UPSC Static Quiz – Economy : 1 May 2025
Kartavya Desk Staff
UPSC Static Quiz – Economy : 1 May 2025 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 The portfolio of a Hedge fund can include stocks bonds currencies derivatives How many of the above options is/are correct? (a) Only one (b) Only two (c) Only three (d) All four Correct Solution: d) These are basically mutual funds (MFs) which invest in various securities in order to contain or hedge risks. They are investment vehicles that take big bets on a wide range of assets and specialise in sophisticated techniques of investment. A hedge fund portfolio consists of asset classes such as derivatives, equities, bonds, currencies, and convertible securities. Hence, they are also considered as alternative investments. As a collection of assets that strives to ‘hedge’ risks to investors’ money against market ups and downs, they need aggressive management. Incorrect Solution: d) These are basically mutual funds (MFs) which invest in various securities in order to contain or hedge risks. They are investment vehicles that take big bets on a wide range of assets and specialise in sophisticated techniques of investment. A hedge fund portfolio consists of asset classes such as derivatives, equities, bonds, currencies, and convertible securities. Hence, they are also considered as alternative investments. As a collection of assets that strives to ‘hedge’ risks to investors’ money against market ups and downs, they need aggressive management.
#### 1. Question
The portfolio of a Hedge fund can include
• currencies
• derivatives
How many of the above options is/are correct?
• (a) Only one
• (b) Only two
• (c) Only three
• (d) All four
Solution: d)
These are basically mutual funds (MFs) which invest in various securities in order to contain or hedge risks. They are investment vehicles that take big bets on a wide range of assets and specialise in sophisticated techniques of investment.
A hedge fund portfolio consists of asset classes such as derivatives, equities, bonds, currencies, and convertible securities. Hence, they are also considered as alternative investments. As a collection of assets that strives to ‘hedge’ risks to investors’ money against market ups and downs, they need aggressive management.
Solution: d)
These are basically mutual funds (MFs) which invest in various securities in order to contain or hedge risks. They are investment vehicles that take big bets on a wide range of assets and specialise in sophisticated techniques of investment.
A hedge fund portfolio consists of asset classes such as derivatives, equities, bonds, currencies, and convertible securities. Hence, they are also considered as alternative investments. As a collection of assets that strives to ‘hedge’ risks to investors’ money against market ups and downs, they need aggressive management.
• Question 2 of 5 2. Question The actual liabilities of the Union government include which of the following Borrowings by PSUs Loans taken for the recapitalisation of banks Capital expenditures of various Ministries. How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: b) The actual liabilities of the Union government refer to the financial obligations that it is legally bound to repay, and these are typically reflected in the Union Government’s balance sheet or accounted under the public debt and other liabilities. Statement 1 is correct – Borrowings by Public Sector Undertakings (PSUs) are not part of the formal fiscal deficit calculation but are often guaranteed by the government or serviced implicitly. In the broader accounting of government liabilities, especially under off-budget borrowings or contingent liabilities, PSU borrowings are included in the actual liabilities. Statement 2 is correct – Loans taken for bank recapitalisation, particularly when issued through recapitalisation bonds, increase the government’s debt obligations, thereby forming part of the actual liabilities. Statement 3 is incorrect – Capital expenditure (such as spending on infrastructure, health facilities, etc.) leads to asset creation. It is not classified as a liability; in fact, it often improves the fiscal health over time if it yields economic returns. Incorrect Solution: b) The actual liabilities of the Union government refer to the financial obligations that it is legally bound to repay, and these are typically reflected in the Union Government’s balance sheet or accounted under the public debt and other liabilities. Statement 1 is correct – Borrowings by Public Sector Undertakings (PSUs) are not part of the formal fiscal deficit calculation but are often guaranteed by the government or serviced implicitly. In the broader accounting of government liabilities, especially under off-budget borrowings or contingent liabilities, PSU borrowings are included in the actual liabilities. Statement 2 is correct – Loans taken for bank recapitalisation, particularly when issued through recapitalisation bonds, increase the government’s debt obligations, thereby forming part of the actual liabilities. Statement 3 is incorrect – Capital expenditure (such as spending on infrastructure, health facilities, etc.) leads to asset creation. It is not classified as a liability; in fact, it often improves the fiscal health over time if it yields economic returns.
