07 Jan 2024 Test Ans

GS - April Batch 2024 – Test 36 (Solution)
GS - June Batch 2024 – Test 27 (Solution)

CA - June Batch 2024 – Test 27 (Solution)
Q1. Answer: A
Explanation:
• Statement 1 is not correct: D-SIBs means the bank is too big to fail i.e. their failure would be
significant disruption to the essential services they provide to the banking system and the
overall economy. Banks whose assets exceed 2% of the GDP are considered part of this group.
• Statement 2 is correct: Since 2015, the RBI has been releasing the list of all D-SIBs. It is
declared annually.
• Statement 3 is not correct: Currently, there are 3 D-SIB in India. State Bank of India, HDFC
and ICICI are classified as D-SIB by RBI. They are classified into five buckets, according to their
importance to the national economy. As of December 2023, ICICI continues to be in Bucket-1
and Both HDFC (from Bucket-1 to Bucket-2) and SBI (from Bucket-3 to Bucket-4) have been
shifted to higher bucket.
Hence, option A is correct.
Q2. Answer: C
Explanation:
• An intangible cultural heritage is a practice, representation, expression, knowledge, or skill
as well as instruments, objects, artifacts, and cultural spaces that are considered by UNESCO
to be part of a place's cultural heritage. It is sometimes called the living cultural heritage.
• It includes traditions or living expressions inherited from our ancestors and passed on to our
descendants, such as oral traditions, performing arts, social practices, rituals, festive events,
knowledge and practices concerning nature and the universe or the knowledge and skills to
produce traditional crafts.
• Written traditions, such as written literature or documents, are often considered part of the
broader category of ‘tangible cultural heritage (not 'intangible cultural heritage), which
includes physical artifacts, structures, and documents.
Hence, option C is correct.
Q3. Answer: A
Explanation:
• Statement 1 is correct: UNFCCC is one of the three conventions adopted at the Rio Earth
Summit (UN summit Conference on Environment and Development (UNCED)) in 1992. Its
sister Rio Conventions are the UN Convention on Biological Diversity (CBD) and the
Convention to Combat Desertification (CCD).
• Statement 2 is not correct: UNFCCC came into force in 1994 after a sufficient number of
countries had ratified it. It sets on non-binding limits on greenhouse gas emission for
individual countries and contain no enforcement mechanism.
Q4. Answer: A
Office Complex 6, 3rd Floor, Old Rajinder Nagar New Delhi 110060|
Ph: 08045248491, 7041021151, | Email: students@levelupias.com
Explanation:
• Statement I is correct: Mount Merapi is the most active volcano of Indonesia and have
erupted regularly since 1548. It is located on Java Island. It is a stratovolcano whose height is
2,930 miles.
• It is located at a subduction zone, where the Indo-Australian Plate is subducting under the
Sunda Plate. It is also one of the 16 Decade Volcanoes.
• Statement II is correct: It's status as one of the most dangerous volcanoes is indeed related
to its location on the Pacific Ring of Fire, where the subduction of tectonic plates leads to
increased volcanic activity.
Q5. Answer: B
Explanation:
• Statement 1 is correct: Measles is a highly contagious infectious disease caused by measles
virus. It is a respiratory illness. It spreads through air when an infected person coughs or
sneezes. It is an acute respiratory illness.
• Statement 2 is correct: Infection is characterized by a prodrome of fever (as high as 105-
degree F) and malaise, cough, coryza, and conjunctivitis - the three "C"s, followed by
maculopapular rash. The rash spreads from the head to the trunk to the lower extremities.
• Statement 3 is not correct: Measles can be prevented with Measles-containing vaccine,
which is primarily administered as the combination of measles-mumps-rubella (MMR)
vaccine. One dose of MMR vaccine is approximately 93% effective, and two doses are
approximately 97% effective. However, the vaccine doesn’t ensure complete prevention of
the disease.
Hence, option B is correct.
Q6. Answer: D
Explanation:
• Statement 1 and 2 is correct: The Namdapha flying squirrel is an arboreal, nocturnal flying
squirrel, endemic to India. Its IUCN status is critically endangered.
• Statement 3 is not correct: There are many flying squirrels found in India in different states.
Even in Namdapha National Park, flying squirrels like Red Giant Flying Squirrels are found.
• Statement 4 is not correct: It was not discovered in Nagaland. After 42 years, it has
resurfaced in Arunachal Pradesh.
Hence, option D is correct.
