Economics - Inflation and Business Cycle

1. Consider the following statements.

1. An extremely low aggregate demand.
2. Comparatively lower inflation.
3. Production houses go for forced labour cut in order to reduce production cost.

Which of the following stage of Business cycle best represents the above characteristics?

1. Recession
2. Recovery
3. Depression
4. Boom

Ans: (3)
Explanation:
The major traits of depression could be as given below:
(a) An extremely low aggregate demand in the economy causes activities to decelerate;
(b) The inflation being comparatively lower;
(c) The employment avenues start shrinking forcing unemployment rate to grow fast;
(d) To keep the business going, production houses go for forced labour-cuts or retrenchment (to cut down the production cost and be competitive in the market) etc.
Recession Vs Depression:
Recession is somewhat similar to the phase of ‘depression’ – we may call it a mild form of
depression – fatal for economies as this may lead to depression if not handled with care and in time.
When a downturn in the GDP lasts for at least six months of time, it is termed as recession.
When the GDP drops by more than 10 percent, it results in depression.

2. Which of the following government actions can be used as remedy for the “recession”
phase of the business cycle?

1. Cut in the direct and indirect taxes.
2. Slashing interest rate and liberalizing the lending procedures.
3. Upward revision of salaries and wages.

Select the correct code from below.

1. 1 and 2 only
2. 1 and 3 only
3. 2 and 3 only
4. 1, 2 and 3

Ans: (4)
Explanation:
What may a government do to rescue the economy from the phase of recession? The usual
remedies are given below:
(i) Direct and indirect taxes should be cut down, so that the consumers have higher disposable incomes (income after paying direct tax i.e. income tax) on the one hand and the goods should become cheaper on the other hand thus there is hope that the demand might pick up.
(ii) The burden of direct tax, specially the income tax, divdend tax, interest tax are slashed to
enhance the disposable income (i.e income after direct tax payment)—
(iii) Salaries and wages should be revised by the government to encourage general spending by the consumers (as the Government of India implemented the recommendations of the fifth pay commission without much deliberation in 1996–97).
(iv) Indirect taxes such as custom duty, excise duty (cenvat), sales tax, etc. should be cut down so that produced goods reach the market at cheaper prices.
(v) The government usually goes on to follow a cheap money supply policy by slashing down the interest rates across the board and the lending procedure is also liberalised.
(vi) Tax breaks are announced for new investments in the productive areas. etc.

3. Consider the following statements with regards to inflation indexed bonds (IIBs).

1. IIBs will provide inflation protection to principal only.
2. Existing tax provisions will be applicable on interest payment and capital gains on IIBs.
3. Foreign institutional investors (FIIs) are not allowed to invest in IIBs.

Which of the above statements are NOT correct?

1. 2 and 3 only
2. 1 and 2 only
3. 1 and 3 only
4. All of the above

Ans: (3)
Explanation:
Inflation Indexed Bonds (IIBs) were issued in the name of Capital Indexed Bonds (CIBs) during 1997. The CIBs issued in 1997 provided inflation protection only to principal and not to interest payment. IIBs will provide inflation protection to both principal and interest payments.
Tax provisions will be applicable on interest payment and capital gains on IIBs. There will be no special tax treatment for these bonds.
IIBs would be Government securities (G-Sec) and the different classes of investors eligible to invest in G-Secs would also be eligible to invest in IIBs. FIIs would be eligible to invest in the IIBs but subject to the overall cap for their investment in G-Secs (currently USD 25 billion).

For more details:
https://rbi.org.in/scripts/FAQView.aspx?Id=91

4. Which of the following step/s may result in inflation?

1. Increase in the repo rate.
2. Increase in the indirect taxation rate.
3. Proper maintenance of buffer stock of major agricultural products.
4. Decrease in the crude oil production.

Select the correct code from below.

1. 2, 3 and 4 only.
2. 4 only.
3. 2 and 4 only.
4. 1 and 3 only.

Ans: (3)

Explanation:

Inflation is a sustained rise in overall price levels.

Repo rate is the rate at which the RBI lends money to commercial banks. In the event of

inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.

Introduction of increased taxes is one of the fiscal policies to control inflation. But sometimes

this may result in cost-push inflation, as increased indirect tax rate increases cost of

production.

Maintenance of buffer stock of major agricultural products could be used in supply

management which maintains price stability.

Decrease in crude oil production increases crude oil price, which in turn increases cost of

production.

5. Consider the following statements regarding Producer Price Index (PPI).

1. PPI gives an idea of consumer prices in the future.
2. In PPI only basic prices and taxes are used while trade margins and transport cost are excluded.

Which of the above statement/s is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Ans: (1)

Explanation:

The PPI measures price changes from the perspective of the producer while the cosumer price index (CPI) measures it from the consumers’ perspective. As the producers sell at higher prices to their wholesellers, so retailers and the price increase is translated into the higher consumer prices—thus the PPI is useful in having an idea of the consumer prices in the future.

In PPI, only basic prices are used while taxes, trade margins and transport costs are excluded.

This index is considered a better measure of inflation as price changes at primary and

intermediate stages can be tracked before it gets built into the finished goods stage.

The proposal of switching over to the PPI (from the WPI) came up from the Government by

mid-2003. A working Group was set up in mid-2003–04 under the chairmanship of Prof. Abhijit Sen, Member, Planning Commission to fulfill the twin tasks of:

I. Revising the current series of the WPI (i.e. base 1993–94) and

II. Recommending a producer price index (PPI) for India which could replace the WPI.

6. Inflation has multidimensional effects on the economy. Which of the following is/are

correct regarding the effects of inflation?

1. Lenders suffers and borrowers benefit out of inflation.
2. In the short run, investment in the economy is boosted.
3. Burden of tax payer is increased as they are forced to pay increased taxes.

Select the correct code from below.

1. 1 only
2. 1 and 3 only
3. 2 and 3 only
4. All the above

Ans: (4)

Explanation:

There are multi-dimensional effects of inflation on an economy both at the micro and macro

levels. It redistributes income; distorts relative prices; destabilises employment, tax, saving and investment policies and finally it may bring in recession and depression in an economy.

