UPSC Static Quiz – Economy : 31 July 2025
Kartavya Desk Staff
UPSC Static Quiz – Economy : 31 July 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 Which of the following statements best describes the term ‘Triffin dilemma’? a) A framework for understanding how to strike a balance between cooperation and competition for strategic decision-making. b) Role of government intervention and fiscal policy to stabilize the economy and prevent recessions. c) Conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. d) None of the above Correct Solution: C As the Government of India presses ahead with its plan to internationalise the Indian Rupee (INR), an Inter-Departmental Group (IDG) of officials of the Reserve Bank of India (RBI) have in a report cautioned that internationalisation may result in increased volatility in the rupee’s exchange rate in the initial stages. “This would further have monetary implications as the obligation of a country to supply its currency to meet the global demand may come in conflict with its domestic monetary policies, popularly known as the Triffin dilemma,” the IDG wrote. The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. Incorrect Solution: C As the Government of India presses ahead with its plan to internationalise the Indian Rupee (INR), an Inter-Departmental Group (IDG) of officials of the Reserve Bank of India (RBI) have in a report cautioned that internationalisation may result in increased volatility in the rupee’s exchange rate in the initial stages. “This would further have monetary implications as the obligation of a country to supply its currency to meet the global demand may come in conflict with its domestic monetary policies, popularly known as the Triffin dilemma,” the IDG wrote. The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.
#### 1. Question
Which of the following statements best describes the term ‘Triffin dilemma’?
• a) A framework for understanding how to strike a balance between cooperation and competition for strategic decision-making.
• b) Role of government intervention and fiscal policy to stabilize the economy and prevent recessions.
• c) Conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.
• d) None of the above
Solution: C
As the Government of India presses ahead with its plan to internationalise the Indian Rupee (INR), an Inter-Departmental Group (IDG) of officials of the Reserve Bank of India (RBI) have in a report cautioned that internationalisation may result in increased volatility in the rupee’s exchange rate in the initial stages.
“This would further have monetary implications as the obligation of a country to supply its currency to meet the global demand may come in conflict with its domestic monetary policies, popularly known as the Triffin dilemma,” the IDG wrote.
The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.
Solution: C
As the Government of India presses ahead with its plan to internationalise the Indian Rupee (INR), an Inter-Departmental Group (IDG) of officials of the Reserve Bank of India (RBI) have in a report cautioned that internationalisation may result in increased volatility in the rupee’s exchange rate in the initial stages.
“This would further have monetary implications as the obligation of a country to supply its currency to meet the global demand may come in conflict with its domestic monetary policies, popularly known as the Triffin dilemma,” the IDG wrote.
The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.
• Question 2 of 5 2. Question The Invisible hand concept in economics is related to? a) Free market system b) Command market system c) Socialist market system d) Both b and c Correct Solution: A The concept of the “Invisible Hand” was introduced by the Scottish Enlightenment philosopher Adam Smith. It first received its economic interpretation in his 1776 book, “An Inquiry into the Nature and Causes of the Wealth of Nations.” The Invisible Hand is a fundamental aspect of the laissez-faire approach to the market, which essentially means “let it be” or “let it go.” In essence, this approach posits that the market has the inherent ability to reach its equilibrium without requiring government or other interventions to force it into unnatural patterns. The term “Invisible Hand” serves as a metaphor for the unseen forces that propel the free market economy. It signifies that, through individual self-interest and the freedom to produce and consume, the best interests of society as a whole are naturally and effectively realized. This dynamic interplay of individual pressures on market supply and demand is responsible for the organic movement of prices and the flow of trade within the market. Incorrect Solution: A The concept of the “Invisible Hand” was introduced by the Scottish Enlightenment philosopher Adam Smith. It first received its economic interpretation in his 1776 book, “An Inquiry into the Nature and Causes of the Wealth of Nations.” The Invisible Hand is a fundamental aspect of the laissez-faire approach to the market, which essentially means “let it be” or “let it go.” In essence, this approach posits that the market has the inherent ability to reach its equilibrium without requiring government or other interventions to force it into unnatural patterns. The term “Invisible Hand” serves as a metaphor for the unseen forces that propel the free market economy. It signifies that, through individual self-interest and the freedom to produce and consume, the best interests of society as a whole are naturally and effectively realized. This dynamic interplay of individual pressures on market supply and demand is responsible for the organic movement of prices and the flow of trade within the market.
