UPSC Static Quiz – Economy : 22 February 2025

UPSC Static Quiz – Economy : 22 February 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 Consider the following statements regarding fiduciary money: Fiduciary money includes cheques and banknotes, which derive their value from trust. Fiduciary money is legally required to be accepted for all transactions. A bank’s promise to pay a depositor on demand in paper currency represents fiduciary money. How many of the above statements are incorrect? (a) Only one (b) Only two (c) All three (d) None Correct Solution: a) Fiduciary money is a type of money whose value is derived from the trust and confidence between the payer and the payee rather than being backed by a legal mandate or intrinsic value. Statement 1 is correct because cheques and banknotes function as fiduciary money; their acceptance depends on the belief that they can be exchanged for fiat money or goods. Statement 2 is incorrect since fiduciary money is not legally required to be accepted for all transactions, unlike fiat money, which is declared legal tender by the government. People can refuse to accept fiduciary money, making its acceptance voluntary. Statement 3 is correct because a bank’s promise to pay a depositor in paper currency reflects fiduciary money principles—customers trust that the bank will honor withdrawals. Incorrect Solution: a) Fiduciary money is a type of money whose value is derived from the trust and confidence between the payer and the payee rather than being backed by a legal mandate or intrinsic value. Statement 1 is correct because cheques and banknotes function as fiduciary money; their acceptance depends on the belief that they can be exchanged for fiat money or goods. Statement 2 is incorrect since fiduciary money is not legally required to be accepted for all transactions, unlike fiat money, which is declared legal tender by the government. People can refuse to accept fiduciary money, making its acceptance voluntary. Statement 3 is correct because a bank’s promise to pay a depositor in paper currency reflects fiduciary money principles—customers trust that the bank will honor withdrawals.

#### 1. Question

Consider the following statements regarding fiduciary money:

• Fiduciary money includes cheques and banknotes, which derive their value from trust.

• Fiduciary money is legally required to be accepted for all transactions.

• A bank’s promise to pay a depositor on demand in paper currency represents fiduciary money.

How many of the above statements are incorrect?

• (a) Only one

• (b) Only two

• (c) All three

Solution: a)

• Fiduciary money is a type of money whose value is derived from the trust and confidence between the payer and the payee rather than being backed by a legal mandate or intrinsic value.

• Statement 1 is correct because cheques and banknotes function as fiduciary money; their acceptance depends on the belief that they can be exchanged for fiat money or goods.

• Statement 2 is incorrect since fiduciary money is not legally required to be accepted for all transactions, unlike fiat money, which is declared legal tender by the government. People can refuse to accept fiduciary money, making its acceptance voluntary.

• Statement 3 is correct because a bank’s promise to pay a depositor in paper currency reflects fiduciary money principles—customers trust that the bank will honor withdrawals.

Solution: a)

• Fiduciary money is a type of money whose value is derived from the trust and confidence between the payer and the payee rather than being backed by a legal mandate or intrinsic value.

• Statement 1 is correct because cheques and banknotes function as fiduciary money; their acceptance depends on the belief that they can be exchanged for fiat money or goods.

• Statement 3 is correct because a bank’s promise to pay a depositor in paper currency reflects fiduciary money principles—customers trust that the bank will honor withdrawals.

• Question 2 of 5 2. Question Which of the following best describes Near Money (Quasi-Money)? a) Coins and paper money officially declared as legal tender b) Physical commodities like gold and silver that serve as legal tender c) Cryptocurrency, which is a form of legal tender issued by central banks d) Assets that are not cash but can be converted into cash with minimal loss of value Correct Solution: d) Near money, also known as quasi-money, refers to financial assets that are highly liquid and can be easily converted into cash with minimal loss of value, but they are not directly used for transactions. Statement (d) is correct because near money includes assets such as savings accounts, money market funds, certificates of deposit (CDs), and government treasury securities. These assets can be quickly liquidated but are not used as a direct medium of exchange like cash. Statement (a) is incorrect as coins and paper money are fiat money, which is legal tender, not near money. Statement (b) is incorrect because gold and silver are considered commodity money, not near money. They have intrinsic value but are not easily convertible into cash without price fluctuations. Statement (c) is incorrect since cryptocurrency is not yet widely accepted as near money in official financial systems due to volatility and lack of regulation. Incorrect Solution: d) Near money, also known as quasi-money, refers to financial assets that are highly liquid and can be easily converted into cash with minimal loss of value, but they are not directly used for transactions. Statement (d) is correct because near money includes assets such as savings accounts, money market funds, certificates of deposit (CDs), and government treasury securities. These assets can be quickly liquidated but are not used as a direct medium of exchange like cash. Statement (a) is incorrect as coins and paper money are fiat money, which is legal tender, not near money. Statement (b) is incorrect because gold and silver are considered commodity money, not near money. They have intrinsic value but are not easily convertible into cash without price fluctuations. Statement (c) is incorrect since cryptocurrency is not yet widely accepted as near money in official financial systems due to volatility and lack of regulation.