I. On Creditors and Debtors

Inflation redistributes wealth from creditors to debtors i.e. lenders suffer and borrowers benefit out of inflation. The opposite effect takes place when inflation falls (i.e. deflation).

II. on Investment

Investment in the economy is boosted by the inflation (in the short-run) because of two

reasons:

a. Higher inflation indicates higher demand and suggests enterpreneurs to expand their

production level, and

b. Higher the inflation, lower the cost of loan

III. on Tax

Tax-payers suffer while paying their direct and indirect taxes. As indirect taxes are imposed ad valorem (on value), increased prices of goods make tax-payers to pay increased indirect taxes. Similarly, due to inflation, direct tax (income tax, interest tax, etc.) burden of the tax-payers also increases as tax-payer’s gross income moves to the upward slabs of official tax brackets (but the real value of money does not increase due to inflation; in fact, it falls).

7. Consider the following statements regarding “core inflation”.

1. Core inflation is an indicator of long-term trend in the inflation.
2. While calculating core inflation transitory price changes are excluded.

Which of the above statement/s is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4.  Neither 1 nor 2

Ans: (3)

Explanation:

Core inflation is the non food manufacturing inflation. Core inflation shows price rise in all

goods and services excluding energy and food articles.

In India, it was first time used in the financial year 2000–01. This was criticized by experts on account of excluding food articles and energy out of the inflation and feeling satisfied on the inflation front. Basically, in the western economies, food and energy are not the problems for the masses, while in India these two segments play the most vital role for them.

For more details:

https://en.wikipedia.org/wiki/Core_inflation

8. WPI and CPI are two important indices for measuring inflation. But there are substantial

differences between the two. Which of the following statements is/are true bout the

difference between CPI and WPI?

1. WPI measures inflation at wholesale market, while CPI measure at retail level.
2. WPI is more or less same throughout the country but CPI vary across the region.

Select the correct code from below.

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Ans: (3)

Explanation:

WPI measures inflation at wholesale market, while CPI measure at retail level. Besides, the way two indices are calculated differs, both in terms of weightage assigned to products as well as the kind of items included in the baskets of products.

Wholesale prices are more or less same throughout the country but Consumer prices vary

across the regions(rural and urban) and also across the cities according to the consumer

preference for certain products, supplies and purchasing power.

9. “Inflationary gap” refers to

1. Difference between CPI and WPI inflation.
2. The excess of total government spending above the national income.
3. The shortfall in total spending of the government.
4. None of the above.

Ans: (2)

Explanation:

The excess of total government spending above the national income (i.e. fiscal deficit) is

known as the inflationary gap. This is intended to increase the production level which

ultimately pushes the prices up due to extra-creation of money during the process.

The shortfall in total spending of the government (i.e. fiscal surplus) over the national income creates deflationary gap in the economy. This is a situation of producing more than the demand and the economy usually heads for a general slowdown in the level of demand. This is also known as the output gap.

10. New CPI series with base year 2010 are available for five major groups. For which of those five groups CPI-Rural index is not calculated?

1. Food, beverages and tobacco
2. Fuel and light
3. Housing
4. Clothing, bedding and footwear

Ans: (3)

Explanation:

New CPI indices are available for five major groups namely Food, beverages and tobacco; Fuel and light; Housing; Clothing, bedding and footwear, and Miscellaneous.

House rent index is compiled only for CPI (Urban). This index is not compiled for rural sector because of two reasons: first there is negligible number of rented dwellings in the rural areas; and the Consumer Expenditure Survey also does not provide estimate of imputed rent for owner occupied houses for this sector.

For more details:

http://mospi.nic.in/Mospi_New/upload/CPI_Changes_7apr15.pdf

India Year Book and Current Affairs

11. Consider the following regarding ‘Telegraphy’

1. The first telegraph came in the form of Optical telegraph.
2. In India, it became available for public use in 1854.
3. Continuous wave is used in wireless telegraphy

Select the correct code

1. 1 and 3
2. 2 and 3
3. 1 and 2
4. 1, 2 and 3

Solution- 4

Explanation:

Wireless telegraphy is still used widely today by amateur radio hobbyists where it is commonly referred to as radio telegraphy, continuous wave, or just CW.

Telegraph services in India date back to 1850, when the first experimental telegraph line was established between Calcutta and Diamond Harbour. The British East India Company started using the telegraph a year later, and by 1854—when the system opened to the public— telegraph lines had been laid across the country. The telegraph continued to thrive, in India and around the world, even after Alexander Graham Bell patented the telephone in 1876. For more than half a century, telegrams were sent over cable lines, but in 1902 (capitalizing on the work of Italian inventor Guglielmo Marconi) the Indian system went wireless.

The first telegraphs came in the form of optical telegraph, including the use of smoke

signals, beacons or reflected light, which have existed since ancient times.

12. ‘Project Arrow’ is associated with

1. Department of Post
2. Maritime exercise between France and India
3. DRDO project
4. A scientific research project under CSIR

Solution- 1

Explanation:

‘Project Arrow, an initiative to transform Department of Posts into a vibrant and responsive

organization and to make a visible and positive difference to quality and efficiency of service to the customers, was conceived in April 2008.

13. Consider the following statements regarding Post Office Saving Banks in India

1. The Department of Posts operates Small Savings on behalf of Ministry of Rural Development
2. Post office saving banks do not offer ATM services
3. The Post Office Savings Bank operates Savings Account, Recurring Deposit (RD) and Time Deposit (TD) apart from other services.

Select the correct code

1. Only 1
2. Only 2
3. Only 3
4. 1, 2 and 3

Solution- 3

Explanation: Comes under Ministry of Finance and offers ATM services as well

http://www.thehindu.com/news/national/tamil-nadu/indias-first-post-office-savings-bankatm-inaugurated-in-chennai/article5732624.ece

14. Consider the following

1. The territorial sea is regarded as the sovereign territory of the state, although foreign ships (both military and civilian) are allowed innocent passage.
2. The difference between the territorial sea and the exclusive economic zone is that the first confers full sovereignty over the waters, whereas the second is merely a "sovereign right" which refers to the coastal state's rights below the surface of the sea.
3. The EEZ is 188 nautical miles from Territorial waters and includes contiguous zone.

