UPSC Static Quiz – Economy : 01 July 2024
Kartavya Desk Staff
UPSC Static Quiz – Economy : 01 July 2024 We will post 5 questions daily on static topics mentioned in the UPSC civil services preliminary examination syllabus. Each week will focus on a specific topic from the syllabus, such as History of India and Indian National Movement, Indian and World Geography, and more.
We are excited to bring you our daily UPSC Static Quiz, designed to help you prepare for the UPSC Civil Services Preliminary Examination. Each day, we will post 5 questions on static topics mentioned in the UPSC syllabus. This week, we are focusing on Indian and World Geography.
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• Question 1 of 5 1. Question Consider the following statements regarding Development Finance Institutions (DFIs). Development Finance Institutions provide risk capital for economic development projects on non-commercial basis. In India, the first DFI was operationalised before Independence, with the setting up of the Industrial Finance Corporation (IFCI). 3. During the pre-liberalised era, India had DFIs that were primarily engaged in development of industry in the country. How many of the above statements is/are correct? (a) Only one (b) Only two (c) All three (d) None Correct Solution: b) Statement 2 is incorrect. A development finance institution (DFI) also known as a development bank is a financial institution that provides risk capital for economic development projects on non-commercial basis. During the pre-liberalised era, India had DFIs which were primarily engaged in development of industry in the country. In India, the first DFI was operationalised in 1948 with the setting up of the Industrial Finance Corporation (IFCI). Subsequently, the Industrial Credit and Investment Corporation of India (ICICI) was set up with the backing of the World Bank in 1955. The Industrial Development Bank of India (IDBI) came into existence in 1964 to promote long-term financing for infrastructure projects and industry. Incorrect Solution: b) Statement 2 is incorrect. A development finance institution (DFI) also known as a development bank is a financial institution that provides risk capital for economic development projects on non-commercial basis. During the pre-liberalised era, India had DFIs which were primarily engaged in development of industry in the country. In India, the first DFI was operationalised in 1948 with the setting up of the Industrial Finance Corporation (IFCI). Subsequently, the Industrial Credit and Investment Corporation of India (ICICI) was set up with the backing of the World Bank in 1955. The Industrial Development Bank of India (IDBI) came into existence in 1964 to promote long-term financing for infrastructure projects and industry.
#### 1. Question
Consider the following statements regarding Development Finance Institutions (DFIs).
• Development Finance Institutions provide risk capital for economic development projects on non-commercial basis.
• In India, the first DFI was operationalised before Independence, with the setting up of the Industrial Finance Corporation (IFCI). 3. During the pre-liberalised era, India had DFIs that were primarily engaged in development of industry in the country.
How many of the above statements is/are correct?
• (a) Only one
• (b) Only two
• (c) All three
Solution: b)
Statement 2 is incorrect.
A development finance institution (DFI) also known as a development bank is a financial institution that provides risk capital for economic development projects on non-commercial basis.
During the pre-liberalised era, India had DFIs which were primarily engaged in development of industry in the country.
In India, the first DFI was operationalised in 1948 with the setting up of the Industrial Finance Corporation (IFCI). Subsequently, the Industrial Credit and Investment Corporation of India (ICICI) was set up with the backing of the World Bank in 1955.
The Industrial Development Bank of India (IDBI) came into existence in 1964 to promote long-term financing for infrastructure projects and industry.
Solution: b)
Statement 2 is incorrect.
A development finance institution (DFI) also known as a development bank is a financial institution that provides risk capital for economic development projects on non-commercial basis.
During the pre-liberalised era, India had DFIs which were primarily engaged in development of industry in the country.
In India, the first DFI was operationalised in 1948 with the setting up of the Industrial Finance Corporation (IFCI). Subsequently, the Industrial Credit and Investment Corporation of India (ICICI) was set up with the backing of the World Bank in 1955.
The Industrial Development Bank of India (IDBI) came into existence in 1964 to promote long-term financing for infrastructure projects and industry.
