DAY – 2 : Insta 75 Days Revision Plan-2026 : ECONOMY
Kartavya Desk Staff
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• Question 1 of 15 1. Question 1 points With reference to the Inflation Targeting framework in India, consider the following statements: The Reserve Bank of India (RBI) is legally mandated to maintain Consumer Price Index (CPI) inflation at 4 per cent with a tolerance band of ± 2 per cent. If the RBI fails to meet the inflation target for three consecutive quarters, it must submit a written report to the Union Government explaining the reasons for failure. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Correct Answer: (c) Explanation The Flexible Inflation Targeting (FIT) framework was formally adopted in India in 2016 following an amendment to the Reserve Bank of India Act, 1934. This moved India toward a modern monetary policy regime where price stability is the primary objective. Statement 1 is correct: The Central Government, in consultation with the RBI, determines the inflation target once every five years. The current target is set at 4% for the Consumer Price Index (CPI-Combined). To allow for economic shocks (like volatile food or fuel prices), a tolerance band of +/- 2% is provided. This means the “comfort zone” for the RBI is between 2% and 6%. Statement 2 is correct: Accountability is a core pillar of this framework. Under the RBI Act, if the inflation remains outside the 2–6% range for three consecutive quarters, it is legally defined as a “failure” to meet the target. In such an event, the RBI must submit a formal report to the Central Government stating: The reasons for the failure. The remedial actions the RBI proposes to take. An estimated time period within which the target will be achieved. The decision to change interest rates (Repo Rate) to control inflation is not taken by the RBI Governor alone, but by the Monetary Policy Committee (MPC). Composition: 6 members (3 from the RBI, including the Governor, and 3 external members appointed by the Government). Voting: Each member has one vote. In case of a tie, the Governor has a casting vote. Meetings: The MPC is mandated to meet at least four times a year. Incorrect Answer: (c) Explanation The Flexible Inflation Targeting (FIT) framework was formally adopted in India in 2016 following an amendment to the Reserve Bank of India Act, 1934. This moved India toward a modern monetary policy regime where price stability is the primary objective. Statement 1 is correct: The Central Government, in consultation with the RBI, determines the inflation target once every five years. The current target is set at 4% for the Consumer Price Index (CPI-Combined). To allow for economic shocks (like volatile food or fuel prices), a tolerance band of +/- 2% is provided. This means the “comfort zone” for the RBI is between 2% and 6%. Statement 2 is correct: Accountability is a core pillar of this framework. Under the RBI Act, if the inflation remains outside the 2–6% range for three consecutive quarters, it is legally defined as a “failure” to meet the target. In such an event, the RBI must submit a formal report to the Central Government stating: The reasons for the failure. The remedial actions the RBI proposes to take. An estimated time period within which the target will be achieved. The decision to change interest rates (Repo Rate) to control inflation is not taken by the RBI Governor alone, but by the Monetary Policy Committee (MPC). Composition: 6 members (3 from the RBI, including the Governor, and 3 external members appointed by the Government). Voting: Each member has one vote. In case of a tie, the Governor has a casting vote. Meetings: The MPC is mandated to meet at least four times a year.
#### 1. Question
With reference to the Inflation Targeting framework in India, consider the following statements:
• The Reserve Bank of India (RBI) is legally mandated to maintain Consumer Price Index (CPI) inflation at 4 per cent with a tolerance band of ± 2 per cent.
• If the RBI fails to meet the inflation target for three consecutive quarters, it must submit a written report to the Union Government explaining the reasons for failure.
Which of the statements given above is/are correct?
• (a) 1 only
• (b) 2 only
• (c) Both 1 and 2
• (d) Neither 1 nor 2
Answer: (c)
Explanation
The Flexible Inflation Targeting (FIT) framework was formally adopted in India in 2016 following an amendment to the Reserve Bank of India Act, 1934. This moved India toward a modern monetary policy regime where price stability is the primary objective.
• Statement 1 is correct: The Central Government, in consultation with the RBI, determines the inflation target once every five years. The current target is set at 4% for the Consumer Price Index (CPI-Combined). To allow for economic shocks (like volatile food or fuel prices), a tolerance band of +/- 2% is provided. This means the “comfort zone” for the RBI is between 2% and 6%.
• Statement 2 is correct: Accountability is a core pillar of this framework. Under the RBI Act, if the inflation remains outside the 2–6% range for three consecutive quarters, it is legally defined as a “failure” to meet the target. In such an event, the RBI must submit a formal report to the Central Government stating: The reasons for the failure. The remedial actions the RBI proposes to take. An estimated time period within which the target will be achieved.
• The reasons for the failure.
• The remedial actions the RBI proposes to take.
• An estimated time period within which the target will be achieved.
The decision to change interest rates (Repo Rate) to control inflation is not taken by the RBI Governor alone, but by the Monetary Policy Committee (MPC).
• Composition: 6 members (3 from the RBI, including the Governor, and 3 external members appointed by the Government).
• Voting: Each member has one vote. In case of a tie, the Governor has a casting vote.
• Meetings: The MPC is mandated to meet at least four times a year.
Answer: (c)
Explanation
The Flexible Inflation Targeting (FIT) framework was formally adopted in India in 2016 following an amendment to the Reserve Bank of India Act, 1934. This moved India toward a modern monetary policy regime where price stability is the primary objective.
• Statement 1 is correct: The Central Government, in consultation with the RBI, determines the inflation target once every five years. The current target is set at 4% for the Consumer Price Index (CPI-Combined). To allow for economic shocks (like volatile food or fuel prices), a tolerance band of +/- 2% is provided. This means the “comfort zone” for the RBI is between 2% and 6%.
• Statement 2 is correct: Accountability is a core pillar of this framework. Under the RBI Act, if the inflation remains outside the 2–6% range for three consecutive quarters, it is legally defined as a “failure” to meet the target. In such an event, the RBI must submit a formal report to the Central Government stating: The reasons for the failure. The remedial actions the RBI proposes to take. An estimated time period within which the target will be achieved.
• The reasons for the failure.
• The remedial actions the RBI proposes to take.
• An estimated time period within which the target will be achieved.
The decision to change interest rates (Repo Rate) to control inflation is not taken by the RBI Governor alone, but by the Monetary Policy Committee (MPC).
• Composition: 6 members (3 from the RBI, including the Governor, and 3 external members appointed by the Government).
• Voting: Each member has one vote. In case of a tie, the Governor has a casting vote.
• Meetings: The MPC is mandated to meet at least four times a year.
• Question 2 of 15 2. Question 1 points To be classified as a “Scheduled Bank” in India, a bank must be included in which schedule of the Reserve Bank of India Act, 1934? (a) First Schedule (b) Second Schedule (c) Third Schedule (d) Fourth Schedule Correct Answer: (b) Explanation In the Indian banking hierarchy, being a “Scheduled Bank” is a mark of regulatory status and financial stability. The Criteria: To be included in the Second Schedule of the RBI Act, 1934, a bank must satisfy two primary conditions under Section 42(6): It must have a paid-up capital and reserves of an aggregate value of not less than ₹5 lakh (this is the historical statutory limit, though the RBI’s current licensing requirements are much higher, usually ₹200–500 crore). It must satisfy the RBI that its affairs are not being conducted in a manner detrimental to the interests of its depositors. Value Addition Benefits of Being a Scheduled Bank: Once a bank is “Scheduled,” it gains certain privileges and responsibilities: Borrowing from RBI: It becomes eligible for loans and refinance facilities from the RBI at the Bank Rate. Currency Chests: It can be granted the facility to maintain currency chests. Clearing House Membership: It becomes a member of the clearing house. The Second Schedule includes a diverse range of institutions: Commercial Banks: Public Sector Banks (like SBI), Private Sector Banks (like ICICI), Foreign Banks, and Regional Rural Banks (RRBs). Cooperative Banks: Only those State Co-operative Banks and Urban Co-operative Banks that meet the RBI’s criteria. Specialized Banks: Small Finance Banks and Payments Banks. Incorrect Answer: (b) Explanation In the Indian banking hierarchy, being a “Scheduled Bank” is a mark of regulatory status and financial stability. The Criteria: To be included in the Second Schedule of the RBI Act, 1934, a bank must satisfy two primary conditions under Section 42(6): It must have a paid-up capital and reserves of an aggregate value of not less than ₹5 lakh (this is the historical statutory limit, though the RBI’s current licensing requirements are much higher, usually ₹200–500 crore). It must satisfy the RBI that its affairs are not being conducted in a manner detrimental to the interests of its depositors. Value Addition Benefits of Being a Scheduled Bank: Once a bank is “Scheduled,” it gains certain privileges and responsibilities: Borrowing from RBI: It becomes eligible for loans and refinance facilities from the RBI at the Bank Rate. Currency Chests: It can be granted the facility to maintain currency chests. Clearing House Membership: It becomes a member of the clearing house. The Second Schedule includes a diverse range of institutions: Commercial Banks: Public Sector Banks (like SBI), Private Sector Banks (like ICICI), Foreign Banks, and Regional Rural Banks (RRBs). Cooperative Banks: Only those State Co-operative Banks and Urban Co-operative Banks that meet the RBI’s criteria. Specialized Banks: Small Finance Banks and Payments Banks.
#### 2. Question
To be classified as a “Scheduled Bank” in India, a bank must be included in which schedule of the Reserve Bank of India Act, 1934?
• (a) First Schedule
• (b) Second Schedule
• (c) Third Schedule
• (d) Fourth Schedule
Answer: (b)
Explanation
In the Indian banking hierarchy, being a “Scheduled Bank” is a mark of regulatory status and financial stability.