Select the correct code

1. 1 and 2
2. 2 and 3
3. Only 1
4. 1, 2 and 3

Solution- 4

Explanation:

From Base line

Territorial waters- 12 Nautical Miles

Contiguous zone- 24 Nautical Miles

EEZ- 200 Nautical Miles

From Territorial Waters- EEZ will be 188 Nautical Miles an includes Contiguous Zones 

Territorial waters are also called Territorial sea.

https://en.wikipedia.org/wiki/Exclusive_economic_zone#Definition

15. Consider the following

1. Preservation and protection of Maritime Environment
2. Collection of Scientific Data
3. Protection and assistance to fishermen at sea

Which of the above includes the functions of Indian Coast Guard?

1. 1 and 3
2. 1 and 2
3. 1, 2 and 3
4. Only 3

Solution- 3

Explanation:

Functions of Coast Guard as per Coast Guard Act 1978

(1) Safety and protection of artificial islands and offshore terminals installations and devices in Maritime Zones.

(2) Protection and assistance to fishermen at sea while in distress.

(3) Preservation and protection of marine environment.

(4) Prevention and control of marine pollution.

(5) Assistance to customs and other authorities in anti-smuggling operations.

(6) Enforcing of enactments being in force in the maritime zones.

(7) Other matters, including measures for the safety of life and property at sea and collection of scientific data.

16. India successfully launched its first subsonic cruise missile named ‘Nirbhay’. Consider the following w.r.t it

1. Sub-sonic cruise missiles are able to fly at very low altitudes, close to the earth, without being detected
2. Nirbhay blasts off like a rocket, but then unlike a missile, it turns into an aircraft.
3. Like other ballistic missiles Nirbhay also has wings and pronounced tail fins.

Select the correct codes

1. 1 and 3
2. 2 and 3
3. 1 and 2
4. 1, 2 and 3

Solution- 3

Explanation:

Nirbhaya has wings and pronounced tail fins unlike other ballistic missiles. So third statement is wrong.

17. Consider the following about ‘Guru Poornima’

1. It is an Indian festival celebrated by Hindus, Jains and Buddhists
2. The first full moon after Summer Solstice is known as Guru Poornima.
3. Lord Shiva, the first yoga practitioner (Adi Yogi) is said to have begun imparting the knowledge of yoga to the rest of mankind on this day and became the first guru (Adi Guru).

Select the correct codes

1. 1 and 2
2. 2 and 3
3. 1 and 3
4. 1, 2 and 3

Solution- 4

Explanation:

https://en.wikipedia.org/wiki/International_Yoga_Day

https://en.wikipedia.org/wiki/Guru_Purnima

18. The terms ‘Pushkaram’ and ‘Amrapali’ are related with

1. Bharatnatyam
2. Kuchipuddi
3. Kathakali
4. Odissi

Solution- 2

Explanation:

http://www.thehindu.com/features/friday-review/dance/tales-throughballets/article7379291.ece

Economics

Economics and Current Affairs
1. Growth trend in Indian economy has shown noticeable improvement because of

1. Decline in oil prices.
2. Monetary easing.
3. Policy support from government.
4. Lowering of unemployment rate.
5. Strengthening of business sentiments.

Select the correct code

1. 1, 2, 3 only
2. 2 only
3. 1,2,3,5 only
4. All of the above

Solution: 3

Explanation:

Decline in oil prices helps in decreasing the input cost and also moderates the inflation rate.

Monetary easing enhance money supply in the market. Policy support has always been an important factor to put a country on high growth trajectory. Government’s pro-business steps establishes an enabling environment for business and build business sentiments among investors. As a result. Growth shows positive trend.

2. Low level of private investment is a result of

1. Poor and inadequate banking system
2. Deficiencies of public private partnership (PPP) model in infrastructure.
3. Tight monetary policy.
4. Rationalization of subsidies.

Select the correct code

1. 1, 2 only
2. 2 only
3. 1, 2, 3 only
4. All of the above

Solution: 3

Explanation: Rationalization of subsidies will enhance private investment

3. A decline in the employment elasticity of growth can result into

1. Disruption of projected growth targets in India.
2. More competition among youths
3. Sustainable and inclusive India.

Select the correct code

1. 1 only
2. 2 only
3. 2, 3 only
4. All of the above

Solution: 3

Explanation: A decline in employment elasticity of growth means a given amount of growth leads to fewer jobs created than in the past. So it is independent of growth envisaged.

4. Consider the statements:

1. Revenue-to-GDP ratio (for the general government) in India is more as compare to emerging Asian economies.
2. India’s overall revenue (for the general government) is approximately one-fifth of GDP.

Select the correct code

1. 1, only
2. 2 only
3. Both 1 and 
4. None

Solution: 2

Explanation: 

Revenue-to-GDP ratio (for the general government) in India is less as compare to emerging Asian economies and it is estimated around 19.5% by IMF.

'Tax-To-GDP Ratio' -  The ratio of tax collection against the national gross domestic product (GDP).

5. Moderation in oil prices is result of

1. Weak global demand.
2. Increase in supply
3. global monetary and liquidity environment
4. Sanctions imposed on Russia over Ukraine issue.

Select the correct code

1. 1, 2 only
2. 2 only
3. 1, 2, 3, only
4. All of the above

Solution: 4

Explanation: Tradition markets like china and Europe are not showing hunger for oil as current dip in demand in international market and in USA increase in oil and shale gas production supplies get enhanced.

6. Low rural wage growth in India leads to

1. Lowering of inflation rate.
2. Further monetary policy easing
3. Financial repression on liability side in banking sector

Select the correct code

1. 1, 2 only
2. 2 only
3. 2, 3 only
4. All of the above

Solution: 1

Explanation: Low rural wage growth has been pointed as one of the reason behind moderation in inflation. Lower inflation sets a ground for monetary easing.

7. High minimum support for rice and wheat results into

1. Monoculture
2. Environmental concerns.
3. Induce greater price volatility in non-MSP supported crops.
4. Enhance nutrition availability to poor in general.