Q7. Answer: C
Explanation:
• Lantana camara is a perennial, erect sprawling or scandent, shrub which typically grows to
around 2 meters tall and form dense thickets in a variety of environments. It is also known as
big-sage, wild sage, red sage and tickberry. It is a species of flowering plant within the
verbena family, Verbenaceae, that is native to American tropics.
• Lantana arrived in India as a decorative shrub in the British colonial period but quickly took
over several ecosystems as an invasive species. Thus, it is not native to India.
• It often outcompetes more desirable species, leading to reduction in biodiversity. It can also
cause problems if it invades agricultural areas as a result of its toxicity to livestock as well as
ability to form dense thickets which if left unchecked can greatly reduce the productivity of
farm land.
Q8. Answer: B
Explanation:
• Statement 1 is not correct: It is a rare, inherited disease that causes the progressive
breakdown (degeneration) of nerve cells in the brain.
• Statement 2 is correct: It starts with mild symptoms like forgetfulness, loss of balance and
coordination, and clumsiness in performing simple tasks. But the condition progressively
worsens eventually leading to death.
• Statement 3 is correct: Currently, there is no cure for Huntington's disease, but treatment
focuses on managing symptoms and improving the quality of life for affected individuals.
Q9. Answer: C
Explanation:
Following are the impacts of global warming
• Rising temperatures: As per the AR6 of IPCC, the global temperature has already risen by 1.1
degree C since preindustrial 19th century.
• Melting of ice caps and glaciers leads to rise in sea level: According to AR6, Sea level rise has
tripled compared with 1901-1971. The Antarctic Sea ice is the lowest in last 1,00 years.
• Biodiversity loss
o Widespread vanishing of animal population due to habitat loss
o Loss of plankton population due to warming of sea
o Bleaching of coral reefs
• Heating up of Oceans leading to increased frequency and intensity of cyclones.
• Increasing variability in weather patterns
Q10. Answer: C
Explanation:
Sources of Methane emissions are:
• Wetlands are the largest source of methane.
• Leakage from Natural gas systems also leads to methane emissions.
o For example: Ruptures in the underwater Nord stream in 2022 caused the single largest such
release of the greenhouse gas.
• In Agriculture, rice cultivation, animal husbandry etc. generate substantial amount of
methane.
• Though some amount of methane may be produced due to chemical reactions in soil and in
the atmosphere, but the overall result is absorption of methane and not emission.
Q11. Answer: B
Explanation:
• Statement 1 is not correct: The Methane Alert and Response System was launched at the
COP27 to the UNFCCC in Sharam El-Sheikh.
• Statement 2 is correct: It is set up to devise strategies for curbing methane emissions. It will
allow governments and businesses to access data and respond to the threats of climate
change.
• Statement 3 is correct: It was set up as part of the UN Environment Program (UNEP)
International Methane Emissions Observatory (IMEO). MARS is a publicly available system
connecting methane detection to notification processes in a transparent manner.
Q12. Answer: A
Explanation:
• Statement 1 is not correct: Sangeet Natak Academy is the nodal organization which looks
after this function, and files nominations of intangible cultural entities from India, for
evaluation by the international body.
• Statement 2 is correct: Garba of Gujarat became the latest entry from India to make it to the
list. So far, 15 Intangible Cultural Heritage (ICH) elements from India have been inscribed till
date on the UNESCO's List of the Intangible Cultural Heritage of Humanity.
• Statement 3 is not correct: Durga Puja in Kolkata was added in the list in 2021. Kumbh Mela
and Nawrouz was added in 2017 and 2016 respectively.
Q13. Answer: B
Explanation:
• Statement 1 is correct: The Intergovernmental Panel on Climate Change (IPCC) is the UN
body for assessing the science related to climate change. Its job is to assess already published
scientific literature to update our knowledge of climate change science.
• Statement 2 is not correct: It was set up in 1988 by World Meteorological organization
(WMO) and United Nations Environment Program (UNEP) to provide policy makers with
regular assessment of the scientific basis of climate change, its impacts and future risks, and
options for adaptation and mitigations.
• Statement 3 is not correct: IPCC's Assessment Reports (ARs), which are produced every few
years, are the most comprehensive and widely accepted scientific evaluations of the state of
Earth's climate. So far, Six Assessment Reports have been produced.
• Statement 4 is correct: Through its assessments, the IPCC identifies the strength of scientific
agreement in different areas and indicates where further research is needed. The IPCC does
not conduct its own research.
Q14. Answer: B
Explanation:
• Statement 1 is correct: Mission LiFE (Lifestyle for Environment) is designed with the objective
to mobilize at least one billion Indians and other global citizens to take individual and
collective action for protecting and conserving the environment.
