UPSC Static Quiz – Economy : 7 December 2024

UPSC Static Quiz – Economy : 7 December 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 Gross Value Added (GVA). Gross Value Added (GVA) is the value of all goods and services produced in an economy minus the value of their inputs consumed during a given year, net of product taxes and subsidies. GVA is estimated only at current prices and not constant prices. Current prices are those that prevailed during a fixed base year. How many of the above statements is/are incorrect? a) Only one b) Only two c) All three d) None Correct Solution: b) Only Statement 1 is correct. Gross Value Added (GVA) — the value of all goods and services produced in an economy minus the value of their inputs consumed during a given year, net of product taxes and subsidies — is estimated at both current and constant prices. Current prices are price levels for the given year, while constant prices are those that prevailed during a fixed “base” year. Incorrect Solution: b) Only Statement 1 is correct. Gross Value Added (GVA) — the value of all goods and services produced in an economy minus the value of their inputs consumed during a given year, net of product taxes and subsidies — is estimated at both current and constant prices. Current prices are price levels for the given year, while constant prices are those that prevailed during a fixed “base” year.

#### 1. Question

Consider the following statements regarding Gross Value Added (GVA).

• Gross Value Added (GVA) is the value of all goods and services produced in an economy minus the value of their inputs consumed during a given year, net of product taxes and subsidies.

• GVA is estimated only at current prices and not constant prices.

• Current prices are those that prevailed during a fixed base year.

How many of the above statements is/are incorrect?

• a) Only one

• b) Only two

• c) All three

Solution: b)

Only Statement 1 is correct.

Gross Value Added (GVA) — the value of all goods and services produced in an economy minus the value of their inputs consumed during a given year, net of product taxes and subsidies — is estimated at both current and constant prices. Current prices are price levels for the given year, while constant prices are those that prevailed during a fixed “base” year.

Solution: b)

Only Statement 1 is correct.

• Question 2 of 5 2. Question Consider the following statements. India’s services sector output is measured by the S&P Global India Services Purchasing Managers’ Index (PMI). Services Purchasing Managers’ Index (PMI) also provides the stock market an indicator of whether the current economy is healthy or not. The Reserve Bank of India does not look at Purchasing Managers’ Index (PMI) data to make interest rate decisions. Which of the above statements is/are correct? a) 1 and 2 only b) 1 and 3 only c) 2 and 3 only d) 1, 2 and 3 Correct Solution: a) India’s services sector output is measured by the S&P Global India Services Purchasing Managers’ Index (PMI). The Services PMI provides advanced insight into the services sector, giving investors a better understanding of business conditions and valuable information about the economic backdrop of various markets. Services PMI also provides the stock market an indicator of whether the current economy is healthy or not, which generally translates to higher corporate profits. The PMI data are also used by the Reserve Bank of India to help make interest rate decisions. Incorrect Solution: a) India’s services sector output is measured by the S&P Global India Services Purchasing Managers’ Index (PMI). The Services PMI provides advanced insight into the services sector, giving investors a better understanding of business conditions and valuable information about the economic backdrop of various markets. Services PMI also provides the stock market an indicator of whether the current economy is healthy or not, which generally translates to higher corporate profits. The PMI data are also used by the Reserve Bank of India to help make interest rate decisions.

#### 2. Question

Consider the following statements.

• India’s services sector output is measured by the S&P Global India Services Purchasing Managers’ Index (PMI).

• Services Purchasing Managers’ Index (PMI) also provides the stock market an indicator of whether the current economy is healthy or not.

• The Reserve Bank of India does not look at Purchasing Managers’ Index (PMI) data to make interest rate decisions.

Which of the above statements is/are correct?

• a) 1 and 2 only

• b) 1 and 3 only

• c) 2 and 3 only

• d) 1, 2 and 3

Solution: a)

India’s services sector output is measured by the S&P Global India Services Purchasing Managers’ Index (PMI).

The Services PMI provides advanced insight into the services sector, giving investors a better understanding of business conditions and valuable information about the economic backdrop of various markets.

Services PMI also provides the stock market an indicator of whether the current economy is healthy or not, which generally translates to higher corporate profits.

The PMI data are also used by the Reserve Bank of India to help make interest rate decisions.

Solution: a)

India’s services sector output is measured by the S&P Global India Services Purchasing Managers’ Index (PMI).

Services PMI also provides the stock market an indicator of whether the current economy is healthy or not, which generally translates to higher corporate profits.

The PMI data are also used by the Reserve Bank of India to help make interest rate decisions.

• Question 3 of 5 3. Question Consider the following statements. Nominal GDP is the total market value of all the goods and services produced in India in a financial year. The nominal GDP is derived from the real GDP by removing the effect of inflation. The Fiscal responsibility and Budget Management (FRBM) Act stipulates that the total borrowings (fiscal deficit) cannot be more than 6% of the (nominal) GDP. How many of the above statements are correct? a) Only one b) Only two c) All three d) None Correct Solution: a) Only statement 1 is correct. Nominal GDP is nothing but the total market value of all the goods and services produced in India in a financial year. For purposes of analysing the economy one often uses the “real” GDP but for preparing the budget, it is the nominal GDP that matters. The real GDP is “derived” from the nominal GDP by removing the effect of inflation. Once the government knows the nominal GDP of the current financial year, it uses this number to project the likely nominal GDP in the next financial year for which the budget is being made. Typically in India, as indeed is the case with most developing economies, the governments are forced to spend more than they earn. That means they have to borrow money from the market. But overtime India instituted strict rules limiting how much the Union government can borrow. These limits are set by the Fiscal responsibility and Budget Management (FRBM) Act. The FRBM Act stipulates that the total borrowings (fiscal deficit) cannot be more than 3% of the (nominal) GDP. Incorrect Solution: a) Only statement 1 is correct. Nominal GDP is nothing but the total market value of all the goods and services produced in India in a financial year. For purposes of analysing the economy one often uses the “real” GDP but for preparing the budget, it is the nominal GDP that matters. The real GDP is “derived” from the nominal GDP by removing the effect of inflation. Once the government knows the nominal GDP of the current financial year, it uses this number to project the likely nominal GDP in the next financial year for which the budget is being made. Typically in India, as indeed is the case with most developing economies, the governments are forced to spend more than they earn. That means they have to borrow money from the market. But overtime India instituted strict rules limiting how much the Union government can borrow. These limits are set by the Fiscal responsibility and Budget Management (FRBM) Act. The FRBM Act stipulates that the total borrowings (fiscal deficit) cannot be more than 3% of the (nominal) GDP.

