Indian Economy GK Quiz-3

Indian Economy GK Quiz-3

Indian Economy Multiple Choice Questions (MCQs) Quiz for State and UPSC Civil Services Examinations. Objective Questions on Indian Economy for competitive examinations.

    41. Merchant Banking is an institution which provides finances to :

    (1) domestic whole sale trade
    (2) international trade among countries
    (3) domestic retail trade among
    (4) international aid agencies.
    Answer:
    41. (2) A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. It is a bank that deals mostly in (but is not limited to) international finance, long-term loans for companies and underwriting. Merchant banks do not provide regular banking services to the general public.

    42. The system of issuing and monitoring of money in the market is known as–

    (1) Proportional reserve ratio
    (2) Fixed reserve ratio
    (3) Minimum reserve ratio
    (4) Floating reserve ratio
    Answer:
    42. (3) The reserve requirement (or cash reserve ratio) is a central bank regulation that sets the minimum reserves each commercial bank must hold (rather than lend out) of customer deposits and notes. These required reserves are normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with a central bank. The required reserve ratio is sometimes used as a tool in monetary policy, influencing the country’s borrowing and interest rates by changing the amount of funds available for banks to make loans with. The main objective of minimum reserves is the stabilisation of money market rates. Minimum reserves allow credit institutions to smooth out fluctuations in liquidity such as those caused by the demand for banknotes.

    43. Which among the following Indian State does not transacts its business through Reserve Bank of India ?

    (1) Sikkim
    (2) Jammu and Kashmir
    (3) Arunachal Pradesh
    (4) Mizoram
    Answer:
    43. (2) State Government transactions are carried out by Reserve Bank of India in terms of the agreement entered into with the State Governments in terms of section 21 A of the Act. As of now, such agreements exist between RBI and all the State Governments except with the Government of Jammu and Kashmir.

    44. Which among the following subjects is not an aim of the monetary policy of the Reserve Bank of India ?

    (1) Giving impetus to economic development
    (2) Direct credit with objective criteria
    (3) To control pressure of inflation
    (4) To ensure social justice.
    Answer:
    44. (4) The Reserve Bank of India is the main monetary authority of the country and beside that the central bank acts as the bank of the national and state governments. It formulates, implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors. Objectives are maintaining price stability and ensuring adequate flow of credit to productive
    sectors.

    45. The Government of India made it obligatory on the part of all commercial banks that they should give some cash amount while purchasing Government bonds. What would you call this?

    (1) Statutory Liquidity Ratio
    (2) Cash Reserve Ratio
    (3) Minimum Reserve Ratio
    (4) Floating Reserve Ratio
    Answer:
    45. (1) Statutory liquidity ratio is the amount of liquid assets such as precious metals (Gold) or other
    approved securities, which a financial institution must maintain as reserves other than the cash. The
    statutory liquidity ratio is a term most commonly used in India. The objectives of SLR are to restrict the
    expansion of bank credit. They serve to augment the investment of the banks in government securities
    and ensure solvency of banks.

    46. The receipts of which of the following taxes/duties are not shared with the States ?

    (1) Tax on income except agriculture
    (2) Corporation tax
    (3) Surcharge on income tax
    (4) Capital gain tax
    Answer:
    46. (1) The shareable central taxes include corporation tax, income tax, wealth tax, customs, excise duty
    and service tax. The taxes, which are not shared with states include some cesses like education and
    road. Income Tax in India includes all income except the agricultural income that is levied and collected
    by the central government (List I, Entry 82).

    47. The national income of a country is–

    (1) Government annual revenue
    (2) Total productive income
    (3) Surplus of the public sector enterprise
    (4) Export—(Loan) Import
    Answer:
    47. (2) National income measures the monetary value of the flow of output of goods and services produced in an economy over a period of time. National Income is the total economic activity (production of finished goods and services calculated in monetary value) within the economic territory of a country by its residents during the of accounting. In other words National Income of a country is the Net National Product at factor cost.

    48. Under the minimum reserve system, the Reserve Bank of India as the sole authority of note issue is required to maintain assets worth not less than

    (1) 115 crores of rupees
    (2) 85 crores of rupees
    (3) 200 crores of rupees
    (4) 210 crores of rupees
    Answer:
    48. (3) Originally, the assets of the Issue Department were to consist of not less than two-fifths of gold
    coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crore in
    value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee
    securities, eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the
    Second World War and the post-war period, these provisions were considerably modified. Since 1957,
    the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Rs. 200 crore
    (2 billion), of which at least Rs. 115 crore should be in gold and Rs. 85 crore in the form of Government
    Securities. The system as it exists today is known as the minimum reserve system.

