'Sub-prime crisis' is a term associated with which one of the following events?
- A.Economic recession
- B.Political instability
- C.Structural adjustment programmes
- D.Growing social inequality
Correct answer
Explanation
The correct answer is A, Economic recession. The sub-prime crisis was the collapse of risky American home loans in 2007 and 2008 that set off the worldwide Great Recession.
Sub-prime loans are loans given to borrowers with weak credit records, who are more likely to default. In the early 2000s American banks gave many such housing loans and bundled them into securities sold around the world. When house prices fell and borrowers stopped paying, these securities lost value, banks suffered huge losses and lending froze. The failure of Lehman Brothers in September 2008 turned the crisis into a global financial crisis and a deep economic recession.
B is wrong because the crisis began in the financial and housing markets, not in politics. C is wrong because structural adjustment programmes are reform packages, such as those of the IMF and World Bank, that a country adopts in return for loans. D is wrong because social inequality is a long-term condition, not the event the term describes.
Exam tip: sub-prime crisis: US housing loans, 2007 to 2008, Lehman Brothers collapse in September 2008, followed by the Great Recession.
Practice Questions
View allThe Fourteenth Finance Commission assigned different weights to the following parameters for distribution of tax proceeds to the States :
1. Income distance
2. Population
3. Demographic changes
4. Area
Arrange the aforesaid parameters in descending order in terms of their weights.
- A.1-2-3-4
- B.1-2-4-3
- C.1-3-2-4
- D.4-3-2-1
Show answer
Income distance had the highest weight, followed by population, area and demographic change. The Fourteenth Finance Commission, chaired by Y.V.
Read the full explanation →Which one of the following statements for a firm's equilibrium in Perfect Competition is not correct ?
- A.The market price must be greater or equal to average variable cost in the short run.
- B.The market price must be equal to marginal cost.
- C.The market price must be equal to average cost in the long run.
- D.The marginal cost decreases at the equilibrium output.
Show answer
This statement is not correct, because at the equilibrium of a competitive firm marginal cost must be rising. A firm in perfect competition is a price taker, so the price it gets equals its marginal revenue.
Read the full explanation →Plan allocation in agriculture and irrigation as percentage of total plan outlay was highest in :
- A.Seventh Five-Year Plan
- B.Third Five-Year Plan
- C.First Five-Year Plan
- D.Second Five-Year Plan
Show answer
The First Plan (1951 to 1956) gave agriculture, community development and irrigation about a third of its outlay, the highest share in any Indian plan.
Read the full explanation →Which of the following is not included in the Capital Account of the Balance of Payments of a country?
- A.Foreign Direct Investment
- B.Commercial Borrowing
- C.Invisibles
- D.External Assistance
Show answer
Invisibles are part of the current account of the balance of payments, not the capital account. The balance of payments records all of a country's transactions with the rest of the world and has two main parts.
Read the full explanation →Which one among the following was the focus of the Twelfth Five-Year Plan?
- A.Sustainable and Inclusive Growth
- B.Social Justice and Equality
- C.Food, Work and Productivity
- D.Attainment of Self-reliance
Show answer
The Twelfth Five-Year Plan (2012-17) had the theme "Faster, More Inclusive and Sustainable Growth". It continued the inclusive-growth idea of the Eleventh Plan (2007-12), whose theme was "Towards Faster and More Inclusive Growth", and added sustainability as a stated goal.
Read the full explanation →