• Statement 2 is not correct: The mission is piloted by NITI Aayog and implemented by the
Ministry of Environment, Forest and Climate change.
• Statement 3 is correct: It was first proposed by PM Modi at COP 26 of UNFCCC in Nov 2021.
It emboldens the spirit of the P3 Model: Pro Planet People.
Q15. Answer: A
Explanation:
• Option A is not correct: The Paris Climate Agreement is a non-binding agreement, which
means that countries are not legally required to take specific actions to reduce their
greenhouse gas emissions. However, countries are required to submit nationally determined
contributions outlining the actions they will take to reduce their emissions, and they are
encouraged to report regularly on their progress.
• Option B is correct: It aims to limit global warming to well below 2° Celsius, and preferably
limit it to 1.5° Celsius, compared to pre-industrial levels.
• Option C is correct: Under the Agreement, developed countries are required to provide
financial assistance to developing countries to help them transition to low-carbon economies
and adapt to the impacts of climate change. This financial assistance is known as “climate
finance.”
• Option D is correct: It allows countries to set their own targets for reducing greenhouse gas
emissions. The agreement is more comprehensive than Kyoto protocol which was limited to
assigning greenhouse gas emission targets for a group of developed countries.
Q16. Answer: A
Explanation:
• Statement 1 is correct: The Glasgow Climate Pact, an agreement signed during the 2021
Conference of parties (COP26) of UNFCCC, recognized the need to consider further actions to
reduce non-carbon dioxide greenhouse gas emissions, including methane by 2030.
• Statement 2 is correct: First clear recognition of the need to move away from fossil fuels.
o It called for "phase down of coal" and "phase out of inefficient fossil fuel subsidies".
• Statement 3 is not correct: Global Methane Pledge was initiated by USA and European
Union. They have promised to cut their methane emission by at least 30% from 2020 levels
by 2030. India has not joined the pledge.
Q17. Answer: D
Explanation:
Direct Seeded Rice (DSR) refers to a rice cultivation method where rice seeds are sown directly
into the field rather than being transplanted from nurseries. This method has several advantages,
which contribute to its popularity in certain agricultural practices.
• Water Conservation: DSR requires less water compared to traditional flooded rice cultivation.
• Labor Efficiency: It eliminates the labour-intensive process of transplanting seedlings, which
is a significant component of traditional rice cultivation.
• Cost Reduction: The elimination of nursery preparation, seedling transplantation, and
associated labor costs can lead to overall cost reductions in terms of both time and resources.
• Weed Management: It facilitates the use of herbicides for weed control. With proper weed
management, DSR can help reduce weed competition, leading to better crop yields.
• Reduced methane gas emissions: Since continuous flooding is not required in DSR, there is a
reduction in methane emissions.
Q18. Answer: C
Explanation:
• Methane is a short-lived climate pollutant (SLCP) with an atmospheric lifetime of roughly a
decade, is a potent greenhouse gas tens of times more powerful than carbon dioxide at
warming the atmosphere.
• Methane’s atmospheric concentration has more than doubled since pre-industrial times and
is second only to carbon dioxide in driving climate change during the industrial era.
• Methane contributes to the formation of ground-level ozone, a dangerous air pollutant. The
atmospheric concentration of methane is increasing faster now than at any time since the
1980s.
• Methane’s short atmospheric lifetime means taking action now can quickly reduce
atmospheric concentrations and result in similarly rapid reductions in climate forcing and
ozone pollution.
Q19. Answer: C
Explanation:
• Statement 1 is correct: Climate financing refers to the financial resources provided to
support projects, initiatives, and activities that aim to address climate change mitigation
and adaptation. These funds are crucial for helping countries, communities, and
organizations transition to a low-carbon, climate-resilient future.
• The UNFCCC, Kyoto Protocol, and the Paris Agreement call for financial assistance from Parties
with more financial resources (Developed Countries) to those that are less endowed and more
vulnerable (Developing Countries).
• Statement 2 is correct: This financial assistance is provided through the principle of
“Common but Differentiated Responsibility and Respective Capabilities” (CBDR).
Q20. Answer: D
Explanation:
• Geoengineering: Any engineering intervention that is implemented/proposed to mitigate/
accelerate climate change at global scale will fall under geoengineering. There is wide range
of proposed geoengineering techniques.
