ANSWERS WITH EXPLANATION

INDIAN ECONOMY BASICS

1. (c) 10. (c)

Exp.: They are used by Foreign Institutional Exp.: The balance of payments, also known as
Investors (FIIs) who are NOT registered with balance of international payments,
SEBI. encompasses all transactions between a
country's residents and its nonresidents
2. (c) involving goods, services and income;
Exp.: At least 75% of only male working financial claims on and liabilities to the rest
of the world; and transfers such as gifts.
population engaged in nonagricultural
Despite its name, the "balance of payments"
pursuits. data is not concerned with actual payments
3. (c) made and received by an economy, but
rather with transactions.
4. (d)
11. (a)
5. (a)
12. (d)
Exp.: Fiscal policy is said to be tight or
Exp.: As the government draws its income from
contractionary when revenue is higher than
much of the population, government debt
spending (i.e., the government budget is in is an indirect debt of the taxpayers.
surplus). Government debt can be categorized as
6. (c) internal debt (owed to lenders within the
country) and external debt (owed to foreign
7. (b) lenders).
8. (a) 13. (c)
Exp.: Frictional unemployment is the time period 14. (a)
between jobs when a worker is searching Exp.: Unlike a fixed exchange rate system, the
for, or transitioning from one job to another. government or central bank does not actively
It is sometimes called search unemployment interfere in the foreign exchange market by
and can be voluntarily based on the controlling supply and demand of the
circumstances of the unemployed individual. currency in order to influence the exchange
Structural unemployment occurs when a rate.
labour market is unable to provide jobs for 15. (c)
everyone who wants one because there is a
Exp.: When a government's total expenditures
mismatch between the skills of workers and exceed the revenue that it generates
skills needed for jobs. (excluding money from borrowings). Deficit
9. (c) differs from debt, which is an accumulation
of yearly deficits. In milder forms high
Exp.: If a nation X's sovereign credit rating is inflation and a large fiscal deficit lead to a
constant, and all other nations' Moody's weaker national currency (imports become
ratings rise, then nation X's CRIS will expensive) and reduce the creditworthiness
decline. of the country.
 16. (d) 33. (b)
17. (d) Exp.: The top recipients of officially recorded
18. (b) remittances for 2013 are:
Exp.: RBI has extended infrastructure sector 1. India $71 billion
lending subcategory to include hotels and 2. China $60 billion
convention centres.
3. Philippines $26 billion
19. (d)
4. Mexico $22 billion
20. (a)
5. Nigeria $21 billion
21. (c)
6. Egypt $20 billion

E
Exp.: The shape of Engel curves depend on many
demographic variables and other consumer 34. (a)
characteristics. For inferior goods, the Engel Exp.: The Reserve Bank of India (RBI) has

OR
curve has a negative gradient. That means included Hong Kong and Macau in the
that as the consumer has more income, they sensitive list of countries. Pakistan,
will buy less of the inferior good because Bangladesh, Sri Lanka, Afghanistan, Iran
they are able to purchase better goods. and China are already in the sensitive list
which means entities and residents of these
22. (c) countries will need prior RBI permission to
23. (a) establish a branch office or a liaison office
or a project office in India.
24. (b)
SC
35. (d)
Exp.: Phillips curve is an inverse relationship
Exp.: The definitions are interchanged.
between rates of unemployment and
corresponding rates of inflation that result 36. (a)
in an economy. 37. (c)
25. (d) 38. (c)
26. (a) Exp.: In India, FDI is preferred over portfolio
flows as the FDI flows tend to be more stable
Exp.: An open market operation (also known as
GS