Select the correct code

1. 1, 2, only
2. 2 only
3. 1, 2, 3 only
4. All of the above

Solution: 3

Explanation:High minimum support for rice and wheat entail farmers to grow these high fetching crops. These crops are water intensive so problem of lowering ground water table has been quite conspicuous. 

These crops are so popular that they are being grown over the areas where traditionally coarse grain crops were cultivated. Coarse grains have high nutrition level.

8. Consider the statements:

1. The profits generated by freight services have cross-subsidized passengers services.
2. Indian freight rates are deliberately kept low to attract freight traffic from road sector.

Select the correct code

1. 1, only
2. 2 only
3. Both1 and 2
4. None

Solution: 1

Explanation:One of the reasons for high freight rate in India is profits generated by freight services have crosssubsidized passengers services.

10. Consider the statements

1. 1. Public sector banks perform well above private sector banks on average even though they are burdened with social obligation.
2. Private sector banks have level of professionalism, management skills and better incentives for Employees as compare to public sector banks

Select the correct code

1. 1, only
2. 2 only
3. Both I and 2
4. None

Solution: 2

Explanation:Public sector banks perform well below private sector banks on average. 

11. Gender inequality index is a composite measure reflecting inequality in achievement between men and women in three dimensions and that are:

1. Life expectancy.
2. Labor market.
3. Gross enrollment at primary level.

Select the correct code

1. 1, only
2. 1, 2 only
3. 2 only
4. None

Solution: 3

Explanation:

Gender inequality index is a composite measure reflecting inequality in achievement between men and women in three dimensions that are reproductive health, Empowerment and the labor market. 

12. In quest for greater commitment to climatic change initiative, Indian government has taken a

slew of steps that includes:

1. Shifts from a carbon subsidization regime to carbon taxation regime.
2. Focus on increasing share of hydro-electricity by installing micro-turbine along the perennial rivers.
3. Increased the coal cess fromRs. 50 per ton to Rs. 75.
4. Panchayats are advised to meet 5% of energy demand by biogas production in their area to curb emission from burning cow-dung cakes and wood in rural households.

Select the correct code

1. 1 only
2. 1, 3 only
3. 1, 2, 3 only
4. All of the above.

Solution: 1

Explanation:Coal cess has increased from Rs. 50 to Rs.100, statement 2 and 4 are not at all related to question. India has taken substantial action to eliminate petroleum subsidies and gone beyond to impose substantial taxes on these products

13. A GM or transgenic crop is a plant that has a novel combination of genetic material obtained

through the use of modern biotechnology. Consider the following regarding GM crops

1. India has the third largest area planted under genetically modified (GM) crops after US and Brazil.
2. The first generation of GM crops resulted into increased nutritional and/or industrial traits.
3. The second generation GM crops will feature increased nutritional and/or industrial traits like Rice enriched with iron, vitamin A and E, and lysine and Potatoes with higher starch content, and inulin

Select the correct code

1. 1 and 2
2. 2 and 3
3. Only 1
4. Only 3

Solution- 4

Explanation -

India has the fourth largest area planted under genetically modified (GM) crops, according to the International Service for the Acquisition of Agri-Biotech Applications (ISAAA) .In the developed world, there is clear evidence that the use of GM crops has resulted in significant benefits. These include:

1. Higher crop yields

2. Reduced farm costs

3. Increased farm profit

4. Improvement in health and the environment

These “first generation” crops have proven their ability to lower farm-level production costs.

Now, research is focused on “second-generation” GM crops that will feature increased nutritional and/or industrial traits. These crops will have more direct benefits to consumers. Examples include:

1. Rice enriched with iron, vitamin A and E, and lysine

2. Potatoes with higher starch content, and insulin

3. Edible vaccines in maize, banana and potatoes

4. Maize varieties with low phytic acid and increased essential amino acids

5. Healthier oils from soybean and canola

6. Allergen-free nuts

14. Recently India has successfully launched a ‘Canister-Based’ nuclear capable AGNI-V missile.

Consider the following regarding this

1. An advantage of canister based system is, it can be used for the launch of any missile irrespective of its size.
2. AGNI-V is the first missile to be tested on Canister based launch system.

Select the correct code-

1. Only 1
2. Only 2
3. Both
4. None

Solution- 4

Explanation- A canister for a missile serves a duel function which provides an environmental container and a launching tube. A canister launch system can be either hot launch, where the missile ignites in the cell, or cold launch, where the missile is expelled by gas produced by a gas generator which is not part of the missile itself, and then the missile ignites. In case of hot launches the problem is the heat

produced by the missile at the time of launch. The hot launch is better for small missiles as the ejection part itself will be done by using missiles own engine.

So it depends on the size of missile – the feasibility of the system utilized for the ejection.

The Shaurya missile is a canister launched hypersonic surface-to-surface tactical missile developed by the Indian Defence Research and Development Organisation (DRDO) for use by the Indian Armed Forces.

15. Consider the following statements with reference to Multiple Independently targetable Reentry Vehincle (MIRV)

1. India possesses MIRV technology along with Russia, USA China, France and Brazil.
2. It is a ballistic missile payload containing several warheads, each capable of being aimed to hit one of a group of targets.

Select the correct code-

1. Only 1
2. Only 2
3. Both
4. None

Solution- 2

Explanation- India is working on the development of MIRV technology. But right now there is no fully tested version of MIRV in any of Indian missiles. Only France, China, US, Russia and Brazil possesses this technology.

Economics

1. Which of the following factors have never been accounted in the calculation of poverty in India before the Rangarajan committee came up with its report on Poverty?

1. Cost of basic Education
2. Health expenses
3. Housing expenses
4. Nutrition based expenses

Choose the correct answer using the codes below.

1. 1 and 2 only
2. 1 and 4 only
3. All of the above
4. 4 only

Solution: 4
Explanation: The Tendulkar committee, appointed before the Rangarajan committee, had included the estimates of health and education in its estimation of poverty. But the Rangarajan committee also included nutrition (fat etc.) and a richer basket of commodities for the poor’s consumption.