#### 2. Question

Which of the following best describes Near Money (Quasi-Money)?

• a) Coins and paper money officially declared as legal tender

• b) Physical commodities like gold and silver that serve as legal tender

• c) Cryptocurrency, which is a form of legal tender issued by central banks

• d) Assets that are not cash but can be converted into cash with minimal loss of value

Solution: d)

• Near money, also known as quasi-money, refers to financial assets that are highly liquid and can be easily converted into cash with minimal loss of value, but they are not directly used for transactions.

• Statement (d) is correct because near money includes assets such as savings accounts, money market funds, certificates of deposit (CDs), and government treasury securities. These assets can be quickly liquidated but are not used as a direct medium of exchange like cash.

Statement (a) is incorrect as coins and paper money are fiat money, which is legal tender, not near money.

Statement (b) is incorrect because gold and silver are considered commodity money, not near money. They have intrinsic value but are not easily convertible into cash without price fluctuations.

Statement (c) is incorrect since cryptocurrency is not yet widely accepted as near money in official financial systems due to volatility and lack of regulation.

Solution: d)

Statement (a) is incorrect as coins and paper money are fiat money, which is legal tender, not near money.

Statement (c) is incorrect since cryptocurrency is not yet widely accepted as near money in official financial systems due to volatility and lack of regulation.

• Question 3 of 5 3. Question Consider the following statements about near money: Near money is a form of fiat money issued by the central bank. Near money is included in the M1 money supply. All financial assets that have value are considered near money. How many of the above statements are correct? a) Only one (b) Only two (c) All three (d) None Correct Solution: d) Statement 1 is incorrect: Near money is not a form of fiat money issued by the central bank. Instead, it includes savings accounts, treasury bills, money market funds, and certificates of deposit (CDs), which can be converted into cash relatively easily. Fiat money, on the other hand, is legal tender issued by the central bank, such as coins and banknotes. Statement 2 is incorrect: Near money is not included in M1, which consists of cash and demand deposits. Instead, it is included in broader money supply measures like M2 and M3, which account for assets that can be converted into cash but are not immediately available for transactions. Statement 3 is incorrect: Not all financial assets qualify as near money. Stocks, real estate, and long-term bonds have value but are not highly liquid, meaning they cannot be quickly converted into cash without losing value. Incorrect Solution: d) Statement 1 is incorrect: Near money is not a form of fiat money issued by the central bank. Instead, it includes savings accounts, treasury bills, money market funds, and certificates of deposit (CDs), which can be converted into cash relatively easily. Fiat money, on the other hand, is legal tender issued by the central bank, such as coins and banknotes. Statement 2 is incorrect: Near money is not included in M1, which consists of cash and demand deposits. Instead, it is included in broader money supply measures like M2 and M3, which account for assets that can be converted into cash but are not immediately available for transactions. Statement 3 is incorrect: Not all financial assets qualify as near money. Stocks, real estate, and long-term bonds have value but are not highly liquid, meaning they cannot be quickly converted into cash without losing value.

#### 3. Question

Consider the following statements about near money:

• Near money is a form of fiat money issued by the central bank.

• Near money is included in the M1 money supply.

• All financial assets that have value are considered near money.

How many of the above statements are correct?

• a) Only one

• (b) Only two

• (c) All three

Solution: d)

• Statement 1 is incorrect: Near money is not a form of fiat money issued by the central bank. Instead, it includes savings accounts, treasury bills, money market funds, and certificates of deposit (CDs), which can be converted into cash relatively easily. Fiat money, on the other hand, is legal tender issued by the central bank, such as coins and banknotes.

• Statement 2 is incorrect: Near money is not included in M1, which consists of cash and demand deposits. Instead, it is included in broader money supply measures like M2 and M3, which account for assets that can be converted into cash but are not immediately available for transactions.

