UPSC Static Quiz – Economy : 12 June 2025

UPSC Static Quiz – Economy : 12 June 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.

Why Participate in the UPSC Static Quiz?

Participating in daily quizzes helps reinforce your knowledge and identify areas that need improvement. Regular practice will enhance your recall abilities and boost your confidence for the examination. By covering various topics throughout the week, you ensure a comprehensive revision of the syllabus.

#### Quiz-summary

0 of 5 questions completed

Questions:

#### Information

Best of Luck! 🙂

You have already completed the quiz before. Hence you can not start it again.

Quiz is loading...

You must sign in or sign up to start the quiz.

You have to finish following quiz, to start this quiz:

0 of 5 questions answered correctly

Your time:

Time has elapsed

You have reached 0 of 0 points, (0)

#### Categories

• Not categorized 0%

• Question 1 of 5 1. Question What does the ‘Laffer Curve’ conceptually illustrate in economics? (a) The relationship between inflation and unemployment. (b) The relationship between government spending and economic growth. (c) The relationship between tax rates and the amount of tax revenue collected by governments. (d) The relationship between interest rates and investment levels. Correct Solution: c) The Laffer Curve is a theoretical representation of the relationship between rates of taxation and the resulting levels of government tax revenue. It suggests that as tax rates increase from 0%, tax revenue will also increase. However, if tax rates continue to rise beyond a certain optimal point (which is unspecified by the curve itself), tax revenue will begin to decrease. This is because excessively high tax rates can disincentivize work, saving, and investment, leading to a smaller tax base or increased tax evasion and avoidance. The curve implies that there is an optimal tax rate that maximizes government revenue. Incorrect Solution: c) The Laffer Curve is a theoretical representation of the relationship between rates of taxation and the resulting levels of government tax revenue. It suggests that as tax rates increase from 0%, tax revenue will also increase. However, if tax rates continue to rise beyond a certain optimal point (which is unspecified by the curve itself), tax revenue will begin to decrease. This is because excessively high tax rates can disincentivize work, saving, and investment, leading to a smaller tax base or increased tax evasion and avoidance. The curve implies that there is an optimal tax rate that maximizes government revenue.

#### 1. Question

What does the ‘Laffer Curve’ conceptually illustrate in economics?

• (a) The relationship between inflation and unemployment.

• (b) The relationship between government spending and economic growth.

• (c) The relationship between tax rates and the amount of tax revenue collected by governments.

• (d) The relationship between interest rates and investment levels.

Solution: c)

• The Laffer Curve is a theoretical representation of the relationship between rates of taxation and the resulting levels of government tax revenue. It suggests that as tax rates increase from 0%, tax revenue will also increase.

• However, if tax rates continue to rise beyond a certain optimal point (which is unspecified by the curve itself), tax revenue will begin to decrease. This is because excessively high tax rates can disincentivize work, saving, and investment, leading to a smaller tax base or increased tax evasion and avoidance.

• The curve implies that there is an optimal tax rate that maximizes government revenue.

Solution: c)

• The curve implies that there is an optimal tax rate that maximizes government revenue.

• Question 2 of 5 2. Question Which of the following best describes ‘Core Inflation’? (a) Inflation rate calculated using the Consumer Price Index (CPI) for industrial workers. (b) Inflation rate specifically targeting the wholesale price changes in manufactured goods. (c) The average inflation rate observed over a period of five years. (d) Inflation rate that excludes the prices of food and energy commodities. Correct Solution: d) Core inflation is a measure of inflation that excludes items with volatile price movements, primarily food and energy (fuel) prices, from the broader inflation calculation (like CPI or WPI). The rationale behind this exclusion is that food and energy prices are often subject to temporary supply shocks (e.g., weather conditions, geopolitical events) that may not reflect the underlying, more persistent inflationary pressures in the economy. By removing these volatile components, core inflation aims to provide a clearer picture of the underlying inflation trend and is often monitored by central banks for monetary policy formulation. It helps policymakers distinguish between temporary price fluctuations and more sustained inflationary trends. Incorrect Solution: d) Core inflation is a measure of inflation that excludes items with volatile price movements, primarily food and energy (fuel) prices, from the broader inflation calculation (like CPI or WPI). The rationale behind this exclusion is that food and energy prices are often subject to temporary supply shocks (e.g., weather conditions, geopolitical events) that may not reflect the underlying, more persistent inflationary pressures in the economy. By removing these volatile components, core inflation aims to provide a clearer picture of the underlying inflation trend and is often monitored by central banks for monetary policy formulation. It helps policymakers distinguish between temporary price fluctuations and more sustained inflationary trends.

#### 2. Question

Which of the following best describes ‘Core Inflation’?