than portfolio and other forms of capital

OMO) is an activity by a central bank to flows.
buy or sell government bonds in the open
market. 39. (b)
Exp.: Top five economies with highest actual
27. (d)
individual consumption per capita:
28. (c) BermudaUSCayman IslandsHong Kong
Luxembourg.
29. (b)
40. (d)
Exp.: The European Commission has proposed a
temporary ban on Mangoes, Eggplant, the Exp.: Bharat Bill Payment System (BBPS)
taro plant, Bitter gourd, Snake gourd. This entity will be responsible for setting
standards (a) Business standards, rules and
30. (d)
processes for on boarding the BBPOUs (b)
31. (d) Process standards, rules and processes for
various use cases including management of
32. (a) dispute resolution (c) Information exchange
Exp.: It is not backed by any currency or precious standards.
metal, and is used only among governments The entity would be responsible for
and IMF for balance of payments marketing and brand positioning of the pan
settlements. India Bharat Bill payments system, the
2 INDIAN ECONOMY BASICS
 oversight and certification for conduct of
operations of the BBPOUs
This entity will be responsible for carrying
out payment, clearing and settlement of the
transactions carried out at various BBPOUs.
BBPS shall act as the final dispute resolution
escalation point. The first point of contact
for dispute resolution shall always be the
operating unit.
It will also set up a single website on behalf
of the brand for online payment of bills
pertaining to all billers onboarded by the
BBPOUs.
The entity would be a 'notforprofit
OR
organization' registered under the
Companies Act 1956, like NPCI or similar
entity. The BBPS shall have a Steering
Group comprising of representatives from
the participating BBPOUs and other stake
holders.
41. (a)
SC
Exp.: Bridge loans are normally more costly than
normal financing, to pay off for the extra
risk. The lender also may demand cross
collateralization and a lower loantovalue
ratio. On the other hand Bridge Loans are
generally arranged rapidly with
comparatively little documentation.
42. (b)
GS
43. (c)
44. (b)
Exp.: FPIs would also be allowed to invest in
unlisted nonconvertible debentures or bonds
issued by corporate in the infrastructure
sector. Furthermore, FPI can invest in
privately placed bonds if it is listed within
15 days.
45. (d)
46. (d)
47. (a)
Exp.: The RBI panel asked Indian Banks
Association (IBA) to develop IBBR, a fresh
benchmark for floating interest rate
products, which may be compared and
released by IBA on a periodical basis. In the
beginning, IBBR may be used for home
INDIAN ECONOMY BASICS
loans. IBBR should comply with the
standards benchmarks set by the Committee
on Financial Benchmarks. Banks may
extend floating rate products linked to the
Base Rate, IBBR or any other floating rate
benchmark, ascertaining that at the time of
sanction, the lending rates should be equal
to or above the Base Rate of bank.
48. (c)
49. (b)
Exp.: In case a person is a whole time director in
E
a listed company then he can only be on
three boards.
50. (d)
51. (d)
52. (c)
53. (d)
54. (b)
Exp.: Non performing asset (NPA) is a loan or
an advance where Interest and/or
installment of principal remain overdue for
a period of more than 90 days in respect of
a term loan.
55. (a)
Exp.: The RKVY aimed at achieving 4% annual
growth in the agriculture sector during the
XI Plan period by ensuring a holistic
development of Agriculture and allied
sector. One of its objective include to achieve
the goal of reducing the yield gaps in
important crops through focused
interventions.
56. (c)
Exp.: Category I - the lowest risk entities
comprises foreign government and
governmentrelated foreign investors.
Category II - regulated entities such as
university funds, universityrelated
endowments and pension funds, etc.
Category III - other entities viz. Qualified
Foreign Investors (QFIs), etc.
57. (c)
58. (b)
Exp.: If gender inequality did not exist, the value
of GDI and HDI would be the same, but if
gender inequality exists, the value of GDI
would be lower than that of HDI. The
3
 greater the difference between HDI and M3 includes M1 and time deposits with banks
GDI, the greater is the gender inequality. It (not post office deposits) and known as
is the developing and under developing broad money.
country where gender inequality persists.
68. (c)
59. (b)
69. (d)
Exp.: With the launch of new system, India is
70. (a)
now ranked among the few countries in
the world to have such a network built Exp.: The new banks must meet the criteria of
domestically to meet the card based having 25% of its branches in unbanked
payment system needs of the country. It will rural areas with population upto 9,999.
certainly not only reduce the dependence
71. (b)
on cash and cheque modes of settlement

E
but will also make it easier to offer products 72. (c)
based on specific requirements of diverse 73. (d)
user sets within the country.

OR
74. (c)
60. (d)
75. (d)
61. (d)
76. (a)
62. (a)
77. (b)
Exp.: The primary result of the conference was
the nonbinding document 'The Future we 78. (a)
want'. The fourth statement is related to 79. (c)
Cancun Climate Change Conference held
SC
80. (d)
during NovDec. 2010.
81. (c)
63. (b)
82. (a)
Exp.: Reverse is true for statement 2 & 3 i.e.
children is related to statement 2 and adult Exp.: RBI has directed all the commercial banks
is to statement 3 to offer zero balance account with minimum
facilities like cheque book and ATM to all
64. (a) customers. Nofrill savings account scheme
Exp.: WHO said that is most cities where there is is provided by both public and private sector
GS

enough data to compare the situation today banks.

with previous years, air pollution is getting 83. (a)
worse. Many factors contribute to this
increase including reliance on fossil fuels. Exp.: Deadline for implementation of Basel III in
The 2014 version of the Ambient Air India is 2019.
Pollution (AAP) database contains results 84. (d)
of outdoor air pollution monitoring from
85. (d)
almost 1600 cities in 9 countries. According
to global burden of disease estimates, air 86. (d)
pollution is the fifth largest killer in India. 87. (b)
65. (c) Exp.: The Consolidated Fund of India has been
66. (b) established under Article 266 (1) of the
Constitution.
Exp.: AOA is a multilateral trade negotiation of
World Trade Organization (WTO). 88. (d)

67. (d) 89. (d)

Exp.: M1 includes currency with public and only 90. (b)

demand deposits with bank and not time Exp.: 12th plan has recommended Tax credit
deposits. It is known as narrow money. instead of tax incentives: With the
4 INDIAN ECONOMY BASICS
 imposition of Minimum Alternate Tax approach helping specialisation of labour
(MAT) of 20 per cent, companies are unable and engineering skills
to avail full benefit of weighted deduction.
93. (d)
Credit on inputs/capital goods used for
R&D outside the factory premises. 94. (d)
91. (d) 95. (a)
Exp.: 12th plan recomd Also, in order to leverage Exp.:
the benefits of IP:
Providing access to risk capital
Build awareness about IP through education
Setting up of standards for the industry
and training.
Improving Industry/research institute/

E
Create national IP mission to continually
evolve the IP strategy of the nation. academia interaction, mostly in clusters

Encourage joint IP filings by industry/ Stimulating demand/providing scale

through preferential treatment in

OR
academia/research institutes.
government purchases.
Encourage the formation of companies
specializing in IPs (through tax incentives). Modular industrial estates/laboratories near
premier technical institutions with the
Exempt income tax for the income
required plug and play facilities.
generated from domestic IPs.
92. (b) 96. (c)
97. (c)
SC
Exp.: The major factors responsible for increasing
Chinese competitiveness are: 98. (c)
Artificially depreciated Chinese currency Exp.: RTE Act is applicable for only elementary
Tax advantages and Government subsidies education.
given by the Government 99. (d)
Much lower interest rates 100. (a)
Simpler labour laws Exp.: The share of service sector in GDP of China
GS

Better infrastructure leading to lower cost is lower than that of India at 43.3% (2011
of power, transportation and cluster est.)

INDIAN ECONOMY BASICS 5