According to Economic Survey of 2011-12:
Poverty: The latest estimates of poverty are available for the year 2011-12. These estimates have been made following the Tendulkar Committee methodology using household consumption expenditure survey data. For 2011-12, the percentage of persons living below the poverty line is estimated as 25.7 percent in rural areas, 13.7 percent in urban areas, and 21.9 percent for the country as a whole. It was 37.2 percent in 2004-05.

Poverty line estimation - http://mrunal.org/2014/08/economic-survey-ch13-poverty-line-tendulkar-rangarajan-engels-law-mnrega-aajeevika-nrum.html

2. The concept of ‘Depreciation’ is applicable to which of the following?

1. Human capital
2. Physical capital
3. Currency

Choose the correct answer using the codes below.

1. 1 and 2 only
2. 3 only
3. 2 and 3 only
4. All of the above

Solution: 4
Explanation: Depreciation is nothing but a continous reduction in the value of something over time. Continuous use of machine leads to depreciation and change of technology makes a machine obsolete. That is an example of depreciation of physical capital. In the case of human capital, depreciation takes place with ageing but can be reduced, to a large extent, through continuous investment in education, health, etc. This investment also facilitates the human capital to cope with change in technology which is not the case with physical capital.

4. Consider the following statements with regard to the public expenditure on education in India.

1. Elementary education takes a major share of total education expenditure.
2. Expenditure per student in tertiary education is higher than that of elementary.
3. Public expenditure on education per year is greater than that in Defence sector.

 Choose the correct answer using the codes below.

1. 1and 2 only
2. 3 only
3. 2 and 3 only
4. All of the above

Solution: 4

Explanation: According to the latest UNDP report the government spending on education is 4.1 per cent of GDP which is lower than the global weighted average of 4.9 per cent. Defence sector accounts for around 2.5 per cent of GDP in India. Expenditure on elementary education has to be greater than that in tertiary because of the huge

number of students. For e.g. 12 crore children are served mid day meals daily in school!!!

5. Non Banking Financial Company - Micro Finance Institutions (NBFC-MFIs) can serve which of following purposes in India?

1. Education loans
2. Loan for Income generation activities
3. Savings account for the poor

Choose the correct answer using the codes below.

1. 1 and 2 only
2. 3 only
3. 2 and 3 only
4. All of the above

Solution: 4

Explanation:  As per RBI regulations, a part (i.e. maximum of 30%) of the aggregate amount of loans by NBFC- MFIs may be extended for other purposes such as housing repairs, education, medical and other emergencies. However aggregate amount of loans given for income generation should constitute at least 70 per cent of the total loans of the NBFC-MFI. Microcredit is part of microfinance, which provides a wider range of financial services, especially savings accounts, to the poor. Modern microcredit is generally considered to have originated with the Grameen Bank founded in Bangladesh in 1983

NBFC-MFI - https://rbi.org.in/scripts/FAQView.aspx?Id=102

NBFC - https://rbi.org.in/scripts/FAQView.aspx?Id=71

Micro-credit: Microcredit is the extension of very small loans (microloans) to impoverished borrowers who typically lack collateral, steady employment and a verifiable credit history. It is designed not only to support entrepreneurship and alleviate poverty, but also in many cases to empower women and uplift entire communities by extension. In many communities, women lack the highly stable employment histories that traditional lenders tend to require. Many are illiterate, and therefore unable to complete paperwork required to get conventional loans. As of 2009 an estimated 74 million men and women held microloans that totalled US$38 billion. Grameen Bank reports that repayment success rates are between 95 and 98 percent.

Microcredit is part of microfinance, which provides a wider range of financial services, especially savings accounts, to the poor. Modern microcredit is generally considered to have originated with the Grameen Bank founded in Bangladesh in 1983. Many traditional banks subsequently introduced microcredit despite initial misgivings. The United Nations declared 2005 the International Year of Microcredit. As of 2012, microcredit is widely used in developing countries and is presented as having "enormous potential as a tool for poverty alleviation." 

6. Consider the following with reference to the unorganised sector in India.

1. It generates a miniscule part of India’s GDP.
2. It employs a majority of India’s working population.
3. It is not regulated by any laws, rules or regulations.

Choose the correct answer using the codes below.

1. 1 and 2 only
2. 1 and 3 only
3. 2 and 3 only
4. 2 only

Solution: 4

Explanation: It employs nearly 90% of India’s population and generates more than 50% of India’s GDP. A number of social security schemes, laws, rules and regulations have been there for these workers.

The Indian economy is characterised by the existence of a vast majority of informal or unorganised labour employment. As per a survey carried out by the National Sample Survey Organisation (NSSO) in 2009–10, the total employment in the country was of 46.5 crore comprising around 2.8 crore in the organised and the remaining 43.7 crore workers in the unorganised sector. Out of these workers in the unorganised sector, there are 24.6 crore workers employed in agricultural sector, about 4.4 crore in construction work and remaining in manufacturing and service.

7. What is meant by the ‘casualization of workforce’?

1. Majority of labour moving from regular salaried jobs to self-employment
2. Majority of labour moving from informal jobs to self-employment
3. Majority of labour moving from regular salaried jobs to informal jobs
4. Majority of labour moving from regular salaried and self-employment to informal jobs

Solution: 4

Explanation: 

In the last four decades (1972-2010), people have moved from self-employment and regular salaried employment to casual wage work. Yet self-employment continues to be the major employment provider. Scholars call this process of moving from self-employment and regular salaried employment to casual wage work as casualization of workforce. This makes the workers highly vulnerable due to lack of proper legal protection, tough work conditions and social security schemes.

8. Which of the following human development indicators are published by the United Nations

Development Program (UNDP)?

1. Multi-dimensional poverty Index (MPI)
2. Inequality-adjusted HDI
3. Gender Development Index
4. Gender Inequality Index

Choose the correct answer using the codes below.

1. 1, 2 and 4 only
2. 1 and 3 only
3. 2 and 3 only
4. All of the above

Solution: 4

Explanation: 

United Nations Development Programme - https://en.wikipedia.org/wiki/United_Nations_Development_Programme

Refer to this link. It has presented all the indicators beautifully.

http://hdr.undp.org/en/data/map

9. Consider the following statements with reference to inequality in India.

1. India has the lowest income inequality among all emerging economies.
2. Its income inequality is lower than that in all the western developed countries.
3. Income inequality in India has increased in the last decade.