• Solar Geoengineering: These techniques aim to reflect a small proportion of the Sun’s energy
back into space, counteracting the temperature rise caused by increased levels of greenhouse
gases in the atmosphere which absorb energy and raise temperatures.
o Albedo enhancement: Increasing the reflectiveness of clouds or the land surface so
that more of the Sun’s heat is reflected back into space.
o Space reflectors: Blocking a small proportion of sunlight before it reaches the Earth.
o Stratospheric aerosols: Introducing small, reflective particles into the upper
atmosphere to reflect some sunlight before it reaches the surface of the Earth.
• Carbon Geoengineering: These techniques aim to remove carbon dioxide or other
greenhouse gases from the atmosphere, directly countering the increased greenhouse effect
and ocean acidification.
o Ambient Air Capture: Building large machines that can remove carbon dioxide
directly from ambient air and store it elsewhere.
o Ocean fertilization: Adding nutrients to the ocean in selected locations to increase
primary production which draws down carbon dioxide from the atmosphere.
o Enhanced Weathering: Exposing large quantities of minerals that will react with
carbon dioxide in the atmosphere and storing the resulting compound in the ocean
or soil.
• Darkening of roads and buildings in cities is not typically considered a geoengineering
technique to counter climate change. In fact, darkening surfaces would generally have a
warming effect (reduces albedo), as darker colors absorb more sunlight and increase heat
absorption.
Q21. Answer: A
Explanation:
The circular flow of income or circular flow is a model of the economy in which the major
economic exchanges are represented as flows of money, goods and services, etc. between
economic agents. The exchanged money and goods move in a closed circuit hence referred to as
circular flow.
• Statement 1 is correct: In this model, producers (firms) use factors of production (land,
labour, capital) to produce goods and services that are then consumed by the public
(households).
• Statement 2 is not correct: Public contributes its resources to the production of final goods.
Public (households) own the factors of production and supply them to firms in exchange for
income (wages, rent, interest, profits). This income is then used by households to purchase
the goods and services produced by firms, completing the cycle.
Q22. Answer: D
Explanation:
• Gross Domestic Product (GDP) is the total monetary value of final goods and services,
those that are bought by the final user and produced in a country in a given period of
time.
• The GDP data show what is happening to the four engines of economic growth in any
economy. These four engines are:
1. Private Final Consumption Expenditure (C)
2. Investment (I)
3. Government Final Consumption Expenditure (G)
4. Net Exports” (NX) (Exports-Imports)
• GDP = C + I + G + NX
Q23. Answer: A
Explanation:
National disposable income is defined as net national product at market prices (NNPMP) and
other current transfers from the rest of the world. The main idea behind NDI is to know what
is the amount of goods and services the domestic economy has at its disposal. National
disposable income is the maximum available income (earned and transfer incomes) from all
sources that a nation can spend on consumption and saving without disposing off its assets
to finance its expenditure. National Disposable Income for a country is what Personal
Disposable Income (Personal Income – Personal taxes) is for an individual.
• Statement 1 is correct:
National Disposable Income = Net National Product at market prices + Other current transfers
from the rest of the world.
o Current Transfer is a transaction in which one institutional unit provides a good or service to
another unit. It is provided without receiving any good or service directly in return. It doesn't
oblige one or both parties to acquire or dispose of an asset.
• Statement 2 is not correct: The National Disposable Income gives an idea of what is the
maximum amount of goods and services the domestic economy has at its disposal.
o Net indirect taxes are included because it is the transfer earnings of the government which is
free to use the way it likes.
o Similarly, net current transfer from the rest of the world is also included since it impacts
purchasing power of the government.
Q24. Answer: D
Explanation:
• Option A is not correct: When factor income from abroad is greater than factor income
to abroad, national income exceeds domestic income. Exports/imports have nothing to
do with net factor income from abroad.
• Option B is not correct: Remittance from a relative working abroad is not a factor income.
It is ‘transfer payment’. Therefore, it is not included in the National Income.
• Option C is not correct: It is defining domestic income (not national income).
• Option D is correct: Services rendered by the housewives are not included in national
income. It is difficult to find their market value, and these are not rendered for the
purpose of earning income.
Q25. Answer: B
Explanation:
• Statement 1 is correct: Net national product (NNP) is the market value of a nation’s goods
and services (GNP) minus depreciation (often referred to as capital consumption).
o NNP = Market Value of Finished Goods + Market Value of Finished Services – Depreciation
o Alternatively, NNP can be calculated as: NNP = Gross National Product – Depreciation
• Statement 2 is not correct: NNP can also be found out by adding the NFIA (National Factor
Income from Abroad) to the NDP.
o If the NFIA is positive (the inflow of factor income from abroad is more than the outflow)
then NNP will be more than NDP.
o Conversely, if NFIA is negative, NNP will be less than NDP and it would be equal to NDP in
case the NFIA is zero.
