UPSC Static Quiz – Economy : 4 February 2026
Kartavya Desk Staff
UPSC Static Quiz – Economy : 4 February 2026 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.
Why Participate in the UPSC Static Quiz?
Participating in daily quizzes helps reinforce your knowledge and identify areas that need improvement. Regular practice will enhance your recall abilities and boost your confidence for the examination. By covering various topics throughout the week, you ensure a comprehensive revision of the syllabus.
#### Quiz-summary
0 of 5 questions completed
Questions:
#### Information
Best of Luck! 🙂
You have already completed the quiz before. Hence you can not start it again.
Quiz is loading...
You must sign in or sign up to start the quiz.
You have to finish following quiz, to start this quiz:
0 of 5 questions answered correctly
Your time:
Time has elapsed
You have reached 0 of 0 points, (0)
#### Categories
• Not categorized 0%
• Question 1 of 5 1. Question Consider the following statements. Deflationrefers to a period when even though prices are rising it is happening at a slower rate each passing month. Disinflation is the exact opposite of inflation. Reflationtypically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced. How many of the above statements are incorrect? a) Only one b) Only two c) All three d) None Correct Solution: B Only statement 3 is correct. Disinflation refers to the trend when the inflation rate decelerates. Suppose it was 10% in April, 7% in May and 5% in June. This is disinflation. In other words, disinflation refers to a period when even though prices are rising (or inflation is happening), it is happening at a slower rate each passing month. Deflation is the exact opposite of inflation. Imagine if the general price level in June was 5% lower than what it was in June last year. That’s deflation. Reflation typically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced. Incorrect Solution: B Only statement 3 is correct. Disinflation refers to the trend when the inflation rate decelerates. Suppose it was 10% in April, 7% in May and 5% in June. This is disinflation. In other words, disinflation refers to a period when even though prices are rising (or inflation is happening), it is happening at a slower rate each passing month. Deflation is the exact opposite of inflation. Imagine if the general price level in June was 5% lower than what it was in June last year. That’s deflation. Reflation typically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced.
#### 1. Question
Consider the following statements.
• Deflationrefers to a period when even though prices are rising it is happening at a slower rate each passing month.
• Disinflation is the exact opposite of inflation.
• Reflationtypically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced.
How many of the above statements are incorrect?
• a) Only one
• b) Only two
• c) All three
Solution: B
Only statement 3 is correct.
Disinflation refers to the trend when the inflation rate decelerates. Suppose it was 10% in April, 7% in May and 5% in June. This is disinflation. In other words, disinflation refers to a period when even though prices are rising (or inflation is happening), it is happening at a slower rate each passing month.
Deflation is the exact opposite of inflation. Imagine if the general price level in June was 5% lower than what it was in June last year. That’s deflation.
Reflation typically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced.
Solution: B
Only statement 3 is correct.
Disinflation refers to the trend when the inflation rate decelerates. Suppose it was 10% in April, 7% in May and 5% in June. This is disinflation. In other words, disinflation refers to a period when even though prices are rising (or inflation is happening), it is happening at a slower rate each passing month.
Deflation is the exact opposite of inflation. Imagine if the general price level in June was 5% lower than what it was in June last year. That’s deflation.
Reflation typically follows deflation as policymakers try to pump up economic activity either by government spending more and/or interest rates being reduced.
• Question 2 of 5 2. Question Consider the following statements. Pro-cyclical fiscal policy stabilizes the business cycle by being contractionary in good times and expansionary in bad times. Counter-cyclical fiscal policy becomes critical during an economic crisis. 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: B While counter-cyclical fiscal policy is necessary to smooth out economic cycles, it becomes critical during an economic crisis. Relevance of Counter-cyclical Fiscal Policy: Indian Kings used to build palaces during famines and droughts to provide employment and improve the economic fortunes of the private sector. Economic theory, in effect, makes the same recommendation: in a recessionary year, Government must spend more than during expansionary times. Such counter-cyclical fiscal policy stabilizes the business cycle by being contractionary (reduce spending/increase taxes) in good times and expansionary (increase spending/reduce taxes) in bad times. On the other hand, a pro-cyclical fiscal policy is the one wherein fiscal policy reinforces the business cycle by being expansionary during good times and contractionary during recessions. Incorrect Solution: B While counter-cyclical fiscal policy is necessary to smooth out economic cycles, it becomes critical during an economic crisis. Relevance of Counter-cyclical Fiscal Policy: Indian Kings used to build palaces during famines and droughts to provide employment and improve the economic fortunes of the private sector. Economic theory, in effect, makes the same recommendation: in a recessionary year, Government must spend more than during expansionary times. Such counter-cyclical fiscal policy stabilizes the business cycle by being contractionary (reduce spending/increase taxes) in good times and expansionary (increase spending/reduce taxes) in bad times. On the other hand, a pro-cyclical fiscal policy is the one wherein fiscal policy reinforces the business cycle by being expansionary during good times and contractionary during recessions.