#### 2. Question
The actual liabilities of the Union government include which of the following
• Borrowings by PSUs
• Loans taken for the recapitalisation of banks
• Capital expenditures of various Ministries.
How many of the above statements is/are correct?
• a) Only one
• b) Only two
• c) All three
Solution: b)
• The actual liabilities of the Union government refer to the financial obligations that it is legally bound to repay, and these are typically reflected in the Union Government’s balance sheet or accounted under the public debt and other liabilities.
• Statement 1 is correct – Borrowings by Public Sector Undertakings (PSUs) are not part of the formal fiscal deficit calculation but are often guaranteed by the government or serviced implicitly. In the broader accounting of government liabilities, especially under off-budget borrowings or contingent liabilities, PSU borrowings are included in the actual liabilities.
• Statement 2 is correct – Loans taken for bank recapitalisation, particularly when issued through recapitalisation bonds, increase the government’s debt obligations, thereby forming part of the actual liabilities.
Statement 3 is incorrect – Capital expenditure (such as spending on infrastructure, health facilities, etc.) leads to asset creation. It is not classified as a liability; in fact, it often improves the fiscal health over time if it yields economic returns.
Solution: b)
• The actual liabilities of the Union government refer to the financial obligations that it is legally bound to repay, and these are typically reflected in the Union Government’s balance sheet or accounted under the public debt and other liabilities.
• Statement 1 is correct – Borrowings by Public Sector Undertakings (PSUs) are not part of the formal fiscal deficit calculation but are often guaranteed by the government or serviced implicitly. In the broader accounting of government liabilities, especially under off-budget borrowings or contingent liabilities, PSU borrowings are included in the actual liabilities.
• Statement 2 is correct – Loans taken for bank recapitalisation, particularly when issued through recapitalisation bonds, increase the government’s debt obligations, thereby forming part of the actual liabilities.
Statement 3 is incorrect – Capital expenditure (such as spending on infrastructure, health facilities, etc.) leads to asset creation. It is not classified as a liability; in fact, it often improves the fiscal health over time if it yields economic returns.
• Question 3 of 5 3. Question High tax expenditure is mainly caused by a) red tape or bureaucracy b) low tax base c) large tax exemptions d) progressive tax collection system Correct Solution: c) Tax Expenditures, as the word might indicate, does not relate to the expenditures incurred by the Government in the collection of taxes. Rather it refers to the opportunity cost of taxing at concessional rates, or the opportunity cost of giving exemptions, deductions, rebates, deferrals credits etc. to the tax payers. Tax expenditures indicate how much more revenue could have been collected by the Government if not for such measures. In other words, it shows the extent of indirect subsidy enjoyed by the tax payers in the country. For instance, there is a significant divergence in India between the official rates of taxes and the actual or effective rate of taxation. This arises on account of the exemptions to the tax rate. This is called as a high tax expenditure. Incorrect Solution: c) Tax Expenditures, as the word might indicate, does not relate to the expenditures incurred by the Government in the collection of taxes. Rather it refers to the opportunity cost of taxing at concessional rates, or the opportunity cost of giving exemptions, deductions, rebates, deferrals credits etc. to the tax payers. Tax expenditures indicate how much more revenue could have been collected by the Government if not for such measures. In other words, it shows the extent of indirect subsidy enjoyed by the tax payers in the country. For instance, there is a significant divergence in India between the official rates of taxes and the actual or effective rate of taxation. This arises on account of the exemptions to the tax rate. This is called as a high tax expenditure.