• Statement 3 is correct: NNP provides an expression of the net value of the goods and services
a nation has produced during a specific time, often examined on an annual basis as a way to
measure a nation’s success in continuing minimum production standards. The NNP is
expressed in the currency of the nation it represents.
Q26. Answer: B
Explanation:
• Engel's elasticity explains how changes in income levels affect consumer spending patterns.
• Engel's law states that as income rises, the proportion of income spent on food decreases,
while the proportion spent on other goods and services increases. In other words, the
income elasticity of demand of food is between 0 and 1.
• It helps understand how consumer demand for different types of goods changes with
variations in income levels, providing insights into consumer behaviour and expenditure
patterns.
Q27. Answer: C
Explanation:
• Statement 1 is correct: The Central Government determines the inflation target in
consultation with the RBI once every five years under the RBI Act, 1934 (Section 45ZA(1)).
• Under the Monetary Policy Framework Agreement, the RBI is responsible for containing
inflation targets at 4% (with a standard deviation of 2%) in the medium term.
o The Monetary Policy Committee (MPC) is the body of the RBI, headed by the RBI Governor,
responsible for taking the important monetary policy decision about setting the repo rate and
reverse repo rate. It does not set the Inflation target.
• Statement 2 is correct: Inflation targets in India are indeed linked to the Consumer Price
Index (CPI). Specifically, the target is based on the headline CPI, which tracks the price
changes of a basket of goods and services consumed by urban households.
Q28. Answer: A
Explanation:
• Situation 1 and 2 are not correct: Core inflation, also called as structural inflation, is that part
of ‘headline inflation’, which excludes the effects of seasonal factors on increase in price
level, fluctuations in food (prices of onion) and energy (crude oil prices). It represents the
‘underlying inflation’ and does not include temporary rises in the price level due to seasonal
factors.
• Situation 3 is correct: When employees' wages rise, they have more money to spend, which
can lead to increased demand for goods and services. This increased demand can put upward
pressure on prices, contributing to core inflation.
Q29. Answer: D
Explanation:
A deflationary gap occurs when the aggregate demand in an economy is insufficient to meet
the aggregate supply at full employment. In other words, it occurs when the total demand for
goods and services in an economy (aggregate demand) is insufficient to buy all the goods and
services that are produced at the full employment level of output (aggregate supply). This results
in excess capacity, falling prices, and declining profits for businesses. This can lead to a vicious
cycle as consumers postpone purchases due to falling prices, further dampening demand and
production. This typically results in downward pressure on prices and can lead to deflationary
pressures in the economy.
Q30. Answer: C
Explanation:
• Statement 1 is correct: When the RBI increases the CRR, it requires banks to hold a higher
percentage of their deposits as reserves with the central bank. This reduces the amount of
money available for lending and circulation in the economy, thereby dampening demand and
potentially lowering inflation.
• Statement 2 is correct: Checking over hoarding and black-marketing of commodities is a step
to prevent artificial scarcity and control prices. This can contribute to reducing inflation.
• Statement 3 is correct: Repo rate is the rate at which banks borrow money from the RBI to
meet short-term credit requirement. Increasing the repo rate will makes borrowing more
expensive for banks, cause the banks to borrow less thereby reducing the money supply
and inflation.
• Statement 4 is not correct: When RBI buys government securities, more liquidity is injected
into the economy and this can lead to an increase in inflation.
Q31. Answer: A
Explanation:
• Statement 1 is not correct: Stagflation is a situation in which the inflation rate is high or
increasing, the economic growth rate slows, and unemployment remains steadily high.
• Statement 2 is correct: Depression is defined as a severe and prolonged recession. A
recession is a situation of declining economic activity. Declining economic activity is
characterized by falling output and employment levels. Generally, when an economy
continues to suffer recession for two or more quarters, it is called depression.
• Statement 3 is correct: In a depression, economic activity contracts significantly, leading to
decreased production, lower income, reduced consumer spending, and diminished
investment. As a result, both GDP and GNP tend to experience negative growth during such
severe economic downturns.
Q32. Answer: A
Explanation:
Shrinkflation is the practice of reducing the size of a product while maintaining its sticker price.
It is a form of hidden inflation.
• It is also referred to as package downsizing in business and academic research.