• The Criteria: To be included in the Second Schedule of the RBI Act, 1934, a bank must satisfy two primary conditions under Section 42(6): It must have a paid-up capital and reserves of an aggregate value of not less than ₹5 lakh (this is the historical statutory limit, though the RBI’s current licensing requirements are much higher, usually ₹200–500 crore). It must satisfy the RBI that its affairs are not being conducted in a manner detrimental to the interests of its depositors.
• It must have a paid-up capital and reserves of an aggregate value of not less than ₹5 lakh (this is the historical statutory limit, though the RBI’s current licensing requirements are much higher, usually ₹200–500 crore).
• It must satisfy the RBI that its affairs are not being conducted in a manner detrimental to the interests of its depositors.
Value Addition
Benefits of Being a Scheduled Bank: Once a bank is “Scheduled,” it gains certain privileges and responsibilities:
• Borrowing from RBI: It becomes eligible for loans and refinance facilities from the RBI at the Bank Rate.
• Currency Chests: It can be granted the facility to maintain currency chests.
• Clearing House Membership: It becomes a member of the clearing house.
The Second Schedule includes a diverse range of institutions:
• Commercial Banks: Public Sector Banks (like SBI), Private Sector Banks (like ICICI), Foreign Banks, and Regional Rural Banks (RRBs).
• Cooperative Banks: Only those State Co-operative Banks and Urban Co-operative Banks that meet the RBI’s criteria.
• Specialized Banks: Small Finance Banks and Payments Banks.
Answer: (b)
Explanation
In the Indian banking hierarchy, being a “Scheduled Bank” is a mark of regulatory status and financial stability.
• The Criteria: To be included in the Second Schedule of the RBI Act, 1934, a bank must satisfy two primary conditions under Section 42(6): It must have a paid-up capital and reserves of an aggregate value of not less than ₹5 lakh (this is the historical statutory limit, though the RBI’s current licensing requirements are much higher, usually ₹200–500 crore). It must satisfy the RBI that its affairs are not being conducted in a manner detrimental to the interests of its depositors.
• It must have a paid-up capital and reserves of an aggregate value of not less than ₹5 lakh (this is the historical statutory limit, though the RBI’s current licensing requirements are much higher, usually ₹200–500 crore).
• It must satisfy the RBI that its affairs are not being conducted in a manner detrimental to the interests of its depositors.
Value Addition
Benefits of Being a Scheduled Bank: Once a bank is “Scheduled,” it gains certain privileges and responsibilities:
• Borrowing from RBI: It becomes eligible for loans and refinance facilities from the RBI at the Bank Rate.
• Currency Chests: It can be granted the facility to maintain currency chests.
• Clearing House Membership: It becomes a member of the clearing house.
The Second Schedule includes a diverse range of institutions:
• Commercial Banks: Public Sector Banks (like SBI), Private Sector Banks (like ICICI), Foreign Banks, and Regional Rural Banks (RRBs).
• Cooperative Banks: Only those State Co-operative Banks and Urban Co-operative Banks that meet the RBI’s criteria.
• Specialized Banks: Small Finance Banks and Payments Banks.
• Question 3 of 15 3. Question 1 points Consider the following statements: Statement-I: Cooperative Banks in India are subject to “Dual Regulation” by the RBI and the Registrar of Cooperative Societies. Statement-II: The RBI manages incorporation and administrative matters, while the Registrar manages banking-related functions. Which of the following statements is/are correct with respect to above statements? (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I. (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I. (c) Statement-I is correct but Statement-II is incorrect. (d) Statement-I is incorrect but Statement-II is correct. Correct Answer: (c) Explanation Cooperative banks in India are under “Dual Regulation.” This means they are governed by two separate entities: the Reserve Bank of India (RBI) and the Registrar of Cooperative Societies (RCS) (either at the State level for State/Urban Cooperative banks or the Central Registrar for Multi-state Cooperative banks). Hence, statement-I is correct. Statement-II is incorrect: The roles described in the statement are reversed. The Registrar of Cooperative Societies (RCS) manages administrative matters such as incorporation, registration, management elections, audits, and liquidation. The Reserve Bank of India (RBI) manages all banking-related functions, including licensing, branch expansion, asset classification (NPA norms), CRR/SLR requirements, and the “Fit and Proper” criteria for management. Following failures like the PMC Bank scam, the Banking Regulation (Amendment) Act, 2020 was passed to give the RBI more teeth. Previously, the RBI had limited control over the management of cooperative banks. Now, the RBI has the power to supersede the Board of Directors and initiate schemes for reconstruction or merger without the prior approval of the Registrar. Types of Cooperative Banks: Cooperative banks are broadly classified into two categories based on their area of operation: Urban Cooperative Banks (UCBs): Regulated by the RBI and the respective State/Central Registrar. Rural Cooperative Credit Institutions: These include State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs), which are supervised by NABARD but regulated by the RBI. Incorrect Answer: (c) Explanation Cooperative banks in India are under “Dual Regulation.” This means they are governed by two separate entities: the Reserve Bank of India (RBI) and the Registrar of Cooperative Societies (RCS) (either at the State level for State/Urban Cooperative banks or the Central Registrar for Multi-state Cooperative banks). Hence, statement-I is correct. Statement-II is incorrect: The roles described in the statement are reversed. The Registrar of Cooperative Societies (RCS) manages administrative matters such as incorporation, registration, management elections, audits, and liquidation. The Reserve Bank of India (RBI) manages all banking-related functions, including licensing, branch expansion, asset classification (NPA norms), CRR/SLR requirements, and the “Fit and Proper” criteria for management. Following failures like the PMC Bank scam, the Banking Regulation (Amendment) Act, 2020 was passed to give the RBI more teeth. Previously, the RBI had limited control over the management of cooperative banks. Now, the RBI has the power to supersede the Board of Directors and initiate schemes for reconstruction or merger without the prior approval of the Registrar. Types of Cooperative Banks: Cooperative banks are broadly classified into two categories based on their area of operation: Urban Cooperative Banks (UCBs): Regulated by the RBI and the respective State/Central Registrar. Rural Cooperative Credit Institutions: These include State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs), which are supervised by NABARD but regulated by the RBI.
#### 3. Question
Consider the following statements:
Statement-I: Cooperative Banks in India are subject to “Dual Regulation” by the RBI and the Registrar of Cooperative Societies.
Statement-II: The RBI manages incorporation and administrative matters, while the Registrar manages banking-related functions.
Which of the following statements is/are correct with respect to above statements?
• (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I.
• (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I.
• (c) Statement-I is correct but Statement-II is incorrect.
• (d) Statement-I is incorrect but Statement-II is correct.
Answer: (c)
Explanation
Cooperative banks in India are under “Dual Regulation.” This means they are governed by two separate entities: the Reserve Bank of India (RBI) and the Registrar of Cooperative Societies (RCS) (either at the State level for State/Urban Cooperative banks or the Central Registrar for Multi-state Cooperative banks). Hence, statement-I is correct.
• Statement-II is incorrect: The roles described in the statement are reversed. The Registrar of Cooperative Societies (RCS) manages administrative matters such as incorporation, registration, management elections, audits, and liquidation. The Reserve Bank of India (RBI) manages all banking-related functions, including licensing, branch expansion, asset classification (NPA norms), CRR/SLR requirements, and the “Fit and Proper” criteria for management.
• The Registrar of Cooperative Societies (RCS) manages administrative matters such as incorporation, registration, management elections, audits, and liquidation.
• The Reserve Bank of India (RBI) manages all banking-related functions, including licensing, branch expansion, asset classification (NPA norms), CRR/SLR requirements, and the “Fit and Proper” criteria for management.
Following failures like the PMC Bank scam, the Banking Regulation (Amendment) Act, 2020 was passed to give the RBI more teeth.
• Previously, the RBI had limited control over the management of cooperative banks.
• Now, the RBI has the power to supersede the Board of Directors and initiate schemes for reconstruction or merger without the prior approval of the Registrar.
Types of Cooperative Banks: Cooperative banks are broadly classified into two categories based on their area of operation:
• Urban Cooperative Banks (UCBs): Regulated by the RBI and the respective State/Central Registrar.
• Rural Cooperative Credit Institutions: These include State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs), which are supervised by NABARD but regulated by the RBI.
Answer: (c)
Explanation
Cooperative banks in India are under “Dual Regulation.” This means they are governed by two separate entities: the Reserve Bank of India (RBI) and the Registrar of Cooperative Societies (RCS) (either at the State level for State/Urban Cooperative banks or the Central Registrar for Multi-state Cooperative banks). Hence, statement-I is correct.
• Statement-II is incorrect: The roles described in the statement are reversed. The Registrar of Cooperative Societies (RCS) manages administrative matters such as incorporation, registration, management elections, audits, and liquidation. The Reserve Bank of India (RBI) manages all banking-related functions, including licensing, branch expansion, asset classification (NPA norms), CRR/SLR requirements, and the “Fit and Proper” criteria for management.
• The Registrar of Cooperative Societies (RCS) manages administrative matters such as incorporation, registration, management elections, audits, and liquidation.
• The Reserve Bank of India (RBI) manages all banking-related functions, including licensing, branch expansion, asset classification (NPA norms), CRR/SLR requirements, and the “Fit and Proper” criteria for management.
Following failures like the PMC Bank scam, the Banking Regulation (Amendment) Act, 2020 was passed to give the RBI more teeth.
• Previously, the RBI had limited control over the management of cooperative banks.
• Now, the RBI has the power to supersede the Board of Directors and initiate schemes for reconstruction or merger without the prior approval of the Registrar.
Types of Cooperative Banks: Cooperative banks are broadly classified into two categories based on their area of operation:
• Urban Cooperative Banks (UCBs): Regulated by the RBI and the respective State/Central Registrar.
• Rural Cooperative Credit Institutions: These include State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs), which are supervised by NABARD but regulated by the RBI.