• Question 2 of 5 2. Question Consider the following statements regarding Gross domestic product (GDP) and Gross value added (GVA). Only GDP data is used to measure national income, and not GVA. GDP captures the total demand in the economy. By looking at the GVA growth one can understand which sector of the economy is robust and which is struggling. How many of the above statements is/are incorrect? (a) Only one (b) Only two (c) All three (d) None Correct Solution: a) Statement 1 is incorrect. What do GDP and GVA mean? GDP and GVA are the two main ways to ascertain the country’s economic performance. Both are measures of national income. The GDP measures the monetary measure of all “final” goods and services— those that are bought by the final user— produced in a country in a given period. The GDP does this by adding up the total expenditures in the economy; in other words, it looks at who spent how much. That is why GDP captures the total “demand” in the economy. The GVA calculates the same national income from the supply side. It does so by adding up all the value added across different sectors. According to the RBI, the GVA of a sector is defined as the value of output minus the value of its intermediary inputs. This “value added” is shared among the primary factors of production, labour and capital. By looking at the GVA growth one can understand which sector of the economy is robust and which is struggling. Incorrect Solution: a) Statement 1 is incorrect. What do GDP and GVA mean? GDP and GVA are the two main ways to ascertain the country’s economic performance. Both are measures of national income. The GDP measures the monetary measure of all “final” goods and services— those that are bought by the final user— produced in a country in a given period. The GDP does this by adding up the total expenditures in the economy; in other words, it looks at who spent how much. That is why GDP captures the total “demand” in the economy. The GVA calculates the same national income from the supply side. It does so by adding up all the value added across different sectors. According to the RBI, the GVA of a sector is defined as the value of output minus the value of its intermediary inputs. This “value added” is shared among the primary factors of production, labour and capital. By looking at the GVA growth one can understand which sector of the economy is robust and which is struggling.
#### 2. Question
Consider the following statements regarding Gross domestic product (GDP) and Gross value added (GVA).
• Only GDP data is used to measure national income, and not GVA.
• GDP captures the total demand in the economy.
• By looking at the GVA growth one can understand which sector of the economy is robust and which is struggling.
How many of the above statements is/are incorrect?
• (a) Only one
• (b) Only two
• (c) All three
Solution: a)
Statement 1 is incorrect.
What do GDP and GVA mean?
GDP and GVA are the two main ways to ascertain the country’s economic performance.
Both are measures of national income.
The GDP measures the monetary measure of all “final” goods and services— those that are bought by the final user— produced in a country in a given period.
The GDP does this by adding up the total expenditures in the economy; in other words, it looks at who spent how much. That is why GDP captures the total “demand” in the economy.
The GVA calculates the same national income from the supply side. It does so by adding up all the value added across different sectors. According to the RBI, the GVA of a sector is defined as the value of output minus the value of its intermediary inputs. This “value added” is shared among the primary factors of production, labour and capital.
By looking at the GVA growth one can understand which sector of the economy is robust and which is struggling.
Solution: a)
Statement 1 is incorrect.
What do GDP and GVA mean?
GDP and GVA are the two main ways to ascertain the country’s economic performance.
Both are measures of national income.
The GDP measures the monetary measure of all “final” goods and services— those that are bought by the final user— produced in a country in a given period.
The GDP does this by adding up the total expenditures in the economy; in other words, it looks at who spent how much. That is why GDP captures the total “demand” in the economy.
The GVA calculates the same national income from the supply side. It does so by adding up all the value added across different sectors. According to the RBI, the GVA of a sector is defined as the value of output minus the value of its intermediary inputs. This “value added” is shared among the primary factors of production, labour and capital.
By looking at the GVA growth one can understand which sector of the economy is robust and which is struggling.