Which of the above is/are true?

1. 1 and 2 only
2. 2 and 3 only
3. 1 and 3 only
4. 4. All of the above

Solution: 3

Explanation: Refer to these two very important articles about inequality in India.

http://www.thehindu.com/data/indias-staggering-wealth-gap-in-five-charts/article6672115.ece

10. The Atal Pension Yojana launched in the Union Budget 2015-16 focuses on

1. All citizens in the unorganized sector
2. All income tax payer citizens
3. Only BPL citizens in the unorganized sector
4. All BPL citizens

Choose the correct answer from the codes below.

1. 1 and 4 only
2. 2 only
3. 3 only
4. 4 only

Solution: 1

Explanation: 

To address the longevity risks among the workers in unorganized sector and to encourage the workers in unorganized sector to voluntarily save for their retirement

The APY is focussed on all citizens in the unorganized sector. All bank account holders may

join APY. APY is applicable to all citizen of India aged between 18-40 years.

The scheme is administered by the Pension Fund Regulatory and Development Authority (PFRDA) through NPS architecture.

Under the APY, there is guaranteed minimum monthly pension for the subscribers ranging

between Rs. 1000 and Rs. 5000 per month. GoI will also co-contribute 50% of the

subscriber’s contribution or Rs. 1000 per annum, whichever is lower. Government co-contribution is available for those who are not covered by any Statutory Social Security

Schemes and is not income tax payer. The pension is guaranteed by GoI.

11. What are the definition of Micro, Small and Medium Enterprises?

Solution:  http://www.dcmsme.gov.in/ssiindia/defination_msme.htm

Economics

Economics and Current Affairs

1. Which of the following is/are considered as “secondary sector”?

1. Manufacturing
2. Mining and Quarrying
3. Electricity, Gas and Water Supply
4. Construction

Select the correct code

1. 1, 2 and 4 only
2. 1, 3 and 4 only
3. 2 and 4 only
4. 1 and 2 only

Solution: 2

Explanation: Generally all economic activities divided into eight different industrial divisions.

They are (i) Agriculture (ii) Mining and Quarrying (iii) Manufacturing (iv) Electricity, Gas and

Water Supply (v) Construction (vi) Trade (vii) Transport and Storage and (viii) Services.

For simplicity, these divisions can be clubbed into three major sectors viz., (a) primary sector which includes (i) and (ii) , (b) secondary sector which includes (iii), (iv) and (v) and (c) service sector which includes divisions (vi), (vii) and (viii)

Agriculture sector in 2014-15

During the Tenth Plan, the contribution of agriculture and allied sectors to the GDP (at 2004-

05 prices) of the country was 19 per cent and it declined to 15.2 per cent during the Eleventh Plan. Its share in GDP was 18 percent in 2013-14.

Manufacturing Sector

As per recently released national accountsdata, with 2011-12 as the base year, industrial

growth was much better in 2012-13 and 2013-14 at 2.4 per cent and 4.5 per cent respectively than earlier estimated, with 2004-05 as the base year. Industry accounts for 26% of GDP and employs 22% of the total workforce.

Service sector in 2014-15

India’s services sector remains the major driver of economic growth contributing 72.4 per

cent of GDP growth in 2014-15. Services-sector growth has increased from 8.0 per cent in 2012- 13 to 9.1 per cent in 2013-14 and further to 10.6 per cent in 2014-15.

The services sector is the dominant sector in most states of India with a share of more than

40 per cent in the gross state domestic product (GSDP) in 2013-14 except for Arunachal Pradesh and Sikkim (Figure 7.1). Chandigarh is at the top with a share of 88.4 per cent followed by Delhi with 87.7 per cent. The major services in most of the states with high share are trade, hotels, and restaurants followed by real estate, ownership of

dwellings and business services. Banking and insurance has an important share only in a few states/ union territories (UT) like Delhi, Maharashtra, and Chandigarh. In 2013-14, Bihar

had the highest services growth of 17.3 per cent and Uttarkhand the lowest of 5.5 per cent. Bihar has been consistently showing double-digit growth in the services sector in the last five years due to high growth in trade, hotels, and restaurants.

2. The difference between the market prices and factor cost is equal to

1. Indirect taxes paid

2. Subsidies received

3. Capital consumption

4. Indirect tax paid minus subsidies received

Solution: 4

Explanation: Basically, ‘factor cost’ is the ‘input cost’ the producer has to incur in the process of producing something (such as cost of capital i.e. interest on loans, raw materials, labour, rent, power, etc.). This is also termed as ‘factory price’ or ‘production cost/price’. This is nothing but ‘price’ of the commodity from the producer’s side. While the ‘market prices’ is derived after adding the indirect taxes to the factor cost of the product, it means the cost at which the goods reach the market i.e. showrooms (these are the Cenvat/central excise and the CST which are paid by the producers to the Central government in India).

3. Recently union government made some changes to the GDP calculation method. Which of the following is/are correct with regards to these changes?

1. The base year for the calculation of GDP was changed to 2011-12 from 2004-05.

2. GDP will be measured by using gross value added (GVA) at market price, rather than

factor cost.

3. The change in method of calculation has brought Indian GDP calculations more in line

with global practice.

Select the correct code-

1. 1 and 3 only

2. 1 and 2 only

3. 2 and 3 only

4. All of the above

Solution: 4

Explanation: Earlier, in India, income is calculated at factor cost, and so is the case with most of the developing countries. The reasons are – lack of uniformity in taxes, goods are not printed with their prices, etc.

http://www.thehindubusinessline.com/opinion/columns/all-you-wanted-to-know-about-calculating-gdp/article6849349.ece

4. Which one of the following statement is true?

1. GDP is always greater then GNP

2. GDP is always lower than GNP

3. GDP is equal to GNP when “income from Abroad” is zero

4. GDP is equal to GNP when “depreciation” is zero

Solution: 3

Explanation: Gross National Product (GNP) is the GDP of a country added with its ‘income from abroad’. The items which are counted in the segment ‘Income from Abroad’ are:

1. Trade Balance: the net outcome at the year end of the total exports and imports of a

country may be positive or negative accordingly added with the GDP.

