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Time Allowed : 1 Hour ECONOMICS-XII M.M.40

Q1. Primary deficit in a government budget will zero, when _______________.

(a) Revenue deficit is zero
(b) Fiscal deficit is zero
(c) Net interest payments are zero
(d) Fiscal deficit is equal to interest payment

Q2. Devaluation of any currency happens under

(a) Fixed exchange rate system
(b) Flexible exchange rate
(c) Managed floating system
(d) None

Q3. “A” owns a camel that he wants to trade for a goat. However, there are no sellers of
goat in the market. This is an example of : –
a) Lack of Double coincidence of wants
b) Existence of Double coincidence of wants
c) Simultaneous coincidence of wants
d) Sequential coincidence of wants

Q4. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases

Assertion (A): Managed floating exchange rate system is a mixture of a flexible exchange rate
system and a fixed rate system.
Reason (R): Under managed floating exchange rate systems, the exchange rate is determined
by the market forces of demand and supply of foreign exchange (the float part) but the central
banks need to intervene to buy and sell foreign currencies in an attempt to moderate
exchange rate movements.

Alternative:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason(R) is false.

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 (d) Assertion (A) is false but Reason(R) is true.
Q5. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases

Assertion (A): The role of RBI was reduced from facilitator to regulator of financial sector
under NEP.
Reason (R): The limit of foreign investment in banks was raised to around 51% under
economic reforms.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q6. Zero primary deficit means that the government has to resort to borrowings only to make:
(a) Interest payment
(b) Fiscal payment
(c) Capital payment
(d) Primary payment

Q7. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

Assertion (A): USA has accused China of currency devaluation to promote its exports.
Reason (R): Devaluation of currency makes Chinese goods cheaper in the international
market. Thus, it promotes exports of Chinese goods and may adversely impact the production
and sale of importing country. (USA)

Alternative:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason(R) is false.
(d) Assertion (A) is false but Reason(R) is true.

Q8. To reduce credit availability in the economy, the central bank may ________. Buy
securities in the open market
(a) Sell securities in the open market
(b) Reduce reserve ratio
(c) Reduce repo rate
(d) None of these

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Q9. An account indicating a systematic record of all economic transactions between residents
of a country and residents of foreign countries during a period of account is called _________
Account.
(a) Balance of Trade
(b) Balance of Payment
(c) Government budget
(d) None of these

Q10. When was the New Economic Policy announced?

(a) June1991
(b) May 1991
(c) July 1991
(d) January 1991

Q11. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

ASSERTION (A): The fiscal deficit in the economy will be zero if there is no provision for
borrowing in the budget.
REASONING (R): Fiscal deficit is equal to total borrowing requirement of the economy.

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q12. Which of the following is not a component of Capital A/ c of BOP?

(a) Official Reserve Transaction
(b) Foreign Direct Investment
(c) Import of Machinery
(d) Repayment of foreign loan

Q13. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

ASSERTION (A): Money supply does not include money held by Government and Commercial
Banks.
REASONING (R): Government and Commercial Banks are themselves the supplier of money.

Alternatives:

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(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q14. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

ASSERTION (A): Repayment of international loans is component of foreign exchange demand

REASONING (R): Fixed Exchange Rate System refers to the system in which the rate of
exchange is determined by govt.

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q15. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

Assertion (A): Presently, number of industries reserved for public sector is only 2.
Reason (R): India had adopted the policy of liberalization as a part of the New Economic
Policy 1991.

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q16. With the introduction of GST, which of the following taxes are not be affected
(a) Sales Tax
(b) Excise duty
(c) Income tax
(d) VAT

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Q17. BOP is a ________ concept as it is measured over a period.
a) Vector
b) Stock
c) Flow
d) All of these
Q18. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

Assertion (A): M1 measure of money supply is defined as follows: M1 = CU +DD, where CU is

Currency (notes plus coins) held by the public and DD is 'net' demand deposits held by
commercial banks. The word 'net' here implies that only deposits of the public held by the
banks are to be included in money supply.
Reason (R): The interbank deposits, which a commercial bank holds in other commercial
banks, are not to be regarded as part of money supply.

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q19. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

Assertion (A): Deficit in current account indicates deficit in balance of payments also.
Reason (R): Deficit in current account may be compensated by the surplus in the capital
account resulting in BoP surplus.

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q20. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

Assertion (A): Globalization is the primary reason of contracting out some of its activities to
third party specialists.

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Reason (R): Outsourcing may be defined as a process of contracting out some of its activities
to third party specialists.

Alternatives-
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q21. Which of the following statement is correct?

