UPSC Static Quiz – Economy : 3 June 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 International Development Association (IDA) funds are allocated to the recipient countries in relation to their population per capita income human development potential How many of the above options is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: a) Only option 2 is correct. For a country to access IDA resources, it must be in a situation of relative poverty as indicated by its per capita income falling below the IDA operational cut-off, $1,255 in FY23, and/or lack creditworthiness for IBRD borrowing. IDA funds are allocated to the recipient countries in relation to their income levels and record of success in managing their economies and their ongoing IDA projects. IDA’s lending terms are highly concessional, meaning that IDA credits carry no or low interest charges. Incorrect Solution: a) Only option 2 is correct. For a country to access IDA resources, it must be in a situation of relative poverty as indicated by its per capita income falling below the IDA operational cut-off, $1,255 in FY23, and/or lack creditworthiness for IBRD borrowing. IDA funds are allocated to the recipient countries in relation to their income levels and record of success in managing their economies and their ongoing IDA projects. IDA’s lending terms are highly concessional, meaning that IDA credits carry no or low interest charges.

#### 1. Question

International Development Association (IDA) funds are allocated to the recipient countries in relation to their

• population

• per capita income

• human development potential

How many of the above options is/are correct?

• a) Only one

• b) Only two

• c) All three

Solution: a)

Only option 2 is correct.

For a country to access IDA resources, it must be in a situation of relative poverty as indicated by its per capita income falling below the IDA operational cut-off, $1,255 in FY23, and/or lack creditworthiness for IBRD borrowing. IDA funds are allocated to the recipient countries in relation to their income levels and record of success in managing their economies and their ongoing IDA projects. IDA’s lending terms are highly concessional, meaning that IDA credits carry no or low interest charges.

Solution: a)

Only option 2 is correct.

• Question 2 of 5 2. Question Consider the following statements regarding Fixed Capital Formation. Fixed capital includes construction of dwellings, which may not add to the productive capacity of the economy. Fixed capital formation is directly related with economic growth rate. Long term growth will be achieved if resources from Fixed Capital are diverted towards consumption. 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. Fixed capital is assets used in the productive process. Examples of Fixed Capital Formation include – Building or expanding existing factory, Road and bridge construction, Purchase of transport equipment, Office equipment, such as computers, printers, Machinery used in the productive process, Energy infrastructure etc. Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income. Increasing an economy’s capital stock also increases its capacity for production, which means an economy can produce more. Producing more goods and services can lead to an increase in national income levels. Fixed capital formation (growth of productive infrastructure etc.) is directly related with economic growth rate. Only short-term growth may be achieved if resources from Fixed Capital are diverted towards consumption. In the long-term quality and quantity of infrastructure is a major determinant of economic growth. Dwellings (a house, flat, or other place of residence) are not directly utilised by businesses and the government to produce output. Since dwellings do not add to the productive capacity of the economy, even if its growth rate reduces, the economy can still grow. Incorrect Solution: a) Statement 3 is incorrect. Fixed capital is assets used in the productive process. Examples of Fixed Capital Formation include – Building or expanding existing factory, Road and bridge construction, Purchase of transport equipment, Office equipment, such as computers, printers, Machinery used in the productive process, Energy infrastructure etc. Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income. Increasing an economy’s capital stock also increases its capacity for production, which means an economy can produce more. Producing more goods and services can lead to an increase in national income levels. Fixed capital formation (growth of productive infrastructure etc.) is directly related with economic growth rate. Only short-term growth may be achieved if resources from Fixed Capital are diverted towards consumption. In the long-term quality and quantity of infrastructure is a major determinant of economic growth. Dwellings (a house, flat, or other place of residence) are not directly utilised by businesses and the government to produce output. Since dwellings do not add to the productive capacity of the economy, even if its growth rate reduces, the economy can still grow.

#### 2. Question

Consider the following statements regarding Fixed Capital Formation.

• Fixed capital includes construction of dwellings, which may not add to the productive capacity of the economy.

• Fixed capital formation is directly related with economic growth rate.

• Long term growth will be achieved if resources from Fixed Capital are diverted towards consumption.

How many of the above statements is/are incorrect?

• a) Only one

• b) Only two

• c) All three

Solution: a)

Statement 3 is incorrect.

Fixed capital is assets used in the productive process. Examples of Fixed Capital Formation include – Building or expanding existing factory, Road and bridge construction, Purchase of transport equipment, Office equipment, such as computers, printers, Machinery used in the productive process, Energy infrastructure etc.

Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income. Increasing an economy’s capital stock also increases its capacity for production, which means an economy can produce more. Producing more goods and services can lead to an increase in national income levels.

Fixed capital formation (growth of productive infrastructure etc.) is directly related with economic growth rate.

Only short-term growth may be achieved if resources from Fixed Capital are diverted towards consumption. In the long-term quality and quantity of infrastructure is a major determinant of economic growth.

Dwellings (a house, flat, or other place of residence) are not directly utilised by businesses and the government to produce output. Since dwellings do not add to the productive capacity of the economy, even if its growth rate reduces, the economy can still grow.

Solution: a)

Statement 3 is incorrect.

Fixed capital formation (growth of productive infrastructure etc.) is directly related with economic growth rate.