2. Interest of External Loans: the net outcome on the front of the interest payments i.e.

balance of the inflow (on the money lend out by the economy) and the outflow (on the

money borrowed by the economy) of the external interests.

3. Private Remittances: the net outcome of the money which inflows and outflows on

account of the ‘private transfers’.

The balance of all the three components of the ‘Income from Abroad’ segment may turn out to be positive or negative. Thus relationship between GDP and GNP depends on the net value of income from abroad. When the income from abroad is zero GDP is equal to GNP.

GDP

Gross Domestic Product (GDP) is the value of the all final goods and services produced within the boundary of a nation during one year. For India, this calendar year is from 1st April to 31st March. It will be better to understand the terms used in the concept, ‘gross’ means same thing to Economics and Commerce as ‘total’ means to Mathematics; ‘domestic’ means all the economic activities done inside the boundary of the nation/country and by its own capital; ‘product’ is word to define ‘goods and services’ together; and ‘final’ means the stage of a product after which there is no known chance of value addition in it.

The different uses of the concept GDP are as given below:

(i) Per annum percentage change in it is the ‘growth rate’ of an economy. For example, if a

country has a GDP of Rs. 107 which is 7 rupees higher than the last year, it has a growth rate of 7 per cent. When we use the term ‘a growing’ economy, it means that the economy is adding up its income i.e. in quantitative terms.

(ii) It is a ‘quantitative’ concept and its volume/size indicates the ‘internal’ strength of the

economy. But it does not say anything about the ‘qualitative’ aspects of the produced goods

and services by the economy.

(iii) It is used by the IMF/WB in the comaparative analyses of its member nations.

Method of Calculating GDP = C+I+G+(X-M)

http://mrunal.org/2011/04/economy-3-methods-of-calculating-gdp.html

NDP

NDP = GDP - Depreciation

The different uses of the concept of NDP are as given below:

(a) For domestic use only – to understand the historical situation of the loss due to depreciation to the economy. Also used to understand and analyse the sectoral situation of depreciation in industry and trade in comparative periods.

(b) To show the achievements of the economy in the area of research and development which have tried cutting the levels of depreciation in a historical time period.

However, NDP is not used in comparative economics, i.e., to compare the economies of the world. Why this is so? This is due to different rates of depreciation which is set by the different economies of the world.

GNP

Ultimately, the balance of all the three components of the ‘Income from Abroad’ segment may turn out to be positive or negative. In India’s case it has been always negative (due to heavy outflows on account of trade deficits and interest payments of the foreign loans). It means, the ‘Income from Abroad’ is subtracted from India’s GDP to calculate its GNP.

The normal formula is GNP = GDP + Income from Abroad. But it becomes GNP = GDP + (– Income from Abroad) = GDP – Income from Abroad, in the case of India. This means that India’s GNP is always lower than its GDP.

The different uses of the concept GNP are as given below:

(a) This is the ‘national income’ according to which the IMF ranks the nations of the world in terms of the volumes – at the Purchasing Power Parity (at PPP). India is ranked as the 3rd largest economy of the world (after the USA and China; Japan - 4th. India overcome Japan in 2014 according to World Bank's report)- while as per the nominal/ prevailing exchange rate of rupee India is the 13th largest economy.

(b) It is the more exhaustive concept of national income than the GDP as it indicates about the ‘quantitative’ as well as the ‘qualitative’ aspect of the economy, i.e., the ‘internal’ as well as the ‘external’ strength of the economy.

(c) It enables us to learn several facts about the production behaviour and pattern of an economy, such as, how much the outside world is dependent on its product and how much it depends on the world for the same (numerically shown by the size and net flow of its ‘trade balance’); what is the standard of its human resource in international parlance (shown by the size and the net flow of its ‘private remittances’); what position it holds regarding financial support from and to the world economies (shown by the net flow of ‘interests’ on external lending/borrowing).

NNP

NNP = GNP – Depreciation

or,

NNP = GDP + Income from Abroad – Depreciation

The different uses of the concept NNP are as given below:

(a) This is the ‘National Income’ (NI) of an economy. Though, the GDP, NDP and GNP, all are ‘national income’ they are not written with capitalised ‘N’ and ‘I’.

(b) This is the purest form of the income of a nation.

(c) When we divide NNP by the total population of nation we get the ‘per capita income’ (PCI) of that nation i.e. ‘income per head per year’. A very basic point should be noted here that this is the point where the rates of dipreciation followed by the different nations make a

difference. Higher the rates of depreciation lower the PCI of the nation (whatever be the

reason for it- logical or artificial as in the case of depreciation being used as a tool of policymaking).

Though, economies are free to fix any rate of depreciation for the different assets the

rates fixed by them make difference when the NI of the nations are compared by the

international financial institutions like the IMF, WB, ADB, etc.
Note: National Income is the NNP at factor cost.

5. Consider the following statements regarding the “GDP deflator”.

1. GDP deflator is a comprehensive measure of inflation.

2. The GDP deflator is based on a fixed basket of goods and services.

Which of the above statement is/are correct?

1. 1 only

2. 2 only

3. Both 1 and 2

4. Neither 1 nor 2

Solution: 1

Explanation: Unlike other price indexes, the GDP deflator is not based on a fixed basket of goods and services. It covers the whole economy. In economics, the GDP deflator (implicit price deflator) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.

Like the consumer price index (CPI), the GDP deflator is a measure of price inflation/deflation with respect to a specific base year; the GDP deflator of the base year itself is equal to 100. 

6. Which of the following is not a feature of “capitalist economy”?

1. Ownership of means of production is with the private

2. A great part of the production is used for private consumption

3. Labour services are purchased and sold at a price

4. Production takes place for selling the output in the market

Solution: 2

Explanation: A capitalist economy can be defined as an economy in which most of the

economic activities have the following characteristics (a) there is private ownership of means of production (b) production takes place for selling the output in the market (c) there is sale and purchase of labour services at a price which is called the wage rate (the labour which is sold and purchased against wages is referred to as wage labour).

