Indian Economy Mixed Quiz: Set 25

The correct answer is C, Depreciation. The circular flow of income in a simple economy has only two sectors, households and firms, and it shows two streams running in opposite directions. Households supply land, labour, capital and enterprise to firms and receive factor payments, that is rent, wages, interest and profit; they spend that income on the goods and services the firms produce, and the money returns to the firms. So factor services, factor payments, goods and services and consumption spending all belong to the flow. Depreciation is the wearing out of machines and buildings, a cost that enters the picture only when the model is widened to saving and capital, which is why gross and net measures of income differ by it. Option A is wrong because factor payments are the income stream of the flow. Option B is wrong because goods and services are the real flow from firms to households. Option D is wrong because spending by households is what closes the circle. Exam tip: in a two-sector flow the real flow runs one way and the money flow the other, and depreciation is not part of it.

The correct answer is A, Argentina, Mexico, South Africa and Turkey. All four of these countries sit in the G20, so this is the only group in which no name falls outside the forum. The G20 began in 1999 as a meeting of finance ministers and central bank governors, and it was raised to the level of a leaders' summit in 2008 after the global financial crisis. It brings together nineteen countries along with the European Union, and the African Union was admitted as a member at the New Delhi summit. Its Asian members include India, China, Japan, South Korea, Indonesia, Saudi Arabia and Turkey. B is wrong because Malaysia and New Zealand are not members, even though Australia and Canada are. C is wrong because Iran and Vietnam stand outside the group, while Brazil and Saudi Arabia are inside it. D is wrong because Singapore is not a member, though it is often invited as a guest. Exam tip: among the Southeast Asian states only Indonesia is a G20 member.

The correct answer is B, 2015. NITI Aayog, the National Institution for Transforming India, was set up by a Cabinet resolution on 1 January 2015 and took the place of the Planning Commission, which had run since 1950. Neither body was created by the Constitution or by an Act of Parliament, so both are extra-constitutional and non-statutory. The change ended centralised five-year planning and the old practice of handing plan funds to the states; NITI Aayog works instead as a think tank that advises the Union and the states, frames long-term strategy and ranks states on health, education, water and other indices. The Prime Minister is its chairperson, and the Governing Council brings in every Chief Minister and the Lieutenant Governors. A is wrong because 2016 is a year after the change. C is wrong because by 2018 the new body was already publishing its state indices. D is wrong because 2017 was only the year the twelfth five-year plan ran out. Exam tip: Planning Commission 1950 to 2014, NITI Aayog from 1 January 2015.

The correct answer is D, the level of mutual trust and harmony in the society. Social capital means the networks, shared norms and trust that let people in a society work together, so it is measured by relationships rather than by things or numbers of people. The idea was popularised by Robert Putnam, who argued that a community rich in trust and civic association gets better government and faster growth because agreements are kept without costly enforcement. Self-help groups, cooperatives and village committees are the everyday form it takes in India. A is wrong because literacy is part of human capital, the skill and knowledge embodied in people. B is wrong because buildings, infrastructure and machines are physical or produced capital. C is wrong because the size of the working age group is the demographic dividend, a matter of population structure. Exam tip: physical capital is what you build, human capital is what you learn, social capital is whom you trust.

The correct answer is C, reverse repo rate. The reverse repo rate is the rate at which the Reserve Bank of India borrows from commercial banks, that is, the rate it pays banks for parking their surplus money with it for a short term. The RBI raises this rate when it wants to pull extra cash out of the banking system, because banks then find it worthwhile to lend to the central bank rather than to the market. Both the repo and the reverse repo belong to the liquidity adjustment facility, and the reverse repo rate is always kept below the repo rate. A is wrong because there is no policy rate called the liquidity rate. B is wrong because the exchange rate is the price of one currency in terms of another. D is wrong because the repo rate works the other way round: banks borrow from the RBI at that rate against government securities. Exam tip: repo means banks borrow, reverse repo means the RBI borrows.