• Question 4 of 15 4. Question 1 points Consider the following statements with reference to Open Market Operations (OMO): Statement I: Open Market Operations (OMO) are used by the RBI to manage durable liquidity in the economy through the purchase and sale of Government Securities (G-Secs). Statement II: When the RBI conducts an “OMO Purchase,” it releases liquidity into the banking system, which typically leads to a decrease in market interest rates. Statement III: OMO is categorized as a Qualitative Tool of monetary policy because it targets specific sectors like Agriculture and MSMEs for credit injection. Which of the following is correct with respect to the above statements? (a) Both Statement II and Statement III are correct and both of them explain Statement I (b) Both Statement II and Statement III are correct but only one of them explains Statement I (c) Only one of the Statements II and III is correct and that explains Statement I (d) Neither Statement II nor Statement III is correct Correct Answer: (c) Explanation Open Market Operations (OMO) serve as a critical instrument for the Reserve Bank of India (RBI) to maintain the desired level of liquidity in the banking system over the long term, thereby influencing interest rates and inflation. Statement I is correct: Open Market Operations (OMO) are the primary tools used by the RBI to regulate “durable” (long-term) liquidity. By buying or selling Government Securities (G-Secs), the RBI adjusts the total amount of money circulating in the banking system. Statement II is correct: During an “OMO Purchase,” the RBI buys G-Secs from banks and pays them in cash. This increases the cash reserves of banks (releasing liquidity). With more money to lend, the supply of credit increases, which typically pushes market interest rates down. Statement III is incorrect: OMO is a Quantitative (General) Tool, not a Qualitative tool. Quantitative tools (like Repo, CRR, OMO) affect the total volume of money in the entire economy without discriminating between sectors. Qualitative tools (like Moral Suasion or Margin Requirements) are used to “direct” credit to specific sectors like Agriculture or MSMEs. Statement II is the only correct statement among II and III. It explains Statement I by describing the specific mechanism (Purchase) and the resulting impact (Liquidity release) through which OMO manages the economy. Incorrect Answer: (c) Explanation Open Market Operations (OMO) serve as a critical instrument for the Reserve Bank of India (RBI) to maintain the desired level of liquidity in the banking system over the long term, thereby influencing interest rates and inflation. Statement I is correct: Open Market Operations (OMO) are the primary tools used by the RBI to regulate “durable” (long-term) liquidity. By buying or selling Government Securities (G-Secs), the RBI adjusts the total amount of money circulating in the banking system. Statement II is correct: During an “OMO Purchase,” the RBI buys G-Secs from banks and pays them in cash. This increases the cash reserves of banks (releasing liquidity). With more money to lend, the supply of credit increases, which typically pushes market interest rates down. Statement III is incorrect: OMO is a Quantitative (General) Tool, not a Qualitative tool. Quantitative tools (like Repo, CRR, OMO) affect the total volume of money in the entire economy without discriminating between sectors. Qualitative tools (like Moral Suasion or Margin Requirements) are used to “direct” credit to specific sectors like Agriculture or MSMEs. Statement II is the only correct statement among II and III. It explains Statement I by describing the specific mechanism (Purchase) and the resulting impact (Liquidity release) through which OMO manages the economy.
#### 4. Question
Consider the following statements with reference to Open Market Operations (OMO):
Statement I: Open Market Operations (OMO) are used by the RBI to manage durable liquidity in the economy through the purchase and sale of Government Securities (G-Secs).
Statement II: When the RBI conducts an “OMO Purchase,” it releases liquidity into the banking system, which typically leads to a decrease in market interest rates.
Statement III: OMO is categorized as a Qualitative Tool of monetary policy because it targets specific sectors like Agriculture and MSMEs for credit injection.
Which of the following is correct with respect to the above statements?
• (a) Both Statement II and Statement III are correct and both of them explain Statement I
• (b) Both Statement II and Statement III are correct but only one of them explains Statement I
• (c) Only one of the Statements II and III is correct and that explains Statement I
• (d) Neither Statement II nor Statement III is correct
Answer: (c)
Explanation
Open Market Operations (OMO) serve as a critical instrument for the Reserve Bank of India (RBI) to maintain the desired level of liquidity in the banking system over the long term, thereby influencing interest rates and inflation.
• Statement I is correct: Open Market Operations (OMO) are the primary tools used by the RBI to regulate “durable” (long-term) liquidity. By buying or selling Government Securities (G-Secs), the RBI adjusts the total amount of money circulating in the banking system.
• Statement II is correct: During an “OMO Purchase,” the RBI buys G-Secs from banks and pays them in cash. This increases the cash reserves of banks (releasing liquidity). With more money to lend, the supply of credit increases, which typically pushes market interest rates down.
• Statement III is incorrect: OMO is a Quantitative (General) Tool, not a Qualitative tool. Quantitative tools (like Repo, CRR, OMO) affect the total volume of money in the entire economy without discriminating between sectors. Qualitative tools (like Moral Suasion or Margin Requirements) are used to “direct” credit to specific sectors like Agriculture or MSMEs.
Statement II is the only correct statement among II and III. It explains Statement I by describing the specific mechanism (Purchase) and the resulting impact (Liquidity release) through which OMO manages the economy.
Answer: (c)
Explanation
Open Market Operations (OMO) serve as a critical instrument for the Reserve Bank of India (RBI) to maintain the desired level of liquidity in the banking system over the long term, thereby influencing interest rates and inflation.
• Statement I is correct: Open Market Operations (OMO) are the primary tools used by the RBI to regulate “durable” (long-term) liquidity. By buying or selling Government Securities (G-Secs), the RBI adjusts the total amount of money circulating in the banking system.
• Statement II is correct: During an “OMO Purchase,” the RBI buys G-Secs from banks and pays them in cash. This increases the cash reserves of banks (releasing liquidity). With more money to lend, the supply of credit increases, which typically pushes market interest rates down.
• Statement III is incorrect: OMO is a Quantitative (General) Tool, not a Qualitative tool. Quantitative tools (like Repo, CRR, OMO) affect the total volume of money in the entire economy without discriminating between sectors. Qualitative tools (like Moral Suasion or Margin Requirements) are used to “direct” credit to specific sectors like Agriculture or MSMEs.
Statement II is the only correct statement among II and III. It explains Statement I by describing the specific mechanism (Purchase) and the resulting impact (Liquidity release) through which OMO manages the economy.
• Question 5 of 15 5. Question 1 points With reference to Ways and Means Advances (WMA), consider the following statements: WMA is a facility for the Central and State governments to borrow from the RBI to meet temporary mismatches in their receipts and payments. These are essentially loans with a fixed tenure of 10 years to help states build new capitals. The interest rate on WMA is equal to the Repo Rate. Which of the statements given above are correct? (a) 1 and 2 only (b) 1 and 3 only (c) 2 and 3 only (d) 1, 2, and 3 Correct Answer: (b) Explanation The Ways and Means Advances (WMA) is a mechanism used by the Reserve Bank of India (RBI) under Section 17(5) of the RBI Act, 1934, to provide short-term credit to the government. Statement 1 is correct: The primary purpose of WMA is to act as a “buffer” for the Central and State Governments. It helps them manage temporary mismatches between their expenditure (payments) and their income (receipts like taxes). It is not a source of long-term financing for the budget. Statement 2 is incorrect: WMA is a short-term facility. By law, these advances must be vacated (repaid) within three months (90 days) from the date of the advance. They are absolutely not 10-year loans, nor are they intended for long-term infrastructure projects like building new capitals. Statement 3 is correct: The interest rate charged on WMA is benchmarked directly to the Repo Rate. If the government exceeds the agreed WMA limit, it enters into an “Overdraft” facility, where the interest rate is higher (usually Repo Rate + 2%). Incorrect Answer: (b) Explanation The Ways and Means Advances (WMA) is a mechanism used by the Reserve Bank of India (RBI) under Section 17(5) of the RBI Act, 1934, to provide short-term credit to the government. Statement 1 is correct: The primary purpose of WMA is to act as a “buffer” for the Central and State Governments. It helps them manage temporary mismatches between their expenditure (payments) and their income (receipts like taxes). It is not a source of long-term financing for the budget. Statement 2 is incorrect: WMA is a short-term facility. By law, these advances must be vacated (repaid) within three months (90 days) from the date of the advance. They are absolutely not 10-year loans, nor are they intended for long-term infrastructure projects like building new capitals. Statement 3 is correct: The interest rate charged on WMA is benchmarked directly to the Repo Rate. If the government exceeds the agreed WMA limit, it enters into an “Overdraft” facility, where the interest rate is higher (usually Repo Rate + 2%).
#### 5. Question
With reference to Ways and Means Advances (WMA), consider the following statements:
• WMA is a facility for the Central and State governments to borrow from the RBI to meet temporary mismatches in their receipts and payments.
• These are essentially loans with a fixed tenure of 10 years to help states build new capitals.
• The interest rate on WMA is equal to the Repo Rate.
Which of the statements given above are correct?
• (a) 1 and 2 only
• (b) 1 and 3 only
• (c) 2 and 3 only
• (d) 1, 2, and 3
Answer: (b)
Explanation
The Ways and Means Advances (WMA) is a mechanism used by the Reserve Bank of India (RBI) under Section 17(5) of the RBI Act, 1934, to provide short-term credit to the government.
• Statement 1 is correct: The primary purpose of WMA is to act as a “buffer” for the Central and State Governments. It helps them manage temporary mismatches between their expenditure (payments) and their income (receipts like taxes). It is not a source of long-term financing for the budget.
• Statement 2 is incorrect: WMA is a short-term facility. By law, these advances must be vacated (repaid) within three months (90 days) from the date of the advance. They are absolutely not 10-year loans, nor are they intended for long-term infrastructure projects like building new capitals.