(a) Tax Receipts are Capital Receipts
(b) Deposits by people in provident fund and NSC are Capital Receipts of Government.
(c) Borrowing from public is a revenue receipt
(d) All of the above

Q22. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

Assertion (A): ls Current Account Deficit (CAD) is financed entirely by selling assets or by
borrowing abroad, the country is said to be in Balance of Payment equilibrium.
Reason (R): Current Account Deficit (CAD) is financed entirely by a capital account surplus,
that is, a net capital inflow without any official reserve sale. So, Current account Capital
Account = O. Hence, the country is said to be Balance of Payments equilibrium

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q23. Value of Money Multiplier _____ with an increase in Cash Reserve Ratio.
(a) Increases
(b) Decreases
(c) Remains unchanged
(d) Cannot be determined

Q24. Value of $1 falls from Rs.68 to Rs.64, due to increase in supply of dollar implies
(a) Devaluation of Foreign currency
(b) Revaluation of Indian Currency
(c) Depreciation of Indian Currency

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(d) Appreciation of Indian Currency

Q25. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

ASSERTION (A): Developed countries oppose outsourcing of work to India.

REASONING (R): Outsourcing increase the income disparity between the two countries.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q26. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

ASSERTION (A): Capital receipts of the government leads to decrease in assets or increase in
liabilities.
REASONING (R): Tax and non-tax receipts are the two sources of capital receipts.

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q27. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

ASSERTION (A): If an Indian buys a UK Car Company, it enters capital account transactions
as a debit item.
REASONING (R): Sale of assets like sale of share of an Indian company to a Chinese
customer is a credit item on the capital account.

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.

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(d) Assertion (A) is false but Reason (R) is true.

Q.28. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

Assertion (A): Commercial banks contribute to quantum of money supply in the economy
through credit creation.
Reason(R): As they do have note-issuing authority.

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q29. Supply and exchange rate are

(a) Inversely related
(b) Not Related
(c) Directly related
(d) Remotely Related

Q30. During the reform period

(a) Agriculture has declined, industrial sector reported fluctuation, and service sector has
gone up.
(b) Agriculture has gone up., industrial sector reported fluctuation, and service sector has
declined
(c) Agriculture has declined, industrial sector reported gone up, and service sector reported
fluctuation
(d) Agriculture sector reported fluctuation, industrial sector gone down, and service sector
has gone up.

Q31. Revenue receipts neither create _____ nor reduce, the ___ of the Government.
a) liability, asset
b) An Asset, liability
c) Revenue, Expenditure
d) None of these
Q32. This rate is determined by govt.
(a) Flexible
(b) Fixed
(c) Managed
(d) All

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Q33. Cash Reserve Ratio is
(a) Fraction of total deposit kept with banks
(b) Fraction of fixed deposits kept with banks
(c) Fraction of total deposits of banks kept with central bank
(d) None of the above

Q34. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

Assertion (A): A rise in price of foreign exchange will increase demand for imports.
Reason (R): A rise in price of foreign exchange will increase the cost (in terms of rupees) of
purchasing a foreign good. This reduces demand for imports, other things remaining constant.

Alternative:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion(A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q35. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

ASSERTION (A): The WTO agreements cover trade in services to facilitate international
multilateral trades only through removal of tariff and non- tariff.
REASON (R): The WTO agreements cover trade in goods as well as services to facilitate
bilateral and multilateral international trade.
Alternative:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion(A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q36. More the direct taxes less the

(a) Money Income
(b) Real Income
(c) Disposable income
(d) National Income

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Q37. A company located in India receives a loan from a company located abroad. How is this
transaction recorded in India's BOP account?
(a) Credit side of current account
(b) Debit side of current account
(c) Credit side of capital account
(d) Debit side of capital account

Q38. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

Assertion (A): In a modern economy, money comprises cash and bank deposits.
Reason (R): Money supply includes currency held by the public and net demand deposits held
by commercial banks.

Alternative:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion(A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q39. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

Assertion (A): Trade balance in the difference between value of experts of goods and imports
of goods only. It does not include exports and imports of services.
Reason (R): Difference between value of exports and imports of goods and services is called
trade balance.

Alternative:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion(A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q40. Aim of demonetization not included was

a) Form a less-cash or cash-lies economy
b) Check on tax evasion

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 c) It well lead to money supply contraction in the form of cash
d) Adding savings into the formal financial system

Q41. Read the following Statements -Assertion (A) and Reason (R), and select the correct
alternative in each case:

ASSERTION (A): Interest paid on National Debt is a revenue expenditure.

REASONING (R): Revenue expenditure refer to those expenditures which neither create any
liability nor causes any reduction in the assets of the government.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q42. Read the following Statements -Assertion (A) and Reason (R), and select the correct
alternative in each case:

Assertion (A): A rise in price of foreign exchange increases India's exports.

