UPSC STATIC QUIZ – Economy : 19 April 2024

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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.

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• Question 1 of 5 1. Question Consider the following statements. India’s services sector output is measured by the S&P Global India Services Purchasing Managers’ Index (PMI). Services Purchasing Managers’ Index (PMI) also provides the stock market an indicator of whether the current economy is healthy or not. The Reserve Bank of India does not look at Purchasing Managers’ Index (PMI) data to make interest rate decisions. How many of the above statements are correct? a) Only one b) Only two c) All three d) None Correct Solution: b) Statement 3 is incorrect. India’s services sector output, as measured by the S&P Global India Services Purchasing Managers’ Index (PMI), rebounded from a three-month low in June to record a 13-year high of 62.3 in July. The Services PMI provides advanced insight into the services sector, giving investors a better understanding of business conditions and valuable information about the economic backdrop of various markets. Services PMI also provides the stock market an indicator of whether the current economy is healthy or not, which generally translates to higher corporate profits. The PMI data are also used by the Reserve Bank of India to help make interest rate decisions. Incorrect Solution: b) Statement 3 is incorrect. India’s services sector output, as measured by the S&P Global India Services Purchasing Managers’ Index (PMI), rebounded from a three-month low in June to record a 13-year high of 62.3 in July. The Services PMI provides advanced insight into the services sector, giving investors a better understanding of business conditions and valuable information about the economic backdrop of various markets. Services PMI also provides the stock market an indicator of whether the current economy is healthy or not, which generally translates to higher corporate profits. The PMI data are also used by the Reserve Bank of India to help make interest rate decisions.

#### 1. Question

Consider the following statements.

• India’s services sector output is measured by the S&P Global India Services Purchasing Managers’ Index (PMI).

• Services Purchasing Managers’ Index (PMI) also provides the stock market an indicator of whether the current economy is healthy or not.

• The Reserve Bank of India does not look at Purchasing Managers’ Index (PMI) data to make interest rate decisions.

How many of the above statements are correct?

• a) Only one

• b) Only two

• c) All three

Solution: b)

Statement 3 is incorrect.

India’s services sector output, as measured by the S&P Global India Services Purchasing Managers’ Index (PMI), rebounded from a three-month low in June to record a 13-year high of 62.3 in July.

The Services PMI provides advanced insight into the services sector, giving investors a better understanding of business conditions and valuable information about the economic backdrop of various markets.

Services PMI also provides the stock market an indicator of whether the current economy is healthy or not, which generally translates to higher corporate profits.

The PMI data are also used by the Reserve Bank of India to help make interest rate decisions.

Solution: b)

Statement 3 is incorrect.

Services PMI also provides the stock market an indicator of whether the current economy is healthy or not, which generally translates to higher corporate profits.

The PMI data are also used by the Reserve Bank of India to help make interest rate decisions.

• 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) Statement 3 is incorrect. In addition to the borrowings by PSUs, the actual liabilities of the government would include loans taken for the recapitalisation of banks. Capital expenditure creates assets for the government and causes reduction in liabilities for the government. Incorrect Solution: b) Statement 3 is incorrect. In addition to the borrowings by PSUs, the actual liabilities of the government would include loans taken for the recapitalisation of banks. Capital expenditure creates assets for the government and causes reduction in liabilities for the government.

#### 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)

Statement 3 is incorrect.

In addition to the borrowings by PSUs, the actual liabilities of the government would include loans taken for the recapitalisation of banks.

Capital expenditure creates assets for the government and causes reduction in liabilities for the government.

Solution: b)

Statement 3 is incorrect.

In addition to the borrowings by PSUs, the actual liabilities of the government would include loans taken for the recapitalisation of banks.

Capital expenditure creates assets for the government and causes reduction in liabilities for the government.

• Question 3 of 5 3. Question Consider the following statements. Disinvestment involves Selling minority shares of Public Enterprises, to public or private entity When the government sells majority shares in a public sector entity, that is strategic disinvestment. Under strategic disinvestment, the government transfers the ownership and control of a public sector entity to another public entity and the private sector is not involved here. How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: b) Statement 3 is incorrect. What is strategic disinvestment or strategic sale? When the government decides to transfer the ownership and control of a public sector entity to some other entity, either private or public, the process is called strategic disinvestment. What is the difference between strategic disinvestment/sale and disinvestment Selling minority shares of Public Enterprises, to another entity be it public or private is disinvestment. In this the government retains ownership of the enterprise. On the other hand, when the government sells majority shares in an enterprise, that is strategic disinvestment/sale. Here, the government gives up the ownership of the entity as well. Incorrect Solution: b) Statement 3 is incorrect. What is strategic disinvestment or strategic sale? When the government decides to transfer the ownership and control of a public sector entity to some other entity, either private or public, the process is called strategic disinvestment. What is the difference between strategic disinvestment/sale and disinvestment Selling minority shares of Public Enterprises, to another entity be it public or private is disinvestment. In this the government retains ownership of the enterprise. On the other hand, when the government sells majority shares in an enterprise, that is strategic disinvestment/sale. Here, the government gives up the ownership of the entity as well.

#### 3. Question

Consider the following statements.

• Disinvestment involves Selling minority shares of Public Enterprises, to public or private entity

• When the government sells majority shares in a public sector entity, that is strategic disinvestment.

• Under strategic disinvestment, the government transfers the ownership and control of a public sector entity to another public entity and the private sector is not involved here.

How many of the above statements is/are correct?

• a) Only one

• b) Only two

• c) All three

Solution: b)

Statement 3 is incorrect.

