UPSC Static Quiz – Economy : 9 December 2024

UPSC Static Quiz – Economy : 9 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. Any change in the repo rate impacts the interest rate for borrowers. Marginal cost of fund-based lending rates (MCLR) is the minimum interest rate below which banks cannot lend. Under the Marginal cost of fund-based lending rates (MCLR) regime, banks decide on the interest rate at which they will offer to borrowers on the basis of the marginal cost at which they get funds and borrowing from the RBI. How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: c) Introduced on April 1, 2016, MCLR is the minimum interest rate below which banks cannot lend. Banks calculate all operating costs as a percentage of marginal cost of funds for computing MCLR. Under the MCLR regime, banks decide on the interest rate at which they will offer to borrowers on the basis of the marginal cost at which they get funds and borrowing from the RBI. Any change in the repo rate — the rate at which the RBI lends money to banks to meet their short-term funding needs — impacts the interest rate for borrowers. Banks review their MCLR of different maturities every month on a pre-announced date with approval from their boards. Incorrect Solution: c) Introduced on April 1, 2016, MCLR is the minimum interest rate below which banks cannot lend. Banks calculate all operating costs as a percentage of marginal cost of funds for computing MCLR. Under the MCLR regime, banks decide on the interest rate at which they will offer to borrowers on the basis of the marginal cost at which they get funds and borrowing from the RBI. Any change in the repo rate — the rate at which the RBI lends money to banks to meet their short-term funding needs — impacts the interest rate for borrowers. Banks review their MCLR of different maturities every month on a pre-announced date with approval from their boards.

#### 1. Question

Consider the following statements.

• Any change in the repo rate impacts the interest rate for borrowers.

• Marginal cost of fund-based lending rates (MCLR) is the minimum interest rate below which banks cannot lend.

• Under the Marginal cost of fund-based lending rates (MCLR) regime, banks decide on the interest rate at which they will offer to borrowers on the basis of the marginal cost at which they get funds and borrowing from the RBI.

How many of the above statements is/are correct?

• a) Only one

• b) Only two

• c) All three

Solution: c)

Introduced on April 1, 2016, MCLR is the minimum interest rate below which banks cannot lend. Banks calculate all operating costs as a percentage of marginal cost of funds for computing MCLR. Under the MCLR regime, banks decide on the interest rate at which they will offer to borrowers on the basis of the marginal cost at which they get funds and borrowing from the RBI.

Any change in the repo rate — the rate at which the RBI lends money to banks to meet their short-term funding needs — impacts the interest rate for borrowers. Banks review their MCLR of different maturities every month on a pre-announced date with approval from their boards.

Solution: c)

• Question 2 of 5 2. Question As per the RBI definition, personal loans are the loans given to individuals that consist of consumer credit education loan loans given for the creation or enhancement of immovable assets loans given for investment in financial assets How many of the above options is/are correct? a) Only one b) Only two c) Only three d) All four Correct Solution: d) As per the RBI definition, personal loans are a broad category of loans extended to individuals and encompass various purposes. Consumer credit: These loans are used for personal consumption, such as purchasing goods or services, and are a part of personal loans. Education loan: Loans provided to individuals to finance educational pursuits are included in the personal loan category. Loans for creation/enhancement of immovable assets: Financing for purposes such as building or improving housing falls within this definition, making this option valid. Loans for investment in financial assets: Loans taken to invest in financial instruments like shares, debentures, or other securities also qualify as personal loans. Incorrect Solution: d) As per the RBI definition, personal loans are a broad category of loans extended to individuals and encompass various purposes. Consumer credit: These loans are used for personal consumption, such as purchasing goods or services, and are a part of personal loans. Education loan: Loans provided to individuals to finance educational pursuits are included in the personal loan category. Loans for creation/enhancement of immovable assets: Financing for purposes such as building or improving housing falls within this definition, making this option valid. Loans for investment in financial assets: Loans taken to invest in financial instruments like shares, debentures, or other securities also qualify as personal loans.

