UPSC STATIC QUIZ – Economy : 27 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. During colonial times, the Indian rupee was virtually linked to gold rather than British pound to which it earned through exports. The Reserve Bank of India (RBI) rules does not allow cross border trade transactions in rupee. 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: a) As for India, currency hierarchy goes back to colonial times when the Indian rupee was virtually linked to the British pound rather than to gold which it earned through exports. Reserve Bank of India (RBI) allows cross border trade transactions in rupee which is a step towards internationalisation of the currency. Incorrect Solution: a) As for India, currency hierarchy goes back to colonial times when the Indian rupee was virtually linked to the British pound rather than to gold which it earned through exports. Reserve Bank of India (RBI) allows cross border trade transactions in rupee which is a step towards internationalisation of the currency.

#### 1. Question

Consider the following statements.

• During colonial times, the Indian rupee was virtually linked to gold rather than British pound to which it earned through exports.

• The Reserve Bank of India (RBI) rules does not allow cross border trade transactions in rupee.

Which of the above statements is/are incorrect?

• c) Both 1 and 2

• d) Neither 1 nor 2

Solution: a)

As for India, currency hierarchy goes back to colonial times when the Indian rupee was virtually linked to the British pound rather than to gold which it earned through exports.

Reserve Bank of India (RBI) allows cross border trade transactions in rupee which is a step towards internationalisation of the currency.

Solution: a)

As for India, currency hierarchy goes back to colonial times when the Indian rupee was virtually linked to the British pound rather than to gold which it earned through exports.

Reserve Bank of India (RBI) allows cross border trade transactions in rupee which is a step towards internationalisation of the currency.

• Question 2 of 5 2. Question The Government carries out Disinvestment to achieve which of the following goals? Introduce competition with market discipline Reduce Financial burden on Government Encourage open market to have wide share in ownership Depoliticise essential services How many of the above statements is/are correct? a) Only one b) Only two c) Only three d) All four Correct Solution: d) Incorrect Solution: d)

#### 2. Question

The Government carries out Disinvestment to achieve which of the following goals?

• Introduce competition with market discipline

• Reduce Financial burden on Government

• Encourage open market to have wide share in ownership

• Depoliticise essential services

How many of the above statements is/are correct?

• a) Only one

• b) Only two

• c) Only three

• d) All four

Solution: d)

• Question 3 of 5 3. Question Consider the following statements regarding Gold ETF. Gold ETFs are passive investment instruments that are based on gold prices and invest in gold bullion. The price of One Gold ETF unit is equal to 1 gram of gold of at least 99.5 percent purity. Gold ETFs can be redeemed for physical gold. 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. A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments. Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like a stock of any company. Gold ETFs trade on the cash segment of BSE & NSE, like any other company stock, and can be bought and sold continuously at market prices. Buying Gold ETFs means you are purchasing gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. When you actually redeem Gold ETF, you don’t get physical gold, but receive the cash equivalent. Trading of gold ETFs takes place through a dematerialised account (Demat) and a broker, which makes it an extremely convenient way of electronically investing in gold. Because of its direct gold pricing, there is a complete transparency on the holdings of a Gold ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold investments.shtra government informed the Supreme Court that the phrase “material resources of the community” encompasses both public and private resources, subject to judicial review for redistribution. The concentration of wealth violates the Directive principles of state policy. Under Article 39 of the Constitution of India, the State shall direct its policy towards securing that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. Refer: https://www.insightsonindia.com/2024/04/26/material-resource-of-the-communityarticle-39-b/ Incorrect Solution: a) Statement 3 is incorrect. A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments. Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like a stock of any company. Gold ETFs trade on the cash segment of BSE & NSE, like any other company stock, and can be bought and sold continuously at market prices. Buying Gold ETFs means you are purchasing gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. When you actually redeem Gold ETF, you don’t get physical gold, but receive the cash equivalent. Trading of gold ETFs takes place through a dematerialised account (Demat) and a broker, which makes it an extremely convenient way of electronically investing in gold. Because of its direct gold pricing, there is a complete transparency on the holdings of a Gold ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold investments.

#### 3. Question

Consider the following statements regarding Gold ETF.

• Gold ETFs are passive investment instruments that are based on gold prices and invest in gold bullion.

• The price of One Gold ETF unit is equal to 1 gram of gold of at least 99.5 percent purity.

• Gold ETFs can be redeemed for physical gold.

How many of the above statements is/are incorrect?

• a) Only one

• b) Only two

• c) All three

Solution: a)

Statement 3 is incorrect.

A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion.

One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments.

Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like a stock of any company. Gold ETFs trade on the cash segment of BSE & NSE, like any other company stock, and can be bought and sold continuously at market prices.

Buying Gold ETFs means you are purchasing gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. When you actually redeem Gold ETF, you don’t get physical gold, but receive the cash equivalent. Trading of gold ETFs takes place through a dematerialised account (Demat) and a broker, which makes it an extremely convenient way of electronically investing in gold.

Because of its direct gold pricing, there is a complete transparency on the holdings of a Gold ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold investments.shtra government informed the Supreme Court that the phrase “material resources of the community” encompasses both public and private resources, subject to judicial review for redistribution.

• The concentration of wealth violates the Directive principles of state policy. Under Article 39 of the Constitution of India, the State shall direct its policy towards securing that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.