• Question 3 of 5 3. Question Consider the following statements. Interest rate growth rate differential (IRGD) is a key indicator of an economy’s long-run debt sustainability. When the cost of raising debt is higher than the gross domestic product (GDP) growth rate, then public debt comes with low fiscal costs. Which of the above statements is/are correct? a) 1 only b) 2 only c) Both 1 and 2 d) Neither 1 nor 2 Correct Solution: a) A key indicator of an economy’s long-run debt sustainability is the differential between interest paid on government debt and the economy’s nominal growth rate. When the cost of raising debt is lower than the gross domestic product (GDP) growth rate, public debt comes with low fiscal costs. In such a situation, the debt-to-GDP ratio of the economy declines as debts are rolled over. Incorrect Solution: a) A key indicator of an economy’s long-run debt sustainability is the differential between interest paid on government debt and the economy’s nominal growth rate. When the cost of raising debt is lower than the gross domestic product (GDP) growth rate, public debt comes with low fiscal costs. In such a situation, the debt-to-GDP ratio of the economy declines as debts are rolled over.
#### 3. Question
Consider the following statements.
• Interest rate growth rate differential (IRGD) is a key indicator of an economy’s long-run debt sustainability.
• When the cost of raising debt is higher than the gross domestic product (GDP) growth rate, then public debt comes with low fiscal costs.
Which of the above statements is/are correct?
• c) Both 1 and 2
• d) Neither 1 nor 2
Solution: a)
A key indicator of an economy’s long-run debt sustainability is the differential between interest paid on government debt and the economy’s nominal growth rate. When the cost of raising debt is lower than the gross domestic product (GDP) growth rate, public debt comes with low fiscal costs. In such a situation, the debt-to-GDP ratio of the economy declines as debts are rolled over.
Solution: a)
A key indicator of an economy’s long-run debt sustainability is the differential between interest paid on government debt and the economy’s nominal growth rate. When the cost of raising debt is lower than the gross domestic product (GDP) growth rate, public debt comes with low fiscal costs. In such a situation, the debt-to-GDP ratio of the economy declines as debts are rolled over.
• Question 4 of 5 4. Question Consider the following pairs regarding the idea of planning in India. Visvesvaraya Plan – Focus on shifting the labour from industrial sector to agriculture sector. Bombay Plan – Emphasised on the development of essential consumer goods industries in India. Gandhian Plan – Emphasis on cottage and village level industries. How many of the above statements is/are correct? (a) Only one (b) Only two (c) All three (d) None Correct Solution: b) Statement 1 is incorrect. In 1934, Sir M. Visvesvaraya had published a book titled “*Planned Economy in India*”, in which he presented a constructive draft of the development of India in next ten years. His core idea was to lay out a plan to shift labour from agriculture to industries and double up National income in ten years. In the light of the basic principles of Gandhian economics, S. N. Agarwal authored ‘The Gandhian Plan’ in 1944 in which he put emphasis on the expansion of small unit production and agriculture. Its fundamental feature was decentralisation of economic structure with self-contained villages and cottage industries. The Bombay Plan emphasizes the importance of basic industries, but also calls for the development of consumption goods industries in the early years of the plan. Incorrect Solution: b) Statement 1 is incorrect. In 1934, Sir M. Visvesvaraya had published a book titled “*Planned Economy in India*”, in which he presented a constructive draft of the development of India in next ten years. His core idea was to lay out a plan to shift labour from agriculture to industries and double up National income in ten years. In the light of the basic principles of Gandhian economics, S. N. Agarwal authored ‘The Gandhian Plan’ in 1944 in which he put emphasis on the expansion of small unit production and agriculture. Its fundamental feature was decentralisation of economic structure with self-contained villages and cottage industries. The Bombay Plan emphasizes the importance of basic industries, but also calls for the development of consumption goods industries in the early years of the plan.
#### 4. Question
Consider the following pairs regarding the idea of planning in India.
• Visvesvaraya Plan – Focus on shifting the labour from industrial sector to agriculture sector.
• Bombay Plan – Emphasised on the development of essential consumer goods industries in India.
• Gandhian Plan – Emphasis on cottage and village level industries.
How many of the above statements is/are correct?
• (a) Only one
• (b) Only two
• (c) All three
Solution: b)
Statement 1 is incorrect.