#### 2. Question

As per the RBI definition, personal loans are the loans given to individuals that consist of

• consumer credit

• education loan

• loans given for the creation or enhancement of immovable assets

• loans given for investment in financial assets

How many of the above options is/are correct?

• a) Only one

• b) Only two

• c) Only three

• d) All four

Solution: d)

As per the RBI definition, personal loans are a broad category of loans extended to individuals and encompass various purposes.

• Consumer credit: These loans are used for personal consumption, such as purchasing goods or services, and are a part of personal loans.

• Education loan: Loans provided to individuals to finance educational pursuits are included in the personal loan category.

• Loans for creation/enhancement of immovable assets: Financing for purposes such as building or improving housing falls within this definition, making this option valid.

• Loans for investment in financial assets: Loans taken to invest in financial instruments like shares, debentures, or other securities also qualify as personal loans.

Solution: d)

As per the RBI definition, personal loans are a broad category of loans extended to individuals and encompass various purposes.

• Consumer credit: These loans are used for personal consumption, such as purchasing goods or services, and are a part of personal loans.

• Education loan: Loans provided to individuals to finance educational pursuits are included in the personal loan category.

• Loans for creation/enhancement of immovable assets: Financing for purposes such as building or improving housing falls within this definition, making this option valid.

• Loans for investment in financial assets: Loans taken to invest in financial instruments like shares, debentures, or other securities also qualify as personal loans.

• Question 3 of 5 3. Question Consider the following: Non-excludability Rival Consumption Rejectable How many of the above are the characteristics of a Public good? a) Only one b) Only two c) All three d) None Correct Solution: a) Public goods are goods that can be consumed simultaneously by a large number of people without the consumption by one imposing an opportunity cost on others. The characteristics of a public good: Non excludability i.e., the citizens can enjoy its benefits at no explicit financial cost. Non rival consumption i.e., the marginal cost of supplying this public good to an extra citizen is zero. Non-Rejectable i.e., collective supply for all citizens means that it cannot be rejected. Incorrect Solution: a) Public goods are goods that can be consumed simultaneously by a large number of people without the consumption by one imposing an opportunity cost on others. The characteristics of a public good: Non excludability i.e., the citizens can enjoy its benefits at no explicit financial cost. Non rival consumption i.e., the marginal cost of supplying this public good to an extra citizen is zero. Non-Rejectable i.e., collective supply for all citizens means that it cannot be rejected.

#### 3. Question

Consider the following:

• Non-excludability

• Rival Consumption

• Rejectable

How many of the above are the characteristics of a Public good?

• a) Only one

• b) Only two

• c) All three

Solution: a)

Public goods are goods that can be consumed simultaneously by a large number of people without the consumption by one imposing an opportunity cost on others.

The characteristics of a public good:

• Non excludability i.e., the citizens can enjoy its benefits at no explicit financial cost.

• Non rival consumption i.e., the marginal cost of supplying this public good to an extra citizen is zero.

• Non-Rejectable i.e., collective supply for all citizens means that it cannot be rejected.

Solution: a)

Public goods are goods that can be consumed simultaneously by a large number of people without the consumption by one imposing an opportunity cost on others.

The characteristics of a public good:

• Non excludability i.e., the citizens can enjoy its benefits at no explicit financial cost.

• Non rival consumption i.e., the marginal cost of supplying this public good to an extra citizen is zero.

• Non-Rejectable i.e., collective supply for all citizens means that it cannot be rejected.