    49. Which amidst the following taxes collected by the Union is NOT mandated to be assigned to the States?

    (1) Terminal taxes on goods or passengers carried by railway, sea or air.
    (2) Taxes on railway fares and freights.
    (3) Taxes on consignment of goods.
    (4) Service Tax.
    Answer:
    49. (4) As per Article 268-A of the Constitution of India, Service tax is levied by Union and collected and appropriated by the Union and States. Service tax is a part of Central Excise in India. It is a tax levied on services provided in India, except the State of Jammu and Kashmir. As per article 269, the taxes levied and collected by the union but assigned to the States are: duties in respect of succession to property other than agricultural land; estate duty in respect of property other than agricultural land; terminal taxes on goods or passengers carried by railway, sea or air; taxes on railway fares and freights; taxes on the sale or purchase of newspapers and on advertisements published therein; taxes on the
    consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter State trade or commerce, etc.

    50. One of the objectives of Industrial Licensing Policy in India was to ensure :

    (1) creation of adequate employment opportu-nities.
    (2) free flow of foreign capital in Indian industries.
    (3) use of modern technology.
    (4) balanced industrial development across regions.
    Answer:
    50. (4) In India, there are some regulations and restrictions with regard to establishing industries in certain categories. This is done by making it mandatory to obtain licenses before setting up such an industry. The Licence Raj which continued till 1991 (liberalization was introduced) was a result of India’s decision to have a planned economy where all aspects of the economy are controlled by the state and licences are given to a select few. Up to 80 government agencies had to be satisfied before private companies could produce something and, if granted, the government would regulate production. The Industrial Policy Resolution 1956 aimed at the removal of regional disparities through development of regions with low industrial base. The Indian economy was then guided by the socialistic model of planned development rather than being guided by profit.

    51. Currency notes of Rs. 2 denomination and above are liabilities of :

    (1) Government of India
    (2) Reserve Bank of India
    (3) State Bank of India
    (4) All of the above
    Answer:
    51. (2) In terms of Section 22 of the Reserve Bank of India Act, the RBI has been given the statutory
    function of note issue on a monopoly basis. The note issue in India was originally based upon “Proportional Reserve System”. The Government of India issues rupee coins in the denomination of Rs.1, 2, and 5 to public. These coins are required to be circulated to public only through Reserve Bank un-der Section 38 of the RBI Act.

    52. The type of note issue system followed in India is :

    (1) Maximum fiduciary system
    (2) Minimum reserve system
    (3) Proportional fiduciary system
    (4) Fixed fiduciary system
    Answer:
    52. (2) In terms of Section 22 of the Reserve Bank of India Act, the RBI has been given the statutory
    function of note issue on a monopoly basis. The note issue in India was originally based upon “Proportional Reserve System”. When it became difficult to maintain the re-serve proportionately, it was replaced by “Minimum Reserve System “. According to the RBI Amendment Act of 1957, the bank should now maintain a minimum reserve of Rs.200 crore worth of gold coins, gold bullion and foreign securities of which the value of gold coin and bullion should be not less than Rs.115 crore.

    53. Inflation is caused by :

    (1) Increase in supply of goods
    (2) Increase in cash with the government
    (3) Decrease in money supply
    (4) Increase in money supply
    Answer:
    53. (4) In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.

    54. A firm sells new shares worth Rs. 1000 directly to individuals. This trans-action will cause.

    (1) Gross National product to rise by Rs. 1000
    (2) Gross Domestic Product to rise by Rs. 1000
    (3) National Income to rise by Rs. 1000
    (4) No impact on Gross National Product
    Answer:
    54. (4) Gross National Product (GNP) is the market value of all products and services produced in one year by labor and property supplied by the residents of a country. Unlike Gross Domestic Product (GDP), which defines production based on the geographical location of production, GNP allocates production based on ownership. Therefore if the firm sells new shares directly to individuals it has no effect on the Gross National product as there is no direct relation between two.