What is strategic disinvestment or strategic sale? When the government decides to transfer the ownership and control of a public sector entity to some other entity, either private or public, the process is called strategic disinvestment.

What is the difference between strategic disinvestment/sale and disinvestment Selling minority shares of Public Enterprises, to another entity be it public or private is disinvestment. In this the government retains ownership of the enterprise. On the other hand, when the government sells majority shares in an enterprise, that is strategic disinvestment/sale. Here, the government gives up the ownership of the entity as well.

Solution: b)

Statement 3 is incorrect.

• Question 4 of 5 4. Question Consider the following statements regarding zero-coupon bond. A zero-coupon bond is a debt security that not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full-face value. These are special types of bonds issued only by the Central government specifically to a particular institution. Which of the above statements is/are incorrect? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Correct Solution: b) A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full-face value. It does not make periodic interest payments or have so-called coupons, hence the term zero coupon bond. When the bond reaches maturity, its investor receives its par (or face) value. Zero coupon bonds by private companies are normally issued at discount. Incorrect Solution: b) A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full-face value. It does not make periodic interest payments or have so-called coupons, hence the term zero coupon bond. When the bond reaches maturity, its investor receives its par (or face) value. Zero coupon bonds by private companies are normally issued at discount.

#### 4. Question

Consider the following statements regarding zero-coupon bond.

• A zero-coupon bond is a debt security that not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full-face value.

• These are special types of bonds issued only by the Central government specifically to a particular institution.

Which of the above statements is/are incorrect?

• (a) 1 only

• (b) 2 only

• (c) Both 1 and 2

• (d) Neither 1 nor 2

Solution: b)

A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full-face value.

It does not make periodic interest payments or have so-called coupons, hence the term zero coupon bond. When the bond reaches maturity, its investor receives its par (or face) value.

Zero coupon bonds by private companies are normally issued at discount.

Solution: b)

A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full-face value.

It does not make periodic interest payments or have so-called coupons, hence the term zero coupon bond. When the bond reaches maturity, its investor receives its par (or face) value.

Zero coupon bonds by private companies are normally issued at discount.

• Question 5 of 5 5. Question Which of the following can occur in economy of India due to deficit financing by the government? Increased private investments Inflation Increase in money supply Rise in employment rates How many of the above options is/are correct? a) Only one b) Only two c) Only three d) All four Correct Solution: d) The term ‘deficit financing’ is used to denote the direct addition to gross national expenditure through budget deficits, whether the deficits are on revenue or on capital account. Deficit financing in India is said to occur when the Union Government’s current budget deficit is covered by the withdrawal of cash balances of the government and by borrowing money from the Reserve Bank of India. Thus, in both cases, ‘new money’ comes into circulation. It is to be remembered here that government borrowing from the public by selling bonds is not to be considered as deficit financing. It is said that deficit financing is inherently inflationary. Since deficit financing raises aggregate expenditure and, hence, increases aggregate demand, the danger of inflation looms large. During inflation, private investors go on investing more and more with the hope of earning additional profits. Seeing more profits, producers would be encouraged to reinvest their savings and accumulated profits as well as increases the employment rate. Such investment leads to an increase in income—thereby setting the process of economic development rolling. Incorrect Solution: d) The term ‘deficit financing’ is used to denote the direct addition to gross national expenditure through budget deficits, whether the deficits are on revenue or on capital account. Deficit financing in India is said to occur when the Union Government’s current budget deficit is covered by the withdrawal of cash balances of the government and by borrowing money from the Reserve Bank of India. Thus, in both cases, ‘new money’ comes into circulation. It is to be remembered here that government borrowing from the public by selling bonds is not to be considered as deficit financing. It is said that deficit financing is inherently inflationary. Since deficit financing raises aggregate expenditure and, hence, increases aggregate demand, the danger of inflation looms large. During inflation, private investors go on investing more and more with the hope of earning additional profits. Seeing more profits, producers would be encouraged to reinvest their savings and accumulated profits as well as increases the employment rate. Such investment leads to an increase in income—thereby setting the process of economic development rolling.

#### 5. Question

Which of the following can occur in economy of India due to deficit financing by the government?

• Increased private investments

• Increase in money supply

• Rise in employment rates

How many of the above options is/are correct?

• a) Only one

• b) Only two

• c) Only three

• d) All four

Solution: d)

The term ‘deficit financing’ is used to denote the direct addition to gross national expenditure through budget deficits, whether the deficits are on revenue or on capital account.

Deficit financing in India is said to occur when the Union Government’s current budget deficit is covered by the withdrawal of cash balances of the government and by borrowing money from the Reserve Bank of India.

Thus, in both cases, ‘new money’ comes into circulation. It is to be remembered here that government borrowing from the public by selling bonds is not to be considered as deficit financing.

It is said that deficit financing is inherently inflationary. Since deficit financing raises aggregate expenditure and, hence, increases aggregate demand, the danger of inflation looms large.

During inflation, private investors go on investing more and more with the hope of earning additional profits. Seeing more profits, producers would be encouraged to reinvest their savings and accumulated profits as well as increases the employment rate. Such investment leads to an increase in income—thereby setting the process of economic development rolling.

Solution: d)

The term ‘deficit financing’ is used to denote the direct addition to gross national expenditure through budget deficits, whether the deficits are on revenue or on capital account.

Thus, in both cases, ‘new money’ comes into circulation. It is to be remembered here that government borrowing from the public by selling bonds is not to be considered as deficit financing.

It is said that deficit financing is inherently inflationary. Since deficit financing raises aggregate expenditure and, hence, increases aggregate demand, the danger of inflation looms large.

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