#### 2. Question
The Invisible hand concept in economics is related to?
• a) Free market system
• b) Command market system
• c) Socialist market system
• d) Both b and c
Solution: A
• The concept of the “Invisible Hand” was introduced by the Scottish Enlightenment philosopher Adam Smith. It first received its economic interpretation in his 1776 book, “An Inquiry into the Nature and Causes of the Wealth of Nations.”
• The Invisible Hand is a fundamental aspect of the laissez-faire approach to the market, which essentially means “let it be” or “let it go.” In essence, this approach posits that the market has the inherent ability to reach its equilibrium without requiring government or other interventions to force it into unnatural patterns.
• The term “Invisible Hand” serves as a metaphor for the unseen forces that propel the free market economy. It signifies that, through individual self-interest and the freedom to produce and consume, the best interests of society as a whole are naturally and effectively realized.
This dynamic interplay of individual pressures on market supply and demand is responsible for the organic movement of prices and the flow of trade within the market.
Solution: A
• The concept of the “Invisible Hand” was introduced by the Scottish Enlightenment philosopher Adam Smith. It first received its economic interpretation in his 1776 book, “An Inquiry into the Nature and Causes of the Wealth of Nations.”
• The Invisible Hand is a fundamental aspect of the laissez-faire approach to the market, which essentially means “let it be” or “let it go.” In essence, this approach posits that the market has the inherent ability to reach its equilibrium without requiring government or other interventions to force it into unnatural patterns.
• The term “Invisible Hand” serves as a metaphor for the unseen forces that propel the free market economy. It signifies that, through individual self-interest and the freedom to produce and consume, the best interests of society as a whole are naturally and effectively realized.
This dynamic interplay of individual pressures on market supply and demand is responsible for the organic movement of prices and the flow of trade within the market.
• Question 3 of 5 3. Question Consider the following statements. India’s External commercial borrowings in rupees helps to promote the internationalisation of the rupee. For a currency to be considered a reserve currency, it needs to be fully convertible, readily usable, and available in sufficient quantities. India permits full capital account convertibility, without any constraints on the exchange of its currency with others. How many of the above statements are incorrect? (a) Only one (b) Only two c) All three d) None Correct Solution: A Statement 3 is incorrect. India has taken some steps to promote the internationalisation of the rupee (e.g., enable external commercial borrowings in rupees), with a push to Indian banks to open Rupee Vostro accounts for banks from Russia, the UAE, Sri Lanka and Mauritius and measures to trade with ~18 countries in rupees instituted. For a currency to be considered a reserve currency, the rupee needs to be fully convertible, readily usable, and available in sufficient quantities. India does not permit full capital account convertibility (i.e., allowing free movement of local financial investment assets into foreign assets and vice-versa), with significant constraints on the exchange of its currency with others — driven by past fears of capital flight (i.e., outflow of capital from India due to monetary policies/lack of growth) and exchange rate volatility, given significant current and capital account deficits. Incorrect Solution: A Statement 3 is incorrect. India has taken some steps to promote the internationalisation of the rupee (e.g., enable external commercial borrowings in rupees), with a push to Indian banks to open Rupee Vostro accounts for banks from Russia, the UAE, Sri Lanka and Mauritius and measures to trade with ~18 countries in rupees instituted. For a currency to be considered a reserve currency, the rupee needs to be fully convertible, readily usable, and available in sufficient quantities. India does not permit full capital account convertibility (i.e., allowing free movement of local financial investment assets into foreign assets and vice-versa), with significant constraints on the exchange of its currency with others — driven by past fears of capital flight (i.e., outflow of capital from India due to monetary policies/lack of growth) and exchange rate volatility, given significant current and capital account deficits.