• Statement 3 is incorrect: Not all financial assets qualify as near money. Stocks, real estate, and long-term bonds have value but are not highly liquid, meaning they cannot be quickly converted into cash without losing value.

Solution: d)

• Question 4 of 5 4. Question Consider the following statements regarding plastic money: Plastic money eliminates the need for carrying cash for transactions. Plastic money does not require any form of authentication for security. Transactions made using plastic money are automatically recorded by financial institutions. How many of the above statements are incorrect? (a) Only one (b) Only two (c) All three (d) None Correct Solution: a) Plastic money refers to payment cards such as credit cards, debit cards, prepaid cards, and Forex cards, which enable cashless transactions and offer security, convenience, and record-keeping advantages. Statement 1 is correct: Plastic money allows cashless transactions, reducing the need to carry physical cash. It is widely accepted for purchases, online payments, and ATM withdrawals, making transactions easier and more secure. Statement 2 is incorrect: Plastic money requires authentication for security purposes, such as PIN (Personal Identification Number), OTP (One-Time Password), biometric verification, or CVV codes for card transactions. This security feature prevents unauthorized use and fraud. Statement 3 is correct: Transactions made using plastic money are automatically recorded by financial institutions. Banks and credit card providers maintain detailed statements, helping users track their spending, budget effectively, and manage finances efficiently. Incorrect Solution: a) Plastic money refers to payment cards such as credit cards, debit cards, prepaid cards, and Forex cards, which enable cashless transactions and offer security, convenience, and record-keeping advantages. Statement 1 is correct: Plastic money allows cashless transactions, reducing the need to carry physical cash. It is widely accepted for purchases, online payments, and ATM withdrawals, making transactions easier and more secure. Statement 2 is incorrect: Plastic money requires authentication for security purposes, such as PIN (Personal Identification Number), OTP (One-Time Password), biometric verification, or CVV codes for card transactions. This security feature prevents unauthorized use and fraud. Statement 3 is correct: Transactions made using plastic money are automatically recorded by financial institutions. Banks and credit card providers maintain detailed statements, helping users track their spending, budget effectively, and manage finances efficiently.

#### 4. Question

Consider the following statements regarding plastic money:

• Plastic money eliminates the need for carrying cash for transactions.

• Plastic money does not require any form of authentication for security.

• Transactions made using plastic money are automatically recorded by financial institutions.

How many of the above statements are incorrect?

• (a) Only one

• (b) Only two

• (c) All three

Solution: a)

Plastic money refers to payment cards such as credit cards, debit cards, prepaid cards, and Forex cards, which enable cashless transactions and offer security, convenience, and record-keeping advantages.

• Statement 1 is correct: Plastic money allows cashless transactions, reducing the need to carry physical cash. It is widely accepted for purchases, online payments, and ATM withdrawals, making transactions easier and more secure.

• Statement 2 is incorrect: Plastic money requires authentication for security purposes, such as PIN (Personal Identification Number), OTP (One-Time Password), biometric verification, or CVV codes for card transactions. This security feature prevents unauthorized use and fraud.

• Statement 3 is correct: Transactions made using plastic money are automatically recorded by financial institutions. Banks and credit card providers maintain detailed statements, helping users track their spending, budget effectively, and manage finances efficiently.

Solution: a)

• Question 5 of 5 5. Question Which of the following are included in M1 definition of money for the Indian economy? Time Deposits Currency Demand Deposits Reserves Select the correct answer code: a) 1, 4 b) 2, 4 c) 2, 3 d) 1, 3, 4 Correct Solution: c) M1 is the money supply that is composed of currency, demand deposits, other liquid deposits—which includes savings deposits. M1 includes the most liquid portions of the money supply because it contains currency and assets that either are or can be quickly converted to cash. Incorrect Solution: c) M1 is the money supply that is composed of currency, demand deposits, other liquid deposits—which includes savings deposits. M1 includes the most liquid portions of the money supply because it contains currency and assets that either are or can be quickly converted to cash.

#### 5. Question

Which of the following are included in M1 definition of money for the Indian economy?

• Time Deposits

• Demand Deposits

Select the correct answer code:

• d) 1, 3, 4

Solution: c)

M1 is the money supply that is composed of currency, demand deposits, other liquid deposits—which includes savings deposits. M1 includes the most liquid portions of the money supply because it contains currency and assets that either are or can be quickly converted to cash.

Solution: c)

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