Refer: https://www.insightsonindia.com/2024/04/26/material-resource-of-the-communityarticle-39-b/

Solution: a)

Statement 3 is incorrect.

• Question 4 of 5 4. Question Which of the following can be considered as ‘black swan events’ based on the terminology popularised by the author Nassim Nicholas Taleb? Fall of the Soviet Union 2008 global financial crisis Terrorist attack in the US on September 11, 2001 How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: c) A black swan is a rare, unpredictable event that comes as a surprise and has a significant impact on society or the world. These events are said to have three distinguishing characteristics – they are extremely rare and outside the realm of regular expectations; they have a severe impact after they hit; and they seem probable in hindsight when plausible explanations appear. The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001, and later popularised in his 2007 book – The Black Swan: The Impact of the Highly Improbable. When have such events occurred in the past? Interestingly, Taleb’s book predated the 2008 global financial crisis – a black swan event triggered by a sudden crash in the booming housing market in the US. The fall of the Soviet Union, the terrorist attack in the US on September 11, 2001, also fall in the same category. Is the Covid-19 pandemic a black swan event? Taleb does not agree with those who believe it to be one. In an interview he called it a “white swan”, arguing that it was predictable, and there was no excuse for companies and governments not to be prepared for something like this. Incorrect Solution: c) A black swan is a rare, unpredictable event that comes as a surprise and has a significant impact on society or the world. These events are said to have three distinguishing characteristics – they are extremely rare and outside the realm of regular expectations; they have a severe impact after they hit; and they seem probable in hindsight when plausible explanations appear. The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001, and later popularised in his 2007 book – The Black Swan: The Impact of the Highly Improbable. When have such events occurred in the past? Interestingly, Taleb’s book predated the 2008 global financial crisis – a black swan event triggered by a sudden crash in the booming housing market in the US. The fall of the Soviet Union, the terrorist attack in the US on September 11, 2001, also fall in the same category. Is the Covid-19 pandemic a black swan event? Taleb does not agree with those who believe it to be one. In an interview he called it a “white swan”, arguing that it was predictable, and there was no excuse for companies and governments not to be prepared for something like this.

#### 4. Question

Which of the following can be considered as ‘black swan events’ based on the terminology popularised by the author Nassim Nicholas Taleb?

• Fall of the Soviet Union

• 2008 global financial crisis

• Terrorist attack in the US on September 11, 2001

How many of the above statements is/are correct?

• a) Only one

• b) Only two

• c) All three

Solution: c)

A black swan is a rare, unpredictable event that comes as a surprise and has a significant impact on society or the world. These events are said to have three distinguishing characteristics – they are extremely rare and outside the realm of regular expectations; they have a severe impact after they hit; and they seem probable in hindsight when plausible explanations appear.

The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001, and later popularised in his 2007 book – The Black Swan: The Impact of the Highly Improbable.

When have such events occurred in the past?

Interestingly, Taleb’s book predated the 2008 global financial crisis – a black swan event triggered by a sudden crash in the booming housing market in the US. The fall of the Soviet Union, the terrorist attack in the US on September 11, 2001, also fall in the same category.

Is the Covid-19 pandemic a black swan event?

Taleb does not agree with those who believe it to be one. In an interview he called it a “white swan”, arguing that it was predictable, and there was no excuse for companies and governments not to be prepared for something like this.

Solution: c)

The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001, and later popularised in his 2007 book – The Black Swan: The Impact of the Highly Improbable.

When have such events occurred in the past?

Is the Covid-19 pandemic a black swan event?

• Question 5 of 5 5. Question The balance of payments includes both the current account and capital account. Consider the following statements regarding this The capital account is included in calculations of national output, while the current account is not. The current account includes a nation’s net trade in goods and services, its net earnings on cross-border investments, and not its net transfer payments. Which of the above statements is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Correct Solution: d) The balance of payments divides transactions into two accounts: the current account and the capital account. The current account includes transactions in goods, services, investment income, and current transfers. The capital account, broadly defined, includes transactions in financial instruments and central bank reserves. The current account is included in calculations of national output, while the capital account is not. Incorrect Solution: d) The balance of payments divides transactions into two accounts: the current account and the capital account. The current account includes transactions in goods, services, investment income, and current transfers. The capital account, broadly defined, includes transactions in financial instruments and central bank reserves. The current account is included in calculations of national output, while the capital account is not.

#### 5. Question

The balance of payments includes both the current account and capital account. Consider the following statements regarding this

• The capital account is included in calculations of national output, while the current account is not.

• The current account includes a nation’s net trade in goods and services, its net earnings on cross-border investments, and not its net transfer payments.

Which of the above statements is/are correct?

• (a) 1 only

• (b) 2 only

• (c) Both 1 and 2

• (d) Neither 1 nor 2

Solution: d)

The balance of payments divides transactions into two accounts: the current account and the capital account. The current account includes transactions in goods, services, investment income, and current transfers.

The capital account, broadly defined, includes transactions in financial instruments and central bank reserves.

The current account is included in calculations of national output, while the capital account is not.

Solution: d)

The capital account, broadly defined, includes transactions in financial instruments and central bank reserves.

The current account is included in calculations of national output, while the capital account is not.

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