The correct answer is C, 1 and 3 only. Statements 1 and 3 hold while statement 2 does not, so this pairing is the right one. The Agreement on Trade-Related Investment Measures is one of the World Trade Organization agreements that came out of the Uruguay Round in 1995. It bars a member from placing conditions on a foreign investor that distort trade in goods, and the two named prohibitions are the local content requirement and the trade balancing requirement, which is why a quantitative limit on what an investor may import is not allowed. The agreement covers investment measures only insofar as they affect trade in goods, so statement 2 is wrong; services are handled separately under GATS. Statement 3 stands because the agreement does not tell a country whom to admit as an investor or on what terms, and so does not regulate foreign investment itself. A and D are wrong because each includes statement 2. B is wrong because it rests on statement 2 alone. Exam tip: TRIMS is about goods, GATS about services, TRIPS about intellectual property.

The correct answer is A, a destination-based consumption tax. Goods and Services Tax is collected by the state where the goods or services are finally consumed, not by the state that produced them. It came into force on 1 July 2017 through the Constitution (101st Amendment) Act, 2016, and replaced a thicket of central and state taxes such as excise duty, service tax, VAT and octroi. It is a multi-stage value-added tax: a seller pays tax on the full value but claims input tax credit for the tax already paid on purchases, so only the value added at each stage is really taxed. Rates are decided by the GST Council under Article 279A, chaired by the Union Finance Minister. Option B is wrong because GST is not levied at the point of production; the earlier regime taxed at origin. Option C is wrong because GST is not a plain sales tax on each transaction, since input credit runs through the chain. Option D is wrong on both counts, origin and sales transaction. Exam tip: GST — destination-based, multi-stage, value-added; 101st Amendment, 1 July 2017.

The correct answer is D, Both I and II. Statement I is right, because a government security, or G-Sec, is a tradeable debt instrument issued by the central government or by a state government and can be bought and sold in the secondary market before it matures. Statement II is right as well, because repayment is promised by the government itself, so these papers carry practically no risk of default and are therefore called risk-free gilt-edged instruments. Short-dated central paper is issued as treasury bills of 91, 182 and 364 days, which are sold at a discount and repaid at face value, while longer paper is issued as dated securities that pay a fixed coupon every six months; a state's issue is called a State Development Loan. The Reserve Bank of India manages these borrowings for the government and conducts the auctions. A is wrong because it rejects both correct statements. B is wrong because it leaves out the gilt-edged character. C is wrong because it denies that G-Secs can be traded. Exam tip: G-Secs are tradeable and gilt-edged; treasury bills run 91, 182 and 364 days.

The correct answer is A, Electricity, because electricity can be metered, billed and cut off, which makes it a private good. Economists call something a public good when it has two features: it is non-rival, so one person's use does not reduce what is left for others, and non-excludable, so nobody can be kept out of the benefit. Electricity fails both tests, since the unit you consume is gone and a defaulter's supply can be disconnected. This is why the market supplies power but the state must supply public goods, whose users cannot be charged individually and who therefore become free riders. Option B is wrong because national defence protects everyone in the country at once and no citizen can be left out. Option C is wrong because a lighthouse beam serves every passing ship without being used up. Option D is wrong because a public park is open to all and one more visitor takes nothing from the rest. Exam tip: public good means non-rival plus non-excludable.

The correct answer is C, 2020. The Aatmanirbhar Bharat Rojgar Yojana was announced in October 2020 as part of the Aatmanirbhar Bharat package, to bring back the jobs lost during the Covid-19 lockdown. Under it the central government paid the provident fund contribution for new employees taken on by establishments registered with the EPFO: in units with up to 1,000 workers it paid both the employee's twelve per cent and the employer's twelve per cent, and in larger units only the employee's share, for two years from the date of joining. The benefit covered workers drawing less than fifteen thousand rupees a month who were newly hired or had lost a job earlier that year. A is wrong because 2010 belongs to an earlier period of schemes. B is wrong because 2015 is the year of the Atal Pension Yojana. D is wrong because by 2022 registration under this scheme had already closed. Exam tip: ABRY, 2020, an EPFO-linked wage subsidy for new jobs after Covid.