• Statement 3 is correct: The interest rate charged on WMA is benchmarked directly to the Repo Rate. If the government exceeds the agreed WMA limit, it enters into an “Overdraft” facility, where the interest rate is higher (usually Repo Rate + 2%).
Answer: (b)
Explanation
The Ways and Means Advances (WMA) is a mechanism used by the Reserve Bank of India (RBI) under Section 17(5) of the RBI Act, 1934, to provide short-term credit to the government.
• Statement 1 is correct: The primary purpose of WMA is to act as a “buffer” for the Central and State Governments. It helps them manage temporary mismatches between their expenditure (payments) and their income (receipts like taxes). It is not a source of long-term financing for the budget.
• Statement 2 is incorrect: WMA is a short-term facility. By law, these advances must be vacated (repaid) within three months (90 days) from the date of the advance. They are absolutely not 10-year loans, nor are they intended for long-term infrastructure projects like building new capitals.
• Statement 3 is correct: The interest rate charged on WMA is benchmarked directly to the Repo Rate. If the government exceeds the agreed WMA limit, it enters into an “Overdraft” facility, where the interest rate is higher (usually Repo Rate + 2%).
• Question 6 of 15 6. Question 1 points With reference to monetary policy in India, consider the following actions by the Reserve Bank of India (RBI): Selling government securities under Open Market Operations (OMO) Increasing the Repo Rate Decreasing the Statutory Liquidity Ratio (SLR) Decreasing the Bank Rate How many of the above actions would lead to a contraction in the money supply? (a) Only one (b) Only two (c) Only three (d) All four Correct Answer: (b) Explanation In the Indian economy, the Reserve Bank of India (RBI) manages the money supply using various quantitative and qualitative tools. A “contractionary” or “dear money” policy is specifically aimed at reducing the amount of cash circulating in the banking system to curb inflation. 1. Selling government securities under OMO: (Contractionary) When the RBI sells Government Securities (G-Secs) to banks, the banks pay the RBI in cash. This “sucks out” liquidity from the banking system, leaving banks with less money to lend to the public. 2. Increasing the Repo Rate: (Contractionary) The Repo Rate is the rate at which the RBI lends to commercial banks. When it increases, the cost of borrowing for banks goes up. Banks pass this cost to consumers by raising interest rates on loans (EMIs). Higher interest rates discourage borrowing and spending, thereby contracting the money supply. 3. Decreasing the Statutory Liquidity Ratio (SLR): (Expansionary) SLR is the portion of deposits that banks must keep in liquid assets like gold or G-Secs. If the RBI decreases the SLR, banks are required to “lock up” less money. This frees up more funds for banks to lend to the public, leading to an expansion of the money supply. 4. Decreasing the Bank Rate: (Expansionary) The Bank Rate is the long-term lending rate of the RBI. Similar to the Repo Rate, decreasing the Bank Rate makes borrowing cheaper for banks. This encourages banks to lower their own lending rates, which increases credit flow and expands the money supply. Incorrect Answer: (b) Explanation In the Indian economy, the Reserve Bank of India (RBI) manages the money supply using various quantitative and qualitative tools. A “contractionary” or “dear money” policy is specifically aimed at reducing the amount of cash circulating in the banking system to curb inflation. 1. Selling government securities under OMO: (Contractionary) When the RBI sells Government Securities (G-Secs) to banks, the banks pay the RBI in cash. This “sucks out” liquidity from the banking system, leaving banks with less money to lend to the public. 2. Increasing the Repo Rate: (Contractionary) The Repo Rate is the rate at which the RBI lends to commercial banks. When it increases, the cost of borrowing for banks goes up. Banks pass this cost to consumers by raising interest rates on loans (EMIs). Higher interest rates discourage borrowing and spending, thereby contracting the money supply. 3. Decreasing the Statutory Liquidity Ratio (SLR): (Expansionary) SLR is the portion of deposits that banks must keep in liquid assets like gold or G-Secs. If the RBI decreases the SLR, banks are required to “lock up” less money. This frees up more funds for banks to lend to the public, leading to an expansion of the money supply. 4. Decreasing the Bank Rate: (Expansionary) The Bank Rate is the long-term lending rate of the RBI. Similar to the Repo Rate, decreasing the Bank Rate makes borrowing cheaper for banks. This encourages banks to lower their own lending rates, which increases credit flow and expands the money supply.
#### 6. Question
With reference to monetary policy in India, consider the following actions by the Reserve Bank of India (RBI):
• Selling government securities under Open Market Operations (OMO)
• Increasing the Repo Rate
• Decreasing the Statutory Liquidity Ratio (SLR)
• Decreasing the Bank Rate
How many of the above actions would lead to a contraction in the money supply?
• (a) Only one
• (b) Only two
• (c) Only three
• (d) All four
Answer: (b)
Explanation
In the Indian economy, the Reserve Bank of India (RBI) manages the money supply using various quantitative and qualitative tools. A “contractionary” or “dear money” policy is specifically aimed at reducing the amount of cash circulating in the banking system to curb inflation.
• 1. Selling government securities under OMO: (Contractionary) When the RBI sells Government Securities (G-Secs) to banks, the banks pay the RBI in cash. This “sucks out” liquidity from the banking system, leaving banks with less money to lend to the public.
• 2. Increasing the Repo Rate: (Contractionary) The Repo Rate is the rate at which the RBI lends to commercial banks. When it increases, the cost of borrowing for banks goes up. Banks pass this cost to consumers by raising interest rates on loans (EMIs). Higher interest rates discourage borrowing and spending, thereby contracting the money supply.
• 3. Decreasing the Statutory Liquidity Ratio (SLR): (Expansionary) SLR is the portion of deposits that banks must keep in liquid assets like gold or G-Secs. If the RBI decreases the SLR, banks are required to “lock up” less money. This frees up more funds for banks to lend to the public, leading to an expansion of the money supply.
• 4. Decreasing the Bank Rate: (Expansionary) The Bank Rate is the long-term lending rate of the RBI. Similar to the Repo Rate, decreasing the Bank Rate makes borrowing cheaper for banks. This encourages banks to lower their own lending rates, which increases credit flow and expands the money supply.
Answer: (b)
Explanation
In the Indian economy, the Reserve Bank of India (RBI) manages the money supply using various quantitative and qualitative tools. A “contractionary” or “dear money” policy is specifically aimed at reducing the amount of cash circulating in the banking system to curb inflation.
• 1. Selling government securities under OMO: (Contractionary) When the RBI sells Government Securities (G-Secs) to banks, the banks pay the RBI in cash. This “sucks out” liquidity from the banking system, leaving banks with less money to lend to the public.
• 2. Increasing the Repo Rate: (Contractionary) The Repo Rate is the rate at which the RBI lends to commercial banks. When it increases, the cost of borrowing for banks goes up. Banks pass this cost to consumers by raising interest rates on loans (EMIs). Higher interest rates discourage borrowing and spending, thereby contracting the money supply.
• 3. Decreasing the Statutory Liquidity Ratio (SLR): (Expansionary) SLR is the portion of deposits that banks must keep in liquid assets like gold or G-Secs. If the RBI decreases the SLR, banks are required to “lock up” less money. This frees up more funds for banks to lend to the public, leading to an expansion of the money supply.
• 4. Decreasing the Bank Rate: (Expansionary) The Bank Rate is the long-term lending rate of the RBI. Similar to the Repo Rate, decreasing the Bank Rate makes borrowing cheaper for banks. This encourages banks to lower their own lending rates, which increases credit flow and expands the money supply.
• Question 7 of 15 7. Question 1 points Consider the following statements: A firm must be ‘Dominant’ to be found guilty of predatory pricing under Indian law. Predatory pricing by a non-dominant firm is generally not prohibited under Section 4 of the Competition Act, 2002. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Correct Answer: (c) Explanation In a further bid to check predatory pricing and ensure fair competition, the Competition Commission of India has notified new definitions for various costs it will use to judge whether a price charged by a company for a product or service is predatory or not. Under the Competition Act, 2002, the concept of “Predatory Pricing” is treated as a specific subset of the “Abuse of Dominant Position.” For a pricing strategy to be legally classified as predatory and therefore illegal, the threshold of market power must first be met. Statement 1 is correct: Section 4 of the Competition Act prohibits the “Abuse of Dominant Position.” Predatory pricing is defined under Section 4(2)(a)(ii) as the imposition of an “unfair or discriminatory price.” The Competition Commission of India (CCI) follows a two-step process: it first determines if a firm is Dominant (having the power to operate independently of competitive forces) and only then investigates if it is selling below cost to eliminate rivals. Statement 2 is correct: The law encourages “Aggressive Pricing” by new entrants or smaller players as a means to penetrate the market and challenge established giants. Since a non-dominant firm lacks the market power to drive out all competition and then hike prices to “recoup” its losses, its low pricing—even if below cost—is considered perfectly legal and pro-consumer. A famous example is the Bharti Airtel vs. Reliance Jio case (2017), where the CCI ruled that Jio’s “free services” were legal because it was a new entrant and not a “Dominant” player at that time. The CCI typically uses the Average Variable Cost (AVC) as the benchmark. If a dominant firm sells below its variable cost, it is generally presumed to be acting with predatory intent. Incorrect Answer: (c) Explanation In a further bid to check predatory pricing and ensure fair competition, the Competition Commission of India has notified new definitions for various costs it will use to judge whether a price charged by a company for a product or service is predatory or not. Under the Competition Act, 2002, the concept of “Predatory Pricing” is treated as a specific subset of the “Abuse of Dominant Position.” For a pricing strategy to be legally classified as predatory and therefore illegal, the threshold of market power must first be met. Statement 1 is correct: Section 4 of the Competition Act prohibits the “Abuse of Dominant Position.” Predatory pricing is defined under Section 4(2)(a)(ii) as the imposition of an “unfair or discriminatory price.” The Competition Commission of India (CCI) follows a two-step process: it first determines if a firm is Dominant (having the power to operate independently of competitive forces) and only then investigates if it is selling below cost to eliminate rivals. Statement 2 is correct: The law encourages “Aggressive Pricing” by new entrants or smaller players as a means to penetrate the market and challenge established giants. Since a non-dominant firm lacks the market power to drive out all competition and then hike prices to “recoup” its losses, its low pricing—even if below cost—is considered perfectly legal and pro-consumer. A famous example is the Bharti Airtel vs. Reliance Jio case (2017), where the CCI ruled that Jio’s “free services” were legal because it was a new entrant and not a “Dominant” player at that time. The CCI typically uses the Average Variable Cost (AVC) as the benchmark. If a dominant firm sells below its variable cost, it is generally presumed to be acting with predatory intent.