#### 2. Question
Consider the following statements.
• Pro-cyclical fiscal policy stabilizes the business cycle by being contractionary in good times and expansionary in bad times.
• Counter-cyclical fiscal policy becomes critical during an economic crisis.
Which of the above statements is/are correct?
• c) Both 1 and 2
• d) Neither 1 nor 2
Solution: B
While counter-cyclical fiscal policy is necessary to smooth out economic cycles, it becomes
critical during an economic crisis.
Relevance of Counter-cyclical Fiscal Policy:
Indian Kings used to build palaces during famines and droughts to provide employment and improve the economic fortunes of the private sector. Economic theory, in effect, makes the same recommendation: in a recessionary year, Government must spend more than during expansionary times. Such counter-cyclical fiscal policy stabilizes the business cycle by being contractionary (reduce spending/increase taxes) in good times and expansionary (increase spending/reduce taxes) in bad times. On the other hand, a pro-cyclical fiscal policy is the one wherein fiscal policy reinforces the business cycle by being expansionary during good times and contractionary during recessions.
Solution: B
While counter-cyclical fiscal policy is necessary to smooth out economic cycles, it becomes
critical during an economic crisis.
Relevance of Counter-cyclical Fiscal Policy:
Indian Kings used to build palaces during famines and droughts to provide employment and improve the economic fortunes of the private sector. Economic theory, in effect, makes the same recommendation: in a recessionary year, Government must spend more than during expansionary times. Such counter-cyclical fiscal policy stabilizes the business cycle by being contractionary (reduce spending/increase taxes) in good times and expansionary (increase spending/reduce taxes) in bad times. On the other hand, a pro-cyclical fiscal policy is the one wherein fiscal policy reinforces the business cycle by being expansionary during good times and contractionary during recessions.
• Question 3 of 5 3. Question Consider the following statements regarding Currency and Gold Revaluation Account (CGRA). The Currency and Gold Revaluation Account (CGRA) is maintained by the Union Finance Ministry to take care of currency risk, interest rate risk and movement in gold prices. It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold. Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not accounted for in the CGRA. Which of the above statements are correct? (a) 2 only (b) 1 and 2 only (c) 2 and 3 only (d) 1, 2 and 3 Correct Solution: A The Currency and Gold Revaluation Account (CGRA) is maintained by the Reserve Bank to take care of currency risk, interest rate risk and movement in gold prices. Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not taken to the income account but instead accounted for in the CGRA. CGRA provides a buffer against exchange rate/ gold price fluctuations. It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold. When CGRA is not sufficient to fully meet exchange losses, it is replenished from the Contingency Fund (CF). Incorrect Solution: A The Currency and Gold Revaluation Account (CGRA) is maintained by the Reserve Bank to take care of currency risk, interest rate risk and movement in gold prices. Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not taken to the income account but instead accounted for in the CGRA. CGRA provides a buffer against exchange rate/ gold price fluctuations. It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold. When CGRA is not sufficient to fully meet exchange losses, it is replenished from the Contingency Fund (CF).
#### 3. Question
Consider the following statements regarding Currency and Gold Revaluation Account (CGRA).
• The Currency and Gold Revaluation Account (CGRA) is maintained by the Union Finance Ministry to take care of currency risk, interest rate risk and movement in gold prices.
• It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold.
• Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not accounted for in the CGRA.
Which of the above statements are correct?
