Question 1

Effect of a currency devaluation: Identify the most likely trade impact.  Full question: Devaluation of a country's currency leads to which of the following outcomes for exports and imports?  Choose the correct option.

Accepted Answer

Given data Policy: Devaluation (a discrete reduction in the domestic currency's external value under a fixed/managed regime). Concept / Approach Devaluation lowers the foreign-currency price of domestic goods (boosts exports) and raises the domestic-currency price of foreign goods (restrains imports). If Marshall–Lerner condition holds, the trade balance improves. Step-wise intuition PXforeign ↓ ⇒ X ↑; PMdomestic ↑ ⇒ M ↓ ⇒ (X − M) improves, ceteris paribus. Final Answer Exports cheaper, imports dearer, trade balance tends to improve.

Question 2

National accounts: Define Gross Domestic Capital Formation (GDCF).  Full question: Which description best defines GDCF in the system of national accounts?  Choose the correct option.

Accepted Answer

Given data Term to define: Gross Domestic Capital Formation (GDCF). Concept / Definition GDCF comprises (i) gross fixed capital formation (machinery, buildings, infrastructure, etc. before deducting depreciation), and (ii) change in stocks (inventories), all within the domestic territory during the accounting period. Final Answer Gross additions to fixed assets within the domestic territory plus change in inventories during the year.

Question 3

Railway PSUs and undertakings: Spot the entity <not> under the Ministry of Railways.  Full question: Which of the following is not an undertaking administered by India's Ministry of Railways?  Choose the correct option.

Accepted Answer

Given data Task: Identify the PSU that is not under the Ministry of Railways. Concept / Approach RITES, IRCON, and KRCL are well-known Railway PSUs/undertakings. BHEL is a Maharatna CPSU under the Ministry of Heavy Industries, not Railways. Final Answer Bharat Heavy Electricals Ltd. (BHEL).

Question 4

Share of indirect taxes in total tax revenue: Choose the closest historical proportion (legacy GK).  Full question: The proportion of indirect taxes in the country's total tax revenue is approximately what share?  Choose the correct option.

Accepted Answer

Given data Legacy GK framing (pre-GST text-book statistic) about the indirect tax dominance in India's tax mix. Concept / Note Historically in India, indirect taxes contributed the larger share of total tax revenue (often cited in GK sources as ~70%). Contemporary shares vary by period and data series, but the legacy answer remains near 70%. Final Answer Around 70% of total tax revenue.

Question 5

Identify ICICI by type: What kind of financial institution is/was ICICI?  Full question: ICICI stands for Industrial Credit and Investment Corporation of India. What type of institution is this in India's financial system?  Choose the correct option.

Accepted Answer

Given data Acronym expansion: Industrial Credit and Investment Corporation of India (ICICI). Concept / Approach ICICI was established as a development finance institution to provide medium/long-term project finance. In the late 1990s–2000s, ICICI Ltd. merged with/into ICICI Bank, which is now a universal commercial bank. Final Answer A development finance institution (DFI) that later promoted a commercial bank.

Question 6

Monetary policy: Effect of lowering the Cash Reserve Ratio (CRR).  Full question: If the RBI lowers the CRR, what happens to the banking system's ability to create credit?  Choose the correct option.

Accepted Answer

Given data Policy change: CRR reduced by the RBI. Concept / Approach Required reserve ratio rr ↓ ⇒ excess reserves ↑ ⇒ banks can extend more loans ⇒ deposit creation expands. Money multiplier m ≈ 1/rr (simplified, ignoring leakages); when rr falls, m rises. Step-by-step illustration Example: If rr = 4% ⇒ m ≈ 1/0.04 = 25; if rr is cut to 3% ⇒ m ≈ 1/0.03 ≈ 33.3 ⇒ higher potential for deposit/credit creation. Final Answer Credit creation rises as the money multiplier increases.

Question 7

Deficit financing and inflation: Identify the condition under which inflationary pressure from deficit financing can be checked in an economy. Focus on the supply response and how additional demand is absorbed without sustained price rise. Choose th…

Accepted Answer

Given data Deficit financing (monetized shortfall) usually fuels demand and hence inflation. We must find when that inflationary effect can be checked. Concept / Approach Deficit financing raises aggregate demand. Inflation results if supply cannot keep pace. If the deficit funds productive investment that rapidly expands output (especially of mass-consumption goods), the rightward supply shift offsets demand pressure → muted price rise. Step-by-step reasoning • If capital outlay adds capacity soon (e.g., food, basic consumer goods), the additional supply absorbs demand → prices stabilize.• If used for current expenditure (wages, subsidies) with no immediate output gain, demand rises with little supply response → prices rise.• Full-employment with inelastic supply or import restrictions both worsen inflation by constraining supply. Common pitfalls Assuming any investment curbs inflation; timing and sector (supply responsiveness) matter. Believing monetary expansion is non-inflationary regardless of supply conditions. Final Answer Use the deficit for productive capital outlay that quickly expands output so aggregate supply rises with demand.

