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Poverty, Planning, Finance and Economic/Social Development (Part-III)

📆 March 17, 2025

Total Questions: 61

21. The money multiplier in an economy increases with which one of the following? [2019-1]

Correct Answer: (b) Increase in the banking habit of the population.
Solution:Money Multiplier directly improves with cut in legal reserve ratios (SLR, CRR: so A and D are wrong) Money Multiplier indirectly improves as economy develops, consumption/loan demand increases, banking penetration improves etc.

22. If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India? [2020-1]

1. Not depending on short-term foreign borrowings

2. Opening up to more foreign banks

3. Maintaining full capital account convertibility

Select the correct answer using the code given below:

Correct Answer: (a) 1 only
Solution:Keeping full capital account convertibility will make India vulnerable to global crisis, just like the 1997's crisis among the East Asian countries. So number 3 is wrong.

If Indian Government /RBI allows opening of more foreign banks in India, there could be a dangerous scenario where foreign problems may percolate into Indian economy. So, #2 is wrong. So we are left with Answer (a) only 1.

23. If you withdraw ₹ 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be: [2020-1]

Correct Answer: (d) to leave it unchanged
Solution:Aggregate money supply means M3.

Coin and currency with public +Demand Deposit with commercial banks +Time Deposits with commercial banks.

So if you withdraw 100000 rupees from your account then M3 will remain unchanged because 1 lakh will shift from the column of "demand deposits" to the "coin currency with public."

24. Along with the Budget, the Finance Minister also places other documents before the Parliament which include 'The Macro Economic Framework Statement'. The aforesaid document is presented because this is mandated by: [2020-1]

Correct Answer: (d) Provisions of the Fiscal Responsibility and Budget Management Act, 2003.
Solution:This document is presented as per the Provisions of the FRBM act.

25. Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the following purposes? [2020-1]

1. Working capital for maintenance of farm assets

2. Purchase of combine harvesters, tractors and mini trucks

3. Consumption requirements of farm households

4. Post-harvest expenses

5. Construction of family house and setting up of village cold storage facility

Select the correct answer using the code given below:

Correct Answer: (b) 1,3 & 4 only
Solution:Kisan Credit Card primarily meant for buying farm inputs. So construction of family house' seems far-fetched. So, #5 is wrong.

Further, setting up a village cold storage facility cannot be done through a short-term credit (as given in the question premise) it will require a very long term loan. So, #5 is wrong. By elimination we are left with answer "b".

Interestingly no questions from the government schemes related to insurance and pension. Although in the last two years many initiatives were undertaken such as PM Shram Yogi Maan Dhan, Laghu Vyapari Maan Dhan, Kisan Maan Dhan etc. schernes

26. Consider the following statements : [2020-1]

1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).

2. The WPI does not capture changes in the prices of services, which CPI does.

3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

Which of the statements given above is/are correct?

Correct Answer: (a) 1 & 2 only
Solution:Under the new monetary policy Framework effective since 2016, RBI tries to control inflation at 2-6% of CPI (All India). So, #3 is wrong. Option c and d eliminated.

In both (a & b) the options, statement#2 is common so we have to accept #2 as correct, Even without checking. Everything boils down to whether statement#1 is correct or not?

Both WPI and CPI are based on Laspeyres formula wherein weightage is assigned to multiple commodities and their prices are tracked. The weight of an individual commodity depends on how frequently it is bought by the consumer.

So obviously consumer price index would be giving more weightage to the food products compared to WPI which is aimed at the manufacturers. So, #1 should be correct.

27. With reference to the Indian economy after the 1991 economic liberalization, consider the following statements: [2020-1]

1. Worker productivity per worker (at 2004-05 prices) increased in urban areas while it decreased in rural areas.

2. The percentage share of rural areas in the workforce steadily increased.

3. In rural areas, the growth in the non-farm economy increased.

4. The growth rate in rural employment decreased.

Which of the statements given above is/are correct?

Correct Answer: (b) 3 & 4 only
Solution:After the LPG reforms of 1991 it is inevitable that the rural/agriculture workforce would start shifting towards urban/non-agri sectors. So that means #2 is wrong and #3 should be correct.

Since the total number of workers have remained more or less the same but # of rural workers declined, That means their Percentage share also declined, And it will also hint that growth rate in Rural Employment has decreased. so Statement#2 is wrong while #4 is correct. Only option b fits into this pattern.

28. In India, under cyber insurance for individuals, which of the following benefits are generally covered, in addition to payment for the loss of funds and other benefits? [2020-1]

1. Cost of restoration of the computer system in case of malware disrupting access to one's computer.

2. Cost of a new computer if some miscreant wilfully damages it, if proved so.

3. Cost of hiring a specialized consultant to minimize the loss in case of cyber extortion.

4. Cost of defence in the Court of Law if any third party files a suit.

Select the correct answer using the code given below:

Correct Answer: (b) 1, 3 & 4 only
Solution:If you make the word Association that cyber insurance means something that arises out of this internet related cyber security challenge then the second statement is difficult to digest, that if your personal enemy neighbour's kid ex-husband/wife physical damages your computer.

Insurance firm will pay the cover for that. So, #2 is wrong. By elimination the answer should be "B".

29. In India, the central bank's function as the 'lender of last resort" usually refers to which of the following? [2021-1]

1. Lending to trade and industry bodies when they fail to borrow from other sources.

2. Providing liquidity to the banks having a temporary crisis.

3. Lending to governments to finance budgetary deficits.

Select the correct answer using the code given below:

Correct Answer: (b) 2 only
Solution:"Lender of last resort" is the word used in context of RBI giving loans to banks. So, #2 is right.

For #3 (Giving loans to the government) = Appropriate word is "banker to the government".

Now some candidates may argue that #3 is also suitable for the word "Lender of Last resort" but we have to go by the rot-learning/explanation given by academic books on banking systems such as Prof Bharati Pathak and E.Narayan Nadar.

In previous exam also UPSC asked a similar question about the "What is the meaning of RBI is "bankers Bank"?" And there too, UPSC examination had gone by the interpretation of academic books.

#1 (Loans to industries) not directly done by RBI. At best RBI will open some special Windows to give loans to banks and NBFCs who will then indirectly give loans to industries e.g. LTRO, SLTRO etc. So, #1 is wrong.

30. Consider the following statements: [2021-1]

1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.

2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in the public interest.

3. The Governor of the RBI draws his power from the RBI Act.

Which of the above statements are correct?

Correct Answer: (c) 1 & 3 only
Solution:Under section 7 of the RBI Act central government can issue directions to RBI in Public Interest. This was one of the reasons why Urjit Patel resigned from RBI. But that Central Government gives that direction using provisions "RBI Act" and not "Constitution".
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