• (a) 2 only
• (b) 1 and 2 only
• (c) 2 and 3 only
• (d) 1, 2 and 3
Solution: A
• The Currency and Gold Revaluation Account (CGRA) is maintained by the Reserve Bank to take care of currency risk, interest rate risk and movement in gold prices.
• Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not taken to the income account but instead accounted for in the CGRA.
• CGRA provides a buffer against exchange rate/ gold price fluctuations. It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold.
• When CGRA is not sufficient to fully meet exchange losses, it is replenished from the Contingency Fund (CF).
Solution: A
• The Currency and Gold Revaluation Account (CGRA) is maintained by the Reserve Bank to take care of currency risk, interest rate risk and movement in gold prices.
• Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not taken to the income account but instead accounted for in the CGRA.
• CGRA provides a buffer against exchange rate/ gold price fluctuations. It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold.
• When CGRA is not sufficient to fully meet exchange losses, it is replenished from the Contingency Fund (CF).
• Question 4 of 5 4. Question Consider the following statements regarding the impact of External Aids on Indian economy. It brings in foreign currency that is useful to bridge the Balance of payments (BoP) deficit. It causes crowding out effect in the domestic market, which is not favourable to the domestic borrowers. 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: B If external aid is a grant or coming without interest, no better way to finance the deficit, if we ignore their inflationary effects. When the domestic market has limited amount of funds, and if the government desires to borrow a large share of it to finance the fiscal deficit, it tends to raise the demand for funds in the market. This shoots the market interest rate for the funds and causes problems to the domestic investors who now have to pay a higher interest rate to avail the same loan. If the same money is borrowed from abroad, the crowding out effect doesn’t occur. Incorrect Solution: B If external aid is a grant or coming without interest, no better way to finance the deficit, if we ignore their inflationary effects. When the domestic market has limited amount of funds, and if the government desires to borrow a large share of it to finance the fiscal deficit, it tends to raise the demand for funds in the market. This shoots the market interest rate for the funds and causes problems to the domestic investors who now have to pay a higher interest rate to avail the same loan. If the same money is borrowed from abroad, the crowding out effect doesn’t occur.
#### 4. Question
Consider the following statements regarding the impact of External Aids on Indian economy.
• It brings in foreign currency that is useful to bridge the Balance of payments (BoP) deficit.
• It causes crowding out effect in the domestic market, which is not favourable to the domestic borrowers.
Which of the above statements is/are incorrect?
• c) Both 1 and 2
• d) Neither 1 nor 2
Solution: B
If external aid is a grant or coming without interest, no better way to finance the deficit, if we ignore their inflationary effects.
When the domestic market has limited amount of funds, and if the government desires to borrow a large share of it to finance the fiscal deficit, it tends to raise the demand for funds in the market. This shoots the market interest rate for the funds and causes problems to the domestic investors who now have to pay a higher interest rate to avail the same loan.
If the same money is borrowed from abroad, the crowding out effect doesn’t occur.
Solution: B
If external aid is a grant or coming without interest, no better way to finance the deficit, if we ignore their inflationary effects.
When the domestic market has limited amount of funds, and if the government desires to borrow a large share of it to finance the fiscal deficit, it tends to raise the demand for funds in the market. This shoots the market interest rate for the funds and causes problems to the domestic investors who now have to pay a higher interest rate to avail the same loan.
If the same money is borrowed from abroad, the crowding out effect doesn’t occur.
