Daily Static MCQs for UPSC & State PSC Exams - Economy (13 July 2023)

   

Daily Static MCQs Quiz for UPSC, IAS, UPPSC/UPPCS, MPPSC. BPSC, RPSC & All State PSC Exams

Subject : Economy

1. Consider the following statements:

1. Unlike core inflation, headline inflation takes into account changes in the price of food and energy.
2. Reserve Bank of India (RBI) uses CPI-combined as the key inflation measure for the purpose of monetary policy.
3. Consumer Price Index Numbers for Industrial workers measure a change over time in prices of a fixed basket of goods and services consumed by Industrial Workers.

How many of the above statements is/are correct?

(a) Only one
(b) Only two
(c) All three
(d) None

Answer: (C)

Explanation: Unlike core inflation, headline inflation takes into account changes in the price of food and energy. Since food and energy prices are highly volatile, headline inflation may not give an accurate picture of how an economy is behaving. Reserve Bank of India (RBI) uses CPI-combined as the key inflation measure for the purpose of monetary policy. Consumer Price Index Numbers for Industrial Workers, which measure a change over time in prices of a fixed basket of goods and services consumed by Industrial Workers, are compiled and maintained by the Labour Bureau since its inception. Hence, all statements are correct.

2. Which of the following best describes the term Middle Income Trap:

(a) Countries deliberately in middle-income levels so as to receive the benefits from WTO.
(b) Rapidly growing economies stagnating at middle-income levels and failing to graduate into the ranks of high-income countries.
(c) Countries that are in the Middle-Income level since the formation of WTO and not moving up to the higher income category
(d) None of the above

Answer: (B)

Explanation: An irony about middle income countries is that many of them are not moving up to the higher income category. This situation of falling at the middle-income level is called the middle-income trap by economists. The “middle-income trap” is the phenomenon of hitherto rapidly growing economies stagnating at middle-income levels (of per capita income) and failing to graduate into the ranks of high-income countries. At the same time, many other countries have made significant progress through industrialization. They were able to expand the national income and thus the per capita income. Hence, option (b) is correct.

3. Which of the following are barriers to the free adjustments in the currency exchange rate in the Forex market?

1. Frequent sterilization by the Central bank.
2. Exporting a commodity that is of the comparative advantage of a nation.

Which of the above statements is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: (A)

Explanation:

  • Sterilization involves the infusion and extraction of liquidity in the market by the Central bank to control the total money supply in the economy. This keeps the exchange rate stable and thus blocks its free adjustment. Hence, statement 1 is correct.
  • A nation usually exports a commodity of its comparative advantage meaning that it specializes in the export of those commodities that it can produce cheaply or at more competitive rates than the global economy. This aids trade and does not block the free adjustment in the exchange rates. Hence, statement 2 is incorrect.

4. In India, Microcredit is delivered through which of the following channels?

1. Microfinance institutions (MFIs) registered as NBFCs
2. Non-banking financial companies (NBFCs)
3. Scheduled commercial banks including small finance banks (SFBs).
4. Cooperative banks

Select the correct answer using the code given below:

(a) 1 and 2 only
(b) 1, 2 and 3 only
(c) 2, 3 and 4 only
(d) All of the above

Answer: (D)

Explanation:

  • Microfinance is a form of financial service which provides small loans and other financial services to poor and low-income households.
  • Microcredit is delivered through a variety of institutional channels viz., (i) scheduled commercial banks (SCBs) (including small finance banks (SFBs) and regional rural banks (RRBs)) lending both directly as well as through business correspondents (BCs) and self-help groups (SHGs), (ii) cooperative banks, (iii) non-banking financial companies (NBFCs), and (iv) microfinance institutions (MFIs) registered as NBFCs as well as in other forms. Hence, all are correct.

5. Phantom FDI sometimes in news is described as:

(a) Investments done in green field projects
(b) Investments done by high net worth individuals
(c) Investments that pass through empty corporate shells
(d) None of the above

Answer: (C)

Explanation: About $15 trillion, or 38 per cent, of the world’s foreign direct investment (FDI) in 2017 was “phantom capital” that was tailor-made to trim tax bills of multinational corporations, and tax havens were being used to funnel these investments, according a study put out by the International Monetary Fund. Hence, option (c) is correct.