Question 8

Institutional change in agricultural refinance (12 July 1982): Into which institution was the Agricultural Refinance and Development Corporation (ARDC) merged? State the name of the apex development bank. Choose the correct option.

Accepted Answer

Given data On 12 July 1982, ARDC was merged into a newly formed apex rural credit institution. Concept / Approach NABARD was set up in 1982 as the apex development bank for agriculture and rural development. ARDC’s refinance functions were subsumed into NABARD at inception. Final Answer ARDC was merged into NABARD.

Question 9

Union Government — composition of gross tax revenue: Approximate share of <indirect taxes> in the Union's gross tax revenue. Choose the closest proportion.

Accepted Answer

Given data The question asks for the approximate proportion of indirect taxes in gross tax revenue (historical/typical exam framing). Concept / Approach In traditional exam contexts, India’s tax structure was described as being indirect-tax heavy, historically cited near ~70% in many standard sources for earlier periods. Reasoning Among the coarse options, about 70% corresponds to the commonly taught historical share for indirect taxes in gross tax revenue. Note Contemporary shares can differ by year and reforms; the question seeks a typical approximate figure used in exam literature. Final Answer About 70%.

Question 10

Banking sector reforms (Narasimham Committee): Identify what new RBI guidelines were framed in pursuance of the Committee’s recommendations. Focus on entry/prudential norms for commercial banking. Choose the correct area.

Accepted Answer

Given data Narasimham Committee (1991) proposed financial sector reforms. Concept / Approach Key recommendations included prudential norms (income recognition, asset classification, provisioning and capital adequacy), deregulation, and allowing new private sector banks under RBI guidelines (1993). Reasoning RBI issued guidelines enabling the entry of new private sector banks with stipulated minimum capital and compliance with prudential standards, aligning with the Committee. Final Answer RBI framed guidelines for the entry of new private sector banks with prudential norms.

Question 11

Public expenditure classification in India: Which of the following items are included in <non-development (non-plan) expenditure> as used in public finance accounts? Consider these heads separately. A) Interest payments B) Subsidies C) Defence expen…

Accepted Answer

Given data We must classify items as non-development (non-plan) vs development expenditure. Concept / Approach Non-development expenditure covers committed/maintenance heads such as interest, defence, pensions, and subsidies; development expenditure finances sectoral development like irrigation, power, transport, etc. Reasoning Interest (A), subsidies (B), and defence (C) are classic non-development heads; irrigation (D) is a development outlay. Final Answer A, B and C only.

Question 12

External sector — effects of devaluation: Under which condition is a currency devaluation more likely to improve the trade balance and benefit the economy? Base your answer on demand elasticities for exports and imports (Marshall–Lerner condition). …

Accepted Answer

Given data Devaluation makes exports cheaper and imports costlier in foreign currency terms. Concept / Approach Marshall–Lerner condition: Devaluation improves the trade balance if the absolute sum of export and import demand elasticities > 1. Then the quantity response dominates the price effect, raising export receipts and reducing import outgo. Reasoning High elasticities → large volume response → trade balance improves. Inelastic demands or rapid domestic inflation can offset/negate benefits. Final Answer When (|εx| + |εm|) > 1, i.e., high elasticities.

Question 13

Price indices used for measuring inflation in India: Which index is (traditionally) used to measure headline inflation at the national level? Consider common exam framing that contrasts WPI and CPI. Choose the correct index.

Accepted Answer

Given data The question follows the traditional exam framing for India’s headline inflation measure. Concept / Approach Historically, India’s headline inflation frequently referred to the WPI. (In recent policy discussions CPI-Combined is widely used, but the classic exam answer remains WPI unless otherwise specified.) Final Answer Wholesale Price Index (WPI).

Question 14

Industrial relations in India: Identify which of the following is <not> part of the statutory machinery for settlement of industrial disputes. Choose the item that does not belong.

Accepted Answer

Given data We must pick the body that is not a dispute-settlement authority under the Industrial Disputes framework. Concept / Approach The machinery generally includes Works Committees, Conciliation Officers/Boards, Courts of Inquiry, Labour Courts, and Industrial Tribunals. Wage Boards are sectoral bodies for pay fixation, not core dispute-resolution tribunals. Final Answer Wage Board is not part of the industrial disputes settlement machinery.

Question 15

National Income estimates in India are prepared by

Accepted Answer

Central statistical organisation

Question 16

Which kind of power accounts for the largest share of power generation in India

Accepted Answer

Thermal

Question 17

Who had estimate National Income in India first

Accepted Answer

Dadabhai Naoroji

Question 18

In India, Agriculture income is calculated by

Accepted Answer

Output method

Question 19

The minimum forest cover to maintain ecological balance in the plains is

Accepted Answer

33%

Question 20

The main source of National Income in India is

Accepted Answer

Service Sector

Indian Economy Questions