#### 3. Question
High tax expenditure is mainly caused by
• a) red tape or bureaucracy
• b) low tax base
• c) large tax exemptions
• d) progressive tax collection system
Solution: c)
Tax Expenditures, as the word might indicate, does not relate to the expenditures incurred by the Government in the collection of taxes. Rather it refers to the opportunity cost of taxing at concessional rates, or the opportunity cost of giving exemptions, deductions, rebates, deferrals credits etc. to the tax payers. Tax expenditures indicate how much more revenue could have been collected by the Government if not for such measures. In other words, it shows the extent of indirect subsidy enjoyed by the tax payers in the country.
For instance, there is a significant divergence in India between the official rates of taxes and the actual or effective rate of taxation.
This arises on account of the exemptions to the tax rate.
This is called as a high tax expenditure.
Solution: c)
Tax Expenditures, as the word might indicate, does not relate to the expenditures incurred by the Government in the collection of taxes. Rather it refers to the opportunity cost of taxing at concessional rates, or the opportunity cost of giving exemptions, deductions, rebates, deferrals credits etc. to the tax payers. Tax expenditures indicate how much more revenue could have been collected by the Government if not for such measures. In other words, it shows the extent of indirect subsidy enjoyed by the tax payers in the country.
For instance, there is a significant divergence in India between the official rates of taxes and the actual or effective rate of taxation.
This arises on account of the exemptions to the tax rate.
This is called as a high tax expenditure.
• Question 4 of 5 4. Question Printing currency is not considered a good means of deficit financing due to which of the following reasons: Decreases flow of money in the economy. It decreases aggregate demands. It increases inflation proportionally. Select the correct answer code: a) 1, 2 b) 2, 3 c) 3 only d) 1, 2, 3 Correct Solution: c) Deficit financing The act/process of financing/supporting a deficit budget by a government is deficit financing. It is done by external or internal burrowing or by printing currency. Printing Currency is the last resort for the government in managing its deficit. Printing fresh currencies does have other damaging effects on the economy: It increases inflation proportionally. (India regularly went for it since the early 1970s and usually had to bear double digit inflations). Printing new currency notes Increases flow of money in the economy. Since deficit financing raises aggregate expenditure and, hence, increases aggregate demand, the danger of inflation looms large. Incorrect Solution: c) Deficit financing The act/process of financing/supporting a deficit budget by a government is deficit financing. It is done by external or internal burrowing or by printing currency. Printing Currency is the last resort for the government in managing its deficit. Printing fresh currencies does have other damaging effects on the economy: It increases inflation proportionally. (India regularly went for it since the early 1970s and usually had to bear double digit inflations). Printing new currency notes Increases flow of money in the economy. Since deficit financing raises aggregate expenditure and, hence, increases aggregate demand, the danger of inflation looms large.
#### 4. Question
Printing currency is not considered a good means of deficit financing due to which of the following reasons:
• Decreases flow of money in the economy.
• It decreases aggregate demands.
• It increases inflation proportionally.
Select the correct answer code:
• d) 1, 2, 3
Solution: c)
Deficit financing
• The act/process of financing/supporting a deficit budget by a government is deficit financing. It is done by external or internal burrowing or by printing currency.
• Printing Currency is the last resort for the government in managing its deficit.
Printing fresh currencies does have other damaging effects on the economy:
• It increases inflation proportionally. (India regularly went for it since the early 1970s and usually had to bear double digit inflations).
• Printing new currency notes Increases flow of money in the economy.
• Since deficit financing raises aggregate expenditure and, hence, increases aggregate demand, the danger of inflation looms large.
Solution: c)
Deficit financing
• The act/process of financing/supporting a deficit budget by a government is deficit financing. It is done by external or internal burrowing or by printing currency.
• Printing Currency is the last resort for the government in managing its deficit.
Printing fresh currencies does have other damaging effects on the economy:
• It increases inflation proportionally. (India regularly went for it since the early 1970s and usually had to bear double digit inflations).
