UPSC Static Quiz – Economy : 29 November 2024

UPSC Static Quiz – Economy : 29 November 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 Consider the following statements regarding Economic Survey. Economic Survey is a detailed report of the state of the national economy in the financial year that is coming to a close. It is prepared by the Department of Expenditure in the Union Finance Ministry, under the guidance of the Chief Economic Adviser. The assessment and recommendations carried out in the survey are binding on the Budget. The first Economic Survey was presented for 1950-51 and since then it is released a day before the Budget. How many of the above statements is/are correct? a) Only one b) Only two c) Only three d) None Correct Solution: a) Only Statement 1 is correct. The Economic Survey is a detailed report of the state of the national economy in the financial year that is coming to a close. It is prepared by the Economic Division of the Department of Economic Affairs (DEA) in the Union Finance Ministry, under the guidance of the Chief Economic Adviser. Once prepared, the Survey is approved by the Finance Minister. The first Economic Survey of India was presented in 1950-51 as part of the Union Budget. After 1964 it was separated from the Budget and presented each year during the Budget Session before the presentation of the budget Even though it comes just a day before the Budget, the assessment and recommendations carried out in the survey are not binding on the Budget. Incorrect Solution: a) Only Statement 1 is correct. The Economic Survey is a detailed report of the state of the national economy in the financial year that is coming to a close. It is prepared by the Economic Division of the Department of Economic Affairs (DEA) in the Union Finance Ministry, under the guidance of the Chief Economic Adviser. Once prepared, the Survey is approved by the Finance Minister. The first Economic Survey of India was presented in 1950-51 as part of the Union Budget. After 1964 it was separated from the Budget and presented each year during the Budget Session before the presentation of the budget Even though it comes just a day before the Budget, the assessment and recommendations carried out in the survey are not binding on the Budget.

#### 1. Question

Consider the following statements regarding Economic Survey.

• Economic Survey is a detailed report of the state of the national economy in the financial year that is coming to a close.

• It is prepared by the Department of Expenditure in the Union Finance Ministry, under the guidance of the Chief Economic Adviser.

• The assessment and recommendations carried out in the survey are binding on the Budget.

• The first Economic Survey was presented for 1950-51 and since then it is released a day before the Budget.

How many of the above statements is/are correct?

• a) Only one

• b) Only two

• c) Only three

Solution: a)

Only Statement 1 is correct.

The Economic Survey is a detailed report of the state of the national economy in the financial year that is coming to a close. It is prepared by the Economic Division of the Department of Economic Affairs (DEA) in the Union Finance Ministry, under the guidance of the Chief Economic Adviser. Once prepared, the Survey is approved by the Finance Minister.

The first Economic Survey of India was presented in 1950-51 as part of the Union Budget. After 1964 it was separated from the Budget and presented each year during the Budget Session before the presentation of the budget

Even though it comes just a day before the Budget, the assessment and recommendations carried out in the survey are not binding on the Budget.

Solution: a)

Only Statement 1 is correct.

Even though it comes just a day before the Budget, the assessment and recommendations carried out in the survey are not binding on the Budget.

• Question 2 of 5 2. Question How would you distinguish between the capital and revenue receipts of the government? Capital receipts are always debt creating unlike revenue receipts. Revenue receipts are non-redeemable unlike certain capital receipts. 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) The main difference between revenue receipts and capital receipts is that in the case of revenue receipts, government is under no future obligation to return the amount, i.e., they are non-redeemable. But In case of capital receipts which are borrowings, government is under obligation to return the amount along with Interest. Capital receipts may be debt creating or non-debt creating. Examples of debt creating receipts are—Net borrowing by government at home, loans received from foreign governments, borrowing from RBI. Examples of non-debt capital receipts are—Recovery of loans, proceeds from sale of public enterprises (i.e., disinvestment), etc. These do not give rise to debt. Incorrect Solution: a) The main difference between revenue receipts and capital receipts is that in the case of revenue receipts, government is under no future obligation to return the amount, i.e., they are non-redeemable. But In case of capital receipts which are borrowings, government is under obligation to return the amount along with Interest. Capital receipts may be debt creating or non-debt creating. Examples of debt creating receipts are—Net borrowing by government at home, loans received from foreign governments, borrowing from RBI. Examples of non-debt capital receipts are—Recovery of loans, proceeds from sale of public enterprises (i.e., disinvestment), etc. These do not give rise to debt.

#### 2. Question

How would you distinguish between the capital and revenue receipts of the government?

• Capital receipts are always debt creating unlike revenue receipts.

• Revenue receipts are non-redeemable unlike certain capital receipts.