• Raising the price per given amount is a strategy employed by companies, mainly in the food
and beverage industries, to stealthily boost profit margins or maintain them in the face of
rising input costs.
• Large producers in the European and North American markets rely on this strategy to
maintain the competitive prices of their products without significantly reducing their profits.
• At the same time, shrinkflation can frequently lead to customer frustration and deteriorating
consumer sentiment regarding the producer’s brand.
Q33. Answer: A
Explanation:
Capital Expenditure:
• It is the expenditure which results in the creation of physical or financial assets or a reduction
in financial liabilities.
• It includes expenditure on the acquisition of land, building, machinery, equipment,
investment in shares, and loans and advances by the central government to state and union
territory governments, PSUs and other parties.
Revenue Expenditure:
• It is the expenditure incurred for purposes other than the creation of physical or financial
assets of the central government.
• It relates to those expenses incurred for the normal functioning of the government
departments and various services, interest payments on debt incurred by the government,
and grants given to state governments and other parties (even though some of the grants
may be meant for creation of assets)
• Other revenue expenditures include a vast range of general, economic and social services of
the government, interest payments, defence services, subsidies, salaries and pensions.
Q34. Answer: A
Explanation:
The Outlays, Outputs and Outcomes are presented to the Parliament in measurable terms,
bringing-in greater accountability for the agencies involved in the execution of government
schemes and projects.
• Pair 1 is correct: ‘Outlay’ is the amount that is provided for a given scheme or project in the
Budget.
• Pair 2 is not correct: ‘Output’ refers to the direct and measurable product of program
activities, often expressed in physical terms or units.
• Pair 3 is not correct: ‘Outcomes’ are the collective results or qualitative improvements
brought about in the delivery of these services, often expressed in terms of improvements
over ex-ante or earlier indicators and benchmarks.
Q35. Answer: C
Explanation:
Zero-base budgeting (ZBB) is the allocation of resources to agencies based on periodic re-
evaluation by those agencies of the need for all the programmes for which they are
responsible, justifying the continued or termination of each programme in the agency budget
proposal.
• Statement 1 is correct: ZBB requires each program or activity to be justified from
scratch, regardless of past funding levels. This forces a critical evaluation of each program's
effectiveness and value for money.
• Statement 2 is correct: ZBB emphasizes allocating resources to the highest-priority
activities, regardless of previous allocations. This ensures that funds are directed towards
activities that deliver the most significant value for the budget.
Q36. Answer: B
Explanation:
• Statement 1 is not correct: Vote on account and interim budget can be presented by both
the regular government and the caretaker government.
• Statement 2 is correct: A “vote-on-account’’ only deals with the expenditure in Government
budget, while an “interim budget’’ includes both expenditure and receipts. Vote on account
is just an interim permission to spend money as against an interim Budget which is an
elaborate financial statement of expenditure and receipts including changes in taxes and
government policies.
Q37. Answer: A
Explanation:
• Statement 1 is not correct: The Public Finance (Central) Division, under Department of
Expenditure, Ministry of Finance is responsible for preparation of outcome budgets in
consultation with the NITI Aayog.
• Statement 2 is correct: The Outcome Budget focuses on assessing the actual impact of
government programs on intended beneficiaries, rather than just tracking financial
expenditures. It measures how well programs are achieving their intended goals and
objectives.
• Statement 3 is not correct: The Outcome Budget is designed to improve service delivery by
ensuring that allocated funds translate into desired results. By evaluating the effectiveness
of programs, it enables the government to identify inefficiencies, reallocate resources, and
eliminate programs that are not delivering expected outcomes. This process can indeed lead
to a more efficient use of resources and reduce unnecessary expenses.
Q38. Answer: B
Explanation:
Government receipts can be divided in the following way:
Revenue receipts:
• Tax revenues consists of the proceeds of taxes and other duties levied by the central
government.
• Statement 1 and 2 are correct: Non-tax revenues consists of interest receipts on account of
loans by the central government, dividends and profits on investments made by the
government, fees and other receipts for services rendered by the government.
o In addition, Cash grants-in-aid from foreign countries and international organisations are also
included under this category.
Capital receipts:
• Statement 3 and 4 are not correct: Consists of the loans raised by the government from the
public, borrowing by the government from the Reserve Bank and commercial banks and other
financial institutions through the sale of treasury bills, loans received from foreign
governments and international organisations, and recoveries of loans granted by the central
government.
o Other items include small savings (Post-Office Savings Accounts, National Savings Certificates,
etc), provident funds and net receipts obtained from the sale of shares in Public Sector
Undertakings (PSUs).