#### 3. Question
Consider the following statements.
• India’s External commercial borrowings in rupees helps to promote the internationalisation of the rupee.
• For a currency to be considered a reserve currency, it needs to be fully convertible, readily usable, and available in sufficient quantities.
• India permits full capital account convertibility, without any constraints on the exchange of its currency with others.
How many of the above statements are incorrect?
• (a) Only one
• (b) Only two
• c) All three
Solution: A
Statement 3 is incorrect.
India has taken some steps to promote the internationalisation of the rupee (e.g., enable external commercial borrowings in rupees), with a push to Indian banks to open Rupee Vostro accounts for banks from Russia, the UAE, Sri Lanka and Mauritius and measures to trade with ~18 countries in rupees instituted.
For a currency to be considered a reserve currency, the rupee needs to be fully convertible, readily usable, and available in sufficient quantities. India does not permit full capital account convertibility (i.e., allowing free movement of local financial investment assets into foreign assets and vice-versa), with significant constraints on the exchange of its currency with others — driven by past fears of capital flight (i.e., outflow of capital from India due to monetary policies/lack of growth) and exchange rate volatility, given significant current and capital account deficits.
Solution: A
Statement 3 is incorrect.
India has taken some steps to promote the internationalisation of the rupee (e.g., enable external commercial borrowings in rupees), with a push to Indian banks to open Rupee Vostro accounts for banks from Russia, the UAE, Sri Lanka and Mauritius and measures to trade with ~18 countries in rupees instituted.
For a currency to be considered a reserve currency, the rupee needs to be fully convertible, readily usable, and available in sufficient quantities. India does not permit full capital account convertibility (i.e., allowing free movement of local financial investment assets into foreign assets and vice-versa), with significant constraints on the exchange of its currency with others — driven by past fears of capital flight (i.e., outflow of capital from India due to monetary policies/lack of growth) and exchange rate volatility, given significant current and capital account deficits.
• Question 4 of 5 4. Question Consider the following statements regarding Frictional unemployment: It occurs when workers lose their current job and are in the process of finding another one. This suggests that zero unemployment is impossible at any one time because some workers will always be in the process of changing jobs. 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: D Frictional unemployment Frictional unemployment, also called search unemployment, occurs when workers lose their current job and are in the process of finding another one. This suggests that zero unemployment is impossible at any one time because some workers will always be in the process of changing jobs. Incorrect Solution: D Frictional unemployment Frictional unemployment, also called search unemployment, occurs when workers lose their current job and are in the process of finding another one. This suggests that zero unemployment is impossible at any one time because some workers will always be in the process of changing jobs.
#### 4. Question
Consider the following statements regarding Frictional unemployment:
• It occurs when workers lose their current job and are in the process of finding another one.
• This suggests that zero unemployment is impossible at any one time because some workers will always be in the process of changing jobs.
Which of the above statements is/are incorrect?
• c) Both 1 and 2
• d) Neither 1 nor 2
Solution: D
Frictional unemployment
Frictional unemployment, also called search unemployment, occurs when workers lose their current job and are in the process of finding another one.
This suggests that zero unemployment is impossible at any one time because some workers will always be in the process of changing jobs.
Solution: D
Frictional unemployment
Frictional unemployment, also called search unemployment, occurs when workers lose their current job and are in the process of finding another one.
This suggests that zero unemployment is impossible at any one time because some workers will always be in the process of changing jobs.