Reason (R): A rise in price of foreign exchange will reduce the foreigner's cost (in terms USD)
while purchasing products from India other things remaining constant this increase India’s
exports.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q43. Currency in circulation, which measures money with the public and in
banks, is known as:
(a) High Powered Money
(b) Stock of money held by the government
(c) Money Supply
(d) All of these

Q44. Current Account is a __________ concept.

(a) Stock
(b) Flow
(c) Variable
(d) All of these

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Q45. Read the following Statements -Assertion (A) and Reason (R), and select the correct
alternative in each case:

Assertion (A): World Trade Organisation (WTO) established in 1995, as a successor

organisation to General Agreement on Trade and Tariff (GATT).
Reason (R): GATT was established in 1948 with 23 countries as the global trade organisation
to administer all multilateral trade agreements by providing equal opportunities to all
countries in the international market for trading purposes.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q46. Read the following Statements -Assertion (A) and Reason (R), and select the correct
alternative in each case:

Assertion (A): Through in budgetary policy government allocates sources in accordance with
the requirements of the country.
Reason (R): The government reallocates resources with a view to balance the goals of profit
maximisation (by firms) and social welfare (by government Production of goods which are
injurious to health is discouraged through taxation. On the contrary, production of socially
useful goods it encouraged through subsidies. If the private sector does not take initiative in
certain activities, government directly controls them like water supply. sanitation etc.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q47. Which of the following is not a component of the current account of Balance of Payment?
(a) Export and import of goods and services
(b) Remittances given by private citizens living abroad
(c) Net International income from compensation of employees
(d) None of the above

Q48. Read the following Statement -Assertion (A) and Reason (R), and select the correct
alternative in each case:
ASSERTION (A): The central bank issues currency on the basis of CRR.
REASONING (R): The CRR impacts credit creation capacity of the commercial bank.
Alternatives:

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(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q. (49-54) are to be answered on the basis of the following data:

India money supply surge signals pandemic-related uncertainty, not growth. Heightened
uncertainty in India caused by the coronavirus pandemic has led to a surge in currency in
circulation as people hoard cash or park money in accessible deposits to safeguard themselves
against salary cuts or job losses. According to RBI data, India's M3 money supply rose 6.7%
in the first five months of this year compared with the same period last year, the highest growth
in seven-year Currency in circulation, which measures money with the public and in banks has
also surged.
A rise in money supply usually is seen as a leading indicator of growth in consumption and
business investments, but the rise this time is unlikely to bolster either, analysts said.
The Economic Times, Jun 23, 2020
Questions:
Q49. Money supply is __________ concept
(a) Flow
(b) Stock
(c) (a) and (b) both
(d) None of these

Q50. Currency in circulation, which measures money with the public and in banks, is known
as:
(a) High Powered Money
(b) Stock of money held by the government
(c) Money Supply
(d) All of these

Q51. M1 is also known as _________

(a) Fiat money
(b) Full boded money
(c) Credit money
(d) Narrow Money

Q52. Other deposit with RBI not includes deposits of ___________

(a) Government and Banking system
(b) Government system
(c) Banking system
(d) None of them

Q53. Read the following statements -Assertion (A) and Reason (R), and select the correct
alternative in each cases:

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Assertion (A): Currency created by the Central Bank I called bank Money
Reason (R): Central Bank of a country has monopoly over the currency issue. It has the sole
responsibility of printing and putting in circulation all types of currency notes (with a few
exceptions).

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q54. To control the money supply RBI encourages ___________ of the money.
(a) Injection
(b) Absorption
(c) Sale
(d) Purchase

Q. (55- 60) are to be answered on the basis of the following data:

Q55. Trade balance of the year 2009-10 shows India had:

(a) Shortage of ₹560,746
(b) Downfall to ₹560,746
(c) Both (a) and (b)
(d) None of these

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Q56. Read the following Statements -Assertion (A) and Reason (R), and select the correct
alternative in each case:
Assertion (A): Export and import of machines are recorded in capital account of the balance of
payments account.
Reason (R): Export and import of machines is the export and import of goods. Therefore, it is
recorded in the Current account of the Balance of Payments account.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is true but Reason(R) is false.
(d) Assertion (A) is false but Reason(R) is true.
Q57. Which of the following is not a component of the current account of Balance of Payment?
(a) Export and import of goods and services
(b) Remittances given by private citizens living abroad
(c) Net International income from compensation of employees
(d) None of the above
Q58. Which of the following is not recorded in the Capital Account of Balance of Payments?
(a) Equity capital
(b) Gifts, remittances and grants
(c) Government aid
(d) Offshore funds
Q59. Which of the following items are included in current account BOP?
(a) Foreign investment
(b) External borrowing
(c) External assistance
(d) Non-factor income
Q60. BOP is measured as:
(a) Difference between invisible items of exports and imports
(b) Difference between visible items of exports and imports
(c) Difference between internal and external flow of gold
(d) Difference between all receipts and payments of foreign exchange

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