Q39. Answer: D
Explanation:
The tax-to-GDP ratio is a ratio of a nation's tax revenue relative to its gross domestic product
(GDP), or the market value of goods and services a country produces.
• Statement 1 is not correct: Lowering of the income tax limit will lead to an increase in the
number of taxpayers but will put an unfair burden on those who have meagre earnings.
Thus, not the most prudent way to increase tax-GDP ratio.
• Statement 2 is not correct: This is not a prudent way to increase tax-GDP ratio as excise duty
on crude oil is a form of indirect tax and thus will be applicable to everyone equally
irrespective of their earnings. It will be a regressive measure.
• Statement 3 is correct: Formalisation of the labour market will lead to the creation of a valid
database of people’s earning and thus will make the formation of taxation laws easier and
effective. This will increase the tax-GDP ratio in a fair and equitable manner.
• Statement 4 is correct: Introduction of a Direct Tax Code will streamline the process of
collecting direct tax and thus make the process of tax filing easy and efficient. This will lead
to an increase in tax-GDP ratio.
Q40. Answer: D
Explanation:
Disinvestment means sale or liquidation of assets by the government, usually Central and state
public sector enterprises, projects, or other fixed assets. The Department of Investment and
Public Asset Management (DIPAM) under the Ministry of Finance is the nodal department for
the strategic stake sale in the Public Sector Undertakings (PSUs).
Main objectives of Disinvestment in India:
• Reducing the fiscal burden on the exchequer
• Improving public finances
• Encouraging private ownership
• Funding growth and development programmes
• Maintaining and promoting competition in the market
Q41. Answer: D
Explanation:
• Statement 1 is not correct: Corporation tax is a direct tax placed on a company’s net income
or profit from its operations.
o The tax is imposed on the net profits of the corporation, which is calculated by subtracting
allowable expenses such as the cost of goods sold, operating expenses, and depreciation from
the corporation’s total revenue.
• Statement 2 is not correct: Corporation tax is payable by both public and private companies
registered in India under the Companies Act 2013.
Q42. Answer: A
Explanation:
• Statement 1 is not correct: The Central Board of Direct Taxes is a statutory authority
functioning under the Central Board of Revenue Act, 1963.
o The officials of the Board in their ex-officio capacity also function as a Division of the Ministry
dealing with matters relating to levy and collection of direct taxes.
• Statement 2 is not correct: The CBDT comprises a Chairman and 6 members, all of whom are
Indian Revenue Service (IRS) officers holding the rank of Special Secretary to the Government
of India.
• Statement 3 is correct: The CBDT acts as India's nodal agency for the Financial Action Task
Force (FATF) and is responsible for coordinating anti-money laundering and combating the
financing of terrorism (AML/CFT) efforts across the country.
Q43. Answer: D
Explanation:
• Statement 1 is correct: The Supreme Court in a judgement held that a state legislature has
the right to impose tax on lotteries conducted by other States within its jurisdiction.
o The court observed that ‘lotteries’ is a “species of gambling activity”. ‘Betting and gambling’
are part of the State List in the Seventh Schedule of the Constitution.
o The power to tax is on all activities which are in the nature of ‘betting and gambling’ including
lotteries.
o Betting and gambling is a genus and includes several types or species of activities such as
horse racing, wheeling and other local variations/forms of ‘betting and gambling’ activity.
• Statement 2 is correct: The court observed that since, there is no dispute that lotteries,
irrespective of whether it is conducted or organised by the Government of India or the
Government of State or is authorised by the State or conducted by an agency or
instrumentality of State government or Central government or any private player, is ‘betting
and gambling’, State legislatures have the power to tax lotteries under Entry 62 of the State
List.
• Statement 3 is correct: In 2020, the Supreme Court held that lottery, gambling and betting
are taxable under the Goods and Services Tax (GST) Act, 2017.
Q44. Answer: A
Explanation:
• Statement 1 is correct: Different from the usual taxes and duties like excise and personal
income tax, a Cess is imposed as an additional tax besides the existing tax (tax on tax) with
a purpose of raising funds for a specific task.
• The Union government is empowered to raise revenue through a gamut of levies, including
taxes (both direct and indirect), surcharges, fees and cess.
• A cess, generally paid by everyday public, is added to their basic tax liability paid as part of
total tax paid.
• Statement 2 is not correct: Article 270 of the Constitution allows cess to be excluded from
the purview of the divisible pool of taxes that the Union government must share with the
States.
• Cess should be kept as a separate fund after allocating to Consolidated Fund of India and can
be spent only for a specific purpose.