• Question 5 of 5 5. Question Which of the following steps can help to internationalise the rupee? India signing Currency swap agreements with other countries. RBI should pursue a more liquid rupee bond market. Indian exporters and importers should be encouraged to invoice their transactions in rupee. Tax incentives to foreign businesses to utilise the rupee in operations in India. Rupee must be made more freely convertible. How many of the above statements are correct? a) Only two b) Only three c) Only four d) All five Correct Solution: D Many reforms can be pursued to internationalise the rupee. It must be made more freely convertible, with a goal of full convertibility by 2060 – letting financial investments move freely between India and abroad. This would allow foreign investors to easily buy and sell the rupee, enhancing its liquidity and making it more attractive. Additionally, the RBI should pursue a deeper and more liquid rupee bond market, enabling foreign investors and Indian trade partners to have more investment options in rupees, enabling its international use. Indian exporters and importers should be encouraged to invoice their transactions in rupee — optimising the trade settlement formalities for rupee import/export transactions would go a long way. Additional currency swap agreements (as with Sri Lanka) would further allow India to settle trade and investment transactions in rupees, without resorting to a reserve currency such as the dollar. Additionally, tax incentives to foreign businesses to utilise the rupee in operations in India would also help. The RBI and the Ministry of Finance must ensure currency management stability (consistent and predictable issuance/retrieval of notes and coins) and improve the exchange rate regime. Incorrect Solution: D Many reforms can be pursued to internationalise the rupee. It must be made more freely convertible, with a goal of full convertibility by 2060 – letting financial investments move freely between India and abroad. This would allow foreign investors to easily buy and sell the rupee, enhancing its liquidity and making it more attractive. Additionally, the RBI should pursue a deeper and more liquid rupee bond market, enabling foreign investors and Indian trade partners to have more investment options in rupees, enabling its international use. Indian exporters and importers should be encouraged to invoice their transactions in rupee — optimising the trade settlement formalities for rupee import/export transactions would go a long way. Additional currency swap agreements (as with Sri Lanka) would further allow India to settle trade and investment transactions in rupees, without resorting to a reserve currency such as the dollar. Additionally, tax incentives to foreign businesses to utilise the rupee in operations in India would also help. The RBI and the Ministry of Finance must ensure currency management stability (consistent and predictable issuance/retrieval of notes and coins) and improve the exchange rate regime.
#### 5. Question
Which of the following steps can help to internationalise the rupee?
• India signing Currency swap agreements with other countries.
• RBI should pursue a more liquid rupee bond market.
• Indian exporters and importers should be encouraged to invoice their transactions in rupee.
• Tax incentives to foreign businesses to utilise the rupee in operations in India.
• Rupee must be made more freely convertible.
How many of the above statements are correct?
• a) Only two
• b) Only three
• c) Only four
• d) All five
Solution: D
Many reforms can be pursued to internationalise the rupee. It must be made more freely convertible, with a goal of full convertibility by 2060 – letting financial investments move freely between India and abroad. This would allow foreign investors to easily buy and sell the rupee, enhancing its liquidity and making it more attractive. Additionally, the RBI should pursue a deeper and more liquid rupee bond market, enabling foreign investors and Indian trade partners to have more investment options in rupees, enabling its international use. Indian exporters and importers should be encouraged to invoice their transactions in rupee — optimising the trade settlement formalities for rupee import/export transactions would go a long way. Additional currency swap agreements (as with Sri Lanka) would further allow India to settle trade and investment transactions in rupees, without resorting to a reserve currency such as the dollar.
Additionally, tax incentives to foreign businesses to utilise the rupee in operations in India would also help. The RBI and the Ministry of Finance must ensure currency management stability (consistent and predictable issuance/retrieval of notes and coins) and improve the exchange rate regime.
Solution: D
Many reforms can be pursued to internationalise the rupee. It must be made more freely convertible, with a goal of full convertibility by 2060 – letting financial investments move freely between India and abroad. This would allow foreign investors to easily buy and sell the rupee, enhancing its liquidity and making it more attractive. Additionally, the RBI should pursue a deeper and more liquid rupee bond market, enabling foreign investors and Indian trade partners to have more investment options in rupees, enabling its international use. Indian exporters and importers should be encouraged to invoice their transactions in rupee — optimising the trade settlement formalities for rupee import/export transactions would go a long way. Additional currency swap agreements (as with Sri Lanka) would further allow India to settle trade and investment transactions in rupees, without resorting to a reserve currency such as the dollar.
Additionally, tax incentives to foreign businesses to utilise the rupee in operations in India would also help. The RBI and the Ministry of Finance must ensure currency management stability (consistent and predictable issuance/retrieval of notes and coins) and improve the exchange rate regime.
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