The correct answer is D, seasonal unemployment. Seasonal unemployment is the kind in which people find work only in certain months and sit idle in the rest. It is common in rural India because farming needs many hands at sowing, transplanting and harvest but very few in between, so labourers either stay without work or migrate to towns for part of the year. Sugar mills, brick kilns and the tourist trade show the same pattern. Programmes such as the rural employment guarantee scheme, which promises a hundred days of wage work to a rural household, were designed mainly for these slack months. Option A is wrong because educated unemployment means qualified young people not finding work that matches their degrees, largely an urban problem. Option B is wrong because disguised unemployment means more people working on a job than it needs, as on a family farm. Option C is wrong because frictional unemployment is the short gap while changing jobs. Exam tip: seasonal means idle months, disguised means surplus hands.

The correct answer is D, Agriculture. The IIP is confined to the industrial sector and has exactly three components, mining, manufacturing and electricity, which are options A, B and C. Agriculture and the whole of the services sector, which together account for the larger part of India's output, lie outside the index, and that is why a rise in the IIP can never by itself be described as a rise in the growth of the economy. The point is tested in statement form, where a candidate is asked whether the IIP reflects overall economic activity; the answer is that it reflects industrial activity alone. Farm output is tracked instead through crop estimates and the advance estimates of agricultural production, and services through separate indicators, all of which are brought together only in the national accounts.

The correct answer is C, 2016. e-NAM was launched on 14 April 2016, the birth anniversary of Dr B. R. Ambedkar, as an online trading platform that links the regulated mandis of the States into one national market. It allows a buyer to bid for a lot after seeing an assaying report, so a farmer is not limited to the traders present in the local yard.

Option A is wrong because 2014 saw the setting up of NITI Aayog later in the year and no agricultural market platform. Option B is wrong because 2015 is the year the Soil Health Card scheme was launched, which is often confused with e-NAM. Option D is wrong because 2018 is the year of the one and a half times MSP announcement and of the model contract farming law, not of e-NAM.

The correct answer is A, 1956. Parliament passed the Life Insurance Corporation Act in 1956, and the Life Insurance Corporation of India began work on 1 September that year, after the life insurance business of 245 private insurers and provident societies was taken over and merged into it. The aim was to carry insurance into the villages and to give policyholders the security of a sovereign guarantee on their savings. LIC is headquartered in Mumbai and its motto is Yogakshemam Vahamyaham. General insurance was nationalised much later, in 1972, and the regulator IRDAI was set up in 1999. B is wrong because in 1948 life insurance was still entirely in private hands. C is wrong because by 1971 LIC had already been working for fifteen years. D is wrong because 1965 also falls after the Act, not in the year it was passed. Exam tip: LIC Act 1956, LIC began 1 September 1956; general insurance nationalised 1972, IRDAI 1999.

The correct answer is D, Micro, Small and Medium Enterprises. The expression comes from the Micro, Small and Medium Enterprises Development Act, which came into force on 2 October 2006 and gave the sector its first statutory definition, replacing the older language of small scale and ancillary industrial undertakings.

Option A is wrong because the first category is micro, not medium; the three categories in ascending order are micro, small and medium. Option B is wrong for the same reason in reverse: the third word is medium and not marginalized, and no Indian law uses the term marginalized enterprise. Option C is wrong because strategic is not a category of enterprise in the Act at all. Since this is the easiest question the sector can yield, read the options to the end: all four begin with words that look plausible, and only one gives the three categories in the correct order.