• Question 3 of 5 3. Question Who among the following formulated the concept of poverty as a measurable development indicator in the Indian subcontinent? a) V.K.R.V Rao b) Romesh Chandra Dutt c) Dadabhai Naoroji d) M. Ranade Correct Solution: c) *Dadabhai Naoroji through his book, “**Poverty* and unBritish Rule in *India*” made the earliest estimation of the poverty line. Incorrect Solution: c) *Dadabhai Naoroji through his book, “**Poverty* and unBritish Rule in *India*” made the earliest estimation of the poverty line.

#### 3. Question

Who among the following formulated the concept of poverty as a measurable development indicator in the Indian subcontinent?

• a) V.K.R.V Rao

• b) Romesh Chandra Dutt

• c) Dadabhai Naoroji

• d) M. Ranade

Solution: c)

*Dadabhai Naoroji through his book, “**Poverty* and unBritish Rule in *India*” made the earliest estimation of the poverty line.

Solution: c)

*Dadabhai Naoroji through his book, “**Poverty* and unBritish Rule in *India*” made the earliest estimation of the poverty line.

• Question 4 of 5 4. Question Economic depression is best defined as a period of a) stagnation in economic growth b) negative economic growth rate c) prolonged slowdown in economic growth rate d) high unemployment rate even in a growing economy Correct Solution: b) Depression is defined as a severe and prolonged recession. A recession is a situation of declining economic activity. Declining economic activity is characterized by falling output and employment levels. Generally, when an economy continues to suffer recession for two or more quarters, it is called depression. The level of productivity in an economy falls significantly during a depression. Both the GDP (gross domestic product) and GNP (gross national product) show a negative growth along with greater business failures and unemployment. Incorrect Solution: b) Depression is defined as a severe and prolonged recession. A recession is a situation of declining economic activity. Declining economic activity is characterized by falling output and employment levels. Generally, when an economy continues to suffer recession for two or more quarters, it is called depression. The level of productivity in an economy falls significantly during a depression. Both the GDP (gross domestic product) and GNP (gross national product) show a negative growth along with greater business failures and unemployment.

#### 4. Question

Economic depression is best defined as a period of

• a) stagnation in economic growth

• b) negative economic growth rate

• c) prolonged slowdown in economic growth rate

• d) high unemployment rate even in a growing economy

Solution: b)

Depression is defined as a severe and prolonged recession. A recession is a situation of declining economic activity. Declining economic activity is characterized by falling output and employment levels. Generally, when an economy continues to suffer recession for two or more quarters, it is called depression.

The level of productivity in an economy falls significantly during a depression. Both the GDP (gross domestic product) and GNP (gross national product) show a negative growth along with greater business failures and unemployment.

Solution: b)

• Question 5 of 5 5. Question Consider the following statements. Product taxes and subsidies are paid or received per unit or product. Production taxes and subsidies are paid or received in relation to production and are independent of the volume of production. Factor cost includes only the payment to factors of production including tax. 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. In India, the most highlighted measure of national income has been the GDP at factor cost. The Central Statistics Office (CSO) of the Government of India has been reporting the GDP at factor cost and at market prices. The distinction between factor cost, basic prices and market prices is based on the distinction between net production taxes (production taxes less production subsidies) and net product taxes (product taxes less product subsidies). Production taxes and subsidies are paid or received in relation to production and are independent of the volume of production such as land revenues, stamp and registration fee. Product taxes and subsidies, on the other hand, are paid or received per unit or product, e.g., excise tax, service tax, export and import duties etc. Factor cost includes only the payment to factors of production, it does not include any tax. Incorrect Solution: a) Statement 3 is incorrect. In India, the most highlighted measure of national income has been the GDP at factor cost. The Central Statistics Office (CSO) of the Government of India has been reporting the GDP at factor cost and at market prices. The distinction between factor cost, basic prices and market prices is based on the distinction between net production taxes (production taxes less production subsidies) and net product taxes (product taxes less product subsidies). Production taxes and subsidies are paid or received in relation to production and are independent of the volume of production such as land revenues, stamp and registration fee. Product taxes and subsidies, on the other hand, are paid or received per unit or product, e.g., excise tax, service tax, export and import duties etc. Factor cost includes only the payment to factors of production, it does not include any tax.

#### 5. Question

Consider the following statements.

• Product taxes and subsidies are paid or received per unit or product.

• Production taxes and subsidies are paid or received in relation to production and are independent of the volume of production.

• Factor cost includes only the payment to factors of production including tax.

How many of the above statements is/are incorrect?

• (a) Only one

• (b) Only two

• (c) All three

Solution: a)

Statement 3 is incorrect.

In India, the most highlighted measure of national income has been the GDP at factor cost. The Central Statistics Office (CSO) of the Government of India has been reporting the GDP at factor cost and at market prices.

The distinction between factor cost, basic prices and market prices is based on the distinction between net production taxes (production taxes less production subsidies) and net product taxes (product taxes less product subsidies). Production taxes and subsidies are paid or received in relation to production and are independent of the volume of production such as land revenues, stamp and registration fee. Product taxes and subsidies, on the other hand, are paid or received per unit or product, e.g., excise tax, service tax, export and import duties etc. Factor cost includes only the payment to factors of production, it does not include any tax.

Solution: a)

Statement 3 is incorrect.

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