UPSC Static Quiz – Economy : 22 July 2024

UPSC Static Quiz – Economy : 22 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 In India, Microcredit is delivered through which of the following channels? Microfinance institutions (MFIs) registered as NBFCs Cooperative banks Scheduled commercial banks including small finance banks (SFBs). Non-banking financial companies (NBFCs) How many of the above options is/are correct? (a) Only one (b) Only two c) Only three d) All four Correct Solution: d) Microfinance is a form of financial service which provides small loans and other financial services to poor and low-income households. Microcredit is delivered through a variety of institutional channels viz., (i) scheduled commercial banks (SCBs) (including small finance banks (SFBs) and regional rural banks (RRBs)) lending both directly as well as through business correspondents (BCs) and self-help groups (SHGs), (ii) cooperative banks, (iii) non-banking financial companies (NBFCs), and (iv) microfinance institutions (MFIs) registered as NBFCs as well as in other forms. Incorrect Solution: d) Microfinance is a form of financial service which provides small loans and other financial services to poor and low-income households. Microcredit is delivered through a variety of institutional channels viz., (i) scheduled commercial banks (SCBs) (including small finance banks (SFBs) and regional rural banks (RRBs)) lending both directly as well as through business correspondents (BCs) and self-help groups (SHGs), (ii) cooperative banks, (iii) non-banking financial companies (NBFCs), and (iv) microfinance institutions (MFIs) registered as NBFCs as well as in other forms.

#### 1. Question

In India, Microcredit is delivered through which of the following channels?

• Microfinance institutions (MFIs) registered as NBFCs

• Cooperative banks

• Scheduled commercial banks including small finance banks (SFBs).

• Non-banking financial companies (NBFCs)

How many of the above options is/are correct?

• (a) Only one

• (b) Only two

• c) Only three

• d) All four

Solution: d)

Microfinance is a form of financial service which provides small loans and other financial services to poor and low-income households.

Microcredit is delivered through a variety of institutional channels viz., (i) scheduled commercial banks (SCBs) (including small finance banks (SFBs) and regional rural banks (RRBs)) lending both directly as well as through business correspondents (BCs) and self-help groups (SHGs), (ii) cooperative banks, (iii) non-banking financial companies (NBFCs), and (iv) microfinance institutions (MFIs) registered as NBFCs as well as in other forms.

Solution: d)

Microfinance is a form of financial service which provides small loans and other financial services to poor and low-income households.

• Question 2 of 5 2. Question Consider the following statements. The Reserve Bank of India (RBI) normally pays the dividend to the Central Government from the surplus income it earns on investments and valuation changes on its dollar holdings and the fees it gets from printing currency. The Reserve Bank of India (RBI) has developed an Economic Capital Framework (ECF) for determining the allocation of funds to its capital reserves so that any risk contingency can be met. The RBI cannot bank on the Contingency Fund in case of any emergency requirement. 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. The RBI can bank on the Contingency Fund in case of any emergency requirement. The RBI normally pays the dividend from the surplus income it earns on investments and valuation changes on its dollar holdings and the fees it gets from printing currency, among others. The Reserve Bank of India (RBI) has developed an Economic Capital Framework (ECF) for determining the allocation of funds to its capital reserves so that any risk contingency can be met and as well as to transfer the profit of the RBI to the government. Incorrect Solution: b) Statement 3 is incorrect. The RBI can bank on the Contingency Fund in case of any emergency requirement. The RBI normally pays the dividend from the surplus income it earns on investments and valuation changes on its dollar holdings and the fees it gets from printing currency, among others. The Reserve Bank of India (RBI) has developed an Economic Capital Framework (ECF) for determining the allocation of funds to its capital reserves so that any risk contingency can be met and as well as to transfer the profit of the RBI to the government.

#### 2. Question

Consider the following statements.

• The Reserve Bank of India (RBI) normally pays the dividend to the Central Government from the surplus income it earns on investments and valuation changes on its dollar holdings and the fees it gets from printing currency.

• The Reserve Bank of India (RBI) has developed an Economic Capital Framework (ECF) for determining the allocation of funds to its capital reserves so that any risk contingency can be met.