#### 7. Question
Consider the following statements:
• A firm must be ‘Dominant’ to be found guilty of predatory pricing under Indian law.
• Predatory pricing by a non-dominant firm is generally not prohibited under Section 4 of the Competition Act, 2002.
Which of the statements given above is/are correct?
• (a) 1 only
• (b) 2 only
• (c) Both 1 and 2
• (d) Neither 1 nor 2
Answer: (c)
Explanation
In a further bid to check predatory pricing and ensure fair competition, the Competition Commission of India has notified new definitions for various costs it will use to judge whether a price charged by a company for a product or service is predatory or not.
Under the Competition Act, 2002, the concept of “Predatory Pricing” is treated as a specific subset of the “Abuse of Dominant Position.” For a pricing strategy to be legally classified as predatory and therefore illegal, the threshold of market power must first be met.
• Statement 1 is correct: Section 4 of the Competition Act prohibits the “Abuse of Dominant Position.” Predatory pricing is defined under Section 4(2)(a)(ii) as the imposition of an “unfair or discriminatory price.” The Competition Commission of India (CCI) follows a two-step process: it first determines if a firm is Dominant (having the power to operate independently of competitive forces) and only then investigates if it is selling below cost to eliminate rivals.
• Statement 2 is correct: The law encourages “Aggressive Pricing” by new entrants or smaller players as a means to penetrate the market and challenge established giants. Since a non-dominant firm lacks the market power to drive out all competition and then hike prices to “recoup” its losses, its low pricing—even if below cost—is considered perfectly legal and pro-consumer. A famous example is the Bharti Airtel vs. Reliance Jio case (2017), where the CCI ruled that Jio’s “free services” were legal because it was a new entrant and not a “Dominant” player at that time.
The CCI typically uses the Average Variable Cost (AVC) as the benchmark. If a dominant firm sells below its variable cost, it is generally presumed to be acting with predatory intent.
Answer: (c)
Explanation
In a further bid to check predatory pricing and ensure fair competition, the Competition Commission of India has notified new definitions for various costs it will use to judge whether a price charged by a company for a product or service is predatory or not.
Under the Competition Act, 2002, the concept of “Predatory Pricing” is treated as a specific subset of the “Abuse of Dominant Position.” For a pricing strategy to be legally classified as predatory and therefore illegal, the threshold of market power must first be met.
• Statement 1 is correct: Section 4 of the Competition Act prohibits the “Abuse of Dominant Position.” Predatory pricing is defined under Section 4(2)(a)(ii) as the imposition of an “unfair or discriminatory price.” The Competition Commission of India (CCI) follows a two-step process: it first determines if a firm is Dominant (having the power to operate independently of competitive forces) and only then investigates if it is selling below cost to eliminate rivals.
• Statement 2 is correct: The law encourages “Aggressive Pricing” by new entrants or smaller players as a means to penetrate the market and challenge established giants. Since a non-dominant firm lacks the market power to drive out all competition and then hike prices to “recoup” its losses, its low pricing—even if below cost—is considered perfectly legal and pro-consumer. A famous example is the Bharti Airtel vs. Reliance Jio case (2017), where the CCI ruled that Jio’s “free services” were legal because it was a new entrant and not a “Dominant” player at that time.
The CCI typically uses the Average Variable Cost (AVC) as the benchmark. If a dominant firm sells below its variable cost, it is generally presumed to be acting with predatory intent.
• Question 8 of 15 8. Question 1 points Consider the following statements with reference to Priority Sector Lending Certificates (PSLCs): Priority Sector Lending Certificates (PSLCs) purchased by a bank increase its Adjusted Net Bank Credit (ANBC). PSLCs are valid for a period of exactly 12 months from the date of their issuance. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Correct Answer: (d) Explanation Priority Sector Lending Certificates (PSLCs) are instruments introduced by the RBI to enable banks to achieve their priority sector lending (PSL) targets by purchasing these instruments from surplus banks. Unlike the Inter-Bank Participation Certificates (IBPCs), PSLCs do not involve the transfer of the underlying loan assets or the associated risks. Statement 1 is incorrect: Purchasing a PSLC does not increase a bank’s Adjusted Net Bank Credit (ANBC). ANBC is essentially the total lending of a bank (after specific adjustments) used as the base to calculate the 40% PSL target. PSLCs only help a bank meet its PSL target (the numerator) without changing the total credit base (the denominator/ANBC). Since there is no actual transfer of loan assets, the credit remains on the books of the original lending bank. Statement 2 is incorrect: PSLCs do not have a fixed 12-month validity from the date of issuance. Instead, all PSLCs issued during a financial year expire on March 31st, regardless of when they were bought or sold during that year. This ensures that the certificates align with the annual reporting and auditing cycle for PSL compliance. Value Addition Types of PSLCs: There are four specific categories: PSLC Agriculture, PSLC SF/MF (Small & Marginal Farmers), PSLC Micro Enterprises, and PSLC General. PSLCs are traded exclusively on the RBI’s e-Kuber portal. The price of a PSLC (the “premium”) is determined by market demand and supply. No Risk Transfer: The bank that originally gave the loan (the seller of the PSLC) continues to bear the risk of default (NPA). The buyer only gets the “credit” for having met the regulatory target. Fee Income: For banks that consistently over-achieve their targets (like Regional Rural Banks or Small Finance Banks), PSLCs provide an additional source of non-interest income through the premiums collected. Incorrect Answer: (d) Explanation Priority Sector Lending Certificates (PSLCs) are instruments introduced by the RBI to enable banks to achieve their priority sector lending (PSL) targets by purchasing these instruments from surplus banks. Unlike the Inter-Bank Participation Certificates (IBPCs), PSLCs do not involve the transfer of the underlying loan assets or the associated risks. Statement 1 is incorrect: Purchasing a PSLC does not increase a bank’s Adjusted Net Bank Credit (ANBC). ANBC is essentially the total lending of a bank (after specific adjustments) used as the base to calculate the 40% PSL target. PSLCs only help a bank meet its PSL target (the numerator) without changing the total credit base (the denominator/ANBC). Since there is no actual transfer of loan assets, the credit remains on the books of the original lending bank. Statement 2 is incorrect: PSLCs do not have a fixed 12-month validity from the date of issuance. Instead, all PSLCs issued during a financial year expire on March 31st, regardless of when they were bought or sold during that year. This ensures that the certificates align with the annual reporting and auditing cycle for PSL compliance. Value Addition Types of PSLCs: There are four specific categories: PSLC Agriculture, PSLC SF/MF (Small & Marginal Farmers), PSLC Micro Enterprises, and PSLC General. PSLCs are traded exclusively on the RBI’s e-Kuber portal. The price of a PSLC (the “premium”) is determined by market demand and supply. No Risk Transfer: The bank that originally gave the loan (the seller of the PSLC) continues to bear the risk of default (NPA). The buyer only gets the “credit” for having met the regulatory target. Fee Income: For banks that consistently over-achieve their targets (like Regional Rural Banks or Small Finance Banks), PSLCs provide an additional source of non-interest income through the premiums collected.
#### 8. Question
Consider the following statements with reference to Priority Sector Lending Certificates (PSLCs):
• Priority Sector Lending Certificates (PSLCs) purchased by a bank increase its Adjusted Net Bank Credit (ANBC).
• PSLCs are valid for a period of exactly 12 months from the date of their issuance.
Which of the statements given above is/are correct?
• (a) 1 only
• (b) 2 only
• (c) Both 1 and 2
• (d) Neither 1 nor 2
Answer: (d)
Explanation
Priority Sector Lending Certificates (PSLCs) are instruments introduced by the RBI to enable banks to achieve their priority sector lending (PSL) targets by purchasing these instruments from surplus banks. Unlike the Inter-Bank Participation Certificates (IBPCs), PSLCs do not involve the transfer of the underlying loan assets or the associated risks.
• Statement 1 is incorrect: Purchasing a PSLC does not increase a bank’s Adjusted Net Bank Credit (ANBC). ANBC is essentially the total lending of a bank (after specific adjustments) used as the base to calculate the 40% PSL target. PSLCs only help a bank meet its PSL target (the numerator) without changing the total credit base (the denominator/ANBC). Since there is no actual transfer of loan assets, the credit remains on the books of the original lending bank.
• Statement 2 is incorrect: PSLCs do not have a fixed 12-month validity from the date of issuance. Instead, all PSLCs issued during a financial year expire on March 31st, regardless of when they were bought or sold during that year. This ensures that the certificates align with the annual reporting and auditing cycle for PSL compliance.
Value Addition
• Types of PSLCs: There are four specific categories: PSLC Agriculture, PSLC SF/MF (Small & Marginal Farmers), PSLC Micro Enterprises, and PSLC General.