Which of the above statements is/are incorrect?

• c) Both 1 and 2

• d) Neither 1 nor 2

Solution: a)

The main difference between revenue receipts and capital receipts is that in the case of revenue receipts, government is under no future obligation to return the amount, i.e., they are non-redeemable. But In case of capital receipts which are borrowings, government is under obligation to return the amount along with Interest.

Capital receipts may be debt creating or non-debt creating.

Examples of debt creating receipts are—Net borrowing by government at home, loans received from foreign governments, borrowing from RBI. Examples of non-debt capital receipts are—Recovery of loans, proceeds from sale of public enterprises (i.e., disinvestment), etc. These do not give rise to debt.

Solution: a)

Capital receipts may be debt creating or non-debt creating.

• Question 3 of 5 3. Question Consider the following statements regarding Inheritance tax. It is a tax paid for inheriting a property or asset from a deceased person. In India it can be as high as 55%. Outstanding debts or liabilities are also included while assessing the value of all assets owned by the deceased. Which of the above statements is/are correct? a) 1 only b) 1 and 2 only c) 1 and 3 only d) 1, 2 and 3 Correct Solution: c) Inheritance tax: It is a tax paid for inheriting a property or asset from a deceased person. It is levied on the value of the inheritance received by the beneficiary, and it is paid by the beneficiary. Depending on the country, it can be as high as 55%. A person can receive inheritance either under a Will or under the personal law of the deceased. In India, the concept of levying tax on inheritance does not exist It involves assessing the value of all assets owned by the deceased, including real estate, investments, bank accounts, vehicles, and personal belongings, while also considering any outstanding debts or liabilities. Incorrect Solution: c) Inheritance tax: It is a tax paid for inheriting a property or asset from a deceased person. It is levied on the value of the inheritance received by the beneficiary, and it is paid by the beneficiary. Depending on the country, it can be as high as 55%. A person can receive inheritance either under a Will or under the personal law of the deceased. In India, the concept of levying tax on inheritance does not exist It involves assessing the value of all assets owned by the deceased, including real estate, investments, bank accounts, vehicles, and personal belongings, while also considering any outstanding debts or liabilities.

#### 3. Question

Consider the following statements regarding Inheritance tax.

• It is a tax paid for inheriting a property or asset from a deceased person.

• In India it can be as high as 55%.

• Outstanding debts or liabilities are also included while assessing the value of all assets owned by the deceased.

Which of the above statements is/are correct?

• b) 1 and 2 only

• c) 1 and 3 only

• d) 1, 2 and 3

Solution: c)

Inheritance tax:

• It is a tax paid for inheriting a property or asset from a deceased person.

• It is levied on the value of the inheritance received by the beneficiary, and it is paid by the beneficiary.

• Depending on the country, it can be as high as 55%.

• A person can receive inheritance either under a Will or under the personal law of the deceased.

• In India, the concept of levying tax on inheritance does not exist

• It involves assessing the value of all assets owned by the deceased, including real estate, investments, bank accounts, vehicles, and personal belongings, while also considering any outstanding debts or liabilities.

Solution: c)

Inheritance tax:

• It is a tax paid for inheriting a property or asset from a deceased person.

• It is levied on the value of the inheritance received by the beneficiary, and it is paid by the beneficiary.

• Depending on the country, it can be as high as 55%.

• A person can receive inheritance either under a Will or under the personal law of the deceased.

• In India, the concept of levying tax on inheritance does not exist

• Question 4 of 5 4. Question Consider the following statements about perpetual bonds: Perpetual bonds are considered part of the equity capital of a company. They provide interest payments indefinitely, without a fixed maturity date. The principal of perpetual bonds is repaid after a set period, usually 30 years. How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: a) Statement 1 is incorrect because perpetual bonds, although often used to bolster a company’s Tier I capital, are considered debt instruments rather than equity. Statement 2 is correct as perpetual bonds are designed to provide interest payments indefinitely, with no fixed maturity date for the repayment of the principal. Statement 3 is incorrect because perpetual bonds do not have a fixed period after which the principal is repaid; instead, they continue to exist as long as the issuer or the market supports them. This indefinite nature of perpetual bonds makes them a distinct and sometimes risky investment compared to traditional bonds. Incorrect Solution: a) Statement 1 is incorrect because perpetual bonds, although often used to bolster a company’s Tier I capital, are considered debt instruments rather than equity. Statement 2 is correct as perpetual bonds are designed to provide interest payments indefinitely, with no fixed maturity date for the repayment of the principal. Statement 3 is incorrect because perpetual bonds do not have a fixed period after which the principal is repaid; instead, they continue to exist as long as the issuer or the market supports them. This indefinite nature of perpetual bonds makes them a distinct and sometimes risky investment compared to traditional bonds.