• The RBI cannot bank on the Contingency Fund in case of any emergency requirement.

How many of the above statements is/are correct?

• a) Only one

• b) Only two

• c) All three

Solution: b)

Statement 3 is incorrect.

The RBI can bank on the Contingency Fund in case of any emergency requirement.

The RBI normally pays the dividend from the surplus income it earns on investments and valuation changes on its dollar holdings and the fees it gets from printing currency, among others.

The Reserve Bank of India (RBI) has developed an Economic Capital Framework (ECF) for determining the allocation of funds to its capital reserves so that any risk contingency can be met and as well as to transfer the profit of the RBI to the government.

Solution: b)

Statement 3 is incorrect.

The RBI can bank on the Contingency Fund in case of any emergency requirement.

The RBI normally pays the dividend from the surplus income it earns on investments and valuation changes on its dollar holdings and the fees it gets from printing currency, among others.

• Question 3 of 5 3. Question Consider the following statements regarding loan write-off. Writing off a loan essentially means it will no longer be counted as an asset, by the bank. The amount so written off reduces the bank’s tax liability. After the write-off, banks are not supposed to continue their efforts to recover the loan. How many of the above statements is/are incorrect? a) Only one b) Only two c) All three d) None Correct Solution: a) Statement 3 is incorrect. Writing off a loan essentially means it will no longer be counted as an asset. By writing off loans, a bank can reduce the level of non-performing assets (NPAs) on its books. An additional benefit is that the amount so written off reduces the bank’s tax liability. The bank writes off a loan after the borrower has defaulted on the loan repayment and there is a very low chance of recovery. The lender then moves the defaulted loan, or NPA, out of the assets side and reports the amount as a loss. After the write-off, banks are supposed to continue their efforts to recover the loan using various options. They have to make provisioning as well. The tax liability will also come down as the written-off amount is reduced from the profit. However, the chances of recovery from written-off loans are very low. Incorrect Solution: a) Statement 3 is incorrect. Writing off a loan essentially means it will no longer be counted as an asset. By writing off loans, a bank can reduce the level of non-performing assets (NPAs) on its books. An additional benefit is that the amount so written off reduces the bank’s tax liability. The bank writes off a loan after the borrower has defaulted on the loan repayment and there is a very low chance of recovery. The lender then moves the defaulted loan, or NPA, out of the assets side and reports the amount as a loss. After the write-off, banks are supposed to continue their efforts to recover the loan using various options. They have to make provisioning as well. The tax liability will also come down as the written-off amount is reduced from the profit. However, the chances of recovery from written-off loans are very low.

#### 3. Question

Consider the following statements regarding loan write-off.

• Writing off a loan essentially means it will no longer be counted as an asset, by the bank.

• The amount so written off reduces the bank’s tax liability.

• After the write-off, banks are not supposed to continue their efforts to recover the loan.

How many of the above statements is/are incorrect?

• a) Only one

• b) Only two

• c) All three

Solution: a)

Statement 3 is incorrect.

Writing off a loan essentially means it will no longer be counted as an asset. By writing off loans, a bank can reduce the level of non-performing assets (NPAs) on its books. An additional benefit is that the amount so written off reduces the bank’s tax liability.

The bank writes off a loan after the borrower has defaulted on the loan repayment and there is a very low chance of recovery. The lender then moves the defaulted loan, or NPA, out of the assets side and reports the amount as a loss.

After the write-off, banks are supposed to continue their efforts to recover the loan using various options. They have to make provisioning as well. The tax liability will also come down as the written-off amount is reduced from the profit.

However, the chances of recovery from written-off loans are very low.

Solution: a)

Statement 3 is incorrect.

However, the chances of recovery from written-off loans are very low.

