IAS Questions of Economy Set- 12 for Prelims Exam

1. Statutory Liquidity Rate (SLR) is an instrument of the

(a) trade policy
(b) fiscal policy
(c) monetary policy
(d) budget

Ans. c

Explanation: SLR is an instrument of the monetary policy through which the RBI can control the money supply by periodically reviewing the rate.

2. Which of the following are included in the capital budget of the government of India?

(1) Borrowings from RBI
(2) Loans received from foreign governments
(3) Expenditure on acquisition of assets such as roads, buildings, machinery etc.
(4) Loans and advances granted to the state(s)

Codes

(a) 1, 2 and 3 only
(b) 1 and 4 only
(c) 2, 3 and 4 only
(d) All of these

Ans. d

Explanation: All the above are included in the capital budget of the Government of India.

3. An agreement between two countries to maintain a free trade area, a common external tariff, free mobility of capital and labour and degree of unification in government policies and monetary policy is called

(a) Common market
(b) Free trade area
(c) Economic union
(d) Customs union

Ans. c

Explanation: An economic union is a type of trade bloc which is composed of a common market with a customs union.

4. Arrange the following stages of demographic transition associated with economic development.

(1) High birth rate with low death rate
(2) High birth rate with high death rate
(3) Low birth rate with low death rate

Codes

(a) 2, 3, 1
(b) 1, 2, 3
(c) 3, 2, 1
(d) 2, 1, 3

Ans. d

Explanation: With improving medical facilities death rate slows down but population control takes time as it takes longer time to check birth rate.

5. Which of the following are among the core principles of multilateral trading system?

(1) Non-Discrimination
(2) Protectionism
(3) Domestic Safeguards

Codes:

(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) All of these

Ans. b

Explanation: Protectionism is considered a hurdle in the multilateral trading system.

6. Which of the following are among Eight Core Industries, which have more than 35% combined weight in Index of Industrial Production in India?    

(1) Electricity production
(2) Fertilizers
(3) Textiles
(4) Steel production

Codes

(a) 1, 2 and 4 only
(b) 1 and 3 only
(c) 2, 3 and 4 only
(d) All of these

Ans. a

Explanation: Textile industry is not among the Eight Core Industries.

7. Which of the following can be done to improve agricultural productivity in India?

(1) Higher support price to the farmers
(2) Increased public investment
(3) Shifting workers from industry to agriculture

Codes:

(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) All of these

Ans. a

Explanation: Shifting workers from industry to agriculture will increase pressure on agriculture sector as it already has problems such as seasonal and disguised unemployment.

8. Which of the following statements are correct?

(1) Foreign Direct Investments (FDI) include Portfolio investment.
(2) Subsidiaries of foreign companies in India are source of FDI.

Codes:

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 Nor 2

Ans. b

Explanation: A portfolio investment is an investment made by an investor who is not involved in the management of a company. This is not a direct investment.

9. Which of the following are included in High powered money?

(a) Currency held by the public and Cash reserves of banks
(b) Currency held by the public, Demand and time deposits and Cash reserves of banks
(c) Currency held by the public, Cash reserves of banks and other deposits of RBI
(d) Currency held by the public and other deposits of RBI

Ans . b

Explanation: Monetary base or high powered money is the portion of the commercial banks' reserves that are maintained in accounts with their central bank plus the total currency circulating in the public.

10. Which of the following tools can be used by RBI to control inflation?

(1) Reduction in Bank Rate
(2) Reduction in Reverse Repo Rate
(3) Increase in Cash Reserve Ratio
(4) Increase in Statutory Liquidity Rate

Codes

(a) 1, 2 and 4 only
(b) 1 and 3 only
(c) 3 and 4 only
(d) All of these

Ans. c

Explanation: Increase in Cash Reserve Ratio or increase in Statutory Liquidity Rate will reduce the money supply in the market which will result in lowering down inflation rate.

IAS Prelims 2016 Economy Study Material