• PSLCs are traded exclusively on the RBI’s e-Kuber portal. The price of a PSLC (the “premium”) is determined by market demand and supply.
• No Risk Transfer: The bank that originally gave the loan (the seller of the PSLC) continues to bear the risk of default (NPA). The buyer only gets the “credit” for having met the regulatory target.
• Fee Income: For banks that consistently over-achieve their targets (like Regional Rural Banks or Small Finance Banks), PSLCs provide an additional source of non-interest income through the premiums collected.
Answer: (d)
Explanation
Priority Sector Lending Certificates (PSLCs) are instruments introduced by the RBI to enable banks to achieve their priority sector lending (PSL) targets by purchasing these instruments from surplus banks. Unlike the Inter-Bank Participation Certificates (IBPCs), PSLCs do not involve the transfer of the underlying loan assets or the associated risks.
• Statement 1 is incorrect: Purchasing a PSLC does not increase a bank’s Adjusted Net Bank Credit (ANBC). ANBC is essentially the total lending of a bank (after specific adjustments) used as the base to calculate the 40% PSL target. PSLCs only help a bank meet its PSL target (the numerator) without changing the total credit base (the denominator/ANBC). Since there is no actual transfer of loan assets, the credit remains on the books of the original lending bank.
• Statement 2 is incorrect: PSLCs do not have a fixed 12-month validity from the date of issuance. Instead, all PSLCs issued during a financial year expire on March 31st, regardless of when they were bought or sold during that year. This ensures that the certificates align with the annual reporting and auditing cycle for PSL compliance.
Value Addition
• Types of PSLCs: There are four specific categories: PSLC Agriculture, PSLC SF/MF (Small & Marginal Farmers), PSLC Micro Enterprises, and PSLC General.
• PSLCs are traded exclusively on the RBI’s e-Kuber portal. The price of a PSLC (the “premium”) is determined by market demand and supply.
• No Risk Transfer: The bank that originally gave the loan (the seller of the PSLC) continues to bear the risk of default (NPA). The buyer only gets the “credit” for having met the regulatory target.
• Fee Income: For banks that consistently over-achieve their targets (like Regional Rural Banks or Small Finance Banks), PSLCs provide an additional source of non-interest income through the premiums collected.
• Question 9 of 15 9. Question 1 points The primary objective of the “Switch Auction” conducted by the RBI on behalf of the Government of India is to: (a) Replace outstanding government securities with longer-maturity securities in order to smoothen the redemption profile and mitigate rollover risks in the government’s debt portfolio. (b) Expand the government’s net market borrowing by issuing fresh securities in exchange for Treasury Bills to finance additional fiscal expenditure. (c) Enable the central bank to sterilise excess liquidity in the banking system by exchanging high-coupon securities for low-coupon securities. (d) Reduce the weighted average cost of government borrowing by mandating the premature conversion of existing securities into lower-yield instruments. Correct Answer: (a) Explanation A “Switch Auction” (also known as a debt conversion or buyback-cum-switch) is a liability management tool. It involves the Government of India buying back securities that are close to their maturity date (short-term) and simultaneously issuing new securities with a much later maturity date (long-term) to the same holders. The primary goal is Maturity Management. If a large amount of government debt matures in a single year (e.g., ₹5 lakh crore in 2026), the government would need to find a massive amount of cash all at once to repay investors. By “switching” these into 10-year or 20-year bonds now, the government smoothens the redemption profile, meaning it spreads out the repayment burden over a longer period and reduces the rollover risk (the risk of not being able to borrow enough to pay back old debt). Value Addition Like most government security transactions, Switch Auctions are conducted on the RBI’s core banking solution platform, e-Kuber. Participants: Usually, large institutional investors like Commercial Banks and Insurance Companies (like LIC) participate because they prefer holding long-term assets to match their long-term liabilities. Impact on Fiscal Deficit: A Switch Auction does not affect the current year’s Fiscal Deficit, as it doesn’t involve new spending. However, it significantly improves the weighted average maturity (WAM) of the sovereign debt portfolio. Incorrect Answer: (a) Explanation A “Switch Auction” (also known as a debt conversion or buyback-cum-switch) is a liability management tool. It involves the Government of India buying back securities that are close to their maturity date (short-term) and simultaneously issuing new securities with a much later maturity date (long-term) to the same holders. The primary goal is Maturity Management. If a large amount of government debt matures in a single year (e.g., ₹5 lakh crore in 2026), the government would need to find a massive amount of cash all at once to repay investors. By “switching” these into 10-year or 20-year bonds now, the government smoothens the redemption profile, meaning it spreads out the repayment burden over a longer period and reduces the rollover risk (the risk of not being able to borrow enough to pay back old debt). Value Addition Like most government security transactions, Switch Auctions are conducted on the RBI’s core banking solution platform, e-Kuber. Participants: Usually, large institutional investors like Commercial Banks and Insurance Companies (like LIC) participate because they prefer holding long-term assets to match their long-term liabilities. Impact on Fiscal Deficit: A Switch Auction does not affect the current year’s Fiscal Deficit, as it doesn’t involve new spending. However, it significantly improves the weighted average maturity (WAM) of the sovereign debt portfolio.
#### 9. Question
The primary objective of the “Switch Auction” conducted by the RBI on behalf of the Government of India is to:
• (a) Replace outstanding government securities with longer-maturity securities in order to smoothen the redemption profile and mitigate rollover risks in the government’s debt portfolio.
• (b) Expand the government’s net market borrowing by issuing fresh securities in exchange for Treasury Bills to finance additional fiscal expenditure.
• (c) Enable the central bank to sterilise excess liquidity in the banking system by exchanging high-coupon securities for low-coupon securities.
• (d) Reduce the weighted average cost of government borrowing by mandating the premature conversion of existing securities into lower-yield instruments.
Answer: (a)
Explanation
A “Switch Auction” (also known as a debt conversion or buyback-cum-switch) is a liability management tool. It involves the Government of India buying back securities that are close to their maturity date (short-term) and simultaneously issuing new securities with a much later maturity date (long-term) to the same holders.
The primary goal is Maturity Management. If a large amount of government debt matures in a single year (e.g., ₹5 lakh crore in 2026), the government would need to find a massive amount of cash all at once to repay investors. By “switching” these into 10-year or 20-year bonds now, the government smoothens the redemption profile, meaning it spreads out the repayment burden over a longer period and reduces the rollover risk (the risk of not being able to borrow enough to pay back old debt).
Value Addition
• Like most government security transactions, Switch Auctions are conducted on the RBI’s core banking solution platform, e-Kuber.
• Participants: Usually, large institutional investors like Commercial Banks and Insurance Companies (like LIC) participate because they prefer holding long-term assets to match their long-term liabilities.
• Impact on Fiscal Deficit: A Switch Auction does not affect the current year’s Fiscal Deficit, as it doesn’t involve new spending. However, it significantly improves the weighted average maturity (WAM) of the sovereign debt portfolio.
Answer: (a)
Explanation
A “Switch Auction” (also known as a debt conversion or buyback-cum-switch) is a liability management tool. It involves the Government of India buying back securities that are close to their maturity date (short-term) and simultaneously issuing new securities with a much later maturity date (long-term) to the same holders.
The primary goal is Maturity Management. If a large amount of government debt matures in a single year (e.g., ₹5 lakh crore in 2026), the government would need to find a massive amount of cash all at once to repay investors. By “switching” these into 10-year or 20-year bonds now, the government smoothens the redemption profile, meaning it spreads out the repayment burden over a longer period and reduces the rollover risk (the risk of not being able to borrow enough to pay back old debt).
Value Addition
• Like most government security transactions, Switch Auctions are conducted on the RBI’s core banking solution platform, e-Kuber.
• Participants: Usually, large institutional investors like Commercial Banks and Insurance Companies (like LIC) participate because they prefer holding long-term assets to match their long-term liabilities.
• Impact on Fiscal Deficit: A Switch Auction does not affect the current year’s Fiscal Deficit, as it doesn’t involve new spending. However, it significantly improves the weighted average maturity (WAM) of the sovereign debt portfolio.
• Question 10 of 15 10. Question 1 points Consider the following pairs related to types of inflation and their correct descriptions: Type of Inflation Description 1. Core Inflation Inflation measured after excluding volatile items such as food and fuel 2. Demand-Pull Inflation Inflation arising due to excess aggregate demand relative to supply in the economy 3. Built-in Inflation Inflation caused by rising wages leading firms to increase prices, triggering a wage–price spiral 4. Hyperinflation A situation where prices increase at a rate exceeding 50% per year How many of the above pairs are correctly matched? (a) Only one (b) Only two (c) Only three (d) All four Correct Answer: (c) Explanation Inflation is the persistent rise in the general price level of goods and services. While several factors can trigger this rise, the terminology used by economists specifically targets the underlying cause or the specific basket of goods being measured. Statement 1 is correct: Core Inflation is a measure of inflation that excludes certain items that face volatile price movements, notably food and fuel. By stripping away these “noisy” components, policymakers (like the RBI) can see the underlying, long-term trend of inflation in the economy. [Image comparing Headline Inflation vs Core Inflation components] Statement 2 is correct: Demand-Pull Inflation occurs when the total demand for goods and services (Aggregate Demand) grows faster than the economy’s ability to produce them (Aggregate Supply). This is often described as “too much money chasing too few goods,” typically seen during periods of rapid economic growth or high government spending. Statement 3 is correct: Built-in Inflation is linked to adaptive expectations. When workers expect prices to rise in the future, they demand higher wages. To maintain profit margins, firms then raise the prices of their products, which in turn leads to further wage demands. This creates a self-fulfilling wage-price spiral. Statement 4 is incorrect: Hyperinflation describes prices rising out of control, the standard economic definition (originally formulated by Phillip Cagan) is a situation where prices increase at a rate exceeding 50% per month, not per year. A 50% increase per year would be considered “Galloping Inflation,” but Hyperinflation represents a total collapse of the currency’s value, often leading to people abandoning the currency altogether. Incorrect Answer: (c) Explanation Inflation is the persistent rise in the general price level of goods and services. While several factors can trigger this rise, the terminology used by economists specifically targets the underlying cause or the specific basket of goods being measured. Statement 1 is correct: Core Inflation is a measure of inflation that excludes certain items that face volatile price movements, notably food and fuel. By stripping away these “noisy” components, policymakers (like the RBI) can see the underlying, long-term trend of inflation in the economy. [Image comparing Headline Inflation vs Core Inflation components] Statement 2 is correct: Demand-Pull Inflation occurs when the total demand for goods and services (Aggregate Demand) grows faster than the economy’s ability to produce them (Aggregate Supply). This is often described as “too much money chasing too few goods,” typically seen during periods of rapid economic growth or high government spending. Statement 3 is correct: Built-in Inflation is linked to adaptive expectations. When workers expect prices to rise in the future, they demand higher wages. To maintain profit margins, firms then raise the prices of their products, which in turn leads to further wage demands. This creates a self-fulfilling wage-price spiral. Statement 4 is incorrect: Hyperinflation describes prices rising out of control, the standard economic definition (originally formulated by Phillip Cagan) is a situation where prices increase at a rate exceeding 50% per month, not per year. A 50% increase per year would be considered “Galloping Inflation,” but Hyperinflation represents a total collapse of the currency’s value, often leading to people abandoning the currency altogether.
