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UPSC IAS Prelims Exam : GS Economy Questions: Economic Reforms

Jun 27, 2016 13:05 IST

    From UPSC IAS Examination point of view, the Questions based on Indian Economy are very important. The UPSC IAS Exam aspirants must be aware of the every perspective of Indian Economy either it is historical perspective or current perspective.


    For the Civil Services aspirants, here, we have developed Multiple Choice Questions for the UPSC IAS Prelims Exam based on Ramesh Singh’s Indian Economy book, one of the most important books available for UPSC IAS Exam.

    1.    Consider the following statements regarding the concept of Economic reform:
    I.    Economic reforms denote the process in which a government prescribes declining role for state and expanding role for the private sector in an economy.
    II.    It is safer to see economic reform as a policy shift in an economy from one to another or ‘alternative development strategies’.

    Which of the following statement(s) is/are correct?
    a.    Only I
    b.    Only II
    c.    Both I and II
    d.    Neither I nor II

    Answer: c

    Explanation:


    Economic reforms denote the process in which a government prescribes declining role for state and expanding role for the private sector in an economy. So let’s unravel the reform process based on the author’s classroom interaction with students. It is safer to see economic reform as a policy shift in an economy from one to another or ‘alternative development strategies’.

    Economists attribute the differences in the performance of economies to the differences in the ‘strategies’ they follow. The different strategies of development evolved through a long period of trial and error by the different countries under the influence of different sets of ideologies.

    2.    After “Great Depression of 1929” who among following suggested for ‘strong state intervention’?
    a.    Adam Smith
    b.    JM Keynes
    c.    Paul Samuelson
    d.    Paul Kruger

    Answer: b

    Explanation:


    The ‘strong state intervention’ was suggested by J.M. Keynes and such a policy did really help the Euro-American countries to mitigate the crisis. The favour for the state intervention in the economy was being reversed by the Washington Consensus. But soon this consensus was also to be replaced by another development strategy.

    3.    Consider the following statements regarding the Economic reforms in India:
    I.    On July 23, 1991, India launched a process of economic reforms in response to a fiscal and balance of payment (BoP) crisis.
    II.    The reforms of the 1980s witnessed rather limited nature of deregulation and ‘partial liberalisation of only a few aspects of the existing control regime.
    III.    The reforms started in early 1990s in the fields of industries, trade, investment and later to include agriculture, were much ‘wider and deeper’.

    Which of the following statement(s) is/are correct?
    a.    Only I
    b.    I and II
    c.    II and III
    d.    All of the above

    Answer: d

    Explanation:

    On July 23, 1991, India launched a process of economic reforms in response to a fiscal and balance of payment (BoP) crisis. The reforms were historic and were going to change the very face and the nature of the economy in the coming times.

    Back in the mid-1980s, the Governments had taken its first steps to economic reforms. While the reforms of the 1980s witnessed rather limited nature of deregulation and ‘partial liberalisation of only a few aspects of the existing control regime, the reforms started in early 1990s in the fields of industries, trade, investment and later to include agriculture, were much ‘wider and deeper’.

    4.    Consider the following statements regarding the Macroeconomic Stabilisation Measures adopted by India during the Economic reforms of 1991:
    I.    Macroeconomic Stabilisation Measures includes all those economic policies which intend to boost the aggregate demand in the economy— be it domestic or external.
    II.    For the enhanced domestic demand, the focus has to be on increasing the purchasing power of the masses.

    Which of the following statement(s) is/are correct?
    a.    Only I
    b.    Only II
    c.    Both I and II
    d.    Neither I nor II

    Answer: c

    Explanation:


    Macroeconomic Stabilisation Measures includes all those economic policies which intend to boost the aggregate demand in the economy— be it domestic or external. For the enhanced domestic demand, the focus has to be on increasing the purchasing power of the masses which entails an emphasis on the creation of the gainful and quality employment opportunities.

    5.    Consider the following statements regarding the Structural Reform Measures adopted by Indian during the Economic reforms of 1991:
    I.    Structural Reform Measures includes all the policy reforms which have been initiated by the government to boost the aggregate supply of goods and services in the economy.
    II.    It naturally entails unshackling the economy so that it may search for its own potential of enhanced productivity and production.
    III.    Under this measure, the purchasing capacity of the people to be increased, the economy needs increased income which comes from increased levels of activities.

    Which of the following statement(s) is/are correct?
    a.    Only I
    b.    I and II
    c.    II and III
    d.    All of the above

    Answer: d

    Explanation:

    Structural Reform Measures includes all the policy reforms which have been initiated by the government to boost the aggregate supply of goods and services in the economy. It naturally entails unshackling the economy so that it may search for its own potential of enhanced productivity and production. For the purchasing capacity of the people to be increased, the economy needs increased income which comes from increased levels of activities.

    Income so increased is later distributed among the people whose purchasing power has to be increased—this will take place by properly initiating a suitable set of the macroeconomic policies. For the income to get distributed among the target population it takes time but the efforts a government initiates to increase the supply i.e. increasing production becomes visible soon. As production is done by the producers (i.e the capitalists), prima facie the structural reform measures look ‘pro-rich’ and ‘pro-industrialist’ or ‘pro-capitalist’, known with different names.

    6.    Consider the following information regarding the process of reforms in India during 1990s:
    I.    The process of reforms in India has to be completed via three other processes namely, liberalisation, privatisation and globalisation, popular by their short-form—the LPG.
    II.    Precisely seen, liberalisation shows the direction of reform, privatisation shows the path of reform and globalisation shows the ultimate goal of the reform.

