Indian Economy MCQs
Indian Economy Multiple Choice Questions (MCQs) for SSC, State and all One Day Examinations of India. Objective Questions on Indian Economy for competitive examinations.
1. Which is NOT a core WTO agreement or mechanism?
[A] Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
[B] General Agreement on Trade in Services (GATS)
[C] Plurilateral Agreement on Government Procurement
[D] Multilateral Agreement on Investment (MAI)
Show Answer
Correct Answer: D [Multilateral Agreement on Investment (MAI)]
Notes:
The Multilateral Agreement on Investment (MAI) was negotiated by OECD countries in the 1990s. MAI was not concluded and is not part of the World Trade Organization framework. WTO core agreements include GATS, TRIPS, and GATT. The Plurilateral Agreement on Government Procurement functions within the WTO through voluntary acceptance by signatory members only. MAI remains outside the WTO system and was never implemented.
2. Which among the following is not an important payment and settlement systems in India?
[A] Clearing House Automated Payment System
[B] Real Time Gross Settlement System
[C] National Electronic Clearing System
[D] National Electronic Clearing System
Show Answer
Correct Answer: A [Clearing House Automated Payment System]
Notes:
Clearing House Automated Payment System CHAPS is in UK
3. According to RBI, when does a cash credit account become an NPA?
[A] A bill purchased remains overdue for over 90 days
[B] A cash credit account is out of order for over 90 days
[C] Interest or principal overdue for over 180 days
[D] Loan in Rabi season unpaid by Kharif season
Show Answer
Correct Answer: B [A cash credit account is out of order for over 90 days]
Notes:
RBI guidelines classify a cash credit account as Non-Performing Asset if it remains out of order for more than 90 days. The Income Recognition and Asset Classification (IRAC) norms were issued in 1992 and updated periodically. An account is considered out of order if outstanding balance remains continuously in excess of sanctioned limit or drawings are not regularly serviced as per RBI notifications.
4. What is the meaning of the “Government Route” in Foreign Investments?
[A] Investments without government approval.
[B] Investments made by government.
[C] Investments that requires prior government approval
[D] Foreign investments in government bonds
Show Answer
Correct Answer: C [Investments that requires prior government approval]
Notes:
The “Government Route” in the language of foreign investments refers to the scenario where a foreign investor needs to acquire prior approval from the government to make an investment. This route is usually applicable for sectors which are of strategic importance or have implications for national security, where it would be imperative for the host country to have an additional level of scrutiny and control.
5. Which action increases cash reserves of commercial banks by RBI?
[A] Release gold from its reserves
[B] Purchase government securities in open market operations
[C] Prohibit bills of exchange transactions
[D] Increase IMF tranche reserves
Show Answer
Correct Answer: B [Purchase government securities in open market operations]
Notes:
The Reserve Bank of India increases cash reserves of commercial banks by purchasing government securities through open market operations. When government securities are purchased, funds are transferred to commercial banks, raising their cash reserves. OMOs are used by the RBI as a monetary policy instrument to regulate liquidity and money supply. As of 2023, RBI actively uses OMOs to manage system liquidity.
6. The minimum interest rate of a bank below which it is not viable to lend, is known as ____:
[A] Reserved Rate
[B] Base Rate
[C] Marginal Rate
[D] Prime Lending Rate
Show Answer
Correct Answer: B [Base Rate]
Notes:
The correct answer is “Base Rate.” The Base Rate is the minimum interest rate set by a bank for lending to its customers. It serves as a benchmark for various loans and is influenced by factors like the central bank’s policy rate and the bank’s cost of funds. The Base Rate ensures that banks cover their costs and maintain profitability while lending. In many countries, including India, the Base Rate is a crucial component of monetary policy and financial stability.
7. A transfer payment is a payment that is __:
[A] made by the government to its current workers
[B] made to people who are needy
[C] For in-kind services provided to the government
[D] For which no services or goods are rendered
Show Answer
Correct Answer: D [ For which no services or goods are rendered ]
Notes:
Transfer Payment is the payment exchanged for return of no goods or services. It generally describes the welfare expenditure of the government such as subsidies, pensions, grants etc.
8. Which among the following is a money market instrument of shortest tenure?
[A] Notice money
[B] Call money
[C] Near Money
[D] Term Money
Show Answer
Correct Answer: B [ Call money ]
Notes:
The call money is the short-term money market instrument where money is borrowed or lent on demand for a day. It is also known as overnight money market instrument. Intervening holidays and/or Sunday are excluded for this purpose. Thus, it is money borrowed on a day and repaid on the next working day (irrespective of the number of intervening holidays).
9. Which is the last resort in deficit financing by the government?
[A] Borrowing from Foreign Sources
[B] Borrowing from Domestic Sources
[C] Printing of Currency (Monetizing the Debt)
[D] External Grants
Show Answer
Correct Answer: C [Printing of Currency (Monetizing the Debt)]
Notes:
Printing of currency, or monetizing the debt, is used by the government as a last resort in deficit financing. The Reserve Bank of India can create new money to buy government bonds if other options are insufficient. Excessive currency printing can lead to inflation and has been used rarely since the 1997 agreement between the Government of India and RBI to limit monetization.
10. The basic WTO principle with reference to trade barriers is that:
[A] Trade barriers can be imposed by any country that believes it will benefit from such trade barriers
[B] Trade Barriers should be lowered equally and without discrimination for all member countries
[C] Trade Barriers can be imposed if a majority of the members of the WTO agree
[D] Trade Barriers should be the same in all member countries so that the result is equivalent to free trade
Show Answer
Correct Answer: B [ Trade Barriers should be lowered equally and without discrimination for all member countries ]
Notes:
The correct answer is that trade barriers should be lowered equally and without discrimination for all member countries. This principle is rooted in the Most-Favored-Nation (MFN) clause of the World Trade Organization (WTO), which mandates that any favorable trading terms offered to one member must be extended to all members. This aims to promote fair competition and prevent trade discrimination, fostering a more open and equitable global trading system. The WTO, established in 1995, has 164 member countries, emphasizing the importance of non-discriminatory trade practices.