#### 10. Question
Consider the following pairs related to types of inflation and their correct descriptions:
Type of Inflation | Description
- 1.Core Inflation | Inflation measured after excluding volatile items such as food and fuel
- 2.Demand-Pull Inflation | Inflation arising due to excess aggregate demand relative to supply in the economy
- 3.Built-in Inflation | Inflation caused by rising wages leading firms to increase prices, triggering a wage–price spiral
- 4.Hyperinflation | A situation where prices increase at a rate exceeding 50% per year
How many of the above pairs are correctly matched?
• (a) Only one
• (b) Only two
• (c) Only three
• (d) All four
Answer: (c)
Explanation
Inflation is the persistent rise in the general price level of goods and services. While several factors can trigger this rise, the terminology used by economists specifically targets the underlying cause or the specific basket of goods being measured.
• Statement 1 is correct: Core Inflation is a measure of inflation that excludes certain items that face volatile price movements, notably food and fuel. By stripping away these “noisy” components, policymakers (like the RBI) can see the underlying, long-term trend of inflation in the economy. [Image comparing Headline Inflation vs Core Inflation components]
• Statement 2 is correct: Demand-Pull Inflation occurs when the total demand for goods and services (Aggregate Demand) grows faster than the economy’s ability to produce them (Aggregate Supply). This is often described as “too much money chasing too few goods,” typically seen during periods of rapid economic growth or high government spending.
• Statement 3 is correct: Built-in Inflation is linked to adaptive expectations. When workers expect prices to rise in the future, they demand higher wages. To maintain profit margins, firms then raise the prices of their products, which in turn leads to further wage demands. This creates a self-fulfilling wage-price spiral.
• Statement 4 is incorrect: Hyperinflation describes prices rising out of control, the standard economic definition (originally formulated by Phillip Cagan) is a situation where prices increase at a rate exceeding 50% per month, not per year. A 50% increase per year would be considered “Galloping Inflation,” but Hyperinflation represents a total collapse of the currency’s value, often leading to people abandoning the currency altogether.
Answer: (c)
Explanation
Inflation is the persistent rise in the general price level of goods and services. While several factors can trigger this rise, the terminology used by economists specifically targets the underlying cause or the specific basket of goods being measured.
• Statement 1 is correct: Core Inflation is a measure of inflation that excludes certain items that face volatile price movements, notably food and fuel. By stripping away these “noisy” components, policymakers (like the RBI) can see the underlying, long-term trend of inflation in the economy. [Image comparing Headline Inflation vs Core Inflation components]
• Statement 2 is correct: Demand-Pull Inflation occurs when the total demand for goods and services (Aggregate Demand) grows faster than the economy’s ability to produce them (Aggregate Supply). This is often described as “too much money chasing too few goods,” typically seen during periods of rapid economic growth or high government spending.
• Statement 3 is correct: Built-in Inflation is linked to adaptive expectations. When workers expect prices to rise in the future, they demand higher wages. To maintain profit margins, firms then raise the prices of their products, which in turn leads to further wage demands. This creates a self-fulfilling wage-price spiral.
• Statement 4 is incorrect: Hyperinflation describes prices rising out of control, the standard economic definition (originally formulated by Phillip Cagan) is a situation where prices increase at a rate exceeding 50% per month, not per year. A 50% increase per year would be considered “Galloping Inflation,” but Hyperinflation represents a total collapse of the currency’s value, often leading to people abandoning the currency altogether.
• Question 11 of 15 11. Question 1 points In many parts of the world, individuals continue to face persecution because of their religious beliefs or identities. Incidents involving intimidation, detention, violence and other forms of harassment have been reported across different societies. Such actions extend beyond personal suffering and often affect broader social relations within communities. When these tensions persist without effective responses, they can influence the stability of societies and the functioning of political institutions. Prolonged conflicts around identity may also disrupt economic activities and deepen divisions within communities, sometimes creating conditions in which extremist tendencies gain greater influence. Which one of the following statements best reflects the most critical inference that can be made from the passage? (a) Religious differences are the principal cause of violent conflict in many societies. (b) Failure to address religious persecution can contribute to wider social and political instability. (c) Economic development depends primarily on maintaining uniform religious practices. (d) Political institutions are generally responsible for religious tensions within societies. Correct Answer: (b) Explanation Option (b) is correct: The passage states that abuses based on religious identity, when left unaddressed, can threaten social cohesion, political stability and economic development, and may foster radicalization. Option (a) is incorrect: The passage does not claim that religious differences are the principal cause of violent conflict globally. Option (c) is incorrect: There is no discussion of uniform religious practices as a requirement for economic development. Option (d) is incorrect: The passage does not attribute religious tensions mainly to political institutions. Incorrect Answer: (b) Explanation Option (b) is correct: The passage states that abuses based on religious identity, when left unaddressed, can threaten social cohesion, political stability and economic development, and may foster radicalization. Option (a) is incorrect: The passage does not claim that religious differences are the principal cause of violent conflict globally. Option (c) is incorrect: There is no discussion of uniform religious practices as a requirement for economic development. Option (d) is incorrect: The passage does not attribute religious tensions mainly to political institutions.
#### 11. Question
In many parts of the world, individuals continue to face persecution because of their religious beliefs or identities. Incidents involving intimidation, detention, violence and other forms of harassment have been reported across different societies. Such actions extend beyond personal suffering and often affect broader social relations within communities.
When these tensions persist without effective responses, they can influence the stability of societies and the functioning of political institutions. Prolonged conflicts around identity may also disrupt economic activities and deepen divisions within communities, sometimes creating conditions in which extremist tendencies gain greater influence.
Which one of the following statements best reflects the most critical inference that can be made from the passage?
• (a) Religious differences are the principal cause of violent conflict in many societies.
• (b) Failure to address religious persecution can contribute to wider social and political instability.
• (c) Economic development depends primarily on maintaining uniform religious practices.
• (d) Political institutions are generally responsible for religious tensions within societies.
Answer: (b)
Explanation
Option (b) is correct: The passage states that abuses based on religious identity, when left unaddressed, can threaten social cohesion, political stability and economic development, and may foster radicalization.
Option (a) is incorrect: The passage does not claim that religious differences are the principal cause of violent conflict globally.
Option (c) is incorrect: There is no discussion of uniform religious practices as a requirement for economic development.
Option (d) is incorrect: The passage does not attribute religious tensions mainly to political institutions.
Answer: (b)
Explanation
Option (b) is correct: The passage states that abuses based on religious identity, when left unaddressed, can threaten social cohesion, political stability and economic development, and may foster radicalization.
Option (a) is incorrect: The passage does not claim that religious differences are the principal cause of violent conflict globally.
Option (c) is incorrect: There is no discussion of uniform religious practices as a requirement for economic development.
Option (d) is incorrect: The passage does not attribute religious tensions mainly to political institutions.
• Question 12 of 15 12. Question 1 points P can do a piece of work in 5 days and Q can do the same piece of work in 10 days. P and Q together complete the same piece of work and get ₹360 as the combined wages. Q’s share of the wages will be (a) ₹100 (b) ₹120 (c) ₹140 (d) ₹160 Correct Answer: (b) Explanation: P : Q = 1/5 : 1/10 = 2 : 1 So, Q’s share = (1/3) × 360 = ` 120 Hence, option (b) ₹120 is correct. Incorrect Answer: (b) Explanation: P : Q = 1/5 : 1/10 = 2 : 1 So, Q’s share = (1/3) × 360 = ` 120 Hence, option (b) ₹120 is correct.
#### 12. Question
P can do a piece of work in 5 days and Q can do the same piece of work in 10 days. P and Q together complete the same piece of work and get ₹360 as the combined wages. Q’s share of the wages will be
Answer: (b)
Explanation:
P : Q = 1/5 : 1/10 = 2 : 1
So, Q’s share = (1/3) × 360 = ` 120
Hence, option (b) ₹120 is correct.
Answer: (b)
Explanation:
P : Q = 1/5 : 1/10 = 2 : 1
So, Q’s share = (1/3) × 360 = ` 120
Hence, option (b) ₹120 is correct.
