliance
the following statements is/are correct?
• Target growth rate was 4.4%
1. From the Second Five-Year Plan, there was a
determined thrust towards substitution of basic and
capital good industries.
2. The Fourth Five-Year Plan adopted the objective
of correcting the earlier trend of increased
concentration of wealth and economic power.
3. In the Fifth Five-Year Plan, for the first time, the
financial sector was included as an integral part of
the Plan.
Select the correct answer using the code given
below:
a) 1 and 2 only b) 2 only
c) 3 only d) 1, 2 and 3
Solution:

2nd Five-year plan:

• It is called Mahalanobis model.

• It focused on rapid industrialization of
heavy and basic industries.
• Advocated huge imports through foreign
loans.
• Target growth rate was 4.5 %.

4th Five-year plan:

• adopted the objective of correcting the earlier

trend of increased concentration of wealth and
economic power.
• Twin objective:
o Growth with stability
o Self-reliance
• Implementation of Family planning
programme.
• Target growth rate was 5.7%.

5th Five-year plan:

• Draft of plan was launched by D.P Dhar.

• Two main objectives:

synopsisias.in Synopsis IAS Test Series Test 9-2120 solutions