• A cess is meant to raise revenue and is therefore, temporary in nature.
• A particular cess continues to be levied till the time the government collects enough funds for
the purpose that it was introduced for.
Q45. Answer: B
Explanation:
A fiscal deficit occurs when a government's total expenditures exceed the revenue that it
generates, excluding money from borrowings.
• Statement 1 is not correct: A high fiscal generally leads to inflation (not deflation). This is
because when the government increases spending or cuts taxes, aggregate demand
increases and firms may not be able to produce higher quantities that are being demanded
at the ongoing prices leading to inflation.
• Statement 2 is correct: A high fiscal deficit translates into higher borrowings for the
government. This leaves little scope for the private sector to borrow and invest and puts
upward pressure on interest rates - referred to as crowding out.
• Statement 3 is correct: A high fiscal deficit is financed through borrowing where the
government transfers the burden of debt on future generations. This is because it borrows
by issuing bonds to the people living at present but may decide to pay off the bonds in future.
These may then be levied on the young population that has just entered the workforce, whose
disposable income will go down and hence consumption.
Q46. Answer: B
Explanation:
• Statement 1 is not correct: MAT is a direct tax that restrict tax exemptions granted to
businesses, requiring them to pay a minimum amount of corporate tax to the government.
• Statement 2 is correct: MAT is introduced in India by the Finance Act of 1987 to facilitate the
taxation of ‘zero tax companies ‘i.e., those companies which show zero or negligible income
to avoid tax.
• Statement 3 is correct: AT is calculated as a percentage of the company's book profits (15%
(plus surcharge and cess as applicable)) as reported in its financial statements, as per Section
115JB of the Income Tax Act, 1961.
• Statement 4 is not correct: MAT applies only to companies, not to individuals. (Alternative
Minimum Tax regulations apply to people.)
Q47. Answer: B
Explanation:
Tax Expenditure:
• Tax expenditure is a term used to describe the revenue that the government chooses not to
collect (foregone) due to various tax breaks, incentives, and loopholes in the tax system.
These include exemptions, deductions, rebates, and preferential tax rates for specific sectors
or activities.
Q48. Answer: A
Explanation:
A fiscal stimulus is one in which the government spends more from its own pocket or slashes
tax rates. Stimuli put more money in the hands of consumers and spending goes up – thereby
encouraging demand & growth.
• Statement 1 is correct: Cutting the tax rates puts more money in the pockets of consumers
and businesses, which can lead to increased spending and investment. This injects money
into the economy and stimulates aggregate demand, making it a fiscal stimulus measure.
• Statement 2 is correct: Increasing the government spending directly injects money into the
economy through infrastructure projects, social programs, or hiring more government
employees. This also boosts aggregate demand and is considered a fiscal stimulus measure.
• Statement 3 is not correct: Abolishing the subsidies can have the opposite effect of a fiscal
stimulus. Removing subsidies can lead to higher prices for consumers and businesses,
potentially dampening spending and investment. Therefore, abolishing subsidies is not
considered a fiscal stimulus measure.
Q49. Answer: D
Explanation:
• Statement (a) is correct: Wholesale Price Index (WPI) measures the average change in prices
of goods at the wholesale level. It does not included services rendered in the economy.
o Consumer Price Index (CPI) calculates the average change in prices of both goods and
services at the retail level.
• Statement (b) is correct: WPI heavily weights manufactured goods like fuel and construction
materials, while CPI gives the highest weightage to food and beverages since they constitute
a significant portion of household expenditure.
• Statement (c) is correct: The Reserve Bank of India (RBI) uses the Consumer Price Index (CPI)
(combined) as the key measure of inflation to set the monetary and credit policy.
o Earlier, RBI had given more weightage to Wholesale Price Index (WPI) than CPI as the key
measure of inflation for all policy purposes.
• Statement (d) is not correct: The CPI for industrial workers (CPI-IW) (not WPI) is mainly used
for determining dearness allowance (DA) paid to central/ state government employees and
workers in the industrial sectors besides fixation and revision of minimum wages in scheduled
employments. Th e government had recently launched the new series of CPI-IW with a new
base year of 2016 from 2001.
Q50. Answer: D
Explanation:
Primary Deficit:
• It is calculated by subtracting interest payments from fiscal deficit. It excludes the burden of
the past debt and shows the net increase in the government‘s indebtedness due to the
current year‘s fiscal operations.
• A reduction in primary deficit is reflective of government‘s efforts at bridging the fiscal gap
during a financial year.

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