• Question 13 of 15 13. Question 1 points A takes 15 days more than B to complete a work, while B completes the work in 30 days. If they work together for some days during which 2/3 of the work is completed, then consider the following statements: Statement I: If B leaves and A completes the remaining work, then the total time taken to complete the work is more than 28 days. Statement II: If A leaves and B completes the remaining work, then the total time taken to complete the work is less than 28 days. Which of the above statements is/are correct? (a) I only (b) II only (c) Both I and II (d) Neither I nor II Correct Answer: (b) Explanation: B completes the work in 30 days. A takes 15 days more, so A completes it in: 30 + 15 = 45 days Now, 1 day work: A = 1/45 B = 1/30 Together: 1/45 + 1/30 LCM = 90 = 2/90 + 3/90 = 5/90 = 1/18 So, together they complete the whole work in 18 days. They complete 2/3 of the work together. Time taken for 2/3 work: (2/3) × 18 = 12 days Remaining work = 1 − 2/3 = 1/3 Statement I: B leaves, so A completes 1/3 work. Time taken by A = (1/3) × 45 = 15 days Total time = 12 + 15 = 27 days This is not more than 28 days. So, Statement I is incorrect. Statement II: A leaves, so B completes 1/3 work. Time taken by B = (1/3) × 30 = 10 days Total time = 12 + 10 = 22 days This is less than 28 days. So, Statement II is correct. Hence, option (b) is correct. Incorrect Answer: (b) Explanation: B completes the work in 30 days. A takes 15 days more, so A completes it in: 30 + 15 = 45 days Now, 1 day work: A = 1/45 B = 1/30 Together: 1/45 + 1/30 LCM = 90 = 2/90 + 3/90 = 5/90 = 1/18 So, together they complete the whole work in 18 days. They complete 2/3 of the work together. Time taken for 2/3 work: (2/3) × 18 = 12 days Remaining work = 1 − 2/3 = 1/3 Statement I: B leaves, so A completes 1/3 work. Time taken by A = (1/3) × 45 = 15 days Total time = 12 + 15 = 27 days This is not more than 28 days. So, Statement I is incorrect. Statement II: A leaves, so B completes 1/3 work. Time taken by B = (1/3) × 30 = 10 days Total time = 12 + 10 = 22 days This is less than 28 days. So, Statement II is correct. Hence, option (b) is correct.
#### 13. Question
A takes 15 days more than B to complete a work, while B completes the work in 30 days. If they work together for some days during which 2/3 of the work is completed, then consider the following statements:
Statement I: If B leaves and A completes the remaining work, then the total time taken to complete the work is more than 28 days. Statement II: If A leaves and B completes the remaining work, then the total time taken to complete the work is less than 28 days.
Which of the above statements is/are correct?
• (a) I only
• (b) II only
• (c) Both I and II
• (d) Neither I nor II
Answer: (b)
Explanation:
B completes the work in 30 days.
A takes 15 days more, so A completes it in:
30 + 15 = 45 days
Now, 1 day work:
• A = 1/45
• B = 1/30
1/45 + 1/30
= 2/90 + 3/90 = 5/90 = 1/18
So, together they complete the whole work in 18 days.
They complete 2/3 of the work together.
Time taken for 2/3 work:
(2/3) × 18 = 12 days
Remaining work =
1 − 2/3 = 1/3
Statement I: B leaves, so A completes 1/3 work.
Time taken by A =
(1/3) × 45 = 15 days
Total time =
12 + 15 = 27 days
This is not more than 28 days.
So, Statement I is incorrect.
Statement II: A leaves, so B completes 1/3 work.
Time taken by B =
(1/3) × 30 = 10 days
Total time =
12 + 10 = 22 days
This is less than 28 days.
So, Statement II is correct.
Hence, option (b) is correct.
Answer: (b)
Explanation:
B completes the work in 30 days.
A takes 15 days more, so A completes it in:
30 + 15 = 45 days
Now, 1 day work:
• A = 1/45
• B = 1/30
1/45 + 1/30
= 2/90 + 3/90 = 5/90 = 1/18
So, together they complete the whole work in 18 days.
They complete 2/3 of the work together.
Time taken for 2/3 work:
(2/3) × 18 = 12 days
Remaining work =
1 − 2/3 = 1/3
Statement I: B leaves, so A completes 1/3 work.
Time taken by A =
(1/3) × 45 = 15 days
Total time =
12 + 15 = 27 days
This is not more than 28 days.
So, Statement I is incorrect.
Statement II: A leaves, so B completes 1/3 work.
Time taken by B =
(1/3) × 30 = 10 days
Total time =
12 + 10 = 22 days
This is less than 28 days.
So, Statement II is correct.
Hence, option (b) is correct.
• Question 14 of 15 14. Question 1 points A is twice as good a workman as B and therefore is able to finish a job in 18 days less than B. Working together, they can do it in: (a) 12 days (b) 9 days (c) 15 days (d) 18 days Correct Answer: (a) Explanation: A is twice as efficient as B. So, efficiency ratio: A : B = 2 : 1 Therefore, time ratio will be inverse: A : B = 1 : 2 Let the time taken by A = x days Then time taken by B = 2x days Given that A takes 18 days less than B. So, 2x − x = 18 x = 18 Thus, A alone can do the work in 18 days B alone can do the work in 36 days Now, their one day work: A’s 1 day work = 1/18 B’s 1 day work = 1/36 Together, 1/18 + 1/36 = 2/36 + 1/36 = 3/36 = 1/12 So, they can complete the work together in 12 days. Hence, option (a) is correct. Incorrect Answer: (a) Explanation: A is twice as efficient as B. So, efficiency ratio: A : B = 2 : 1 Therefore, time ratio will be inverse: A : B = 1 : 2 Let the time taken by A = x days Then time taken by B = 2x days Given that A takes 18 days less than B. So, 2x − x = 18 x = 18 Thus, A alone can do the work in 18 days B alone can do the work in 36 days Now, their one day work: A’s 1 day work = 1/18 B’s 1 day work = 1/36 Together, 1/18 + 1/36 = 2/36 + 1/36 = 3/36 = 1/12 So, they can complete the work together in 12 days. Hence, option (a) is correct.
#### 14. Question
A is twice as good a workman as B and therefore is able to finish a job in 18 days less than B. Working together, they can do it in:
• (a) 12 days
• (b) 9 days
• (c) 15 days
• (d) 18 days
Answer: (a)
Explanation:
A is twice as efficient as B.
So, efficiency ratio:
A : B = 2 : 1
Therefore, time ratio will be inverse:
A : B = 1 : 2
Let the time taken by A = x days Then time taken by B = 2x days
Given that A takes 18 days less than B.
2x − x = 18
x = 18
• A alone can do the work in 18 days
• B alone can do the work in 36 days
Now, their one day work:
A’s 1 day work = 1/18 B’s 1 day work = 1/36
1/18 + 1/36 = 2/36 + 1/36 = 3/36 = 1/12
So, they can complete the work together in 12 days.
Hence, option (a) is correct.
Answer: (a)
Explanation:
A is twice as efficient as B.
So, efficiency ratio:
A : B = 2 : 1
Therefore, time ratio will be inverse:
A : B = 1 : 2
Let the time taken by A = x days Then time taken by B = 2x days
Given that A takes 18 days less than B.
2x − x = 18
x = 18
• A alone can do the work in 18 days
• B alone can do the work in 36 days
Now, their one day work:
A’s 1 day work = 1/18 B’s 1 day work = 1/36
1/18 + 1/36 = 2/36 + 1/36 = 3/36 = 1/12
So, they can complete the work together in 12 days.
Hence, option (a) is correct.
• Question 15 of 15 15. Question 1 points A pipe can fill a tank with water in 5 hours. Because of a leak, it took 6 hours to fill the tank. The leak can drain all the water from the tank in: (a) 24 hours (b) 30 hours (c) 36 hours (d) 20 hours Correct Answer: (b) Solution: Given that, A pipe can fill the tank in 5 hours. So, pipe’s 1 hour work = 1/5 Because of the leak, the tank is filled in 6 hours. So, net filling rate = 1/6 Thus, 1/5 − Leak = 1/6 Taking LCM = 30 6/30 − Leak = 5/30 Leak = 1/30 So, the leak alone can empty the tank in 30 hours. Hence option (b) is correct. Incorrect Answer: (b) Solution: Given that, A pipe can fill the tank in 5 hours. So, pipe’s 1 hour work = 1/5 Because of the leak, the tank is filled in 6 hours. So, net filling rate = 1/6 Thus, 1/5 − Leak = 1/6 Taking LCM = 30 6/30 − Leak = 5/30 Leak = 1/30 So, the leak alone can empty the tank in 30 hours. Hence option (b) is correct.
#### 15. Question
A pipe can fill a tank with water in 5 hours. Because of a leak, it took 6 hours to fill the tank. The leak can drain all the water from the tank in:
• (a) 24 hours
• (b) 30 hours
• (c) 36 hours
• (d) 20 hours
Answer: (b)
Solution:
Given that,
A pipe can fill the tank in 5 hours.
So, pipe’s 1 hour work = 1/5
Because of the leak, the tank is filled in 6 hours.
So, net filling rate = 1/6
1/5 − Leak = 1/6
Taking LCM = 30
6/30 − Leak = 5/30
Leak = 1/30
So, the leak alone can empty the tank in 30 hours.
Hence option (b) is correct.
Answer: (b)
Solution:
Given that,
A pipe can fill the tank in 5 hours.
So, pipe’s 1 hour work = 1/5
Because of the leak, the tank is filled in 6 hours.
So, net filling rate = 1/6
1/5 − Leak = 1/6
Taking LCM = 30
6/30 − Leak = 5/30
Leak = 1/30
So, the leak alone can empty the tank in 30 hours.
Hence option (b) is correct.
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