#### 3. Question

Consider the following statements.

• Nominal GDP is the total market value of all the goods and services produced in India in a financial year.

• The nominal GDP is derived from the real GDP by removing the effect of inflation.

• The Fiscal responsibility and Budget Management (FRBM) Act stipulates that the total borrowings (fiscal deficit) cannot be more than 6% of the (nominal) GDP.

How many of the above statements are correct?

• a) Only one

• b) Only two

• c) All three

Solution: a)

Only statement 1 is correct.

Nominal GDP is nothing but the total market value of all the goods and services produced in India in a financial year. For purposes of analysing the economy one often uses the “real” GDP but for preparing the budget, it is the nominal GDP that matters. The real GDP is “derived” from the nominal GDP by removing the effect of inflation.

Once the government knows the nominal GDP of the current financial year, it uses this number to project the likely nominal GDP in the next financial year for which the budget is being made.

Typically in India, as indeed is the case with most developing economies, the governments are forced to spend more than they earn. That means they have to borrow money from the market. But overtime India instituted strict rules limiting how much the Union government can borrow. These limits are set by the Fiscal responsibility and Budget Management (FRBM) Act. The FRBM Act stipulates that the total borrowings (fiscal deficit) cannot be more than 3% of the (nominal) GDP.

Solution: a)

Only statement 1 is correct.

Once the government knows the nominal GDP of the current financial year, it uses this number to project the likely nominal GDP in the next financial year for which the budget is being made.

• Question 4 of 5 4. Question Consider the following Generally tightening of monetary policy by the US Federal Reserve leads to Foreign portfolio investments (FPI) sell-off in the Indian Stock market. Lower value of Indian rupee against the dollar keeps import bills lower for India. Lower value of Indian rupee against the dollar is beneficial for travellers and students studying abroad. Which of the above statements is/are correct? a) 1 only b) 1 and 3 only c) 2 and 3 only d) 1, 2 and 3 Correct Solution: a) Generally tightening of monetary policy by the US Federal Reserve leads to Foreign portfolio investments (FPI) sell-off in the Indian Stock market. Analysts said a lower rupee against the dollar keeps import bills higher. Higher inflation is detrimental to the overall market. If the rupee does not strengthen, FPI outflows will continue, which is another negative. A strong dollar is good for export-oriented companies, but bad for import-oriented industries such as oil, gas and chemicals. With the dip in the rupee, oil imports and other imported components will get costlier, which will further lead to higher inflation. Travellers and students studying abroad will have to shell out more rupees to buy dollars from banks. Incorrect Solution: a) Generally tightening of monetary policy by the US Federal Reserve leads to Foreign portfolio investments (FPI) sell-off in the Indian Stock market. Analysts said a lower rupee against the dollar keeps import bills higher. Higher inflation is detrimental to the overall market. If the rupee does not strengthen, FPI outflows will continue, which is another negative. A strong dollar is good for export-oriented companies, but bad for import-oriented industries such as oil, gas and chemicals. With the dip in the rupee, oil imports and other imported components will get costlier, which will further lead to higher inflation. Travellers and students studying abroad will have to shell out more rupees to buy dollars from banks.

#### 4. Question

Consider the following

• Generally tightening of monetary policy by the US Federal Reserve leads to Foreign portfolio investments (FPI) sell-off in the Indian Stock market.

• Lower value of Indian rupee against the dollar keeps import bills lower for India.

• Lower value of Indian rupee against the dollar is beneficial for travellers and students studying abroad.

Which of the above statements is/are correct?

• b) 1 and 3 only

• c) 2 and 3 only

• d) 1, 2 and 3

Solution: a)

Generally tightening of monetary policy by the US Federal Reserve leads to Foreign portfolio investments (FPI) sell-off in the Indian Stock market.

Analysts said a lower rupee against the dollar keeps import bills higher. Higher inflation is detrimental to the overall market. If the rupee does not strengthen, FPI outflows will continue, which is another negative. A strong dollar is good for export-oriented companies, but bad for import-oriented industries such as oil, gas and chemicals. With the dip in the rupee, oil imports and other imported components will get costlier, which will further lead to higher inflation. Travellers and students studying abroad will have to shell out more rupees to buy dollars from banks.

Solution: a)

Generally tightening of monetary policy by the US Federal Reserve leads to Foreign portfolio investments (FPI) sell-off in the Indian Stock market.

• 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 current account includes a nation’s net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments. The capital account is included in calculations of national output, while the current account is not. 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: a) 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: a) 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 current account includes a nation’s net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments.

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

Which of the above statements is/are correct?

• c) Both 1 and 2

• d) Neither 1 nor 2

Solution: a)

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: a)

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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