• Question 5 of 5 5. Question Consider the following statements regarding Credit information bureaus. They maintain credit information of borrowers which can be accessed by banks and other lending institutions. They collect information of borrowers from credit card companies and non-bank financial institutions. The lending decision of banks and finance companies are not dependent on the rating given by the credit bureaus. Which of the above statements are correct? (a) 2 and 3 only (b) 1 and 3 only (c) 1 and 2 only (d) 1, 2 and 3 Correct Solution: C Credit Information Bureaus are institutions established to systematically collect, collate, and maintain credit-related data of borrowers, including individuals and businesses. Statement 1 is correct because these bureaus maintain detailed credit histories—such as repayment behaviour, outstanding loans, defaults, and credit utilization—which are accessed by banks, financial institutions, and regulated lenders to assess creditworthiness. Statement 2 is also correct, as credit information is sourced from a wide range of reporting entities including banks, credit card companies, and Non-Banking Financial Companies (NBFCs), ensuring a comprehensive borrower profile. Statement 3 is incorrect because, although lending decisions are not mechanically or exclusively based on credit scores, they are significantly influenced by them. Credit ratings and reports act as critical inputs in risk assessment, pricing of loans, and approval processes. Ignoring bureau ratings would undermine prudent lending practices, which is why regulators like the Reserve Bank of India emphasize their role in strengthening financial discipline and reducing information asymmetry. Incorrect Solution: C Credit Information Bureaus are institutions established to systematically collect, collate, and maintain credit-related data of borrowers, including individuals and businesses. Statement 1 is correct because these bureaus maintain detailed credit histories—such as repayment behaviour, outstanding loans, defaults, and credit utilization—which are accessed by banks, financial institutions, and regulated lenders to assess creditworthiness. Statement 2 is also correct, as credit information is sourced from a wide range of reporting entities including banks, credit card companies, and Non-Banking Financial Companies (NBFCs), ensuring a comprehensive borrower profile. Statement 3 is incorrect because, although lending decisions are not mechanically or exclusively based on credit scores, they are significantly influenced by them. Credit ratings and reports act as critical inputs in risk assessment, pricing of loans, and approval processes. Ignoring bureau ratings would undermine prudent lending practices, which is why regulators like the Reserve Bank of India emphasize their role in strengthening financial discipline and reducing information asymmetry.
#### 5. Question
Consider the following statements regarding Credit information bureaus.
• They maintain credit information of borrowers which can be accessed by banks and other lending institutions.
• They collect information of borrowers from credit card companies and non-bank financial institutions.
• The lending decision of banks and finance companies are not dependent on the rating given by the credit bureaus.
Which of the above statements are correct?
• (a) 2 and 3 only
• (b) 1 and 3 only
• (c) 1 and 2 only
• (d) 1, 2 and 3
Solution: C
• Credit Information Bureaus are institutions established to systematically collect, collate, and maintain credit-related data of borrowers, including individuals and businesses.
• Statement 1 is correct because these bureaus maintain detailed credit histories—such as repayment behaviour, outstanding loans, defaults, and credit utilization—which are accessed by banks, financial institutions, and regulated lenders to assess creditworthiness.
• Statement 2 is also correct, as credit information is sourced from a wide range of reporting entities including banks, credit card companies, and Non-Banking Financial Companies (NBFCs), ensuring a comprehensive borrower profile.
• Statement 3 is incorrect because, although lending decisions are not mechanically or exclusively based on credit scores, they are significantly influenced by them. Credit ratings and reports act as critical inputs in risk assessment, pricing of loans, and approval processes. Ignoring bureau ratings would undermine prudent lending practices, which is why regulators like the Reserve Bank of India emphasize their role in strengthening financial discipline and reducing information asymmetry.
Solution: C
• Credit Information Bureaus are institutions established to systematically collect, collate, and maintain credit-related data of borrowers, including individuals and businesses.
• Statement 1 is correct because these bureaus maintain detailed credit histories—such as repayment behaviour, outstanding loans, defaults, and credit utilization—which are accessed by banks, financial institutions, and regulated lenders to assess creditworthiness.
• Statement 2 is also correct, as credit information is sourced from a wide range of reporting entities including banks, credit card companies, and Non-Banking Financial Companies (NBFCs), ensuring a comprehensive borrower profile.
• Statement 3 is incorrect because, although lending decisions are not mechanically or exclusively based on credit scores, they are significantly influenced by them. Credit ratings and reports act as critical inputs in risk assessment, pricing of loans, and approval processes. Ignoring bureau ratings would undermine prudent lending practices, which is why regulators like the Reserve Bank of India emphasize their role in strengthening financial discipline and reducing information asymmetry.
Join our Official Telegram Channel HERE for Motivation and Fast Updates
Join our Twitter Channel HERE
Follow our Instagram Channel HERE
Stay Consistent
Consistency is key in UPSC preparation. By making the UPSC Static Quiz a part of your daily routine, you will steadily improve your knowledge base and exam readiness. Join us every day to tackle new questions and make your journey towards UPSC success more structured and effective.