• (a) Inflation rate calculated using the Consumer Price Index (CPI) for industrial workers.

• (b) Inflation rate specifically targeting the wholesale price changes in manufactured goods.

• (c) The average inflation rate observed over a period of five years.

• (d) Inflation rate that excludes the prices of food and energy commodities.

Solution: d)

• Core inflation is a measure of inflation that excludes items with volatile price movements, primarily food and energy (fuel) prices, from the broader inflation calculation (like CPI or WPI). The rationale behind this exclusion is that food and energy prices are often subject to temporary supply shocks (e.g., weather conditions, geopolitical events) that may not reflect the underlying, more persistent inflationary pressures in the economy.

• By removing these volatile components, core inflation aims to provide a clearer picture of the underlying inflation trend and is often monitored by central banks for monetary policy formulation.

• It helps policymakers distinguish between temporary price fluctuations and more sustained inflationary trends.

Solution: d)

• By removing these volatile components, core inflation aims to provide a clearer picture of the underlying inflation trend and is often monitored by central banks for monetary policy formulation.

• It helps policymakers distinguish between temporary price fluctuations and more sustained inflationary trends.

• Question 3 of 5 3. Question The ‘Crowding Out Effect’ in fiscal policy refers to a situation where: (a) Increased government spending leads to higher private investment due to improved infrastructure. (b) Government borrowing to finance its deficit leads to higher interest rates, thereby reducing private investment. (c) Expansionary fiscal policy leads to a decrease in the current account deficit. (d) Tax cuts for corporations lead to increased employment but lower wage growth. Correct Solution: b) The ‘Crowding Out Effect’ describes a scenario where increased government borrowing to finance its budget deficit leads to a rise in interest rates. When the government borrows heavily from the market, it increases the demand for loanable funds. If the supply of these funds does not increase proportionally, interest rates rise. These higher interest rates make borrowing more expensive for private businesses and individuals, potentially leading to a reduction in private investment and consumption spending. Incorrect Solution: b) The ‘Crowding Out Effect’ describes a scenario where increased government borrowing to finance its budget deficit leads to a rise in interest rates. When the government borrows heavily from the market, it increases the demand for loanable funds. If the supply of these funds does not increase proportionally, interest rates rise. These higher interest rates make borrowing more expensive for private businesses and individuals, potentially leading to a reduction in private investment and consumption spending.

#### 3. Question

The ‘Crowding Out Effect’ in fiscal policy refers to a situation where:

• (a) Increased government spending leads to higher private investment due to improved infrastructure.

• (b) Government borrowing to finance its deficit leads to higher interest rates, thereby reducing private investment.

• (c) Expansionary fiscal policy leads to a decrease in the current account deficit.

• (d) Tax cuts for corporations lead to increased employment but lower wage growth.

Solution: b)

• The ‘Crowding Out Effect’ describes a scenario where increased government borrowing to finance its budget deficit leads to a rise in interest rates.

• When the government borrows heavily from the market, it increases the demand for loanable funds. If the supply of these funds does not increase proportionally, interest rates rise.

• These higher interest rates make borrowing more expensive for private businesses and individuals, potentially leading to a reduction in private investment and consumption spending.

Solution: b)

• The ‘Crowding Out Effect’ describes a scenario where increased government borrowing to finance its budget deficit leads to a rise in interest rates.

• When the government borrows heavily from the market, it increases the demand for loanable funds. If the supply of these funds does not increase proportionally, interest rates rise.

• These higher interest rates make borrowing more expensive for private businesses and individuals, potentially leading to a reduction in private investment and consumption spending.

• Question 4 of 5 4. Question With reference to the National Payments Corporation of India (NPCI), consider the following statements: It is an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007. Unified Payments Interface (UPI) is a flagship product of NPCI. NPCI is a for-profit company registered under Section 8 of the Companies Act, 2013. 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 correct: The National Payments Corporation of India (NPCI) is an umbrella organization for operating retail payments and settlement systems in India. It is an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust payment and settlement infrastructure in India. Statement 2 is correct: Unified Payments Interface (UPI) is a flagship product of NPCI. UPI is a real-time payment system that allows instant transfer of funds between two bank accounts through a mobile platform. Statement 3 is incorrect: NPCI is incorporated as a “Not for Profit” company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act 2013), with an intention to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems. Incorrect Solution: a) Statement 1 is correct: The National Payments Corporation of India (NPCI) is an umbrella organization for operating retail payments and settlement systems in India. It is an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust payment and settlement infrastructure in India. Statement 2 is correct: Unified Payments Interface (UPI) is a flagship product of NPCI. UPI is a real-time payment system that allows instant transfer of funds between two bank accounts through a mobile platform. Statement 3 is incorrect: NPCI is incorporated as a “Not for Profit” company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act 2013), with an intention to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems.