    55. What is the revised upper limit for foreign direct investment in telecom service companies ?

    (1) 49 per cent 
    (2) 51 per cent
    (3) 66 per cent 
    (4) 74 per cent
    Answer:
    55. (4) At present 74% to 100% FDI is permitted for various telecom services. 100% FDI is permitted in the area of telecom equipment manufacturing and provision of IT enabled services. This has made
    telecom one of major sectors attracting FDI inflows in India. For Basic and cellular, Unified Access
    Services, National / International Long Distance, VSat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added telecom services - FDI upto 74% (including FDI, FII, NRI, FCCBs, ADRs, GDRs, convertible preference shares, and proportionate foreign equity in Indian promoters/ Investing Company) is permitted. FDI upto 49% is permitted under automatic route and beyond 49% by relevant FIPB guidelines. For ISP (with gateways), end to end bandwidth and Radio Paging Service - FDI upto 74% is permitted subject to licensing and security requirements. Here also, FDI up to 49% is permitted under automatic route and beyond 49% by FIPB guidelines. For ISP without gateway, Infrastructure Providers providing dark fibre, right of way, duct space, Tower (Category-I), Electronic Mail and Voice Mail - FDI up to 100% is allowed subject to the conditions that such companies would divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world. Again, FDI up to 49% is permitted under automatic route and beyond 49% by FIPB guidelines.

    56. Which from the following is not true when the interest rate in the economy goes up ?

    (1) Savings increases
    (2) Lending decreases
    (3) Cost of production increases
    (4) Return on capital increases
    Answer:
    56. (4) Interest rates are the main determinant of investment on a macroeconomic scale. The current
    thought is that if interest rates increase across the board, then investment decreases, causing a fall in
    national income. However, the Austrian School of Economics sees higher rates as leading to greater
    investment in order to earn the interest to pay the depositors. Higher rates encourage more saving and
    thus more investment and thus more jobs to increase production to increase profits. Higher rates also
    discourage economically unproductive lending such as consumer credit and mortgage lending.

    57. Open market operation refers to

    (1) borrowing by commercial banks from the R.B.I.
    (2) lending by scheduled banks to non-scheduled banks
    (3) purchase and sale of Government securities by the R.B.I.
    (4) purchase and sale of bonds and securities by the Central Govt.
    Answer:
    57. (3) Open Market Operations (OMO) is the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Purchases inject money into the banking system and stimulate growth while sales of securities do the opposite. OMOs are the market operations conducted by the Reserve Bank of India by way of sale/ purchase of Government securities to/ from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.

    58. Which is the first Public Sector Corporation of independent India?

    (1) Hindustan Steel Corporation, Bhilai
    (2) State Trading Corporation of India
    (3) Food Corporation of India
    (4) Damodar Valley Corporation
    Answer:
    58. (4) Damodar Valley Corporation is a thermal and hydro power generating public organization of India. It emerged as a culmination of attempts made over a whole century to control the wild and erratic Damodar River. By April 1947, full agreement was practically reached between the three Governments of Central, Bengal and Bihar on the implementation of the scheme and in March 1948, the Damodar Valley Corporation Act (Act No. XIV of 1948) was passed by the Central Legislature, requiring the three governments – the Central Government and the State Governments of West Bengal and Bihar (now Jharkhand) to participate jointly for the purpose of building the Damodar Valley Corporation. The Corporation came into existence on 7 July, 1948 as the first multipurpose river valley project and the first Public Sector Corporation of independent India.

    59. Which one of the following is not considered as an infrastructure investment ? Investment in a

    (1) Power project
    (2) Railways project
    (3) Telecommunication
    (4) Automobile industry
    Answer:
    59. (4) Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function. The term typically refers to the technical structures that support a society, such as roads, bridges, water supply, sewers, electrical grids, telecommunications, and so forth, and can be defined as “the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions.” Viewed functionally, infrastructure facilitates the production of goods and services, and also the distribution of finished products to markets, as well as basic social services such as schools and hospitals; for example, roads enable the transport of raw materials to a factory. So an investment in infrastructure does not include automobile industry which is a capital-based industry. 

    60. Which one of the following currencies has the highest value in terms of rupee ?

    (1) Pound 
    (2) Dollar
    (3) Euro 
    (4) Saudi Rial
    Answer:
    60. (1) 1 British pound sterling = 86.9932 Indian rupees; 1 US dollar = 54.3300 Indian rupees; 1 euro =
    69.7163 Indian rupees; and 1 Saudi riyal = 14.4872 Indian rupees.

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