#### 4. Question

Consider the following statements about perpetual bonds:

• Perpetual bonds are considered part of the equity capital of a company.

• They provide interest payments indefinitely, without a fixed maturity date.

• The principal of perpetual bonds is repaid after a set period, usually 30 years.

How many of the above statements is/are correct?

• a) Only one

• b) Only two

• c) All three

Solution: a)

Statement 1 is incorrect because perpetual bonds, although often used to bolster a company’s Tier I capital, are considered debt instruments rather than equity.

Statement 2 is correct as perpetual bonds are designed to provide interest payments indefinitely, with no fixed maturity date for the repayment of the principal.

Statement 3 is incorrect because perpetual bonds do not have a fixed period after which the principal is repaid; instead, they continue to exist as long as the issuer or the market supports them. This indefinite nature of perpetual bonds makes them a distinct and sometimes risky investment compared to traditional bonds.

Solution: a)

Statement 1 is incorrect because perpetual bonds, although often used to bolster a company’s Tier I capital, are considered debt instruments rather than equity.

Statement 2 is correct as perpetual bonds are designed to provide interest payments indefinitely, with no fixed maturity date for the repayment of the principal.

• Question 5 of 5 5. Question Consider the following statements about the risks of financialisation: Excessive financialisation can lead to inflated asset prices, making markets vulnerable to crashes. Financialisation tends to benefit wealthy individuals more than lower-income groups, contributing to economic inequality. Increased financialisation generally decreases the overall debt levels in an economy. How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: b) Excessive financialisation occurs when the financial sector dominates an economy, prioritizing profit-making through financial instruments over productive activities. Statement 1 is correct: Excessive financialisation often inflates asset prices beyond their intrinsic value, leading to speculative bubbles. When these bubbles burst, markets can crash, causing widespread economic instability. The 2008 Global Financial Crisis is a prime example of this phenomenon. Statement 2 is correct: Financialisation disproportionately benefits wealthy individuals and large corporations, as they have greater access to financial markets and instruments. This exacerbates economic inequality, leaving lower-income groups with fewer benefits and potentially higher financial burdens. Statement 3 is incorrect: Financialisation frequently results in increased debt levels due to easy access to credit, speculative investments, and leveraging by both households and corporations. This can amplify systemic risks in the economy. Incorrect Solution: b) Excessive financialisation occurs when the financial sector dominates an economy, prioritizing profit-making through financial instruments over productive activities. Statement 1 is correct: Excessive financialisation often inflates asset prices beyond their intrinsic value, leading to speculative bubbles. When these bubbles burst, markets can crash, causing widespread economic instability. The 2008 Global Financial Crisis is a prime example of this phenomenon. Statement 2 is correct: Financialisation disproportionately benefits wealthy individuals and large corporations, as they have greater access to financial markets and instruments. This exacerbates economic inequality, leaving lower-income groups with fewer benefits and potentially higher financial burdens. Statement 3 is incorrect: Financialisation frequently results in increased debt levels due to easy access to credit, speculative investments, and leveraging by both households and corporations. This can amplify systemic risks in the economy.

#### 5. Question

Consider the following statements about the risks of financialisation:

• Excessive financialisation can lead to inflated asset prices, making markets vulnerable to crashes.

• Financialisation tends to benefit wealthy individuals more than lower-income groups, contributing to economic inequality.

• Increased financialisation generally decreases the overall debt levels in an economy.

How many of the above statements is/are correct?

• a) Only one

• b) Only two

• c) All three

Solution: b)

Excessive financialisation occurs when the financial sector dominates an economy, prioritizing profit-making through financial instruments over productive activities.

• Statement 1 is correct: Excessive financialisation often inflates asset prices beyond their intrinsic value, leading to speculative bubbles. When these bubbles burst, markets can crash, causing widespread economic instability. The 2008 Global Financial Crisis is a prime example of this phenomenon.

• Statement 2 is correct: Financialisation disproportionately benefits wealthy individuals and large corporations, as they have greater access to financial markets and instruments. This exacerbates economic inequality, leaving lower-income groups with fewer benefits and potentially higher financial burdens.

• Statement 3 is incorrect: Financialisation frequently results in increased debt levels due to easy access to credit, speculative investments, and leveraging by both households and corporations. This can amplify systemic risks in the economy.

Solution: b)

Excessive financialisation occurs when the financial sector dominates an economy, prioritizing profit-making through financial instruments over productive activities.

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