• Question 4 of 5 4. Question Which of the following factors can lead to cyclical slowdown in the Indian Economy? Over-investment in capital assets and in inventory. The production of final goods is not absorbed leading to lower prices and lower economic activity. Changing demographics and change in consumer behaviour. 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. Typically, a cyclical slowdown is caused by an excess of investment demand—over-investment in capital assets (residential and non-residential) and in inventory. The production of final goods generated by excess investment is not absorbed, leading to inventory reduction, lower prices, lower economic activity, and some loss in employment. When this is accompanied by excess debt, the cyclical slowdown can be prolonged or it may become structural. A structural slowdown, on the other hand, is a more deep-rooted phenomenon that occurs due to a one-off shift from an existing paradigm. The changes, which last over a long-term, are driven by disruptive technologies, changing demographics, and/or change in consumer behaviour. Incorrect Solution: b) Statement 3 is incorrect. Typically, a cyclical slowdown is caused by an excess of investment demand—over-investment in capital assets (residential and non-residential) and in inventory. The production of final goods generated by excess investment is not absorbed, leading to inventory reduction, lower prices, lower economic activity, and some loss in employment. When this is accompanied by excess debt, the cyclical slowdown can be prolonged or it may become structural. A structural slowdown, on the other hand, is a more deep-rooted phenomenon that occurs due to a one-off shift from an existing paradigm. The changes, which last over a long-term, are driven by disruptive technologies, changing demographics, and/or change in consumer behaviour.

#### 4. Question

Which of the following factors can lead to cyclical slowdown in the Indian Economy?

• Over-investment in capital assets and in inventory.

• The production of final goods is not absorbed leading to lower prices and lower economic activity.

• Changing demographics and change in consumer behaviour.

How many of the above statements are correct?

• a) Only one

• b) Only two

• c) All three

Solution: b)

Statement 3 is incorrect.

Typically, a cyclical slowdown is caused by an excess of investment demand—over-investment in capital assets (residential and non-residential) and in inventory. The production of final goods generated by excess investment is not absorbed, leading to inventory reduction, lower prices, lower economic activity, and some loss in employment. When this is accompanied by excess debt, the cyclical slowdown can be prolonged or it may become structural.

A structural slowdown, on the other hand, is a more deep-rooted phenomenon that occurs due to a one-off shift from an existing paradigm. The changes, which last over a long-term, are driven by disruptive technologies, changing demographics, and/or change in consumer behaviour.

Solution: b)

Statement 3 is incorrect.

• Question 5 of 5 5. Question Which of the following is disadvantageous to developing countries’ international trade? a) Free trade with other developing nations b) Protection to domestic industries from dumping c) Export of primary articles and import of manufactured goods d) Establishing regional trading blocs Correct Solution: c) The present integration of global markets favours the more competitive product from a more competitive country. Developed countries have an edge over manufactured goods due to advance in physical as well as human capital. Developing countries are preferred for exporting primary articles because they have an abundance of it. This affects their competitiveness in the long-run as they miss out on the chance to build a manufacturing base, and remain a primary producer backward economy. Incorrect Solution: c) The present integration of global markets favours the more competitive product from a more competitive country. Developed countries have an edge over manufactured goods due to advance in physical as well as human capital. Developing countries are preferred for exporting primary articles because they have an abundance of it. This affects their competitiveness in the long-run as they miss out on the chance to build a manufacturing base, and remain a primary producer backward economy.

#### 5. Question

Which of the following is disadvantageous to developing countries’ international trade?

• a) Free trade with other developing nations

• b) Protection to domestic industries from dumping

• c) Export of primary articles and import of manufactured goods

• d) Establishing regional trading blocs

Solution: c)

The present integration of global markets favours the more competitive product from a more competitive country.

Developed countries have an edge over manufactured goods due to advance in physical as well as human capital.

Developing countries are preferred for exporting primary articles because they have an abundance of it.

This affects their competitiveness in the long-run as they miss out on the chance to build a manufacturing base, and remain a primary producer backward economy.

Solution: c)

The present integration of global markets favours the more competitive product from a more competitive country.

Developed countries have an edge over manufactured goods due to advance in physical as well as human capital.

Developing countries are preferred for exporting primary articles because they have an abundance of it.

This affects their competitiveness in the long-run as they miss out on the chance to build a manufacturing base, and remain a primary producer backward economy.

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