7. Consider the following statements regarding Gross Domestic Production.

1. It is a ‘quantitative’ concept which indicates the internal strength of the economy.

2. It is used by IMF/WB in the comparative analyses of its member nations.

3. GDP is widely criticized for not considering ‘qualitative’ aspect of the economy.

Which of the following is/are correct?

1. 1 and 3 only

2. 1 and 2 only

3. 1 only

4. All of the above

Solution: 4

Explanatio: It is a ‘quantitative’ concept and its volume/size indicates the ‘internal’ strength of the economy. But it does not say anything about the ‘qualitative’ aspects of the produced

goods and services by the economy. It is used by the IMF/WB in the comparative analyses of its member nations.

8. Consider the following statements regarding purchasing power parity.

1. It is a technique used to determine the relative value of different currencies.

2. This concept works on the assumption that markets work on the law of one price.

3. This is a popular method used by the IMF and WB in studying the living standards of

people in different economies.

Which of the following is/are correct?

1. 1 and 2 only

2. 1 and 3 only

3. 1 only

4. All of the above

Solution: 4

Explanatio: Law of one price, i.e., identical goods and services (in quantity as well as quality) must have the same price in different markets when measured in a common currency.

9. Consider the following statements with respect to state economy.

1. Socialist & Communist economies are the forms of state economy

2. Planning is the central theme of state economy.

3. India at present is pursuing state economy.

Which of the following is/are correct?

1. 1 and 2 only

2. 2 and 3 only

3. 1 and 3 only

4. All of the above

Slution 1

Explanation: India presently follows mixed economy.

10. Company ‘X’ is headquartered at Delhi, India and it has a production facility at Beijing,

China. The output of production facility is part of China’s ____. The profits of the company

which are repatriated to the India are part of India’s ____.

1. GDP; GNP

2. GDP; GDP

3. GNP; GDP

4. GNP; GNP

Solution: 1

11. Human Development Index comprises literacy rates, life expectancy at birth and

1. Gross Domestic Product per head in US dollars
2. Gross Domestic Product per head
3. Gross National Product in US dollars
4. National Income(NNP) per head in US dollars.

Solution: 4

Explanation: Norway - 0.944 at the top of HDI report.

Australia - 0.933 at 2nd rank.

India - 0.586; rank at 135; in the category of Medium Human Development

Current Affairs

12. Suppose you hold license in Mining sector in India. Consider the following statement/s

1. Mining leases can be granted to you up to 50 years except for atomic minerals.

2. Seeing your productive performance, Central government may permit you to acquire

one or more licences or leases covering additional area.

Select the correct code-

1. Only 1

2. Only 2

3. Both

4. None

Solution: 4

Explanation: Recently, Mines and Minerals (Development and Regulation) Act, 2015 was passed. So a tricky questions to check your concepts 

Read this- Maximum area for mining: Under the Act, a person could acquire one mining lease for a maximum area of 10 sq km. However, for the development of any mineral, the central government could permit the person to acquire one or more licenses or leases covering additional area. The Bill amends this provision to allow the central government to increase the area limits for mining, instead of providing additional leases.

Lease period: Under the Act, a mining lease was granted for a maximum of 30 years and a

minimum of 20 years and could be renewed for a period not exceeding 20 years. Under the Bill, the lease period for coal and lignite remains unchanged. For all minerals other than coal, lignite and atomic minerals, mining leases shall be granted for a period of 50 years. All mining leases granted for such minerals before the Bill, shall be valid for 50 years. On expiry of the lease, instead of being renewed, the leases shall be put up for auction, as specified in the Act.

13. Which among the following are called ‘Notified Minerals’?

1. Bauxite

2. Iron ore

3. Coal

4. Uranium

5. Limestone

6. Manganese ore

Select the correct ones

1. 2, 3, 4, 5 and 6

2. 1, 2, 5 and 6

3. 2, 3, 4 and 5

4. 3, 4, 5 and 6

Solution: 2

Explanation: Mines and Minerals (Development and Regulation) Bill adds a new Fourth

Schedule to the Act. It includes bauxite, iron ore, limestone and manganese ore and are

defined as notified minerals. The central government may, by notification, amend this

Schedule.

14. Consider the following statements w.r.t Enforcement Directorate

1. It looks after investigation cases related to Foreign Exchange Management Act, 1999

and Prevention of Money Laundering Act, PMLA

2. It falls under Ministry of Finance, Department of Expenditure

3. ED can arrest the offenders in relation to PMLA offence

Select the correct code

1. 1 and 2

2. 2 and 3

3. 1 and 3

4. All

Solution: 3

Explanation: ED is in news for quite a long time. Prepare about it. It is part of Department of Revenue not Expenditure. 

15. Which of the following treaties are related to Nuclear Weapons?

1. Antarctica Treaty

2. Seabed Treaty

3. START

4. NPT

5. SORT

Select the correct code

1. 1, 4, 5

2. 3, 4 and 5

3. 1, 2,3,4 and 5

4. 2, 3 and 4

Solution: 3

Explanation: 

The Strategic Arms Reduction Treaty (START) was signed between the US and Soviet Union in July 1991. In summary, START I limited the number of heavy bombers (the large aircraft able to carry heavier bombs including nuclear ones), intercontinental ballistic missiles (ICBMs), and submarine launched ballistic missiles (SLBMs), to 1,600 in total. These delivery systems were then limited to deploying no more than 6,000 nuclear warheads in all.

The Strategic Offensive Reductions Treaty (SORT) or Moscow Treaty entered into force in June 2003 to limit the numbers of operationally deployed nuclear warheads by the US and Russia to 1,700-2,200 apiece.

Antarctica Treaty:  In June 1961 the Antarctica Treaty established the use of this continent as only for peaceful purposes and it must be free from nuclear weapons deployment and testing.

Seabed Treaty : The Seabed Treaty entered into force in May 1972 with the purpose of forbidding the sitting of nuclear weapons and other weapons of mass destruction on the seabed or ocean floor over 12 miles away from any coastal zone.