The correct answer is D, NABARD. E-Shakti was launched by NABARD in 2015 to put the accounts and records of self-help groups on a digital platform. Until then an SHG kept its savings, loans, attendance and repayments in handwritten registers, which a bank could not check quickly, so grading a group and sanctioning credit took a long time. E-Shakti holds the same records online, where the lending branch can see them, so an SHG that repays well can be identified and financed faster. The project began as a pilot in Ramgarh in Jharkhand and Dhule in Maharashtra and was then extended to many more districts. A is wrong because SIDBI is the apex bank for micro, small and medium industries. B is wrong because SEBI regulates the securities market. C is wrong because IFCI was India's first development finance institution, set up for industry. Exam tip: NABARD milestones are the SHG Bank Linkage Programme of 1992, the JLG pilot of 2004-05 and E-Shakti in 2015.

The correct answer is A, P. V. Narasimha Rao. He became Prime Minister in June 1991, in the middle of the balance of payments crisis, and his government devalued the rupee, borrowed from the International Monetary Fund and announced the New Economic Policy of liberalisation, privatisation and globalisation, with the Statement on Industrial Policy issued on 24 July 1991. Option C is the trap that catches most candidates: Manmohan Singh was the Finance Minister who presented the reform budget of 1991 and is rightly linked with the reforms, but he became Prime Minister only in 2004. Option B is wrong because Atal Bihari Vajpayee headed governments later, in 1996 and from 1998, when the second generation of reforms and much of the disinvestment took place. Option D is wrong because option A names the right person.

The correct answer is A, SMILE. SMILE stands for Support for Marginalised Individuals for Livelihood and Enterprise, the central scheme that covers the welfare of transgender persons and of people engaged in begging. The Ministry of Social Justice and Empowerment launched it in 2022, bringing both groups under one umbrella scheme with a separate sub-scheme for each. It provides scholarships, skill training and health cover, the shelter homes called Garima Greh for transgender persons, and survey, rehabilitation, education and livelihood support for those found begging, and the work is carried out through state governments, urban local bodies and voluntary organisations. B is wrong because SHINE is not the name under which this scheme was notified. C is wrong because SHRI is not a scheme of the Ministry of Social Justice and Empowerment for these two groups. D is wrong because RISE is not this scheme either; the three wrong options are built to look like the right one. Exam tip: SMILE, 2022, Ministry of Social Justice and Empowerment, with Garima Greh as its shelter homes.

The correct answer is A, whatever the change in price, there is absolutely no change in demand. Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. If the elasticity is zero, the numerator is zero: buyers take the same quantity however the price moves. This case is called perfectly inelastic demand and its demand curve is a vertical straight line. Textbooks illustrate it with a life-saving medicine or with salt, goods a household buys in a fixed quantity because there is no substitute and the spending is small. Option B is wrong because a small response to a small price change means elasticity between zero and one, that is inelastic but not zero demand. Option C is wrong because a large response to a small price change is elastic demand, with elasticity greater than one. Option D is wrong because that too describes ordinary inelastic demand, where some change still takes place. Exam tip: elasticity zero is a vertical curve, elasticity infinity a horizontal one, and elasticity one is unitary.

The correct answer is A, stagflation. Stagflation is the awkward state in which prices keep rising while output stagnates and unemployment stays high, so the usual trade-off between inflation and unemployment breaks down. The word joins stagnation and inflation and came into wide use in the 1970s, when the oil shock pushed up costs across the industrial world and growth fell at the same time. A supply shock is the common cause: costlier oil, food or imports raise prices while production and jobs shrink. It is hard to treat, because tightening money to curb prices deepens the slump, while spending to revive jobs feeds the price rise. Option B is wrong because an inflation premium is the extra interest a lender charges to make up for expected inflation. Option C is wrong because an inflationary gap is the excess of demand over the output an economy can produce at full employment. Option D is wrong because reflation is deliberate policy action to lift demand and prices after a slump. Exam tip: stagflation equals high inflation plus high unemployment, usually caused by a supply shock.