• Question 4 of 5 4. Question Consider the following statements regarding the duty pass-through and its impact on power tariffs for solar projects. The duty pass-through mechanism aims to mitigate the increase in costs due to the imposition of import duties on solar equipment. Duty pass-through will lead to a reduction in power tariffs for solar projects. The duty pass-through is expected to increase the financial burden on solar project developers. How many of the above statements is/are incorrect? a) Only one b) Only two c) All three d) None Correct Solution: a) Statement 2 is incorrect. The duty pass-through mechanism aims to offset the impact of import duties on solar equipment. It allows solar project developers to pass on the increased costs due to import duties to the end consumers through higher power tariffs. The duty pass-through mechanism does not lead to a reduction in power tariffs for solar projects. It is primarily designed to mitigate the increase in costs resulting from the imposition of import duties on solar equipment. The duty pass-through mechanism can indeed increase the financial burden on solar project developers. As they have to bear the additional costs imposed by import duties, it can affect their profitability and overall project viability. Incorrect Solution: a) Statement 2 is incorrect. The duty pass-through mechanism aims to offset the impact of import duties on solar equipment. It allows solar project developers to pass on the increased costs due to import duties to the end consumers through higher power tariffs. The duty pass-through mechanism does not lead to a reduction in power tariffs for solar projects. It is primarily designed to mitigate the increase in costs resulting from the imposition of import duties on solar equipment. The duty pass-through mechanism can indeed increase the financial burden on solar project developers. As they have to bear the additional costs imposed by import duties, it can affect their profitability and overall project viability.

#### 4. Question

Consider the following statements regarding the duty pass-through and its impact on power tariffs for solar projects.

• The duty pass-through mechanism aims to mitigate the increase in costs due to the imposition of import duties on solar equipment.

• Duty pass-through will lead to a reduction in power tariffs for solar projects.

• The duty pass-through is expected to increase the financial burden on solar project developers.

How many of the above statements is/are incorrect?

• a) Only one

• b) Only two

• c) All three

Solution: a)

Statement 2 is incorrect.

The duty pass-through mechanism aims to offset the impact of import duties on solar equipment. It allows solar project developers to pass on the increased costs due to import duties to the end consumers through higher power tariffs.

The duty pass-through mechanism does not lead to a reduction in power tariffs for solar projects. It is primarily designed to mitigate the increase in costs resulting from the imposition of import duties on solar equipment.

The duty pass-through mechanism can indeed increase the financial burden on solar project developers. As they have to bear the additional costs imposed by import duties, it can affect their profitability and overall project viability.

Solution: a)

Statement 2 is incorrect.

• Question 5 of 5 5. Question Consider the following statements. When an economy goes through a phase of high inflation, there are chances that the unemployment rate will fall. High inflation will increase the purchasing power of the consumer. The RBI monetary policy has a direct impact on controlling “cost-push” inflation. 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) There is a trade-off between inflation and unemployment. Typically, when an economy goes through a phase of high inflation, chances are that the unemployment rate will fall. That’s because firms, enticed by higher prices, try to ramp up production by recruiting more people. High inflation may be robbing people of their purchasing power. It is also important to understand that monetary policy does not have a direct solution to controlling “cost-push” inflation. It cannot make fuel prices lower by raising interest rates. All it can do is to control demand in the economy. Incorrect Solution: a) There is a trade-off between inflation and unemployment. Typically, when an economy goes through a phase of high inflation, chances are that the unemployment rate will fall. That’s because firms, enticed by higher prices, try to ramp up production by recruiting more people. High inflation may be robbing people of their purchasing power. It is also important to understand that monetary policy does not have a direct solution to controlling “cost-push” inflation. It cannot make fuel prices lower by raising interest rates. All it can do is to control demand in the economy.

#### 5. Question

Consider the following statements.

• When an economy goes through a phase of high inflation, there are chances that the unemployment rate will fall.

• High inflation will increase the purchasing power of the consumer.

• The RBI monetary policy has a direct impact on controlling “cost-push” inflation.

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)

• There is a trade-off between inflation and unemployment. Typically, when an economy goes through a phase of high inflation, chances are that the unemployment rate will fall. That’s because firms, enticed by higher prices, try to ramp up production by recruiting more people.

• High inflation may be robbing people of their purchasing power.

• It is also important to understand that monetary policy does not have a direct solution to controlling “cost-push” inflation. It cannot make fuel prices lower by raising interest rates. All it can do is to control demand in the economy.

Solution: a)

• High inflation may be robbing people of their purchasing power.

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