• Printing new currency notes Increases flow of money in the economy.
• Since deficit financing raises aggregate expenditure and, hence, increases aggregate demand, the danger of inflation looms large.
• Question 5 of 5 5. Question Additional Grant is given by the Parliament to the executive when a) the government seeks advance money before the enactment of the budget to meet current expenditures b) an unexpected demand upon the resources of India has arisen which cannot be stated with the details ordinarily given in a budget c) an extra expenditure upon some new service not contemplated in the budget for that year is sought d) there is excess expenditure in a financial year considering the amount granted for that service in the budget Correct Solution: c) An Additional Grant is a type of supplementary financial provision sanctioned by the Parliament when the government requires funds for a new service or purpose not anticipated at the time of the original budget presentation. This distinguishes it from other grants which are tied to previously budgeted services or known expenditures. Option c) correctly reflects the intent behind an Additional Grant: it is meant to accommodate new expenditure arising during the same financial year that was not originally contemplated in the budget. The other options refer to different types of grants: Option a) describes a Vote on Account, which allows the government to withdraw funds in advance of budget approval. Option b) aligns with Exceptional Grant, which is for a special purpose that cannot be specified with budgetary details. Option d) corresponds to Excess Grant, which is required when actual expenditure exceeds the amount previously sanctioned. Incorrect Solution: c) An Additional Grant is a type of supplementary financial provision sanctioned by the Parliament when the government requires funds for a new service or purpose not anticipated at the time of the original budget presentation. This distinguishes it from other grants which are tied to previously budgeted services or known expenditures. Option c) correctly reflects the intent behind an Additional Grant: it is meant to accommodate new expenditure arising during the same financial year that was not originally contemplated in the budget. The other options refer to different types of grants: Option a) describes a Vote on Account, which allows the government to withdraw funds in advance of budget approval. Option b) aligns with Exceptional Grant, which is for a special purpose that cannot be specified with budgetary details. Option d) corresponds to Excess Grant, which is required when actual expenditure exceeds the amount previously sanctioned.
#### 5. Question
Additional Grant is given by the Parliament to the executive when
• a) the government seeks advance money before the enactment of the budget to meet current expenditures
• b) an unexpected demand upon the resources of India has arisen which cannot be stated with the details ordinarily given in a budget
• c) an extra expenditure upon some new service not contemplated in the budget for that year is sought
• d) there is excess expenditure in a financial year considering the amount granted for that service in the budget
Solution: c)
An Additional Grant is a type of supplementary financial provision sanctioned by the Parliament when the government requires funds for a new service or purpose not anticipated at the time of the original budget presentation. This distinguishes it from other grants which are tied to previously budgeted services or known expenditures.
Option c) correctly reflects the intent behind an Additional Grant: it is meant to accommodate new expenditure arising during the same financial year that was not originally contemplated in the budget.
The other options refer to different types of grants:
• Option a) describes a Vote on Account, which allows the government to withdraw funds in advance of budget approval.
• Option b) aligns with Exceptional Grant, which is for a special purpose that cannot be specified with budgetary details.
• Option d) corresponds to Excess Grant, which is required when actual expenditure exceeds the amount previously sanctioned.
Solution: c)
An Additional Grant is a type of supplementary financial provision sanctioned by the Parliament when the government requires funds for a new service or purpose not anticipated at the time of the original budget presentation. This distinguishes it from other grants which are tied to previously budgeted services or known expenditures.
Option c) correctly reflects the intent behind an Additional Grant: it is meant to accommodate new expenditure arising during the same financial year that was not originally contemplated in the budget.
The other options refer to different types of grants:
• Option a) describes a Vote on Account, which allows the government to withdraw funds in advance of budget approval.
• Option b) aligns with Exceptional Grant, which is for a special purpose that cannot be specified with budgetary details.
• Option d) corresponds to Excess Grant, which is required when actual expenditure exceeds the amount previously sanctioned.
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