#### 4. Question

With reference to the National Payments Corporation of India (NPCI), consider the following statements:

• It is an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007.

• Unified Payments Interface (UPI) is a flagship product of NPCI.

• NPCI is a for-profit company registered under Section 8 of the Companies Act, 2013.

How many of the above statements is/are incorrect?

• (a) Only one

• (b) Only two

• (c) All three

Solution: a)

• Statement 1 is correct: The National Payments Corporation of India (NPCI) is an umbrella organization for operating retail payments and settlement systems in India. It is an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust payment and settlement infrastructure in India.

• Statement 2 is correct: Unified Payments Interface (UPI) is a flagship product of NPCI. UPI is a real-time payment system that allows instant transfer of funds between two bank accounts through a mobile platform.

• Statement 3 is incorrect: NPCI is incorporated as a “Not for Profit” company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act 2013), with an intention to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems.

Solution: a)

• Question 5 of 5 5. Question Consider the following statements regarding Inflation Indexed Bonds (IIBs) in India: IIBs provide protection to investors from uncertainty regarding inflation by adjusting the principal amount based on the inflation index. Typically, the coupon rate on IIBs is fixed, but the interest payments vary as they are applied to the inflation-adjusted principal. Both retail and institutional investors can invest in IIBs. How many of the above statements is/are correct? (a) Only one (b) Only two (c) All three (d) None Correct Solution: c) Statement 1 is correct: Inflation Indexed Bonds (IIBs) are designed to protect investors from inflation. The principal amount of an IIB is indexed to an inflation measure (like CPI). If inflation rises, the principal value is adjusted upward, ensuring the real value of the investment is preserved. Statement 2 is correct: Typically, IIBs carry a fixed coupon rate (real interest rate). However, since this fixed rate is applied to the inflation-adjusted principal, the actual interest payment received by the investor will vary with the level of inflation. Statement 3 is correct: IIBs in India have been made available for various categories of investors, including retail investors, institutional investors like banks, insurance companies, and pension funds. Therefore, all three statements are correct. These bonds offer a hedge against inflation, which is particularly attractive during periods of rising prices. Incorrect Solution: c) Statement 1 is correct: Inflation Indexed Bonds (IIBs) are designed to protect investors from inflation. The principal amount of an IIB is indexed to an inflation measure (like CPI). If inflation rises, the principal value is adjusted upward, ensuring the real value of the investment is preserved. Statement 2 is correct: Typically, IIBs carry a fixed coupon rate (real interest rate). However, since this fixed rate is applied to the inflation-adjusted principal, the actual interest payment received by the investor will vary with the level of inflation. Statement 3 is correct: IIBs in India have been made available for various categories of investors, including retail investors, institutional investors like banks, insurance companies, and pension funds. Therefore, all three statements are correct. These bonds offer a hedge against inflation, which is particularly attractive during periods of rising prices.

#### 5. Question

Consider the following statements regarding Inflation Indexed Bonds (IIBs) in India:

• IIBs provide protection to investors from uncertainty regarding inflation by adjusting the principal amount based on the inflation index.

• Typically, the coupon rate on IIBs is fixed, but the interest payments vary as they are applied to the inflation-adjusted principal.

• Both retail and institutional investors can invest in IIBs.

How many of the above statements is/are correct?

• (a) Only one

• (b) Only two

• (c) All three

Solution: c)

• Statement 1 is correct: Inflation Indexed Bonds (IIBs) are designed to protect investors from inflation. The principal amount of an IIB is indexed to an inflation measure (like CPI). If inflation rises, the principal value is adjusted upward, ensuring the real value of the investment is preserved.

• Statement 2 is correct: Typically, IIBs carry a fixed coupon rate (real interest rate). However, since this fixed rate is applied to the inflation-adjusted principal, the actual interest payment received by the investor will vary with the level of inflation.

• Statement 3 is correct: IIBs in India have been made available for various categories of investors, including retail investors, institutional investors like banks, insurance companies, and pension funds. Therefore, all three statements are correct. These bonds offer a hedge against inflation, which is particularly attractive during periods of rising prices.

Solution: c)

Join our Official Telegram Channel HERE for Motivation and Fast Updates

Join our Twitter Channel HERE

Follow our Instagram Channel HERE

Stay Consistent

Consistency is key in UPSC preparation. By making the UPSC Static Quiz a part of your daily routine, you will steadily improve your knowledge base and exam readiness. Join us every day to tackle new questions and make your journey towards UPSC success more structured and effective.