In 1934, Sir M. Visvesvaraya had published a book titled “*Planned Economy in India*”, in which he presented a constructive draft of the development of India in next ten years. His core idea was to lay out a plan to shift labour from agriculture to industries and double up National income in ten years.
In the light of the basic principles of Gandhian economics, S. N. Agarwal authored ‘The Gandhian Plan’ in 1944 in which he put emphasis on the expansion of small unit production and agriculture. Its fundamental feature was decentralisation of economic structure with self-contained villages and cottage industries.
The Bombay Plan emphasizes the importance of basic industries, but also calls for the development of consumption goods industries in the early years of the plan.
Solution: b)
Statement 1 is incorrect.
In 1934, Sir M. Visvesvaraya had published a book titled “*Planned Economy in India*”, in which he presented a constructive draft of the development of India in next ten years. His core idea was to lay out a plan to shift labour from agriculture to industries and double up National income in ten years.
In the light of the basic principles of Gandhian economics, S. N. Agarwal authored ‘The Gandhian Plan’ in 1944 in which he put emphasis on the expansion of small unit production and agriculture. Its fundamental feature was decentralisation of economic structure with self-contained villages and cottage industries.
The Bombay Plan emphasizes the importance of basic industries, but also calls for the development of consumption goods industries in the early years of the plan.
• Question 5 of 5 5. Question Cost-Push Inflation is caused due to which of the following reasons? Crude oil price fluctuation Defective Supply chain Depreciation of Currency Hoarding and Speculation of commodities Low growth of Agricultural sector How many of the above statements is/are correct? a) Only two b) Only three c) Only four d) All Five Correct Solution: d) Cost-Push Inflation: Cost push inflation is inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods. While the demand remains constant, the prices of commodities increase causing a rise in the overall price level. This is in essence cost push inflation. This type of inflation is caused due to various reasons such as: Increase in price of inputs Hoarding and Speculation of commodities Defective Supply chain Increase in indirect taxes Depreciation of Currency Crude oil price fluctuation Defective food supply chain Low growth of Agricultural sector Food Inflation Interest rates increased by RBI Incorrect Solution: d) Cost-Push Inflation: Cost push inflation is inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods. While the demand remains constant, the prices of commodities increase causing a rise in the overall price level. This is in essence cost push inflation. This type of inflation is caused due to various reasons such as: Increase in price of inputs Hoarding and Speculation of commodities Defective Supply chain Increase in indirect taxes Depreciation of Currency Crude oil price fluctuation Defective food supply chain Low growth of Agricultural sector Food Inflation Interest rates increased by RBI
#### 5. Question
Cost-Push Inflation is caused due to which of the following reasons?
• Crude oil price fluctuation
• Defective Supply chain
• Depreciation of Currency
• Hoarding and Speculation of commodities
• Low growth of Agricultural sector
How many of the above statements is/are correct?
• a) Only two
• b) Only three
• c) Only four
• d) All Five
Solution: d)
Cost-Push Inflation:
Cost push inflation is inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods. While the demand remains constant, the prices of commodities increase causing a rise in the overall price level. This is in essence cost push inflation.
This type of inflation is caused due to various reasons such as:
• Increase in price of inputs
• Hoarding and Speculation of commodities
• Defective Supply chain
• Increase in indirect taxes
• Depreciation of Currency
• Crude oil price fluctuation
• Defective food supply chain
• Low growth of Agricultural sector
• Food Inflation
• Interest rates increased by RBI
Solution: d)
Cost-Push Inflation:
Cost push inflation is inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods. While the demand remains constant, the prices of commodities increase causing a rise in the overall price level. This is in essence cost push inflation.
This type of inflation is caused due to various reasons such as:
• Increase in price of inputs
• Hoarding and Speculation of commodities
• Defective Supply chain
• Increase in indirect taxes
• Depreciation of Currency
• Crude oil price fluctuation
• Defective food supply chain
• Low growth of Agricultural sector
• Food Inflation
• Interest rates increased by RBI
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