    Which of the following statement(s) is/are correct?
    a.    Only I
    b.    Only II
    c.    Both I and II
    d.    Neither I nor II

    Answer: c

    Explanation:


    The process of reforms in India has to be completed via three other processes namely, liberalisation, privatisation and globalisation, popular by their short-form—the LPG. These three processes specify the characteristics of the reform process India initiated.

    Precisely seen, liberalisation shows the direction of reform, privatisation shows the path of reform and globalisation shows the ultimate goal of the reform. However, it would be useful to see the real meanings of these terms and the exact sense in which they are being used worldwide and particularly in India.

    7.    Consider the following statements regarding the term, liberalisation which show the direction of reform undertaken by Indian Economy:
    I.    The term liberalisation has its origin in the political ideology ‘liberalism’ which took its form by early nineteenth century.
    II.    The term liberalisation is sometimes portrayed as a meta-ideology capable of embracing a broad range of rival values and beliefs.
    III.    The meta-ideology ideology was the product of the breakdown of feudalism and the growth of a market or capitalist society in its place which became popular in economics via the writings of Adam Smith.

    Which of the following statement(s) is/are correct?
    a.    Only I
    b.    I and II
    c.    II and III
    d.    All of the above

    Answer: d

    Explanation:


    The term liberalisation has its origin in the political ideology ‘liberalism’ which took its form by early nineteenth century (it developed basically in the previous three centuries). The term is sometimes portrayed as a meta-ideology capable of embracing a broad range of rival values and beliefs. The ideology was the product of the breakdown of feudalism and the growth of a market or capitalist society in its place which became popular in economics via the writings of Adam Smith (its founding father in the USA) and got identified as a principle of laissez-faire.

    8.    Consider the following statements regarding the term ‘privatisation’, one of the facet of economic reforms in India:
    I.    Privatisation in its purest sense and lexically means de-nationalisation i.e. transfer of the state ownership of the assets to the private sector to the tune of 100 per cent.
    II.    Privatisation in its purest sense and lexically means de-nationalisation i.e. transfer of the state ownership of the assets to the private sector to the tune of 100 per cent. Such bold moves took place only once anywhere in the world without any political fallout—in the early 1980s of the UK under the Thatcher regime.
    III.    The process of privatisation includes selling of the shares of the state-owned enterprises to the private sector.

    Which of the following statement(s) is/are correct?
    a.    Only I
    b.    I and II
    c.    II and III
    d.    All of the above

    Answer: d

    Explanation:

    Privatisation in its purest sense and lexically means de-nationalisation i.e. transfer of the state ownership of the assets to the private sector to the tune of 100 per cent. Such bold moves took place only once anywhere in the world without any political fallout—in the early 1980s of the UK under the Thatcher regime.

    The sense in which privatisation has been used is the process of disinvestment all over the world. This process includes selling of the shares of the state-owned enterprises to the private sector. Disinvestment is de-nationalisation of less than 100 per cent ownership transfer from the state to the private sector.

    If an asset has been sold out by the Government to the tune of only 49 per cent the ownership remains with the state though it is considered privatisation. If the sale of shares of the state-owned assets has been to the tune of 51 per cent, the ownership is really transferred to the private sector even then it is termed as privatisation.

    9.    Consider the following statements regarding the concept of term ‘ Globalisation’:
    I.    Globalisation is generally termed as ‘an increase in economic integration among nations’.
    II.    The globalisation lasted from 1800 to almost 1930, interrupted by the Great Depression and the two Wars which led to retrenchment and several trade barriers were erected since early 1930s.
    III.    The concept was popularised by the Organisation of Economic Cooperation and Development (OECD) in the mid-1980s again after the Wars.

    Which of the following statement(s) is/are correct?
    a.    Only I
    b.    I and II
    c.    II and III
    d.    All of the above

    Answer: d

    Explanation:

    The process of Globalisation has always been used in economic terms though it has always taken the political and cultural dimensions. Once economic changes occur it has several socio political manifestations. Globalisation is generally termed as ‘an increase in economic integration among nations’. Even before several nation-states were not even born, the countries around the world had gone for globalisation i.e. ‘a closer integration of their economies’.

    This globalisation lasted from 1800 to almost 1930, interrupted by the Great Depression and the two Wars which led to retrenchment and several trade barriers were erected since early 1930s.

    The concept was popularised by the Organisation of Economic Cooperation and Development (OECD) in the mid-1980s again after the Wars. In its earlier deliberation, the organisation had defined globalisation in a very narrow and business-like sense— ‘any cross-border investment by an OECD company outside its country of origin for its benefit is globalisation’.

    10.    According to which of the following organisations, the globalisation is “a shift from a world of distinct national economies to a global economy in which production is internationalised and financial capital flows freely and instantly between countries” ?
    a.    WTO
    b.    OECD
    c.    IMF
    d.    European Union

    Answer: b

    Explanation:


    After one of the summit of the OECD in 1980s, proposals for replacing the GATT by the WTO were pushed by the developed economies of the world, better known as the starting of the Uruguay Round of GATT deliberations which ends in the Marrakesh (1994) with the birth of WTO’.

    In the meantime, the OECD had defined (1995) globalisation officially, too—“a shift from a world of distinct national economies to a global economy in which production is internationalised and financial capital flows freely and instantly between countries.”

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